Dive into the world of mergers and acquisitions with our latest blog post exploring the critical role of boilerplate provisions, focusing on the forum selection clause. Learn from a real-life case involving Smith & Wesson and Gemini Technologies, where disputes post-closure shed light on the importance of understanding and navigating boilerplate provisions in M&A agreements.
M&A Stories
May 22, 2018
In the dynamic world of mergers and acquisitions, the intricacies of legal agreements can significantly impact the trajectory of a deal, especially when disputes arise post-closure. Today, we delve into a case shedding light on the pivotal role of boilerplate provisions, particularly the forum selection clause, in navigating such challenges.
Our narrative unfolds with the acquisition orchestrated by Massachusetts-based Smith & Wesson (hereafter referred to as “Buyer”) of Idaho-based Gemini Technologies, a renowned manufacturer of silencers (referred to as “Seller”). Central to this story is the aftermath of an earn-out agreement, wherein Buyer committed to remunerate Seller with 15% of the initial three years’ post-closure sales, subject to a floor and capped at approximately $18 million. However, the anticipated earn-out failed to materialize, prompting Seller to initiate a multi-million-dollar lawsuit in the Idaho federal district court against Buyer. Seller alleged deliberate obstruction by Buyer, including tactics like deferring international sales efforts until after the earn-out period lapsed.
The crux of contention emerged when Buyer invoked a boilerplate provision stipulating that disputes be adjudicated in Delaware, not Idaho, as per the asset purchase agreement. Despite the logistical convenience for Seller in litigating locally in Boise, Idaho, the court upheld the agreement, dismissing the lawsuit without prejudice. This legal maneuver underscored the formidable nature of boilerplate provisions, often regarded as mere formalities but wield considerable influence in legal battles.
Post-closure disputes are a common facet of M&A transactions, particularly when earn-outs are involved. Among the plethora of boilerplate provisions embedded in agreements, the clause mandating dispute resolution in specific state or federal courts holds paramount importance. While the preference for litigating in one’s home turf is understandable, as seen in the Idaho case, adherence to contractual obligations often supersedes logistical convenience.
In essence, the Gemini Technologies, Inc. v. Smith & Wesson Corp. case serves as a poignant reminder of the strategic significance of boilerplate provisions, specifically the forum selection clause, in mitigating legal uncertainties in the realm of M&A transactions. As stakeholders navigate the intricacies of acquisitions, an astute understanding and appreciation of such provisions are indispensable for safeguarding interests and ensuring smooth deal executions.
Case Reference:
Gemini Technologies, Inc. v. Smith & Wesson Corp., Case No. 1:18-cv-00035-CWD, United States District Court, D. Idaho (May 16, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
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