Desktop Metal, Inc. v. Nano Dimension LTD

• Court: Court of Chancery of Delaware
• Decided: March 24, 2025
• Docket: C.A. No. 2024-1303-KSJM
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

DESKTOP METAL, INC., ) ) Plaintiff and ) Counterclaim-Defendant, ) ) v. ) Consolidated ) C.A. No. 2024-1303-KSJM NANO DIMENSION LTD. and NANO ) US I, INC., ) ) Defendants and ) Counterclaim-Plaintiffs. )

POST-TRIAL MEMORANDUM OPINION

Date Submitted: March 19, 2025 Date Decided: March 24, 2025

Michael A. Barlow, Veronica B. Bartholomew, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Wilmington, Delaware; Michael B. Carlinsky, Andrew J. Rossman, Christopher D. Kercher, Jesse A. Bernstein, Peter H. Fountain, Kaitlin P. Sheehan, Heather K. Christenson, Jonathan E. Feder, Jianjian Ye, QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York, New York; William A. Burck, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Washington, D.C.; Counsel for Plaintiff and Counterclaim Defendant Desktop Metal, Inc.

A. Thompson Bayliss, E. Wade Houston, Florentina D. Field, Caleb R. Volz, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Michael C. Holmes, Jeffrey Crough, Andrew E. Jackson, VINSON & ELKINS LLP, Dallas, Texas; Jason M. Halper, Sara E. Brauerman, New York, New York; Lewis R. Clayton, Jeffrey J. Recher, Ariane Rockoff-Kirk, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, New York; Counsel for Defendants and Counterclaim Plaintiffs Nano Dimension LTD. and Nano US I, Inc.

McCORMICK, C. This is a broken-deal suit to enforce a July 2, 2024 merger agreement by which

Nano Dimension, Ltd. and its affiliate agreed to acquire Desktop Metal, Inc. Nano is

looking to get out of the merger. Desktop seeks to force Nano to close. Chalking up

yet another victory for deal certainty, this post-trial decision awards Desktop specific

performance.

The merger agreement conditions closing on regulatory approval, including

approval by the Committee on Foreign Investment in the United States (“CFIUS”).

Desktop makes industrial-use 3D printers that create specialized parts for missile

defense and nuclear capabilities. The parties thus anticipated that CFIUS approval

would be complicated and would likely require that Nano enter into a national

security agreement, or “NSA.” Desktop, therefore, negotiated for a “hell or high

water” provision requiring that Nano take all actions necessary to obtain CFIUS

approval. Desktop was also worried about delay resulting from CFIUS approval. The

parties had agreed to an end date of January 31, 2025, to be extended for regulatory

approval only. But Desktop was concerned about having enough cash to get to

closing, and so Desktop secured Nano’s agreement to use reasonable best efforts to

close as soon as reasonably possible. Coupled with the hell-or-high-water provision,

the contractual scheme seemed designed to ensure deal certainty and speed.

Initially, the parties worked cooperatively toward CFIUS approval and on

integration efforts generally. The companies expected to close in the fourth quarter

of 2024 and, come November, were basically on track to get there. Then, Nano

experienced a change in leadership and a change of heart. Nano’s second-largest stockholder, Murchinson Ltd., had opposed the Desktop

deal from the outset. Murchinson board observers spoke out against the deal at the

Nano board meeting convened to consider the Desktop merger agreement, arguing

that Nano should wait for Desktop to become insolvent and then buy the company in

bankruptcy proceedings. But Nano had been trying to buy Desktop since 2022. Nano

had even gone so far as to scuttle non-party Stratasys’s prior agreement to acquire

Desktop by convincing the Stratasys stockholders to vote down the deal. Nano’s

strategy worked. Once the Stratasys deal failed, Desktop agreed to sell to Nano at a

steep discount to the Stratasys deal price.

After the Nano board approved the Desktop merger agreement over

Murchinson’s objection, Murchinson launched a proxy contest in protest. Murchinson

nominated a slate of directors and vowed to unwind the Desktop deal they were

elected. By December 6, Murchinson had gained control of four of ten Nano board

seats. By December 16, pressure from the four Murchinson board members led the

six legacy directors to resign. By the end of December, the Murchinson-controlled

board had removed or sidelined key Nano executives and members of the integration

team.

Meanwhile, CFIUS approval was then (as it is now) the sole condition to

closing. Nano had received a draft NSA from CFIUS in November and sent comments

back on December 4, two days before Murchinson won the stockholder election.

CFIUS replied on December 10, when Nano was mid-way through its regime change.

Nano sat silent, which Desktop interpreted as an early indicator that the Murchinson

2 board intended to make good on its campaign promise to tank the merger. And

Desktop was right, as internal communications revealed that Murchinson had zeroed

in on CFIUS approval as a means to defeat the deal even prior to gaining control of

the Nano board. Desktop filed this suit on December 16 to enforce the hell-or-high-

water provision.

Nano developed a new strategy in response to the suit—delay. Every day that

passed worsened Desktop’s cash position, imperiling Desktop’s “no-bankruptcy”

covenant in the merger agreement, and making Murchinson’s goal of buying Desktop

out of bankruptcy more realistic. Under the Murchinson board’s direction, Nano

fought Desktop’s motion to expedite proceedings, delayed responding to CFIUS’s

December 10 draft NSA by 38 days, dribbled out objections to the draft NSAs as the

litigation unfolded, and even moved to relax the expedited schedule. During that

time, Nano also added counterclaims, contending that Desktop failed the ordinary-

course covenants and no-bankruptcy condition of the merger agreement, thus giving

Nano a basis to terminate.

The court ordered expedition over Nano’s opposition, and herculean discovery

efforts toward a two-day trial ensued. The parties presented evidence on Desktop’s

claims and Nano’s counterclaims. In the end, Desktop prevailed, proving that Nano

breached its obligations to take all actions necessary to obtain CFIUS approval and

use reasonable best efforts to close as soon as reasonably possible. Nano, meanwhile,

failed to prove a failure of any covenant or condition. There was one close call—the

no-bankruptcy covenant—but Nano did not meet its burden of proof. If Nano had

3 met its burden, Desktop proved that Nano materially contributed to that failure by

breaching its reasonable best efforts obligations.

Desktop is entitled to specific performance. Nano must enter the NSA.

Because that is the only condition to close, Nano must also close the merger.

I. FACTUAL BACKGROUND

Trial took place over two days. The record comprises 2,620 trial exhibits, live

testimony from seven fact and four expert witnesses, deposition testimony from

eleven fact and nine expert witnesses, and 47 stipulations of fact. These are the facts

as the court finds them after trial.1

1 This decision cites to: C.A. No. 2024-1303-KSJM docket entries (by docket “Dkt.”

number); trial exhibits (by “JX” number); the trial transcript, Dkts. 288–289 (“Trial Tr.”); and stipulated facts set forth in the Parties’ Stipulation and Pre-Trial Order, Dkt. 257 (“PTO”). The fact witnesses were: Ofir Baharav (Nano Chairman); Dale Baker (Former Nano Chief Revenue Officer, offered by deposition); Joyous Chiu- Rothell (Desktop Vice President, Global Revenue and Operations, offered by deposition); Jason Cole (Desktop CFO); Ric Fulop (Desktop CEO); Michael Jordan (Desktop Vice President, Finance and Treasury, offered by deposition); Julien Lederman (Interim Nano CEO); Zivi Nedivi (Nano President); Tom Nogueira (Desktop COO); Tomer Pinchas (Nano CFO); Yoav Stern (Former Nano CEO, offered by deposition). The expert witnesses were: Yvette Austin (Desktop Rebuttal Financial Expert); Jon Foster (Desktop Commercial Lending Expert, offered by deposition); Assaf Hamdani (Nano Israeli Law Expert, offered by deposition); Kobi Kastiel (Desktop Israeli Law Expert, offered by deposition); Brian Kelley (Nano Commercial Lending Expert, offered by deposition); Jeffrey Kopa (Nano Financial Expert); Britt Mosman (Desktop CFIUS Expert); Steve Solomon (Nano M&A Expert, offered by deposition); Christopher Wall (Nano CFIUS Expert). The transcripts of the witnesses’ respective depositions are cited using the witnesses’ last names and “Dep. Tr.”

4 A. Desktop Struggles To Achieve Profitability And Considers A Sale.

Ric Fulop founded Desktop in 2015 to “bring powder metallurgy to the 3D

printing industry.”2 Desktop went public in December 2020. Its stock trades on the

NYSE.3

Desktop embarked on an aggressive acquisition strategy in the years

immediately prior to and following its IPO (completing 14 acquisitions between 2019

and 2021).4 And Desktop grew to be a major player in the industry—it now provides

industrial-use 3D printers that create specialized parts for space travel, commercial

flight, missile defense, and nuclear capabilities.5 But Desktop struggled to achieve

profitability.6

In June 2022, Desktop began an initiative aimed at integrating its recent

acquisitions and minimizing costs.7 In October 2022, Desktop hired Jason Cole as

2 Trial Tr. at 499:7–16 (Fulop).

3 JX-55 (Desktop Metal 2020 10-K) at 149.

4 Id. at 81–82; JX-76 at 98–114.

5 Trial Tr. at 500:5–13, 502:14–20 (Fulop).

6 Id. at 364:12–20 (Cole); Kelley Dep. Tr. at 82:19–83:1.

7 JX-372 (Desktop Metal 2023 10-K) at 50 (“On June 10, 2022, the Board of Directors

approved a strategic integration and cost optimization initiative that included a global workforce reduction, facilities consolidation, and other operational savings measures (the ‘2022 Initiative’). The purpose of the 2022 Initiative was to streamline our operational structure, reduce our operating expenses and manage our cash flows.”).

5 CFO to implement aggressive cost-cutting initiatives and other measures aimed at

improving Desktop’s bottom line.8

When Cole joined Desktop, the company was burning cash at an unsustainable

rate—over $50 million per quarter.9 To address Desktop’s spending, Cole determined

that “everything relating to cash management was a high priority.”10 The category

of “cash management” included Desktop’s treatment of its accounts payables and

accounts receivable.11 Before 2023, Desktop had been paying its invoices without “a

lot of critical thinking based on whether or not it should be paid” or negotiating

payment terms.12 Further, Desktop’s period of heavy acquisitions left the company

with a bevy of new receivables that “weren’t really tackled,” and thus “started to age

and bloat.”13

Under Cole’s leadership, Desktop made changes to its purchase order and

collections processes, looking for “opportunit[ies] to extend [Desktop’s] payables” and

asking its collections group to “fan out and escalate when they couldn’t get

8 Trial Tr. at 363:10–19, 364:9–365:20 (Cole); id. at 500:14–22 (Fulop); JX-92 at 2

(Desktop Metal press release regarding hiring Cole, noting that he has “a lot of experience in M&A integration and improving costs and efficiencies.”). 9 Trial Tr. at 364:12–20 (Cole).

10 Id. at 365:13–20 (Cole).

11 Id.

12 Id. at 366:3–13 (Cole).

13 Id. at 367:22–368:2 (Cole).

6 collections.”14 Desktop also consolidated locations in the United States and Canada

and reduced its workforce by 15%.”15

Desktop’s efforts paid off. The company’s first quarter 2023 adjusted

EBITDA16 was negative $24.4 million; by the end of the first quarter of 2024, the

company had reduced that deficit to $13.6 million.17

By late 2022, Desktop had also begun considering a sale of the company. As

Fulop testified, the 3D printing industry was entering a phase of consolidation: “Only

one of the companies that’s public is really profitable. And like all industries where

they reach that phase, I felt like we had to be part of that consolidation effort to make

the business profitable.”18

14 Id. at 366:16–368:14 (Cole).

15 JX-372 at 50.

16 Desktop defines “adjusted EBITDA” as “EBITDA adjusted for change in fair value

of investments, inventory step-up adjustment, stock-based compensation expense, restructuring expense, goodwill impairment and acquisition-related and integration costs.” JX-471 at 36. 17 JX-471 (Desktop Metal Q1 2024 10-Q) at 37; see also JX-461 (March 21, 2024

analyst report stating that Desktop’s “cost reductions have started to work through the model with operating expenses declining sequentially every quarter since Q1’22”). 18 Trial Tr. at 500:16–22 (Fulop).

7 B. Nano Pursues A Deal With Desktop And Thwarts Desktop’s Merger With Stratasys.

Nano is a NASDAQ-listed Israeli company that designs and manufactures

additive electronics, additive manufacturing 3D printing machines, and consumable

materials.19 Nano is smaller than Desktop but has significant liquid assets.20

Starting in 2021, Nano engaged in a strategy to consolidate the additive

manufacturing industry, taking advantage of a downward shift in valuations of its

competitors and adjacent technologies.21

Nano approached Desktop about a possible acquisition in 2022.22 On

November 17, 2022, the parties entered into a mutual Confidential Disclosure

Agreement that included a standstill provision.23 Nano subsequently made several

offers to acquire Desktop, and Desktop made a counteroffer to Nano on February 3,

2023.24 No one accepted. Negotiations reached an impasse.25

Desktop then resumed early-stage merger negotiations with another 3D

printing company, Stratasys Ltd. In May 2023, Stratasys agreed to buy Desktop for

19 PTO ¶¶ 21, 22. 3D printing is one form of “additive manufacturing,” the process of creating objects layer-by-layer from a digital file. By contrast, “subtractive” creates objects by removing material from a solid block. 20 See, e.g., JX-1225 at 10.

21 See JX-612 at 19; JX-464 at 12.

22 Trial Tr. at 9:17–21 (Nogueira); id. at 363:15–364:8 (Cole).

23 PTO ¶ 27.

24 Id.

25 Id.

8 more than $600 million.26 The transaction was subject to stockholder approval by

both companies.27

Nano was Stratasys’s largest stockholder.28 Immediately following the

announcement of the Desktop-Stratasys merger, Nano launched an unsolicited

partial tender offer to acquire additional Stratasys stock.29 By the time of the

Stratasys stockholder vote, Nano held approximately 14.1% of Stratasys’s ordinary

shares at the time. Nano publicly declared its intention to vote against the Desktop-

Stratasys and encouraged other stockholders to “join in casting votes against the

transaction.”30 The Stratasys stockholders voted down the merger on September 28,

2023.31

The next day, Nano contacted Desktop to resume merger discussions.32 Nano

began diligence, which extended through the first half of 2024.33 Nano’s diligence

efforts revealed Desktop’s deteriorating financial condition, including that the

company (i) was suffering from a high cash burn rate,34 (ii) maintained accounts

26 Trial Tr. at 7:13–22 (Nogueira).

27 Id. at 8:5–13 (Nogueira).

28 Id. at 8:14–9:2 (Nogueira).

29 JX-178 at 1.

30 JX-335 at 4.

31 PTO ¶ 30.

32 Id. ¶¶ 30–31; Trial Tr. at 9:9–16 (Nogueira).

33 Trial Tr. at 9:22–10:10 (Nogueira).

34 Pinchas Dep. Tr. at 92:25–93:16; see also Stern Dep. Tr. at 123:6–124:13 (noting

that Nano’s financial diligence advisor was projecting Desktop’s cash burn to be “materially higher” than what Desktop itself was projecting).

9 receivable with “high balance, with some customers with very long payment terms,

and problematic inventory status[es],”35 and (iii) had issues with “slow moving”

inventory.36

After additional rounds of negotiations, on May 15, 2024, Nano presented its

final offer to acquire Desktop for total consideration of approximately $183 million—

a significant discount to the Stratasys deal price.37 The parties agreed on final terms

of an agreement (the “Merger Agreement”)38, and the companies’ respective boards

scheduled July 2 meetings to approve the Merger Agreement.39

C. Murchinson Opposes Nano’s Merger With Desktop.

As Desktop and Nano negotiated the Merger Agreement, Nano faced

opposition to the deal by its second-largest stockholder, Murchinson, a Canadian

hedge fund founded by Marc Bistricer.40 In January 2022, Murchinson acquired a

minority stake in Nano and commenced a campaign to replace Nano’s directors and

35 Pinchas Dep. Tr. at 94:6–16; see also Stern Dep. Tr. at 125:24–126:12 (agreeing

that diligence revealed that Desktop had “considerably overdue AR,” which might indicate “revenue recognition issues at Desktop Metal”). 36 Pinchas Dep. Tr. at 94:23–95:10; Stern Dep. Tr. at 125:1–9 (agreeing that diligence

revealed “a risk of material inventory write down post deal”). 37 JX-544; JX-712.

