Recently acquired silencer manufacturer Gemtech has filed a breach of contract lawsuit against Smith & Wesson in the Federal District Court Of Idaho. If you remember, about two months after the public announcement of the sale, CEO Ron Martinez was fired for publicly unknown reasons. It is unclear how this legal hurdle will affect the new relationship, and not being “in the business”, I will refrain from making any speculations. My hope is that everyone involved can get this worked out quickly so that Gemtech can get back to just making silencers and S&W can get back to just making guns. The claims are listed in detail below.

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COUNT 1 BREACH OF THE ASSET PURCHASE AGREEMENT

58. Plaintiff incorporates the above paragraphs as if fully set out below.

59. Smith & Wesson terminated Martinez’s and Pace’s employment with knowledge that doing so would negatively impact, or help avoid, the earn-out payment to Gemtech.

60. Smith & Wesson also postponed and/or cancelled the pending international demonstrations with knowledge that doing so would negatively impact, or help avoid, the earn-out payment to Gemtech.

61. Smith & Wesson failed to consult with Martinez before making these decisions, in violation of Section 1.6 of the APA.

62. Smith & Wesson’s breaches of the APA have caused Gemtech more than $75,000.00 in damages, in amounts to be proven at trial.

COUNT 2 BREACH OF THE ESCROW AGREEMENT

63. Plaintiff incorporates the above paragraphs as if fully set out below.

64. Smith & Wesson made improper indemnity claims under the escrow agreement.

65. Smith & Wesson failed to provide sufficient details for its indemnity claims.

66. Smith & Wesson filed the indemnity claims to reduce the cash payments to Gemtech under the escrow agreement.

67. Smith & Wesson’s breaches of the escrow agreement have caused Gemtech more than $75,000.00 in damages, in amounts to be proven at trial.

COUNT 3 BREACH OF EXPRESS AND IMPLIED COVENANTS

68. Plaintiff incorporates the above paragraphs as if fully set out below.

69. The APA contains both express and implied covenants of good faith and fair dealing.

70. Smith & Wesson breached its covenants of good faith and fair dealing by terminating Martinez’s and Pace’s employment and by postponing Gemtech’s international demonstrations.

71. Smith & Wesson also breached its covenants of good faith and fair dealing by not diligently collecting Gemtech’s receivables as a means to offset the $250,000.00 hold-back amount.

72. Smith & Wesson’s breaches violated, nullified, and significantly impaired the cash payments and the earn-out payments to Gemtech.

73. Smith & Wesson’s breach of its covenants has caused Gemtech more than $75,000.00 in damages, in amounts to be proven at trial.

COUNT 4 DECLARATORY JUDGMENT

74. Plaintiff incorporates the above paragraphs as if fully set out below.

75. Idaho Code § 10-1203 gives the Court power to construe contracts.

76. The Court should broadly construe the term “negatively impact” in Section 1.6(c) of the APA to include any decision by Smith & Wesson which reduces, neglects, hinders, or otherwise affects the company’s earn-out period sales, which sales affect the earn-out payment.

77. The Court should broadly construe the term “consult” in Section 1.6(c) of the APA to require Smith & Wesson to confer with Martinez about its earn-out period sales, notwithstanding Martinez’s termination. The Court should construe this term as an exception to Smith & Wesson’s sole discretion on general business decisions and require Smith & Wesson to allow Martinez to participate in any decisions which will negatively impact the earn-out period sales.

78. The Court should order that Smith & Wesson reasonably compensate Martinez for his ongoing consulting role in the earn-out period sales.

79. The Court should enter all appropriate orders to carry these terms into effect.

DEMAND FOR JURY TRIAL

Gemtech respectfully demands a trial by jury on all issues raised by the pleadings pursuant to 38(b) of the Federal Rules of Civil Procedure.

PRAYER FOR RELIEF

WHEREFORE, Gemtech respectfully requests the following relief:

1. An award of damages, in amounts, to be proven at trial; or, an award of $18,600,000.00 if this matter is resolved by default;

2. A declaration interpreting Section 1.6(c) of the APA, as set out above;

3. An award of interest in favor of Gemtech, as permitted by law;

4. An award of attorneys’ fees and costs in favor of Gemtech in amounts to be proven at trial; or, an award of $20,000.00 fees and costs if this matter is resolved by default; and,

5. For such further relief to which Plaintiffs are entitled.

DATED January 24, 2018.