Background
Vera Bradley Holdings sold its subsidiary, Creative Genius LLC, which does business as Pura Vida, to Project Aster Acquisition in March 2025. The $1 million base price also included contingent payments tied to post-closing net sales. Inventory was Creative Genius’s largest asset, and the parties had reduced the price shortly before signing after a substantial increase in the company’s inventory reserve.
The interest purchase agreement provided for a post-closing working-capital true-up, with unresolved calculation disputes submitted to an accounting expert. It also made representation-and-warranty insurance the buyer’s exclusive remedy for breaches of the seller’s and company’s representations and warranties, except for fraud. Project Aster’s purchase-price adjustment sought a $5.38 million additional inventory reserve, based on inventory it contended was no longer usable or saleable. Vera Bradley sued to prevent that adjustment from proceeding to the expert.
The Court’s Holding
Vice Chancellor Fioravanti granted summary judgment in part to each side on Vera Bradley’s declaratory-relief claim. The court held that Project Aster may not use the true-up process to challenge Creative Genius’s historical inventory reserve by asserting that inventory was not usable or saleable. That contention is, in substance, a claim for breach of the agreement’s inventory representation and warranty. Because the agreement barred post-closing claims for such breaches except as permitted through the specified remedies, it could not be recast as an accounting dispute for the expert.
But the court rejected Vera Bradley’s argument that the true-up required GAAP to be applied consistently with the company’s historical accounting practices. The agreement required a GAAP-compliant calculation of closing-date working capital, but did not include language requiring GAAP to be consistently applied or tied to past practice. Thus, to the extent Project Aster’s position does not challenge the historical inventory reserve, GAAP-compliance disputes remain for the accounting expert. The court denied both parties summary judgment on Vera Bradley’s specific-performance claim because questions remained for that expert.
Key Takeaways
- A buyer cannot use a working-capital true-up to pursue an expired inventory representation-and-warranty claim.
- “GAAP” does not inherently mean GAAP applied consistently with historical practices; the contract must say so.
- An accounting expert may decide remaining GAAP-based working-capital issues, but not legal claims outside the true-up’s scope.
Why It Matters
The order reinforces the distinction in M&A agreements between a post-closing accounting adjustment and a claim over the accuracy of representations and warranties. Parties drafting true-up provisions should expressly state whether GAAP must be applied consistently with historical practice and should align that language with their negotiated remedies for representation breaches.