38 JX-689 (“Merger Agr.”).

39 JX-665; JX-694.

40 See, e.g., JX-3316 at 2; JX-106 at 4.

10 overhaul corporate governance.41 Murchinson’s goal is to narrow the gap between

Nano’s stock price and cash on hand, including by opposing Nano’s M&A strategy.42

On January 23, 2023, Murchinson filed a Schedule 13D disclosing a 5.1% stake

in Nano and demanding a special general meeting of stockholders.43 Murchinson

targeted Nano’s “ill-advised acquisition strategy,” and called for the removal of CEO

Yoav Stern and Nano directors, to be replaced by Murchinson board nominees

Kenneth Traub and Joshua Rosensweig.44

Nano’s board rejected Murchinson’s demand to call a special meeting, issued

around 52 million new shares, and adopted a poison pill.45 In response, Murchinson

filed suit in an Israeli court seeking a temporary restraining order (“TRO”) and

declaratory judgment that its demanded meeting was valid.46 On April 16, the Israeli

court granted the TRO in part, appointing Traub and Rosensweig to serve as non-

voting board observers during the Israeli litigation.47

In March 2024, Murchinson began a campaign to prevent a Desktop-Nano deal.

On March 11, 2024, Murchinson’s Moshe Sarfaty emailed Fulop directly to express

41 JX-3315 at 12.

42 See, e.g., JX-439; JX-3370 at 2; JX-933 at 1; see also Trial Tr. at 123:8–24

(Lederman). 43 See JX-106 at 4; JX-114 at 24.

44 JX-123 at 20.

45 JX-108 at 8, 30; JX-109 at 4–5; JX-114 at 24–25.

46 JX-3337.

47 Id. at 28.

11 his strong opposition to Nano’s acquisition of Desktop.48 The penultimate paragraph

of Sarfaty’s multi-page message stated:

Given our sizeable investment in Nano and our ongoing attempt to seek independent board representation, please be advised that we do not intend to sit idly by and watch Stern waste shareholders’ money on dubious and ill- motivated acquisitions. We have every intention to challenge any such improper deal.49

Nano recognized the threat Murchinson posed to its acquisition strategy and

sued Murchinson in Israeli court seeking a TRO.50 Nano’s CFO, Tomer Pinchas,

submitted a sworn affidavit in the Israeli litigation stating that, if Murchinson gained

control, Nano would unwind a potential Desktop deal.51

Murchinson’s opposition to the Desktop acquisition intensified as the deal

approached finalization. On June 28, Murchinson sent an open letter to Nano

stockholders declaring that “if the Company were to acquire [Desktop] . . . Nano would

be . . . effectively making this would-be deal value dilutive by definition” and that it

“intend[s] to object to any deal that is not in Nano’s and its shareholders’ best

interests.”52 Murchinson’s letter also announced support for a new board that will

“consider all options for unwinding any such deal.”53

48 JX-439 at 3.

49 Id.

50 JX-147 at 2; JX-3310.

51 JX-3310 at 5; Trial Tr. at 483:3–12 (Pinchas).

52 JX-3317 at 2 (emphasis omitted).

53 Id.; Trial Tr. at 282:5–15 (Baharav).

12 During the July 2 meeting, Murchinson tried to persuade Nano’s board to vote

down the transaction. At the time, the Nano board comprised Dr. Yoav Nissan-

Cohen, Chris Moran, General Michael Garrett, Oded Gera, Eitan Ben-Eliahu, Roni

Kleinfeld, and Georgette Mosbacher.54 Traub and Rosensweig attended as

observers.55

In advance of the meeting, Sarfaty messaged Traub talking points in case “the

idea of buying Desktop . . . comes up in a discussion[.]”56 The points included the idea

that Desktop “seems to be on the ropes” and that Nano should “let it run out of cash

completely and buy the parts of it that are useful to Nano[.]”57 Traub made this point

at Nano’s board meeting that day, stating that it might be more prudent to wait for

Desktop to file for bankruptcy and then buy assets out of the bankruptcy

proceedings.58 Traub was rebuffed by Nano’s then-CEO, Stern.59 Nano’s directors

approved the Merger Agreement unanimously on July 2 over Murchinston’s

objections.60

54 JX-927.

55 Id.

56 JX-3370 at 2.

57 Id. at 3.

58 Stern Dep. Tr. at 33:25–34:8, 133:14–134:10; JX-927 at 3.

59 JX-927 at 3.

60 Id. at 6.

13 D. The Companies Execute The Merger Agreement.

Desktop’s board also approved the Merger Agreement on July 2.61 The

companies jointly announced the deal the next day.62

Under the Merger Agreement, Nano is required to acquire all outstanding

shares of Desktop in an all-cash transaction for approximately $183 million or $5.50

per share, with closing price adjusted downward by a maximum of $1.43 (to $4.07 per

share) based on three items: outstanding severance plans ($0.0325), bridge loan

withdrawals ($0.80), and unpaid transaction expenses ($0.60) (the “Merger”).63 The

Merger consideration of $183 million represented a 27.4% premium to Desktop stock’s

trading price.

Desktop had two primary goals in negotiating the Merger Agreement: speed

and certainty.64 As to speed, Desktop negotiated for an obligation that Nano would

use its “reasonable best efforts” to close “as soon as reasonably possible.”65 The

parties agreed on an outside date of January 31, 2025, which could be extended only

to allow for regulatory approval.66 As to certainty, the parties anticipated a

complicated regulatory approval process. The parties therefore carefully negotiated

the provision of the Merger Agreement concerning regulatory approval.

61 JX-700; JX-927.

62 JX-712; JX-711; JX-716.

63 Merger Agr. at 53, 56, 60.

64 Trial Tr. at 11:3–9 (Nogueira).

65 Merger Agr. § 6.7(a).

66 Id. § 8.1(b)(i).

14 1. CFIUS-Approval Provisions

Desktop bargained for commitments related to regulatory approval in Section

6.7(b) of the Merger Agreement.

The parties agreed that “each of the parties shall use its reasonable best efforts

to resolve any objection that may be asserted by any Governmental Entity with

respect to the Merger[.]”67

In addition to the reasonable-best-efforts provision applicable to all regulatory

approvals, Desktop secured a heightened commitment from Nano concerning

approval from CFIUS,68 an interagency committee that reviews mergers that may

result in foreign control of U.S. businesses and considers the foreign company’s

potential to impact national security.69

At trial, the parties introduced expert testimony to explain the CFIUS process.

Desktop called Britt Mosman, Co-Chair of the Global Trade and Investment Group

at the law firm of Willkie Farr & Gallagher LLP.70 Nano called Christopher Wall,

senior international trade partner of Pillsbury Winthrop Shaw Pittman LLP, who

served on CFIUS while Assistant Secretary of Commerce. 71 Each were credible and

helpful.

67 Id. § 6.7(b).

68 Id. § 6.7(a); Trial Tr. at 12:16–13:7 (Nogueira); JX-509 at 12–13.

69 50 U.S.C. § 4565; JX-1974 at 8–9; JX-1945 at 5.

70 Trial Tr. at 638:4–656:22 (Mosman); JX-1950 (Mosman Rep’t) at 4.

71 Trial Tr. at 583:1–616:22 (Wall); JX-1974 (Wall Rep’t) at 6.

15 According to the experts, the Merger is a “covered control transaction”

requiring CFIUS approval under 31 C.F.R. § 200.72 To obtain approval, parties to a

covered control transaction must file a Joint Voluntary Notice with CFIUS no later

than thirty days before the completion date of the transaction.73 After the parties file

a Joint Voluntary Notice, CFIUS commences an initial review phase that lasts up to

45 days.74 During this review, CFIUS determines whether the transaction is within

CFIUS’s jurisdiction and whether the transaction poses risks to national security. 75

CFIUS may issue questions to the parties during the review period.76

If national security risks remain unresolved at the end of the review period,

CFIUS will initiate a national security investigation, which is a separate 45-day

phase.77 As with the review period, CFIUS may issue questions to the parties during

the investigation period.78 During the investigation period, CFIUS may determine

that national security risks require a mitigation agreement to address any

outstanding national security concerns. An NSA is one common type of mitigation

measure.79

72 JX-1950 at 5, 8; JX-1974 at 8–9.

73 JX-1950 at 6; JX-1974 at 9–10.

74 JX-1950 at 6; JX-1974 at 10.

75 JX-1950 at 5.

76 Id.; JX-1974 at 10.

77 JX-1950 at 7; JX-1974 at 10.

78 JX-1974 at 10.

79 JX-1950 at 7; JX-1974 at 11.

16 Desktop’s expert, Mosman, explained, “[m]itigation measures can be used to

address a range of national security risks” and “transaction parties may be required

to take a variety of actions.”80 Those actions can include:

instituting a board director or monitor; complying with periodic reporting requirements; conducting third-party audits and/or monitors; conducting on-stie compliance reviews; prohibiting the transfer or sharing of certain types of information; establishing controls with respect to U.S. government work, including assuring supply to U.S. government customers; ensuring that computer networks are segregated; ensuring that certain facilities, equipment, or operations are located in the United States and/or are not moved from their current location; imposing restrictions on hiring and contracting with third parties; requiring notice to the US Government before making certain business decisions, and establishing mechanisms to limit foreign influence and ensure compliance; among other things.81

The parties recognized that CFIUS might impose significant mitigation

requirements given Desktop’s work in sensitive domains like “the nuclear space . . .

missiles and satellites” that involve “controlled” areas and require U.S. citizen access

restrictions.82 In Mosman’s words, this was a “high risk transaction” involving

“critical technology, tons of U.S. government contracts, and an entire acquisition by

an Israeli company[.]”83 Nogueira similarly testified that both parties anticipated the

80 JX-1950 at 4.

81 Id. at 7–8.

82 Trial Tr. at 502:14–20 (Fulop).

83 Id. at 646:5–14 (Mosman).

17 sort of mitigation measures that appear in the NSA.84 Such terms were “foreseeable”

to the parties.85

Given Desktop’s focus on deal certainty, Desktop required one of two things: a

reverse termination fee if Nano declined to accept CFIUS mitigation measures, or a

“hell or high water” efforts obligation requiring Nano to take all action necessary to

obtain CFIUS approval.86 Nano opted for the latter, agreeing to the hell-or-high-

water provision.87

The parties agreed on an exception to the hell-or-high-water provision: a

carveout for what Nano described as a “narrow set of circumstances” where CFIUS

forces Nano to relinquish control of 10% of Desktop, measured by revenue (the “10%

Carveout”).88 The parties defined “control” in the agreement as “the power to direct

84 Id. at 33:2–7 (Nogueira).

85 Id. at 642:1–5 (Mosman).

86 JX-509 at 12–13 (4/26/24 email from Nano’s counsel to Desktop’s counsel with an

attachment showing the progression of negotiations that led including a “hell or high waters” provision instead of a reverse termination fee); see also JX-596 at 7 (6/10/24 email from Nano’s counsel to Desktop’s counsel listing as an outstanding issue “[i]nclusion of a Parent hell or high water covenant for CFIUS approval”); JX-604 at 8–9 (6/11/24 email from Nano’s counsel to Desktop’s counsel proposing that Nano would “[a]gree to HOHW on HSR and CFIUS” with a carve-out); Trial Tr. at 12:10– 14:4 (Nogueira); id. at 438:11–441:18 (Nedivi). 87 JX-616 at 46.

88 JX-647 at 117 (6/27/24 email from Nano’s counsel to their client attaching the draft

merger agreement they sent across to Desktop’s counsel, in which they describe the “actions that limit the Parent Board’s control over a percentage of the business exceeding 10%” as “a narrow set of circumstances”); see also JX-602 at 3 (6/10/24 email from Desktop’s counsel inquiring about Nano’s proposed language concerning the 10% Carveout); id. at 1 (6/10/24 email from Nano’s counsel stating that they intended for this language to contemplate the mitigation measures that could be required by the government); JX-680 at 9 (6/29/24 email from Desktop’s counsel with

18 the management and policies,” contemplating situations where CFIUS would require

Nano to cede control of a portion of the business to government-appointed directors

or officers.89 The parties intended this exception to be limited to extreme scenarios

where CFIUS might require a ring-fenced subsidiary with independent governance.90

The hell-or-high-water commitment incorporated a list in Schedule 6.7(b) of

“Required Actions,” or commonly imposed mitigation remedies that the parties

agreed would not implicate the 10% Carveout under any circumstances (the

“Required-Actions Exception”).91 The list included supply assurances, manufacturing

location restrictions, guidelines and terms for U.S. government contracts, product

integrity safeguards (including as to “software”), information protections, notification

and consultation, monitoring, and audits, among other actions.92

Nano also agreed that “any condition imposed in connection with the CFIUS

Approval with respect to a board of directors or other governing body” would not

a proposed “list of remedies that would be deemed not to limit parent control”); Merger Agr. § 6.7(b). 89 Merger Agr. at 56.

90 JX-3204 at 1 (6/10/24 email from Nano’s counsel stating “my understanding is that

the mitigation agreement that could be required by the government can include agreements from Buyer regarding governance of the entities . . . . That could mean a subsidiary board that does not answer to the Parent Board but rather is self governing”). 91 Merger Agr. § 6.7(b); id. at 179, Parent Disclosure Schedule § 6.7(b); see also JX-

681 (email thread in which counsel for the parties discussed the list to be included in Parent Disclosure Schedule Section 6.7(b)); Trial Tr. at 110:19–24 (Nogueira). 92 Merger Agr. at 179, Parent Disclosure Schedule § 6.7(b); JX-680 at 5–9.

19 trigger the 10% exclusion as long as Nano could still elect a majority of the directors

to that board or other governing body.93

2. Relevant Covenants, Conditions, And Information Rights

Nano bargained for interim covenants “Relating to Conduct of [Desktop’s]

Business” in Article V and the “Covenant-Compliance Condition” of Section 7.2(b),

which conditions closing on Desktop having “performed or complied in all material

respects with the obligations and covenants required to be performed or complied

with by it under this Agreement at or prior to the Closing Date” (the “Covenant-

Compliance Condition”).94 Nano further bargained for the right to terminate the

Merger Agreement if Desktop “failed to perform any of its covenants or agreements”

contained in the Merger Agreement.95

Of note, Nano secured the following interim covenants:

• The “Ordinary-Course Covenant,” requiring that Desktop “use commercially reasonable efforts to (x) conduct its business in the ordinary course consistent with past practice in all material respects; and (y) preserve intact its business organization and advantageous business relationships” with “its current officers and key employees,” and customers and suppliers.96

• The “Receivables/Payables Covenant,” providing that absent Nano’s consent, Desktop could not “change or modify in any manner [its] existing credit, collection and payment policies, procedures and practices in respect to accounts receivable and accounts payable.”97

93 Merger Agr. § 6.7(b).

94 Id. § 7.2(b).

95 Id. § 8.1(d).

96 Id. § 5.1(a).

97 Id. § 5.1(b)(vi).

20 • The “Transaction-Expenses Covenant,” prohibiting Desktop from incurring Company Transaction Expenses exceeding $15 million.98

Given Desktop’s financial state, the parties also negotiated over risks

associated with Desktop’s cash management and potential insolvency. Nano

proposed a solvency representation in the May 28 draft of the Merger Agreement,

which Desktop unequivocally stated was “not acceptable” given the “very unusual

mechanism to adjust the price of the transaction.”99 Nano pushed for it again on June

3.100 Ultimately, Nano agreed to exclude a solvency representation from the Merger

Agreement.101

In lieu of a solvency representation, Nano secured financial conditions to

closing. Of note, Nano secured a condition requiring that Desktop not “have

experienced a Bankruptcy” (the “No-Bankruptcy Condition”).102 The Merger

Agreement defined “Bankruptcy” as five different actions, including Desktop’s

“admi[ssion] in writing its inability to pay its debts as they mature.” 103 Nano also

98 Id. § 5.1(b)(xx).

99 JX-556 at 4.

100 JX-565 at 3.

101 JX-604 at 7 (6/11/24 email from Nano’s counsel attaching an issues list reflecting

that Nano agreed to remove the solvency representation “subject to agreement on operation of business covenant and loan term sheet”); see also JX-946 at 79; compare JX-553 at 36 (5/28/24 email from Nano’s counsel sending a draft merger agreement that included a solvency representation), with JX-616 (6/12/24 email from Nano’s counsel sending a draft merger agreement that does not include a solvency representation). 102 Merger Agr. § 7.2(d).

103 Id. § 8.1(g).

21 secured a condition that Desktop reduce its quarterly cash burn below $20 million, or

$6.67 million per month (the “Cash-Flow Condition”).104

Nano further secured information rights, including rights to cash reporting105

and rights requiring that Desktop “furnish promptly” to Nano “information

concerning its business . . . as [Nano] may reasonably request” (the “Buyer

Information Rights”).106

3. Bridge-Loan Provision

The parties contemplated that Desktop might require additional cash if

regulatory approvals extended closing. They therefore negotiated an agreement for

Nano to provide Desktop a multi-draw bridge loan of up to $20 million beginning in

January 2025 (the “Bridge Loan”).107 Desktop’s counsel remarked that the loan

provided “comfort that if regulatory review lengthened the interim period then we

could safely make it through to close the deal.”108 The parties memorialized this

agreement in a term sheet. The Merger Agreement required the parties to “cooperate

in good faith” to negotiate and execute definitive documentation regarding the Bridge

Loan promptly, but no later than 30 days after the signing of the Merger

Agreement.109

104 Id. § 8.1(f).

105 Id. § 5.5(a).

106 Id. § 6.5.

107 Id. § 6.15.

108 JX-512 at 4; JX-711.

109 Merger Agr. § 6.15.

22 The term sheet provides for the definitive documentation to include

representations and warranties, covenants, and events of default that are

“[c]ustomary for a facility of this type” and could “incorporat[e] all relevant

representations, warranties and business operation covenants applicable to

[Desktop] contained in the Merger Agreement.”110 The term sheet enabled Desktop

to request draws of $4.25 million per month starting January 7, 2025.111 If Desktop

drew the entire $20 million, then the $5.50 per-share purchase price would be reduced

by $0.80.112

E. The Companies Work Toward A Q4 Closing.

After signing the Merger Agreement, the companies pursued three activities

in parallel——regulatory approval (including CFIUS approval), post-merger

integration (“PMI”), and negotiations over the Bridge Loan. The companies’

interactions were largely collaborative and productive during this period.

1. The Companies Collaborate On CFIUS Approval.

The regulatory approval team comprised Desktop counsel Latham & Watkins

and Nano counsel Greenberg Traurig.113 On June 19, Nano sent Desktop a draft Joint

Voluntary Notice to CFIUS, which initiated the review process.114 The parties filed

110 Id. at 116.

111 Id. at 115.

112 JX-694 at 7.

113 See, e.g., JX-776.

114 JX-776 at 5; JX-1974 at 16 ¶ 9.

23 the draft CFIUS Notice on August 5, 2024.115 The parties then filed their formal

Notice on August 14 after receiving CFIUS’s comments.116

CFIUS informed the parties on August 27 that its initial 45-day review would

conclude by October 10.117 On October 10, CFIUS informed the parties that its

“investigation will be completed no later than November 25, 2024.”118 On October 2,

Desktop obtained stockholder approval for the Merger.119 The “only remaining

condition to closing was CFIUS approval”120 and the parties anticipated closing by no

later than the end of 2024.121

2. The Companies Plan For Post-Merger Integration As Desktop’s Cash Situation Evolves.

The PMI team comprised a “cross-section” of leaders from the two companies

selected based on their expertise.122 Nano President Zivi Nedivi led the process and

retained Price Waterhouse Coopers (“PwC”) to advise on integration.123 Other team

members included Nano CFO and COO Tomer Pinchas, CTO Nick Geddes, and Chief

Revenue Officer Dale Baker, as well as Desktop’s COO Tom Nogueira.124

115 JX-825.

116 JX-835; JX-838; JX-847.

117 JX-890 at 2.

118 JX-1031 at 3.

119 JX-3325 at 1.

120 Pinchas Dep. Tr. at 183:3–14.

121 JX-1214 at 7.

122 Trial Tr. at 16:17–21 (Nogueira).

123 Id. at 15:8–16, 16:19–23 (Nogueira).

124 Id. at 15:20–17:19 (Nogueira).

24 The PMI team worked diligently on “developing and executing plans for what

would be [their] day 1 focus,” where “day 1” meant the day the Merger Agreement

closed.125 The team were targeting a day 1 “sometime in Q4 of 2024.”126 Starting in

early July, they worked nights and weekends toward this goal while still performing

their day jobs.127 During the process, Nedivi set a “north star” of “driving toward

profitability in Q4 of 2026.”128

In addition to Nedivi’s “north star” of profitability by Q4 of 2026, recall that

the Merger Agreement included the Cash-Flow Condition requiring that Desktop

reduce its quarterly cash burn below $20 million, or $6.67 million per month.129 Pre-

merger, Nano expected that Desktop’s average quarterly cash burn in 2024 would be

$25 million.130 Desktop had work to do.

Although Desktop got to work during the months post-signing, Desktop

management became increasingly concerned about maintaining enough cash to reach

closing.131 According to Cole, Desktop’s revenues had slowed due to “a drop-off in

125 Id. at 18:4–6 (Nogueira).

126 Id. at 18:21–22 (Nogueira); see also Nedivi Dep. Tr. at 38:22–39:5; JX-1252 at 3;

JX-1214 at 7; JX-1307 at 3. 127 Trial Tr. at 18:8–11 (Nogueira).

128 Id. at 18:12–18 (Nogueira).

129 Merger Agr. § 8.1(f).

130 JX-610 at 18; Nedivi Dep. Tr. at 86:15–25.

131 JX-748 (Cole writing in a draft of the 7/18/24 email that “[t]wo specific items have

heightened the issues surrounding accelerated cash burn”).

25 collections from new business.”132 Cole worried that Desktop was on pace to trip the

Cash-Flow Condition.133

On July 18, 2024, Cole sent an email to Desktop executives with the subject

line “Prioritizing Cash.”134 “[I]t’s not a surprise that managing cash is a cornerstone

priority for [Desktop],” he wrote, but it was “also becoming clear that this message

may not be effectively cascading into our organization – and we need to prioritize and

address this.”135 He proposed reducing company spending by (i) stopping all non-

essential business travel, (ii) canceling or pausing all contractor engagements, and

(iii) freezing Desktop’s corporate credit cards. His general advice was: “[I]f it doesn’t

drive a known cash return on investment ($ROI), we need to stop doing it.”136 At

trial, Cole testified that his goal for the July 18 email was to “create a sense of urgency

because [he] was getting signals that some of [his] people had lost their discipline”

with respect to cash management.137

On July 30, 2024, Desktop added a going concern qualification to its 10-Q,

disclosing “substantial doubt as to [its] ability to satisfy [its] obligations as they

become due within one year from the date of filing[.]”138 Desktop fielded questions on

132 Id.

133 Id. (Cole explaining that “[i]f we . . . trip this covenant, it could compromise our

deal . . . we are on a pace where tripping this covenant is possible”). 134 JX-801.

135 Id.

136 Id.

137 Trial Tr. 409:12–411:7 (Cole).

138 JX-672 at 48.

26 the company’s cash burn during the July 31 earnings call.139 In response, Cole stated

that the second quarter cash burn was elevated due to “some cash outflows related to

the [Nano] deal[.]”140

By August 1, 2024, Desktop Board member Stephen Nigro had started

emailing Desktop executives unsolicited advice regarding cash management. He

proposed: “stop[ping] all near-term hiring,” “seriously question[ing]” investment in

“new product[s] [which] do[] not show up with a return in the next six months,” and

holding off on purchasing additional inventory “unless it can be sold with high

confidence in the next six months.”141 Nigro did not have authority to institute these

measures. As Fulop confirmed at trial, the company in fact did not implement Nano’s

suggestions.142

Nano knew about much of Desktop’s cash management issues as they were

developing. Nano’s information rights in the Merger Agreement entitled Nano to

139 JX-806 at 7 (attendee asking “[o]bviously, another $20 million cash burn this

quarter. And how should we be thinking about that? Is there may be increased focus or emphasis on that in the next couple of quarters? Maybe in the case that the deal does get pushed to ’25 and a greater emphasis on driving down that cash burn”). 140 Id.

141 JX-808.

142 Trial Tr. at 526:23–527:10, 529:8–16 (Fulop) (testifying that while Nigro’s advice

was welcome and “very helpful to our company,” Nigro did not run Desktop and that the company continued to make investments following his email that “had a longer- than-six-month ROI,” including hiring additional sales employees).

27 monthly cash reports.143 Those reports did not reflect restricted cash, but they

contained a great deal of information.144

Nano knew that Desktop’s cash-management position was unsustainable, as

an August 2024 email exchange reflects. The Merger Agreement contained

provisions regarding Desktop’s ability to enter into contracts over $250,000,145 and so

Desktop requested Nano’s approval to hire a sales executive whose salary would

exceed that amount.146 Nedivi responded as follows: “With focus on sales this is

approved[.] Having said that, the burn rate is unsustainable, and we cannot wait for

the PMI or closing to reduce it significantly.”147 Nedivi instructed Nogueira: “Please

start to put together an aggressive plan and we can discuss in Boston next week.”148

As instructed, Desktop put together an “aggressive plan” for cash

management. During a Board meeting on September 13, 2024, Cole presented on

Desktop’s cash-management efforts.149 A slide titled “Cash Management” reflected

that Desktop had lowered operating expenses, reduced balances of aged receivables,

limited inventory purchases to items in demand, and offered product bundles as a

143Merger Agr. § 5.5; see, e.g., JX-1021 (September and Q3 report); JX-1688 (December report); see also Trial Tr. at 22:11–23:3, 30:2–22 (Nogueira); id. at 466:5– 467:5 (Pinchas). 144 Trial Tr. at 63:6–64:12 (Nogueira).

145 See generally Merger Agr., Article III.

146 JX-836 at 5–6.

147 Id. at 4.

148 Id.

149 JX-922 at 5.

28 way to delay payments to vendors and suppliers.150 The slide states, however, that

Desktop was “not adjusting payment terms” for its accounts receivables.151

Meanwhile, Nano continued to push Desktop to reduce its cash burn. Desktop

provided Nano its September report on October 3. The report reflected a monthly

cash use of ~$5.3 million—well under the cash-outflow covenant and reflecting a

positive trend—and cash balance of ~$31 million.152 Nano wanted a greater

reduction. In response to the September report, Nano CFO Pinchas instructed

Desktop: “let’s have a plan to reduce the monthly cash burn below $4M prior to the

PMI implementation.”153

Despite the aggressive plan and positive trend, there were signs of Desktop’s

worsening position. Desktop knew that delaying closing could imperil the deal and

alerted CFIUS to the urgency. On September 27, 2024, Fulop wrote to CFIUS that

Desktop’s cash situation had become “far more urgent,” 154 Desktop had “less than a

quarter’s worth of cash remaining,” and “[a]ny undue delay in obtaining regulatory

approval for this transaction will put Desktop Metal in serious jeopardy.”155

150 Id. at 11.

151 Id.

152 JX-1021 at 1.

153 Id. Desktop ultimately executed. By January 3, 2025, Desktop reported to Nano that its cash outflow for December was $100,000, significantly below the company’s November cash burn of $6.5 million. JX-1688 at 3; Trial Tr. at 414:5–7 (Cole). Nedivi responded with a rare compliment: “Thanks Mike Nice job.” JX-1688 at 1; Trial Tr. at 31:3–9 (Nogueira). 154 JX-989 at 1; see also JX-922 at 3.

155 Id.

29 CFIUS responded on October 10 asking Desktop to report on its cash on hand

position as of September 30 and projected positions as of month-end through

February 2025.156 After receiving the CFIUS request, Nogueira texted two other

Desktop executives: “The cash question???” followed by “Hopefully to our benefit so

they [CFIUS] see the situation.”157 Later in the conversation, Nogueira mused, “[t]his

is a tricky one because how we’d answer CFIUS isn’t exactly the message you want

Nano to have, but Nano will see it all.”158 Desktop’s general counsel responded “[w]e

can make our answer confidential – Nano doesn’t see it.”159

Desktop submitted its response to CFIUS on October 15 confidentially—they

did not share their response with Nano.160 Desktop’s response was geared towards

prompting CFIUS to move quickly through the process. It stated:

As of September 30, 2024, Desktop Metal has approximately $30.8M of cash and cash equivalents. Of that amount, approximately $9.3M has restrictions on use. These restrictions include cash required to be held for commercial leases and customer deposits, and amounts earmarked for transaction-related costs. Taking into account these restrictions, Desktop Metal’s cash available for operations is approximately $21.5M. On average, Desktop Metal expects its net operating cash use to be between $3M-$6M per month, excluding interest payments due on convertible debt (paid in May and November each year). Because Desktop Metal’s business is geographically dispersed, cash management will become increasingly difficult as its consolidated balance approaches $10M.

156 JX-1051 at 8.

157 JX-1039 at 1.

158 Id. at 2.

159 Id.

160 Trial Tr. at 61:5–18 (Nogueira).

30 Resultingly, Desktop Metal will likely have inadequate operating funds to manage the business day-to-day even before its cash balance reaches zero. Desktop Metal’s total available closing balance is expected to fall below $10M by November 2024.161

The response also included a chart projecting that Desktop would have a negative

cash balance as of February 2025.

Desktop wrote to CFIUS on November 24, again to express urgency. Once

again, Desktop did not share this communication with Nano.162 Desktop stated that

“Desktop Metal’s cash flow projections from October have proven accurate through

November, and Desktop Metal anticipates entering December with approximately $9

million in available cash on a consolidated basis.”163 Desktop also stated that

“[a]ccounts receivable and inventory conversion to cash have become increasingly

unpredictable[.]”164 The message further warned that Desktop’s “risk of triggering a

bankruptcy . . . [was] escalating weekly” and noted that any declaration of bankruptcy

would give Nano “the right to terminate the proposed transaction.”165

In its November 24 communication, Desktop also indicated that it was “facing

significant talent attrition, having lost over 50% of key U.S. technical staff, including

[almost 100] engineers, software developers, and researchers, in the past year.”166 It

161 JX-1051 at 9.

162 Trial Tr. at 64:22–67:7 (Nogueira).

163 JX-1782 at 4.

164 Id.

165 Id.

166 JX-1782 at 6; Nogueira Dep. Tr. at 259:2–260:3.

31 is unclear how accurate this statement was at the time,167 but it is true that Desktop

had lost technical staff and key employees post-signing, including its CIO, CMO, and

the President of Desktop Health.168

As part of the post-Merger integration process, Nano and Desktop were also

planning on conducting a combined company audit after the transaction closed,

instead of having Desktop perform its own standalone year-end audit.169 As a result,

Desktop held off on engaging its usual auditor, Deloitte, with the intent that the post-

close audit would be performed by Nano’s auditor, KPMG.170

But as the year progressed, Desktop’s cash position became increasingly

precarious, and the company began attempting to negotiate longer payment terms

with its key vendors. On November 20, Nogueira told a vendor that Desktop was

“hoping to be able to make [a payment on] Friday or Monday, but we can’t confirm

until we have clarity on the closure timing for our acquisition. Our cash position right

now is day to day and a difficult situation to say the least.”171 A similar exchange

occurred on December 9. A Desktop employee forwarded an email chain with a

167 Nogueira later testified that Desktop had lost 50 employees total out of 95 technical staff. See Nogueira Dep. Tr. at 529:1–2. 168 JX-1801 at 23–24.

169 JX-1202 at 48 (11/19/24 Nano presentation regarding post-Merger integration

stating, “Audit—KMPG to audit combined company”). 170 JX-3210 (12/4/24 email from Nano introducing its “audit partner from KPMG” to

Desktop personnel); JX-3214 at 2 (email exchange between KPMG and Desktop regarding ongoing inventory counts). 171 JX-1227 at 1 (11/20/24 email from Nogueira to Align Tech regarding a $492,000

payment); id. (Nogueira continuing, “I assure you this is a priority and one of the reasons the $208K was sent on Monday. We wanted to send what we could.”).

32 vendor regarding $95,000 in past due invoices.172 The employee asked, “[a]ny way we

could work a few of these into this week’s check run? We could knock out a few of the

really small ones in the middle of the list so that we clear out some volume of

outstanding invoices without much cash going out the door.”173 Desktop’s failure to

timely pay its vendors strained at least one of the vendor relationships.174

By January 10, Desktop’s cash burn had become so limited that it was refusing

to enter a forbearance agreement that one of its unpaid vendors had proposed over a

month earlier. Desktop feared that doing so would “conflict with our merger

agreement with Nano” by triggering the bankruptcy provision that would allow Nano

to terminate the deal.175 Accordingly, Desktop has had several conversations in

recent months with attorneys concerning its solvency, ultimately resulting in

Desktop considering retaining bankruptcy counsel.176

172 JX-4035.

173 Id. at 1.

174 JX-4137 at 1. On February 3, 2025, Steffan Industries reached out regarding Desktop’s “delinquent balance of $23,963.15” for unpaid invoices dating back to November. Steffan informed Desktop that it had “no choice but to suspend all services to Desktop until the balance listed above has been paid in full” and warned that if Steffan had not received payment by end of day on February 5, the company’s attorney would “begin the collections process.” The vendor further criticized the payment strategies Desktop was considering (and apparently implemented) as of early December, stating “[t]he transaction statement is interesting as it indicates Desktop’s payments for small invoices while the larger invoices are left to significantly age. Payment of 1 small invoice here and another there will not protect the credit terms we have extended.” 175 JX-4086 at 1.

176 Cole Dep. Tr. at 182:12–183:4; Jordan Dep. Tr. at 100:1–6; Nogueira Dep. Tr. at

49:13–23.

33 3. The Companies Negotiate Bridge Loan Documentation But Reach An Impasse.

Recall that the Merger Agreement required the parties to “cooperate in good

faith” to negotiate and execute definitive documentation regarding the Bridge Loan

no later than 30 days after the signing of the Merger Agreement.177

Toward that end, Nano sent Desktop a draft Bridge Loan agreement on August

4.178 Nano followed up on August 12 and August 20 requesting comments.179 Desktop

responded that it was “working with a very lean team” and “there is no pressing

deadline on the bridge loan.”180

On September 12, Desktop provided a markup and requested the parties

finalize all documentation by Desktop’s October 2 shareholder vote on the merger.181

Nano responded it would “push to that timing.”182 Nano circulated revisions on

September 23,183 and further comments on September 26.184 These drafts accepted

several of Desktop’s edits and proposed compromises on others,185 while additional

points remained for negotiation.

177 Merger Agr. § 6.15.

178 JX-863 at 2.

179 Id. at 1–2.

180 JX-877 at 1.

181 JX-919 at 1.

182 JX-934.

183 JX-957.

184 JX-987.

185 JX-1940 ¶¶ 108, 110, 113.

34 On September 25, Desktop requested that the agreement’s covenants be

“springing”—triggered only upon Desktop’s draw on the facility, rather than

signing.186 Nano rejected the springing covenants as contrary to the agreement’s

fundamental terms, emphasizing that if Nano “commit[ted] to lend, the loan

agreement, including the covenants, should be binding.”187 Desktop responded that

“[t]he business ask isn’t going to change.”188

On September 27, Desktop determined to cease negotiations over the Bridge

Loan documentation. The reality was that, although the Merger Agreement required

the parties to execute definitive documentation, it did not require Desktop to draw on

the loan.189 And Fulop testified that, even before signing, Desktop had decided that

it would not avail itself of the Bridge Loan.190

F. Murchinson Seizes Control Of Nano.

1. Murchinson Nominates Directors In Opposition To The Desktop Deal.

After Nano’s Board approved the Merger Agreement, Murchinson launched a

proxy contest premised primarily on Nano’s opposition to the Desktop merger.

186 JX-967.

187 JX-985.

188 Id.

189 Merger Agr. § 6.15 (Desktop’s “request” would trigger the bridge loan).

190 Fulop Dep. Tr. at 68:19–69:3, 70:4–9, 304:11–15, 310:11–17, 312:3–13, 322:20–

323:1.

35 Murchinson notified Nano of its intention to nominate directors for the

December 2024 stockholder meeting on October 9, 2024.191 Murchinson later

nominated Ofir Baharav and Bob Pons for election.192 Baharav was a Nano director

from 2015 to 2021, including as Chairman from 2019 to 2021. Pons was an

experienced executive and a career director, having served on more than sixteen

public company boards.193

In a press release announcing the proxy contest, Murchinson cited the

“overpriced, misguided acquisition[] of Desktop” as a basis for its campaign.194 Ahead

of the annual meeting, Murchinson propounded a stockholder proposal to disapprove

of Nano’s M&A strategy.195 A November 10, 2024 presentation reflected

Murchinson’s position that there was “Urgency” to stop Nano’s “plans to spend over

. . . acquiring” Desktop, which Murchinson priced at $400 million.196

Murchinson continued to champion the proposal that Traub made at the July

2 board meeting—to purchase Desktop out of bankruptcy. According to Murchinson,

Desktop could be purchased for 50 cents on the dollar out of bankruptcy instead of

the premium paid in the Merger.197 On October 23, Murchinson’s Sarfaty introduced

191 JX-1029 at 13.

192 JX-1085.

193 Id. at 2.

194 Id.

195 JX-1135; JX-3230.

196 JX-1163 at 19–20.

197 Id. at 44.

36 Baharav to a Murchinson analyst, Gurdeep Janjua, who was tasked with showing

“how value-destructive the Desktop . . . acquisition” was.198 Janjua later sent

Baharav an analysis stating that “buying Desktop Metal ACCELERATES the

destruction of shareholder value.”199 On November 10, Baharav developed a slide

deck that went even further, titling it “Reckless & Astronomical Valuations . . . for

[Desktop]” and suggesting that the Nano board should have “negotiate[d] a

structured Chapter 11” to acquire Desktop.200

Murchinson and its director nominees continued advocating for this strategy

throughout November. Murchinson’s talking points for a November call with ISS

included that the Nano “Board had a lower cost route, structured ch. 11, [but] didn’t

take it.”201 And Baharav sent multiple communications to Pons stating “if we buy

why not do a structured chapter 11.”202

2. Murchinson Identifies A Lack Of CFIUS Approval As A Means To Defeat The Deal.

The problem with Murchinson’s plan for Nano to purchase Desktop out of

bankruptcy was that Nano had already agreed to purchase Desktop pursuant to the

Merger Agreement. Murchinson needed a way out of that agreement.

198 JX-1078 at 1.

199 JX-1116 at 1, 10.

200 JX-3364 at 1, 5; see also Trial Tr. at 288:7–296:18 (Baharav).

201 JX-3162 at 4.

202 JX-1128 at 4; JX-1305 at 3.

37 By November, Murchinson had identified the lack of regulatory approval as a

potential off-ramp. On November 1, Baharav directly emailed Janjua asking “where

is nano in the process of the acquisitions when is the closing when is the sec, ftc,

doj.”203 An internal Murchinson document dated November 6 contained allegations

connecting Nano’s management and Russian oligarchs, a potential concern for

CFIUS.204 On November 7, an article appeared in Real ClearMarkets titled “Close

CFIUS Due Diligence Is Necessary Ahead of Desktop Metal’s Acquisition,” containing

the exact same allegations connecting Nano’s management and a sanctioned Russian

oligarch.205 Nano’s PR advisors characterized this as an “egregious conspiracy

theory” leaked by Murchinson specifically for “jeopardizing” the Desktop merger. 206

Murchinson issued a press release on November 12 attaching a presentation

titled “Save Nano Now,” calling for “[m]eaningful change to the Board . . . to prevent

further value-destructive M&A,” and specifically criticizing the decision to acquire

Desktop, “a lower margin, cash-burning business with decelerating revenue

growth.”207 The presentation linked Murchinson’s opposition to potential regulatory

issues, asserting that CFIUS review “create[s] significant risk that additional

information damaging to Nano’s value will come to light.”208

203 JX-1116 at 1.

204 JX-3035 at 51.

205 JX-1148.

206 JX-3138 at 1.

207 JX-1170 at 1, 3, 17, 43.

208 JX-1170 at 57.

38 3. Murchinson Gains Influence And The CFIUS-Approval Process Begins To Slow Down.

On November 21, 2024, an Israeli court ruled that the two Murchinson-

nominated board observers (Traub and Rosensweig) had been properly elected as full

directors on Nano’s board.209

The next day, Desktop and Nano received CFIUS’s first draft NSA.210 The

draft included restrictions on manufacturing locations for products supplied to the

U.S. Government, limitations on the use of “remote access” software in such product,

and a non-voting board observer.211 The draft also included an effectiveness provision

stating that the obligations imposed by the NSA would take effect immediately upon

the Effective Date, meaning the date on which the parties enter into the NSA.212

The federal stakeholders involved in the CFIUS approval process arranged

their schedules to be available for a call with the parties that afternoon to quickly

finalize the agreement.213 Understanding the time pressure, CFIUS requested that

the parties set up a call for the following Monday as well.214

Desktop, on the one hand, responded promptly to the draft NSA, informing

Nano on November 24 that Desktop was prepared to accept the draft “as is.”215

209 See Trial Tr. at 503:1–15 (Fulop); JX-1231 at 4.

210 Trial Tr. at 33:8–21, 109:11–13 (Nogueira); JX-1239.

211 JX-1239 at 9, 13–16.

212 Id. at 1, 31.

213 Trial Tr. at 503:16–504:7 (Fulop); JX-1249.

214 JX-1249 at 2.

215 JX-1254 at 2; Trial Tr. at 34:14–18 (Nogueira).

39 Nano, on the other hand, sought to buy time. On November 26, CFIUS

requested a status update and offered to have a call later that afternoon. In response,

Nano informed CFIUS that it would not be able to provide a written response to the

NSA that day and did not provide a date certain by when it would.216 Nano ultimately

stated that it might take more than a week to respond to the November 22 draft.217

In response, counsel for Desktop wrote to Nano threatening to sue to enforce the hell-

or-high-water provision.218

CFIUS reached out to the parties on November 29, the day after Thanksgiving,

again requesting a status update and offering to have a call the following Monday.219

The next day, Nano’s counsel informed Desktop’s counsel that Nano wanted the

lawyers to speak with CFIUS on Monday, December 2, before exchanging redlines.220

Nano rejected Latham’s request to provide to CFIUS a written list of its concerns

with the NSA draft in advance of the call.221

Ultimately, two days before its annual stockholder meeting, on December 4,

Nano shared its requested redlines with CFIUS.222 The modifications were relatively

targeted. With respect to the manufacturing locations, software, board observer, and

216 JX-1290 at 1–2.

217 JX-1276 at 2.

218 Id.

219 JX-1314 at 1.

220 JX-1316 at 1.

221 JX-1319 at 1.

222 JX-1362 at 1.

40 effective date provisions, Nano proposed two changes to the November 22 draft. First,

Nano proposed using the term “Combined Company” instead of “Transaction

Parties.”223 Nano sought this change because it “intend[ed] to integrate the

operations of Nano and [Desktop] in the United States” and was planning on

operating the two companies “as a single operation to ensure the continued economic

viability of the post-closing company.”224 Second, Nano sought to limit attendance of

the board observer to Board meetings relating to U.S. Government customers, the

Covered Products or Covered Services, or the NSA.225 Nano relied on the board

observer requirement in striking a third-party monitor provision, noting the “several

layers of protection and compliance monitoring” already in the NSA, including an

“independent board observer.”226

Nano conceded at trial that it was prepared to agree to the redline version of

the NSA that it shared with CFIUS on December 4.227

4. Murchinson Wins The Proxy Contest And Plans To Suspend The Desktop Deal.

At the annual meeting December 6, Murchinson won another two board seats,

and Baharav and Pons joined the Nano board.228

223 Id. at 18–20, 24–28.

224 Id. at 14.

225 Id. at 26–27.

226 JX-1362 at 36.

227 Trial Tr. at 175:24–176:7 (Lederman).

228 Id. at 121:10–122:9, 124:16–125:5 (Lederman).

41 In the days leading up to the December 6 meeting, the Murchinson nominees

and directors were planning specific actions to prevent the Merger. On November 26,

Baharav sent a list of draft “Board actions” to Pons that explicitly included

“[s]uspension of deals until the board understands . . . if we buy why not do a

structured chapter 11.”229 On December 2, Baharav sent Sarfaty a proposed agenda

for the Nano board meeting, including having new Nano directors inquire into

“CFIUS approval and legal situation with sanctioned oligarch” and “M&A: (i) Legal

status.”230

After the December 6 meeting, Baharav got to work quickly. On December 8,

Baharav prepared: “Target Resolutions,” starting with “Instruct said CEO to not close

the M&As until the board understands merger strategy.”231 The next day, he set out

the new directors’ priorities: “1. Minimize the board. 2. Suspend [CEO Yoav Stern]

and the deals.”232 Traub and Pons replied: “all agreed.”233

By December 16, following the threat of personal legal exposure from claims

by Murchinson,234 the six legacy directors resigned.235 Their departure left the four

229 JX-1128 at 4; see Trial Tr. at 329:6–330:15 (Baharav).

230 JX-1322. At trial, Baharav testified that he rejected Sarfaty’s “multiple solutions” to “exit the deal” with Desktop as “illegal” and “crazy,” Trial Tr. at 274:21–275:3 (Baharav), but that testimony does not square with the contemporaneous communications. 231 JX-1393 at 7.

232 JX-1402 at 1.

233 Id.

234 JX-1427 at 2–3; Trial Tr. at 342:10–21 (Baharav).

235 PTO ¶ 45; JX-1482 at 2.

42 Murchinson-appointed directors as sole members of Nano’s board.236 In early

February 2025, Davis Stehlin replaced Traub, who had moved on to run another

company.237 The Nano board from December 16 onward comprised Chair Baharav

and directors Rosensweig, Pons, and Traub (later replaced by Stehlin).238

The new board started terminating Nano executives, seeming to focus on those

who supported the Merger. The board fired CEO Stern on December 26.239 That

same day, Pons emailed Pinchas that Nano was “considering ending [his]

employment[,]” including because he “attempt[ed] to coerce the board’s support” of

“the DM and MF M&A[.]”240 By December 31, Nedivi was negotiating the terms of

his separation.241 And on February 7, Nano handed Chief Revenue Officer Dale

Baker a letter of termination when Baker attempted to resign.242 By the end of the

purge, none of the Nano PMI team members remained in their positions.

Nano’s VP of Corporate Governance, Julien Lederman, survived the regime

change. Lederman had years of experience leading Nano’s corporate development,

including with respect to Nano’s M&A analysis and investor relations.243 Lederman

236 See JX-1452; JX-1397.

237 Baharav Dep. Tr. at 37:4–38:4; Trial Tr. 179:20–180:7 (Lederman).

238 PTO ¶ 46.

239 JX-1604.

240 JX-1596 at 1.

241 JX-1635 at 2; Nedivi Dep. Tr. at 263:14–264:9 (testifying the negotiations slowed

and he has continued consulting with the company). 242 Baker Dep. Tr. at 14:2–20.

243 Trial Tr. at 116:7–13 (Lederman); Stern Dep. Tr. at 42:6–14.

43 had opposed the Desktop deal from the outset. In June, Lederman had sent a memo

to Nano executives Stern, Pinchas, and Nedivi setting out the cons of the deal prior

to the Merger Agreement.244

In his initial interview with the Murchinson board after the December 6

meeting, the board asked Lederman whether he had prepared any analysis to the

Desktop merger. He directed them to his June memo.245 The board then appointed

him interim CEO.246

In briefing and at trial, Nano tried to distance Murchinson’s board nominees

from Murchinson, but the record reflects that they acted as a unit in furtherance of

Murchinson’s goals. As early as November 26, 2024, Baharav schemed with Pons

about how “[t]ogether” they would “turn this company around.”247 Before the

remaining directors resigned, Baharav sent communications regarding board

strategy to Rosensweig, Traub, and Pons, addressing them as a “[t]eam.”248 Before

sending proposed agenda items to the full board, Baharav ran his proposals by Pons,

244 JX-610.

245 JX-1495.

246 Trial Tr. at 116:1–3, 116:14–22, 179:11–19 (Lederman); Lederman Dep. Tr. at

61:16–22, 196:16–197:6; see also JX-1571 (Traub requesting and scheduling a “1:1” with Lederman); JX-1595 at 2 (referring to Nano’s “CEO change”); JX-1610 at 2 (Lederman’s email signature includes his position as “Interim CEO”). 247 JX-1128 at 4.

248 JX-1430 at 2; JX-1397 at 2.

44 Traub, and Rosensweig. Those proposals included “[s]uspend[ing] . . . the deal.”249

The Murchinson-appointed directors’ intent to sabotage the Merger was apparent.

G. Desktop Sues Nano To Enforce The Merger Agreement.

On December 10, CFIUS sent responses to the draft NSA, but Nano was in

total upheaval and did not provide any feedback or a certain date when it would.250

On December 16, Desktop filed this suit seeking specific performance of Nano’s

closing obligation, including its hell-or-high-water obligation to obtain CFIUS

approval by signing the NSA.251

As is common in broken-deal cases, Desktop moved to expedite the case on a

schedule that would allow for final resolution before the extended March 31, 2025

249 JX-1402 at 1, 3.

250 Trial Tr. at 37:11–16 (Nogueira); JX-1436 at 1–2 (Desktop’s counsel following up

with Nano’s counsel twice concerning CFIUS’s December 10 draft). 251 On September 25, 2024, Nano agreed to acquire another 3D printing company,

Markforged Ltd. JX-964. The acquisition would add significant sales and marketing firepower for the post-merger integrated company, but Nano expected needing 300 to 400 layoffs. Trial Tr. at 26:23–27:22 (Nogueira); id. at 500:23–501:13 (Fulop). Desktop worked diligently alongside Nano and Markforged on the PMI planning required to consolidate the three companies. Nedivi Dep. Tr. at 168:23–170:3; JX- 955 at 3–4. To address any antitrust concerns, Desktop and Nano informed CFIUS in October 2024 that Desktop “has very little overlap with Markforged products.” JX- 1026. In December, however, the DOJ’s Antitrust Division issued civil investigation demands to Desktop regarding antitrust issues arising out of Nano’s Markforged acquisition. Desktop then filed a new suit, claiming that Nano closing the Markforged deal before the Desktop deal would breach the “clear skies” provision in Section 6.7(e) of the Merger Agreement. The court consolidated the Markforged action with this suit, and the parties went to trial on the Markforged claims. The court will address those claims, including post-trial updates submitted by the parties, in a separate letter decision.

45 deadline.252 In an apparent effort to drag out the litigation, Nano opposed this

request. Nano argued that “ample time remain[ed]” to obtain CFIUS approval

because the parties’ “bargained-for closing deadline is not until March 31, 2025, and

[Desktop] ha[d] not availed itself of the Bridge Loan.”253

H. Desktop Delays The CFIUS-Approval Process For 38 Days.

Eight days after Nano received the December 10 CFIUS draft NSA, on

December 18, the new Nano board asked Lederman to review the draft through a

“fresh pair of eyes.”254 Lederman had no prior CFIUS experience and had been

“hardly involved” in the post-merger integration process.255 He reviewed the NSA

“without regard to what was in the merger agreement” and acknowledged at trial

that he had never read the Merger Agreement’s list of mitigation measures (the

Required Actions) that Nano was contractually obligated to accept.256

Lederman proceeded to spend 30 additional days—for a total delay of 38 days—

preparing a mark-up of the agreement. Nano retained litigation counsel and a

252 Dkt. 4.

253 Dkt. 18 ¶¶ 5, 19; see also Dkt. 45 at 26:2–5 (Nano counsel stating that the parties

had a “long runway” from the December 30, 2024 Motion to Expedite Hearing to March 31, 2025). 254 Trial Tr. at 177:3–6 (Lederman); see also JX-1499 at 2.

255 Trial Tr. at 175:3–6, 176:12–22, 177:13–18 (Lederman).

256 Id. at 178:4–13, 188:19–189:15, 209:1–24 (Lederman).

46 testifying expert, who aided Lederman in his review.257 Nano shielded most of

Lederman’s work during that period from discovery by privilege assertions.258

CFIUS’s December 10 draft had barely made any changes to the

manufacturing locations, software restrictions, board observer, and the effective date

provisions in the December 4 draft Nano endorsed. Lederman’s efforts, however,

resulted in a heavy redline of the December 10 draft. Lederman sent the redline to

Baharav for review before Nano’s counsel at Greenberg Traurig sent it to CFIUS on

January 17, 2025.259

Nano did not communicate substantively with Desktop or CFIUS regarding

the NSA during the 38-day period, despite follow-ups from CFIUS and Desktop on

December 12, 15, 17, 19, 20, 22, 23, 26, 27, 30, and January 2 and 6. 260

I. Nano Asserts Counterclaims And Desktop Amends Its Complaint.

While Lederman was reviewing the NSA with fresh eyes, Nano was developing

counterclaims to assert in this litigation. On January 8, 2025, Nano filed its Answer

to the Verified Complaint and Verified Counterclaim.261 Nano’s single counterclaim

alleged that Desktop had failed to provide Nano with financial information it had

257 Trial Tr. at 180:18–8 (Lederman); JX-4163 at 1–2; Solomon Dep. Tr. at 37:10–

38:17, 41:19–24, 110:20–111:14. 258 See, e.g., JX-1550; JX-1643; Trial Tr. at 180:16–19 (Lederman).

259 JX-1643.

260 JX-1453 at 2–3; JX-1566 at 1–11; JX-1579 at 3; JX-1619 at 3; JX-1703 at 1.

261 Dkt. 38.

47 requested under Section 6.5 of the Merger Agreement.262 On January 16, Nano

substituted counsel.263 On January 17, for the first time, Nano raised “concerns

regarding Desktop’s compliance with its covenants under Section 5.1 of the Merger

Agreement.”264 Ironically, weeks earlier on January 4, after Desktop posted a

monthly cash burn of $100,000 in December, Nedivi sent a rare compliment to

Desktop’s Vice President of Finance and Treasury: “Nice job.”265

On January 19, Desktop moved for leave to file an amended complaint, which

Nano opposed.266 The court granted the motion, and Desktop filed its Verified

Amended Complaint on February 3.267

Nano filed its Answer to the Verified Amended Complaint and new Verified

Counterclaims (the “Counterclaims”) on February 4.268 Nano’s Counterclaims

contain two counts. In Count I, Nano claims anticipatory breach of several sections

262 On December 28, Nano sent a letter to Desktop demanding information under

Section 6.5 of the Merger Agreement. Among other things, Nano demanded “the basis for . . . Desktop’s description of its financial condition in the Motion [to expedite] and the Complaint.” JX-1612 at 1. Desktop provided information in response. JX-1699; JX-1708. Following the filing of Nano’s initial counterclaim, Desktop provided Nano with additional information and issued a timely cure notice on February 2, 2025. JX- 1843. Nano disputed Desktop’s cure notice, JX-1850, and a letter writing campaign ensued. See, e.g., JX-3356. By the time of trial, Nano’s counterclaim to enforce the Buyer Information Rights was relegated to context and color. 263 Dkt. 46. The court entered the order granting the substitution on January 17. Dkt. 47. 264 JX-1774 at 1.

265 JX-1688; Trial Tr. at 31:1–12 (Nogueira).

266 Dkt. 48; Dkt. 72.

267 Dkt. 101.

268 Dkt. 106.

48 of the Merger Agreement.269 In Count II, Nano seeks a declaratory judgment that

Desktop breached the Merger Agreement in numerous ways, thereby allowing Nano

to terminate.270

J. Negotiations With CFIUS Continue.

As this litigation progressed, the parties continued to communicate with

CFIUS concerning the NSA. On February 1, CFIUS sent back a revised NSA.271

CFIUS and the parties exchanged additional drafts on February 8 and 11.272 When

sending the February 11 draft, CFIUS described it as the “final version” and

requested signatures by February 14.273

The same day, Nano raised new concerns. In a February 11 letter to CFIUS,

Nano asserted that because certain products purchased by the government were

made in Gersthofen, Germany, and the NSA would impose a five-year process if

Desktop wished to move production of those products to a new non-approved facility,

Nano would be unable to exercise the control it intended to over the entire Gersthofen

plant.274 Up to that point, Nano had never discussed shuttering Gersthofen, and

269 See Dkt. 106 at 74 ¶ 66 (alleging breach as to Section 3.6 (Desktop’s representations and warranties), 5.1 (ordinary course covenant), 6.5 (Nano’s information right provision), 6.6 (notice of changes that may constitute an MAE), 6.15 (regarding the Bridge Loan), and 7.2 (conditions precedent to closing) of the Merger Agreement). 270 Id. ¶ 80.

271 JX-1840.

272 JX-1890; JX-1906.

273 JX-1906.

274 Trial Tr. at 208:18–24 (Lederman); JX-3284 at 22–24; JX-1972 at 1–3.

49 Nano’s businesspeople had done no serious analysis to support its new litigation

proposition.275 Lederman claimed at trial that Nano was unable to raise this

argument earlier because it lacked the requisite data, but it is hard to credit this

testimony.276

Ignoring CFIUS’s requested February 14 deadline for signatures, Nano waited

until February 24 to comment on CFIUS’s February 11 draft.277 Because the parties

missed the deadline, they had to request to withdraw their Joint Voluntary Notice

and refile.278

On March 5, CFIUS sent the parties an updated draft that addressed most of

Nano’s comments and edits.279 CFIUS also set a March 12 deadline for Nano to give

substantive feedback on the draft.280 On March 10, after CFIUS made what Nano

categorized as “significant progress,”281 and just weeks before the Merger Agreement

end date, Nano sent CFIUS a new draft with new edits.282 Substantively, Nano’s

275 Trial Tr. at 49:9–50:18 (Nogueira); see also Baharav Dep. Tr. at 221:8–222:22; Trial

Tr. at 355:13–356:9 (Baharav). 276 JX-3382; JX-3383; Trial Tr. at 376:22–379:15 (Cole).

277 JX-1970.

278 JX-3291.

279 JX-4215 at 1.

280 Id.

281 JX-3375 at 2.

282 JX-3379.

50 sticking points involved manufacturing-location, software, board-observer, and

effectiveness provisions.283

None of Nano’s efforts to negotiate an NSA in February and March were an

effort to satisfy a closing condition. Nano made that clear on February 18, stating

that it was no longer employing any efforts to reach closing unless and until it was

ordered to do so by this court.284

II. LEGAL ANALYSIS

Desktop claims that, in failing to obtain CFIUS approval, Nano breached its

obligations to use reasonable best efforts to close the Merger as soon as reasonably

possible and obtain CFIUS approval come hell or high water (together, the “CFIUS-

Approval Claims”). In defense of the CFIUS-Approval Claims, Nano invokes the 10%

Carveout and asserts illegality under Israeli law as an affirmative defense. Desktop

disputes Nano’s assertions of illegality and, in response to Nano’s arguments under

the 10% Carveout, relies on the Required-Actions Exception.

Nano counterclaims that Desktop violated the No-Bankruptcy Condition.

Nano also claims that Desktop breached the Covenant-Compliance Condition by

failing the Ordinary-Course Covenant, the Receivables/Payables Covenant and the

Transaction-Expenses Covenant. Last, Nano claims that Desktop breached the

Bridge-Loan Provision. Desktop argues that the No-Bankruptcy and Compliance-

Covenant Conditions have occurred or that, alternatively, their nonoccurrence is

283 Id. at 47, 63–66.

284 JX-1954 at 1.

51 excused under the prevention doctrine because Nano contributed materially to the

failure of the condition. Desktop also claims that it complied with its obligations

under the Bridge-Loan Provision.

The standard of proof is straightforward. The party asserting breach bears the

burden of proof and must meet that burden by a preponderance of the evidence.285

Typically, a party seeking specific performance must meet its burden by clear and

convincing evidence, but the parties altered this common-law approach by stipulating

to specific performance in the Merger Agreement.286 Desktop and Nano, therefore,

must prove their claims of breach by a preponderance of the evidence.

The burden allocation is complicated. Under common law,287 the party seeking

to enforce the contract must prove each element of a breach of contract claim,288 and

a party asserting an affirmative defense bears the burden of proof.289 Condition-laden

contracts like merger agreements complicate the burden allocation.

285 See AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929, at

*48–50 (Del. Ch. Nov. 30, 2020), aff’d, 268 A.3d 198 (Del. 2021) (footnotes omitted). 286 26 Cap. Acq. Corp. v. Tiger Resort Asia Ltd., 309 A.3d 434, 464 (Del. Ch. 2023);

Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347, at *19 (Del. Ch. Oct. 1, 2018), aff’d, 198 A.3d 724 (Del. 2018) (ORDER). 287 The parties could have addressed the burden of proof in the Merger Agreement

but did not do so. This decision therefore applies common law principles to allocate the burden. See AB Stable VIII LLC, 2020 WL 7024929, at *5. 288 Shareholder Representative Servs. LLC v. Shire US Hldgs., Inc., 2020 WL 6018738, at *17 (Del. Ch. Oct. 12, 2020), aff’d 267 A.3d 370 (Del. 2021) (TABLE) (footnotes omitted) (“Contracts that contain conditions, however, require another layer of analysis when allocating the burden of proof.”). 289 Lighthouse Behav. v. Milestone Addiction, 2023 WL 3486671, at *9 (Del. Ch. May

17, 2023).

52 In disputes over contractual conditions, the Restatement (Second) of Contracts instructs courts to look to the nature of the condition at issue. If a condition must be satisfied before a duty of performance arises (formerly known as a condition precedent), then the burden of proof rests with the party seeking to enforce the obligation. If a condition would extinguish a party’s duty of performance (formerly known as a condition subsequent), then the burden of proof rests with the party seeking to avoid the obligation.290

Applying these principles to Desktop’s claims for breach of contract, Desktop

bears the burden of proving the CFIUS-Approval Claim to a degree—Desktop must

show that Nano failed to use reasonable best efforts to close as soon as reasonably

possible and failed to meet its obligations under the hell-or-high-water clause of

Section 6.7(b). The burden then flips to Nano to prove that the NSA conditions fall

within the 10% Carveout and to prove the affirmative defense of illegality. If Nano

proves the 10% Carveout, then the burden returns to Desktop to prove that the

Required-Actions Exception applies.

As to Nano’s claims for breach of contract, Nano bears the burden of proving

that the No-Bankruptcy and the Covenant-Compliance Conditions have failed. If

Nano proves that the conditions have failed, then Desktop must prove that the

nonoccurrence is excused under the prevention doctrine. Nano also bears the burden

of proving that Desktop breached its obligations under the Bridge-Loan Provision.

A. Desktop’s Claim

According to Desktop, Nano’s obligation to close is subject to only Section

7.1(b)(iii) requiring CFIUS approval. Desktop claims that this is Nano’s fault,

290 AB Stable VIII, 2020 WL 7024929, at *49.

53 because Nano has breached its hell-or-high-water obligations of Section 6.7(b) of the

Merger Agreement. Desktop also claims that Nano breached its obligations under

Section 6.7(a) to use reasonable best efforts to close the Merger as soon as reasonably

possible, and its obligations in the first sentence of Section 6.7(b) to use reasonable

best efforts to secure regulatory approval. Because those arguments overlap factually

with Desktop’s arguments under Section 6.7(b), this analysis focuses on Section

6.7(b).

Formally titled “Actions in Connection with Required Regulatory Approvals,”

Section 6.7(b) is a single paragraph that (rather ominously) is 666 words long. That

paragraph contains five sentences. The first and the third sentence are at issue.

Reformatted with bracketed notations, these sentences state:

[1] Without limiting the further requirements specifically set forth in this Section 6.7, each of the parties shall use its reasonable best efforts to resolve any objection that may be asserted by any Governmental Entity with respect to the Merger and the other transactions contemplated by this Agreement.

...

[3] Moreover, Parent shall, and shall cause its Affiliates to, take, or cause to be taken, all action necessary to receive CFIUS Approval so as to enable the Closing, including providing all such assurances as may be necessary requested or imposed by CFIUS, including, without limitation, entering into a mitigation agreement, letter of assurance, national security agreement, proxy agreement, trust agreement or other similar arrangement or agreement, in relation to the business and assets of the Company; [10% Carveout] provided, however, that, notwithstanding anything in this Agreement to the contrary, Parent shall not be required to consummate the transactions contemplated by this Agreement to the extent

54 any condition imposed in connection with the CFIUS Approval would effectively prohibit or limit the Parent Board from exercising control over any portion of the business of the Company and the Company Subsidiaries that, in the aggregate, constitutes more than ten percent (10%) of the Company’s consolidated fiscal year 2023 revenue or 2024 year-to-date revenue (the “Affected Business”) [exceptions to the 10% Carveout] (provided, however, that it is acknowledged and agreed that neither [the Required-Actions Exception] (i) the Remedies set forth in Section 6.7(b) of the Parent Disclosure Schedule, nor [Board-Election Exception] (ii) any condition imposed in connection with the CFIUS Approval with respect to a board of directors or other governing body that permits Parent to directly or indirectly elect a majority of the individuals to such board of directors or other governing body, shall be deemed to effectively prohibit or limit the Board of Directors of Parent from exercising control over the Affected Business) . . . .

The first sentence of Section 6.7(b) is a plain-Jane, bilateral “reasonable best

efforts” covenant applied to regulatory approval generally, framed as “objection[s]

that may be asserted by any Governmental Entity.” Reasonable-best-efforts

provisions have been interpreted to require each party to “take all reasonable steps

to solve problems and consummate the transaction.”291 It also requires each party to

take “appropriate actions to keep the deal on track,” including but not limited to

engaging in forthright discussions with the counterparty. 292 Good faith is relevant.

A party cannot go “looking for a way out of its deal.”293

291 Williams Cos. v. Energy Transfer, 159 A.3d 264, 272 (Del. 2017).

292 In re Anthem-Cigna Merger Litig., 2020 WL 5106556, at *92 (Del. Ch. Aug. 31,

2020). 293 Id.

55 The quoted portion of the third sentence of Section 6.7(b) applies to a specific

kind of regulatory approval—CFIUS approval. It sets out the hell-or-high-water

provision and subjects that provision to the 10% Carveout. The 10% Carveout in turn

contains two carve-outs, which this decision will call “exceptions” to minimize

confusion—the Required-Actions Exception and the Board-Election Exception. Of

the two exceptions, only the Required-Actions Exception is at issue.

Generally, a hell-or-high-water provision attempts to clarify a reasonable-best-

efforts provision by “expressly spell[ing] out what is or is not required” of a buyer. 294

Of the range of concessions to a reasonable-best-efforts provision that a seller may

secure from a buyer, hell-or-high-water provisions are the most “extreme.”295 They

are the strongest possible commitment a party can make in a merger agreement with

request to regulatory approval.296 They are, therefore, rare.297

Hell-or-high-water provisions often retain some degree of buyer flexibility in

negotiating with the regulatory body.298 Section 6.7(b) does so expressly through the

10% Carveout, which provides that Nano may object to conditions that would

294Lou R. Kling & Eileen T. Nugent, Negotiated Acquisitions of Companies, Subsidiaries and Divisions § 13.02 (2024 ed.). 295 Am. Bar Ass’n, Model Public Merger Agreement 197 (2011).

296 Akorn, 2018 WL 4719347, at *96 n.825.

297See Stephen Fraidin, Joel Mitnick, and Ross Steinberg, Hell or High Water Provisions in Merger Agreements: A Practical Approach, HLS Forum on Corporate Governance (May 25, 2022), https://perma.cc/DVP8–ZP79. 298 Nano’s expert opined that hell-or-high-water provisions are not intended to eliminate all buyer discretion, which would create an undesirable bargaining dynamic in negotiations with regulators. See generally JX-4214 (Solomon Rep’t) ¶¶ 18–24.

56 “effectively prohibit or limit” its ability to “exercis[e] control over any portion of the

business of the Company and the Company Subsidiaries that, in the aggregate,

constitutes more than ten percent (10%) of the Company’s consolidated fiscal year

2023 revenue or 2024 year-to-date revenue (the ‘Affected Business’).”299

The discretion afforded to Nano by the 10% Carveout is limited by the

Required-Actions Exception, which sets out thirteen “Required Actions – Actions in

Connection with Required Regulatory Approvals.”300 If the action is among the

“Required Actions” of Schedule 6.7(b), then Nano may not contend that it effectively

prohibits Nano’s ability to exercise control over an Affected Business. Four of the

thirteen are at issue: Requirement 2, “establishing guidelines and terms for handling

existing or future contracts with the U.S. Government or its contractors, U.S.

Government customer information, and other sensitive information;” Requirement 3,

“ensuring that only authorized persons have access to certain technology, systems,

facilities, or sensitive information;” Requirement 8, “security protocols to ensure the

integrity of products or software sold to the U.S. Government;” and Requirement 10,

“assurances of continuity of supply to the U.S. Government for defined periods,

notification and consultation prior to taking certain business decisions, and

reservation of certain rights for the U.S. Government in the event that the company

decides to exit a business line.”301

299 Merger Agr. § 6.7(b).

300 Id. at 179, Parent Disclosure Schedule § 6.7(b).

301 Id.

57 As discussed above, the parties share the burden of proof under Section 6.7(b).

Desktop must prove that Nano breached the hell-or-high-water provision, Nano bears

the burden of proving that the 10% Carveout applies, and Desktop bears the burden

of proving that the Required-Actions Exception applies.

1. Nano’s Efforts Come Hell Or High Water

The initial question presented by Section 6.7(b) is whether Nano took “all

action necessary to receive CFIUS Approval so as to enable the Closing,” including

those actions listed in Section 6.7(b). Nano faces an uphill battle in convincing anyone

that it did everything it could, come hell or high water, to obtain Desktop approval

after Murchinson took over the Nano board. Having won their positions on

Murchinson’s promise to scuttle the Desktop deal, the Murchinson-nominated board

members seemed intent on making good on that promise by obstructing CFIUS

approval.

The facts are stark. Murchinson ardently opposed the Desktop acquisition, it

vowed to take all efforts to unwind the agreement, and it called to stop the deal long

after the Merger Agreement was signed. Murchinson said this repeatedly and

58 publicly in no uncertain terms.302 The self-described “team”303 of Murchinson’s board

nominees, who comprised the entire Nano board as of December 6, 2024, were aligned

with the mission304 to “[s]uspend . . . the deal.”305 And they identified regulatory

approval, and specifically CFIUS approval, as a means to this end.306

It is no wonder that, after Murchinson took over the Nano board on December

16, Nano stopped attempting to obtain CFIUS approval and started obstructing it.

The timeline is damning. The parties received their first draft of the NSA on

November 22. Two days after CFIUS sent the first draft of the NSA, Desktop

302 See, e.g., JX-439 at 2 (3/11/24 email from Sarfaty to Fulop stating that Murchinson

had “every intention to challenge any such improper deal”); JX-3317 at 1–2 (6/28/24 letter from Murchinson to Nano stockholders stating that Murchinson would “consider all options for unwinding” the Desktop merger); JX-1085 at 2 (10/28/24 press release from Murchinson citing the “overpriced, misguided acquisition[] of Desktop” as a basis for proxy contest); JX-1163 at 19 (11/10/24 presentation to ISS stating there was “Urgency” to stop Nano’s “plans to spend over $400 million acquiring” Desktop). 303 See, e.g., JX-1397.

304See, e.g., JX-1322 (12/2/24 email between Baharav and Sarfaty about board meeting and “our” agenda). 305 JX-1402 (12/9/24 email among Murchinson board members); JX-1128 at 4 (11/26/24 private message from Baharav to Pons including “[s]uspension of deals” among “Board actions to restore investors confidence”). 306 See, e.g., JX-1116 (11/1/24 email from Baharav to Janjua asking “where is nano in

the process of the acquisitions when is the closing when is the sec, ftc, doj”); JX-3364 (11/10/24 slide deck developed by Baharav titled “Reckless & Astronomical Valuations . . . for DM”); JX-3035 at 51 (11/6/24 internal Murchinson presentation alleging that two of Nano’s legacy board members had ongoing business connections with Russian oligarch); JX-1148 (11/7/24 article repeating allegations of Nano ties to Russian oligarch found in 11/6/24 Murchinson internal memo); JX-1170 at 57 (11/12/24 Murchinson press release asserting that CFIUS review “create[s] significant risk that additional information damaging to Nano’s value will come to light”).

59 informed Nano that it was prepared to accept it “as is.” Nano shared its redline with

CFIUS on December 4. CFIUS responded on December 10, inviting discussion as to

certain modifications. By then, however, Murchinson had taken over the Nano board.

Rather than use reasonable best efforts to obtain CFIUS approval and consummate

the Merger “as soon as reasonably possible,”307 Nano went radio silent on the NSA

for 38 days. After making incremental changes in February, CFIUS sent its February

11 draft requesting signatures by February 14.308 Nano waited until February 24 to

comment. By then, the parties had withdrawn the notice, so CFIUS could not have

accepted Nano’s draft within the statutory period.

Nano’s negotiation positions also tell the tale. As a reminder, the exchange of

drafts went like this: CFIUS sent the first NSA draft to the parties on November

22.309 Nano responded on December 4.310 CFIUS sent back comments on December

10.311 Nano responded on January 17.312 CFIUS sent an updated draft on February

1, the parties sent a further revised version on February 8, and then CFIUS sent a

final draft on February 11, asking for signatures by February 14.313 Nano instead

sent further comments on February 24.314 CFIUS responded with a redline on March

307 Merger Agr. § 6.7(a).

308 JX-1906.

309 JX-1239.

310 JX-1362.

311 JX-1412.

312 JX-1768.

313 JX-1902.

314 JX-1972.

60 5, setting a March 12 deadline to respond.315 On March 10, Nano responded,

rescinding portions of its February 24 proposals.316

At trial, Nano cites four terms of the March 5 draft to justify its refusal to sign

the NSA: restrictions on manufacturing locations for products supplied to the U.S.

Government (the “manufacturing-location provision”); limitations on the use of

certain remote access software (the “software provision”); a non-voting board observer

provision (the “board-observer provision”); and the date on which the NSA obligations

take effect (the “effective date provision”).

The CFIUS Committee’s November 22 draft contained a suite of mitigation

measures, including all four of the terms Nano now invokes to justify its refusal to

sign. In the December 4 redline, Nano did not object to the manufacturing-location,

software, board-observer, or effective date provisions.317 Nano accepted these

provisions in principle, requesting targeted modifications only.318 Indeed, Nano used

the board-observer provision as a reason to strike CFIUS’s proposed third-party

monitor provision.319 Momentarily setting aside the question of whether these four

provisions implicate the 10% Carveout or Required-Actions Exception, Nano’s

negotiation positions were not consistent with a party taking all actions necessary to

obtain CFIUS approval.

315 JX-3314.

316 JX-3379.

317 JX-1362 at 18–19, 20, 24–28, 43.

318 Id.

319 Id. at 36

61 The December 4 draft that Nano sent to CFIUS included two changes to the

four provisions that Nano challenges. First, Nano sought to replace the reference to

“Transaction Parties” with the “Combined Company” to “refer to th[e] integrated

operations in the United States” as “post-closing Nano intend[ed] to integrate the

operations of Nano and [Desktop] in the United States.”320 Second, Nano sought to

limit attendance of the board observer to Board meetings relating to U.S. Government

customers, the Covered Products or Covered Services, or the NSA.321 CFIUS rejected

both edits but offered to discuss.322

The January 17 draft that Nano finally sent was a stark contrast to the

December 4 draft Nano had been ready to accept. Nano struck the manufacturing-

location and board-observer provisions entirely and made substantive revisions to the

software restrictions including striking portions of it.323 This was a drastic change,

particularly in light of Nano’s prior position relying on the board-observer provision

as a reason to strike the third-party monitor provision.

The drafts exchanged on February 1, 8, and 11 incrementally moved the ball

forward, but Nano moved the goalposts—again—in its February 24 draft.

On the manufacturing-location provision, Nano did not edit the language but

included a comment box stating that it continued to be a key concern. 324 CFIUS

320 JX-1362 at 14.

321 Id. at 26–27.

322 JX-1412 at 18.

323 JX-1770 at 50–51, 56–60.

324 JX-1970 at 9.

62 responded with a proposed compromise, which Nano rejected by reverting back to the

language it proposed on February 8 that CFIUS had already rejected. 325

On the software provision, CFIUS indicated the importance of keeping such

protections given “the national security risk arising in this transaction.”326 But Nano

rejected CFIUS’s proposed language, stating that it was inconsistent with other

portions of the NSA.327 CFIUS then proposed language intended to address Nano’s

concerns while mitigating the national security risk.328 Again, unproductively, Nano

struck the provision entirely in its March 10 draft.329

After Nano had deleted it, CFIUS reinserted the board-observer provision,

incorporating language to address Nano’s concern that the board observer would not

be performing the duties of a director and welcoming further discussion on the

topic.330 Again on February 24, Nano did not edit the language but included a

comment box that it “continue[d] to have concerns regarding having a board observer

on Nano’s board.”331 In its March 5 draft, CFIUS requested that the parties provide

a legal analysis or legal opinion regarding the potential conflict between the board-

325 JX-3379 at 24.

326 JX-JX-1906 at 18.

327 JX-1970 at 8.

328 JX-3314 at 22.

329 JX-3379 at 23.

330 JX-1906 at 23.

331 JX-1970 at 13.

63 observer provision and Israeli law.332 It was not until March 10 that Nano provided

CFIUS with the requested expert report—the one prepared for this action.333

Nano did not touch the effective date provision until the March 10 draft, when

it stated for the first time its position that the parties’ obligations under the NSA

should apply as of the Closing Date.334

Nano’s conduct after December 6 does not evidence a party taking all actions

necessary to obtain CFIUS approval—just the opposite. Desktop has proven that the

Murchinson board nominees intended to use CFIUS approval to scuttle the deal and

attempted to obstruct CFIUS approval through a pattern of delay and backtracking.

2. 10% Carveout

The 10% Carveout covers conditions to CFIUS Approval that “would effectively

prohibit or limit the [Nano] Board from exercising control over any portion” of

Desktop that “in the aggregate, constitutes more than ten percent (10%) of the

Company’s consolidated fiscal year 2023 revenue or 2024 year-to-date revenue[.]”335

Desktop offers a narrow interpretation of the 10% Carveout. The Merger

Agreement defined “control” as “the possession, directly or indirectly, of the power to

direct the management and policies of a Person whether through the ownership of

voting securities, contract or otherwise.”336 Desktop observes that this definition of

332 JX-3314 at 27.

333 JX-3379 at 28.

334 Id. at 47.

335 Merger Agr. § 6.7(b).

336 Id. at 56.

64 “control” mirrors SEC Rule 405, which provides definitions for terms used in the

Securities Act of 1933.337 The relevant inquiry under Rule 405 is whether a purported

“control” person effectively wields managerial authority over the entity at issue.338

The use of this definition suggests that the 10% Carveout is concerned only with

situations where CFIUS wrests managerial authority away from Nano and vests it

in some other “control” person or persons, such as a board run by U.S. government

appointees.

Nano made statements consistent with Desktop’s interpretation when

negotiating the 10% Carveout, explaining that the exception was meant to address a

“narrow set of circumstances,” where CFIUS requires “a subsidiary board that does

not answer to the Parent Board but rather is self governing[.]”339

Under this narrow interpretation, the March 5 NSA does not implicate the 10%

Carveout because it does not empower any person or entity to control Desktop or a

subsidiary. The NSA provisions to which Nano objects do not create any independent

governance structure or prevent Nano from directing any “portion of Desktop's

337 17 C.F.R. § 230.405 (defining “control” as “the possession, direct or indirect, of the

power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise”). 338 See, e.g., Waterford Inv. v. Bosco, 682 F.3d 348, 354 (4th Cir. 2012) (applying Rule

405’s definition of “control” to FINRA Rule 12200 to assess whether a FINRA “member” exercised “control” over its associate); SEC v. Kern, 425 F.3d 143, 149 (2d Cir. 2005) (applying Rule 405 to determine whether Seller constituted an “‘affiliate’ of an issuer” based on its control of the issuers). 339 JX-647 at 117; JX-3204 at 1.

65 business.” Nano would retain authority to appoint Desktop’s management, set its

strategy, and allocate capital.

In this litigation, Nano rejects this narrow interpretation and offers a broad

one in its place. Nano relies on the words “effectively,” “limit,” and “control.” The

Merger Agreement defines “control” but does not define “effectively” or “limit.” Nano

relies on dictionary definitions that define “effectively” as “achieving the same result”

and “limit” as a “restriction or restraint.”340 Putting it together, Nano argues that

the 10% Carveout broadly covers any provision that has the effect or achieves the

result of limiting Nano’s ability, directly or indirectly, “to direct the management and

policies of” Desktop.

Nano bolsters this interpretation with aspects of the drafting history. In

negotiations, Desktop sought to add “materially” before “limit,” explaining that

absent such a qualifier “any condition could be construed as limiting [Nano’s] ability

to exercise control[.]”341 After Nano resisted including a further materiality qualifier

beyond the 10% threshold, Desktop accepted this deletion and instead identified in

the Parent Disclosure Schedule particular items that would be carved out from the

10% Provision.342 The parties’ understanding of control thus was limited only by the

340Effectively, Limit, Control, Black’s Law Dictionary (12th ed. 2024); see also Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 738 (Del. 2006) (“Delaware courts look to dictionaries for assistance in determining the plain meaning of terms[.]”). 341 JX-626 at 45.

342 JX-647 at 117 (6/27/24 email from Nano’s counsel to their client attaching the draft

merger agreement they sent across to Desktop’s counsel, in which they describe the “actions that limit the Parent Board’s control over a percentage of the business

66 10% showing and the Parent Disclosure Schedule, without any consideration of

materiality beyond the 10% threshold.

Even accepting broad Nano’s broad interpretation of the 10% Carveout, it is

difficult to conclude that the NSA software or manufacturing-location provisions meet

the 10% threshold, and Nano does not argue that the board-observer or effective date

provisions do so.

The software provisions do not implicate the 10% threshold. Nano admits that

the software restrictions directly affect far less than 10% of Desktop’s business by

revenue. Lederman testified the post-merger entity could use compliant software in

the Covered Products sold to the U.S. government, which account for less than 2% of

Desktop’s revenue, while doing whatever it wants with software in other units of the

Covered Products sold to other customers.343

Lederman’s concern with the software provisions was that implementing it

would not be “fair[] and effectiv[e].”344 Nedivi likewise testified that adhering to the

software restrictions is “probably achievable, but it doesn’t make sense to do” simply

because it would be “problematic” from a “business perspective.”345 The Merger

Agreement, of course, contains no exception to the hell-or-high-water provision for

exceeding 10%” as “a narrow set of circumstances”); JX-680 at 9 (6/29/24 email from Desktop’s counsel with a proposed “list of remedies that would be deemed not to limit [Nano’s] control”). 343 Trial Tr. at 158:21–159:11 (Lederman).

344 Id. at 159:10 (Lederman).

345 Id. at 429:7–21 (Nedivi).

67 NSA terms that could be “problematic” from a “business perspective” or things that

Nano view as “unfair.”

Nano argues that the provision “effectively” “limits” its control over revenue

exceeding the 10% threshold. Lederman testified that the software provision

“effectively” prohibits Nano from exercising control over a “hundred percent” of

Desktop’s S-Max business.346 On further examination, however, Lederman’s

testimony boils down to the idea that the 10% exception is tripped by any restriction

that might “affect” unspecified “synergies” that Nano theoretically may seek to

realize.347 That is not how the agreement reads. If it were, then virtually any

provision appearing in any NSA would fall within the 10% Carveout.

In sum, the software-restrictions provision in the March 5 NSA does not

implicate the 10% Carveout because it does not meet the 10% threshold.

The manufacturing-location provisions do not implicate the 10% threshold

directly. The March 5 NSA draft would require Nano to provide 180 days’ notice

before relocating manufacturing for U.S. government products to any facility not

currently in Desktop’s portfolio.348 CFIUS can in its discretion prohibit any such

relocation for five years, and afterward compel Nano to license its software

indefinitely to a third party.349 This is no doubt a limitation on Nano’s right to

346 Id. at 143:20–144:15 (Lederman).

347 Id. at 187:5–17 (Lederman).

348 JX-4215 at 30.

349 Id. at 32; Mosman Dep. Tr. at 217:8–219:6.

68 manage its costs and consolidate its manufacturing. But the manufacturing location

restriction only applies to “Covered Products,” defined as products sold to U.S.

Government customers.350 U.S. Government customers accounted for 4% of Desktop’s

revenues in 2023, and 1.9% of Desktop’s revenues in the first half of 2024. This is

less than the 10% threshold.

Tacitly conceding the force of this point, Nano again responds that the

manufacturing-location provision indirectly or “effectively” “limits” its control over

more than 10% of the relevant aggregate revenue. Nano witnesses testified that the

freedom to consolidate manufacturing sites strikes at “the heart of” Nano’s cost-

reduction strategy.351 To be a viable competitor in the additive manufacturing space,

Nano desires the freedom to move manufacturing to lower-cost geographical

regions.352 They say that it would be cost prohibitive and wasteful to manufacture

just products sold to the U.S. government in existing facilities while moving the same

products sold to other customers to more cost-effective locations. Doing so would

require the creation of a complex manufacturing requirement just for the U.S.

government, which could preempt other investments.353

350 JX-4215 at 20 (defining “Covered Products” as “any products produced by Desktop

. . . that have been provided to USG Customers in connection with any USG Customer contracts or purchase orders in the twenty-four (24) months prior to the Effective Date . . . to the extent provided to USG Customers”). Nano sought and obtained the clarification in the italicized letters. JX-3314 at 17. 351 Trial Tr. at 133:19–24, 137:23–138:7, 138:17–139:4, 142:20–24 (Lederman); id. at

251:11–21 (Baharav). 352 Id. at 251:11–252:13 (Baharav); id. at 432:15–433:17 (Nedivi).

353 Id. at 258:11–260:16 (Baharav).

69 Nano illustrates its point by reference to the Gersthofen facility, which

manufactures Desktop’s S-Max Pro printer and is up for lease renewal in 2027.354

Nano says that if the U.S. Government buys two of 20 S-Max Pro printers

manufactured at Gersthofen annually, it would be commercially untenable to have

two such facilities or allow two products to dictate where the remaining 18 are

made.355 Accordingly, CFIUS’s proposed restriction on manufacturing locations

limits, at the least, Nano’s control over all versions of products that are sold to the

U.S. government, regardless of customer (which are well over 10% of Desktop’s

business356), and potentially nearly all of Desktop’s business.357

Nano’s “effectively limit” argument is not totally spurious if one accepts Nano’s

broad interpretation of the 10% Carveout. This argument does, however, seem made-

for-litigation given the evidence presented at trial. Nano raised the issue of moving

production out of Gersthofen for the first time in its February 24 letter to CFIUS.358

Nano had no plans to consolidate the Gersthofen facility during the robust PMI

process.

Indeed, the opposite was true—Nano planned to consolidate manufacturing

into Gersthofen. Just days before the parties initiated the CFIUS review process,

354 JX-1982 at 14–16.

355 Trial Tr. at 142:20–144:15, 153:22–154:11, 141:8–12, 146:7–17 (Lederman); see

also id. at 253:24–254:17 (Baharav). 356 Id. at 135:15–136:23, 143:20–144:15 (Lederman).

357 Id. at 258:11–260:16 (Baharav).

358 Id.

70 PwC prepared an integration presentation for Nano emphasizing that Gersthofen is

a “core business” that is “recommended to stay.”359 That presentation identified no

fewer than 13 manufacturing facilities for potential closure or downsizing, including

four in Germany.360 For Gersthofen, PwC recommended a broader strategy of

“consolidation into Gersthofen,”361 touting the resulting $1.1 million in savings as a

“Quick Win” Nano could achieve within “Day 1-100.”362 Nano’s leadership agreed,363

and that remained the plan.364 Until Nano decided it served its interests in this

litigation to claim otherwise, there was no indication it ever considered any approach

other than “[c]ontinu[ing] to run Gersthofen profitably.”365 As Nogueira, who led

Desktop’s PMI efforts testified, “the game plan in the playbook was to consolidate

those other facilities into Gersthofen, including Nano’s Munich facility.”366

Nano presented no credible testimony to the contrary. During depositions,

Nano relied on the testimony of its former Chief Revenue Officer Baker. But when

confronted at his deposition with the many documents establishing Nano’s intention

to consolidate into Gersthofen, Baker conceded that he “was not involved in the

359 JX-1622 at 27–28.

360 Id.

361 Id.

362 Id. at 28, 31.

363 JX-3208 at 1.

364 JX-3202 at 2.

365 JX-1622 at 195.

366 Trial Tr. at 49:7–50:18 (Nogueira).

71 facility consolidation planning.”367 Baker admitted he was not “aware of any

discussions about closing the Gersthofen facility.”368 During trial, Baharav invoked

the expiration of the Gersthofen lease as justification for seeking to close that

facility.369 But he admitted on cross-examination that he was “surprised” to learn

Desktop has a five-year extension option—information he claimed he “wasn’t told []

when [he] asked.”370

In sum, Nano’s 10% Carveout based on the manufacturing-location provision

only works if one accepts Nano’s broad interpretation of the language and ignores

Nano’s revisionist history concerning the Gersthofen facility. Otherwise, it fails. For

the sake of argument, however, this decision assumes that Nano met its burden as to

the 10% Carveout and turns to the Required-Actions Exceptions issue, discussed

next.

3. Required-Actions Exceptions

Even if the manufacturing-location or software provisions fall within the 10%

Carveout, both also fall within four of the Required-Actions Exceptions.

The manufacturing-location and software provisions fall under Required

Action 2, because they are “guidelines and terms for handling existing or future

contracts with the U.S. Government.”371 They are all defined by reference to the

367 Baker Dep. Tr. at 142:5–9.

368 Id. at 154:13–16.

369 Trial Tr. at 253:16–254:17 (Baharav).

370 Id. at 355:13–356:12 (Baharav).

371 Merger Agr. at 179, Parent Disclosure Schedule § 6.7(b)(2).

72 Covered Products.372 There is thus no requirement in any of these provisions that

governs anything other than “existing or future contracts with the U.S.

Government.”373 By seeking to dictate the manner in which those contracts are

performed, including by specifying the location at which the Covered Products are

made, the NSA sets forth “guidelines and terms for handling” such contracts.374

The manufacturing-location provisions also fall under Required Action 10,

which covers “assurances of continuity of supply to the U.S. government” for defined

periods.375 The title of Article II.A, which requires Nano to “continue to supply . . .

Covered Products . . . to existing USG Customers from the Manufacturing Locations,”

is “Supply Assurance.”376 The supply obligation is not indefinite, but rather lasts only

“for [a] defined period[,]” as Required Action 10 requires.377 The duties appearing in

Article II.A are “[s]ubject to . . . Article III,”378 which sets forth a detailed notice

process for a range of actions related to “Covered Products and Covered Services,” 379

including the manufacturing-location provisions to which Nano objects. In rejecting

372 JX-3314 at 22–23.

373 Merger Agr. at 179, Parent Disclosure Schedule § 6.7(b)(2).

374 Id.

375 Id. § 6.7(b)(10).

376 JX-4215 at 26.

377 Merger Agr. at 179, Parent Disclosure Schedule § 6.7(b)(10).

378 JX-4215 at 26.

379 Id. at 30, Article III.B.1–3 (requiring notice before “ceasing or reducing the

supply of Covered Products and Covered Services to USG Customers,” “ceasing or reducing Production Capability,” or “relocating the production of Covered Products to a location not listed on Annex A”).

73 Nano’s attempt to add a three-year limiter to Article II.A, CFIUS explained that “[w]e

reject this edit, as there’s a time requirement following the parties providing notice in

Article III.”380

The software restrictions fall under Required Action 8, which covers “security

protocols to ensure the integrity of products or software sold to the U.S.

Government.”381 The software provisions appear in a section of the NSA that is

entitled “Product Integrity,” and their declared purpose is to ensure the integrity of

products or software sold to the U.S. Government.382

The software restrictions similarly fall under Required Action 3, which covers

actions intended to “ensur[e] that only authorized persons have access to certain . . .

sensitive information.”383

Desktop has proven that the aspects of the March 5 NSA on which Nano bases

its argument for the 10% Carveout are Required-Actions Exceptions.

4. Illegality/Israeli Law

In each NSA draft, CFIUS has included a provision requiring that Nano

“appoint and maintain one observer” on Nano’s Board, who would be required to be

“present physically or virtually at all Board meetings” to report any NSA violations

and to “prioritize the national security of the United States over any other

380 JX-1838 at 7.

381 Merger Agr. at 179, Parent Disclosure Schedule § 6.7(b)(8).

382 JX-4215 at 28, Article II.C-D.

383 Merger Agr. at 179, Parent Disclosure Schedule § 6.7(b)(3).

74 interest[.]”384 Nano claims that this requirement is exceedingly uncommon and

“likely”385 conflicts with Israeli law.

This point seems irrelevant, because the Merger Agreement permits refusal to

close on the basis of “illegality” only if an actual “legal restraint” directly prevents

consummation.386 In all events, Nano did not prove this point.

Nano offered the expert report of Professor Assaf Hamdani, a highly qualified

and esteemed scholar of Israeli corporate law. Among other issues, Professor

Hamdani opined that the board-observer provisions would call for the appointment

of what is, in essence, a “de facto” or “shadow” director, who will owe fiduciary

obligations to Nano.387 Professor Hamdani argued that this is inconsistent with a

provision requiring that the observer prioritize the national security interest of the

United States over other interests and in violation of Section 106(b) of the Israeli

Companies Law (“ICL”).388

Desktop’s equally esteemed expert, Professor Kobi Kastiel, explained that the

ICL is silent on observers, and in the absence of a restriction, Israeli law is

permissive, not restrictive. He further notes that “there has been a long-standing

384 JX-1906 at 25.

385 Dkt. 269 (“Nano Post-Trial Opening Br.”) at 85.

386See generally Anthem-Cigna, 2020 WL 5106556, at *2 (construing similar provision narrowly); AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929, at *80 (Del. Ch. Nov. 30, 2020) (same). 387 JX-1975 at 10, 15–16 (Hamdani Rep’t).

388 See JX-1975. This above text is an oversimplification of Professor Hamdani’s carefully crafted report.

75 practice of appointing observers in various contexts, both in public and private Israeli

companies.”389 And both the Israeli court and Israeli government have appointed

observers on Israeli boards.390 In fact, the Israeli court had appointed observers to

the Nano board in the Murchinson litigation.391

Professor Kastiel’s opinion, coupled with the recent decision by the Israeli court

in the Murchinson litigation on this very issue, defeats Nano’s effort to prove by the

preponderance of the evidence this nuanced issue of Israeli law.

5. Conclusions On Desktop’s Claims

Desktop proved that Nano breached its obligations under the hell-or-high-

water provision. And even if Nano carried its burden on aspects of its 10% Carveout

arguments on either the manufacturing-location or software provisions, Desktop

proved that the NSA terms to which Nano objects easily fall within the Required-

Actions Exceptions. Moreover, Nano has not proven its affirmative defense of

illegality based on the board-observer provision. Because Nano’s primary offense

relevant to CFIUS approval was delay, Nano also breached its obligation to use

reasonable best efforts to close the Merger as soon as reasonably possible. Desktop,

therefore, has proven its CFIUS-Approval Claim.

389 JX-1948 at 9 (Kastiel Rep’t).

390 Id. ¶ 25.

391 JX-286 at 9 (holding that “one cannot accept [Nano’s] position according to which

taking an active part in board of directors’ meetings by one who is not a director turns that person into a de facto director or shadow director. Those who are not directors frequently take an active part in board of directors’ meetings and this does not turn them into de facto directors as argued by the Company”).

76 B. Nano’s Claims

Nano’s claims against Desktop fall into three categories.

First, Nano claims that Desktop breached the No-Bankruptcy Condition,

triggered if Desktop “admits in writing its inability to pay its debts as they mature.”392

Second, Nano claims that Desktop breached the Covenant-Compliance

Condition, which conditions closing on Desktop having “performed or complied in all

material respects with the obligations and covenants required to be performed or

complied with by it under this Agreement at or prior to the Closing Date[.]”393 Nano

need not close the Merger unless Desktop has complied with this covenant (and

others) “in all material respects.”394 Nano relies on the Ordinary-Course Covenant,

the Receivables/Payables Covenant, and the Transaction-Expenses Covenant.

Third, Nano claims that Desktop breached the Bridge-Loan Requirement by

failing to negotiate with Nano in good faith to execute definitive documentation for

the Bridge Loan.

1. No-Bankruptcy Condition

Under the No-Bankruptcy Condition, Nano is not obligated to consummate the

Merger and may terminate the Merger Agreement if Desktop experiences a

Bankruptcy.395 In relevant part, the Merger Agreement defines Bankruptcy as

392 Merger Agr, § 8.1(g)(ii).

393 Id. § 7.2(b).

394 Id. § 7.2(b).

395 Id. §§ 7.2(b), 8.1(d)(ii).

77 occurring if Desktop “admits in writing its inability to pay its debts as they

mature[.]”396

The language of the Merger Agreement is quite specific. The definition of

“Bankruptcy” does not include insolvency. And Nano expressly agreed to exclude a

solvency representation from the Merger Agreement.397 To show the absence of the

No-Bankruptcy Condition, Nano must prove by a preponderance of the evidence that

Desktop (i) admitted, (ii) in writing, that it was (iii) unable, (iv) to pay its debts as

they matured. Under the plain language of the No-Bankruptcy Condition, it is not

enough that Desktop was insolvent. Nor is it enough that Desktop did not pay debts

as they matured. Rather, Desktop must suffer an inability to pay its debts as they

mature and then admit this much in writing.

To show that Desktop failed the No-Bankruptcy Condition, Nano introduces

expert testimony from Jeffrey W. Kopa, a Partner and Managing Director at

AlixPartners.398 Kopa opined that “Desktop Metal either is not able to pay its debts

as they come due or is likely to become unable to pay its debts as they come due in

the very near-term.”399 “[L]ikely to become unable to pay debts as they come due in

396 Id. § 8.1(d)(ii).

397 See JX-946 at 79 (“While this term [a requirement that Desktop be solvent as a

condition to closing] may have been removed from the Merger Agreement, Nano . . . requires this condition to be satisfied for all term loan borrowings.”); JX-596 at 6 (“[r]emoval of solvency representation” is “[a]greed subject to agreement on operation of business covenant and loan term sheet”). 398 JX-1943 (Kopa Rep’t) ¶ 5; see also JX-4217 (Kopa Supp. Rep’t).

399 JX-1943 ¶ 21(3).

78 the very near-term” does not run afoul of the No-Bankruptcy Condition. In a

supplemental report, Kopa added that Desktop’s past-due debts exceed its available

cash, which comes closer to the hitting standard.400 Kopa bases his opinions on

Desktop’s: public statements regarding bankruptcy, internal projections,

communications with vendors, internal statements, and predictions concerning its

cash position.401 Kopa is highly qualified and was a credible and helpful witness. But

a careful examination of his source materials reflects that they fall short of

demonstrating the specific standard imposed by the No-Bankruptcy Condition.

Desktop’s public statements regarding bankruptcy have been forward-looking

statements, not admissions of a current inability to pay debts as they mature. In its

Q2 and Q3 2024 SEC filings, Desktop states that “it is probable that the entity will

be unable to meet its obligations as they become due within one year”402 and litigation

representations that Desktop was “depleting cash reserves with no financing

backstop” and would “need additional financing in early 2025 to sustain

operations.”403

Desktop’s public statements are consistent with Desktop’s internal projections,

which indicated that Desktop had “less than five months of remaining liquidity.”404

400 JX-4217 ¶ 10.

401 JX-1943 ¶ 75. Kopa also references debt trading levels in his list of sources but does not discuss these in his analysis. He cites to historical cash burn rates as well, which supplies a basis for Desktop’s cash projections discussed below. 402 Id. ¶ 76.

403 Id. ¶ 77.

404 Id. ¶ 78.

79 Again, these projections are (by nature) forward looking. They do not show a current

inability to pay debts as they mature.

The email exchanges to which Nano points regarding Desktop’s overdue

payments get closer to the mark, because they constitute written statements

concerning Desktop’s then-current cash situation.405 But these communications do

not amount to a written admission of the kind required to trip the No-Bankruptcy

Condition. The emails cited by Nano contain one or more of the following from

Desktop’s vendors: (i) requests for payment; (ii) threats of legal action for collection

of overdue payments (or notice that such legal action was already underway); and

(iii) notices that a vendor would or already had determined to discontinue services

due to non-payment. 406

405 Id. ¶¶ 80–84 (citing email exchanges); JX-4217 ¶¶ 2–11 (same).

406 JX-1003 (10/1/24 text message exchange between Desktop employees regarding a

“credit card declined” for “IMTS booth expense”); JX-4144 (10/30/24 email from vendor ICT regarding outstanding balances, stating that “$351,594 . . . is past due” and that “there is $23,580 that is very old and needs to be paid”); JX-1227 (11/20/24 emails between Desktop and Align Tech regarding outstanding invoices); JX-1267 (11/25/24 email from vendor Jabil attaching proposed forbearance agreement, which Desktop did not execute “on advice of counsel” per JX-4086); JX-1335 (12/2/24 internal Desktop email exchange regarding one vendor “threatening legal action” and others “looking for payment”); JX-4034 (12/5/24 email from vendor Omni regarding past due invoices); JX-4035 (12/9/24 internal Desktop email exchange regarding strategy to pay smaller outstanding accounts payable to “clear out some volume”); JX-4038 (12/10/24 email exchange regarding renegotiated payment terms with vendor CreoDent); JX-4037 (12/10/24 email from vendor Dennemeyer regarding outstanding balance and advising that the issue is raised with vendor’s legal department); JX-4041 (12/10/24 email from FedEx regarding past due invoices); JX- 1714 (12/18/24 letter from vendor Shapeways’s Chapter 7 trustee regarding second demand for payment); JX-4083 (1/10/25 email exchange with vendor Apps Associates regarding outstanding balances and delayed payment); JX-4099 (1/14/25 text exchange regarding outstanding vendor payments to Founders); JX-1767 (1/16/25

80 The majority of these communications are from vendors to Desktop, and thus,

by definition, do not constitute written admissions by Desktop. In a few of the

communications, Desktop discusses its plans for payments to certain vendors, but

those communications evidence an intent to pay, not an admission that Desktop could

not pay.407 Some of the communications even establish that vendors agreed to revised

payment terms, suggesting that these exchanges are essentially negotiations.408

For Nano’s purposes, the most helpful of these emails is a collection of

exchanges that Desktop had with its “top vendor for 2023 and 2024 spend,” Jabil Inc.,

one of the company’s contract manufacturing partners.409 In late November, Jabil

sent Desktop a proposed forbearance agreement, providing that Jabil would not take

email from vendor Broadridge regarding past due invoices); JX-4062 (1/17/25 email exchange with vendor Brody Group regarding outstanding balances and threatened legal action); JX-4120 (1/27/25 email from vendor Omni regarding outstanding balances and informing of escalation to legal department); JX-4124 (1/28/25 email requesting payment information for outstanding invoices from vendor BostonBean); JX-4137 (2/3/25 email from vendor Steffan stating it would suspend service for non- payment and commenting on Desktop’s strategy of paying a few smaller balance invoices but leaving larger balances outstanding). 407 JX-1003 (explaining that a payment that Desktop made on an employee credit

card was declined because her card limit was $5,000 and resolving to “send [the invoice] to AP [so] it can be in the normal process”); JX-1227 (explaining that Desktop intended to make a past-due payment by the end of the week or early the following week); JX-4035 (discussing a plan to prioritize smaller invoices over larger ones in the near term); JX-4099 (discussing a plan to check on a payment that was “hung up” because it was not “approved to pay”). 408 JX-4083 (vendor confirming it had received a payment the week of 1/6/25 and

agreeing to move forward with renegotiated payment terms and deadlines); JX-4062 (confirming Desktop paid an overdue invoice on 1/17/25 and prevented a vendor from initiating threatened legal action). 409 Trial Tr. at 95:5–11 (Nogueira).

81 legal action regarding Desktop’s outstanding unpaid invoices if Desktop agreed to

participate in a payment plan.410 Weeks later, on January 10, 2025, Desktop

responded that it could not enter the proposed forbearance agreement “upon legal

advice from” its counsel because doing so would “be in conflict with” the Merger

Agreement.411 This does not look great for Desktop, but it also does not constitute

the requisite written admission.

To be sure, this exchange and the vendor emails generally paint a pretty bleak

picture of Desktop’s financial position at the time. It seems clear that as 2024 was

closing out, Desktop was struggling to stay on top of its bills. The Jabil emails further

suggest that Desktop was acutely aware of and carefully avoiding making any

representations that could be interpreted as admissions that the company could not

pay its maturing debts. But the vendor exchanges nevertheless fall short of tripping

the No-Bankruptcy Condition.

Desktop’s public and internal predictions about whether and when it would

run out of cash do not aid Nano either. As to Desktop’s cash position, Nano asserts

that Desktop’s February financials reflect that Desktop’s “unrestricted cash has been

completely depleted” and that the company only has “approximately $10 million total

cash remaining (including restricted cash).”412 Nano also notes that Desktop’s

“overdue vendor bills with respect to its U.S. operations alone, far exceed[] the total

410 JX-1267.

411 JX-4086.

412 Nano Post-Trial Opening Br. at 55.

82 cash that Desktop has in the U.S. to satisfy those bills.”413 This does not include,

Nano argues, the amounts that Desktop will owe in transaction expenses under the

Merger Agreement.414 But these facts also do not constitute a written admission of

Desktop’s inability to pay its debts. Rather, they are indications, based on a

constellation of circumstantial evidence, that Desktop is enduring a liquidity crunch.

Also, Nano fails to explain why Desktop’s current assets other than cash, such

as inventory, should be excluded from the calculus. Nano’s expert calculated that, as

of Q4 2024, Desktop’s current assets excluding cash exceeded its current liabilities by

$41.4 million.415 Kopa opined that, “[b]ecause the majority of the accounts receivable

are in this past due category, [Desktop’s] ability to further harvest working capital

from accounts receivable collections will be limited in the near term.”416 But

receivables comprised $18.2 million of Desktop’s $98.4 million in non-cash assets,

while inventories and “Prepaid & Other Current Assets” accounted for $73 million

and $7.2 million, respectively.417 Nano does not explain why these other assets

should be ignored when assessing Desktop’s ability to pay its debts.

413 Id. at 55; see also JX-4217 ¶ 10 (“Based on the most recent Validated AP Overdue

balance in the files referenced above, Desktop Metal has substantially more past-due AP to Third Party Vendors than it has cash available in the U.S. to pay such overdue payables.”). 414 Nano Post-Trial Opening Br. at 55–56.

415 JX-1943 ¶ 63, Figure 10.

416 Id. ¶ 83.

417 Id. ¶ 63, Figure 10.

83 Additionally, Nano does not explain why Desktop’s cash in foreign jurisdictions

is not relevant in determining the company’s ability to satisfy its debts as they

mature. As Kopa notes in his own report, Desktop “holds and requires cash in various

jurisdictions around the globe, including a substantial cash balance in Germany.”418

Nano’s refusal to consider this cash is consistent with Kopa’s statement that “Desktop

Metal has acknowledged that impediments to moving cash between jurisdictions

mean that will begin having liquidity issues prior to hitting a zero cash balance.”419

The possibility that Desktop could face issues in moving cash around to address its

payables is not an admission that Desktop was unable to pay debts as they matured.

Aside from Kopa’s report, Nano relies on Desktop’s confidential

communications submitted to CFIUS regarding its “restricted cash position, its

operating cash number, it cash forecast through February 2025, and its impending

bankruptcy in four of its operating jurisdictions” on October 10, 2024, and November

24.420 Once again, these communications—in which Desktop pleads with CFIUS to

move quickly in light of its precarious cash situation—are not the sort of written

admissions that violate the No-Bankruptcy Condition.

In the October submission, Desktop lays out its cash position, including that

the company’s “total available closing balance is expected to fall below $10M by

November 2024” at which point, “cash management will become increasingly

418 Id. ¶ 79.

419 Id.

420 JX-1051 at 9; JX-1782 at 4.

84 difficult” resulting in the possibility that Desktop will have “inadequate operating

funds to manage the business day-to-day even before its cash balance reaches zero.”421

In the November submission, Desktop emphasizes the severity of its

circumstances, noting that the company “anticipate[d] entering December with

approximately $9 million in available cash on a consolidated basis” and warning that

in each of its primary countries of operation (the United States, Germany, Japan, and

Italy), Desktop “face[d] the risk of triggering a bankruptcy requirement without

continued conversion of accounts receivable and inventory, with risks escalating

weekly.”422

Both submissions impress on CFIUS that bankruptcy was an imminent

possibility for Desktop. Both seem designed to spur CFIUS to speed up its review.

But both are carefully crafted so as not to constitute a representation that Desktop

could not pay its debts when they matured.

Nano further argues that the fact that Desktop retained bankruptcy counsel

shows that it could not pay its debts as they matured.423 But as Desktop’s COO

credibly testified at trial, the company has not “retained” bankruptcy counsel, rather,

its financing team has discussed bankruptcy with its transactional counsel, Latham

421 JX-1051 at 9.

422 JX-1782 at 4.

423 Dkt. 250 (“Nano Pre-Trial Br.”) at 25–26; Nano Post-Trial Opening Br. at 34.

85 & Watkins.424 That is consistent with deposition testimony Desktop employees gave

on the same point.425 This does not constitute the relevant admission.

Implicitly conceding that its evidence concerning the No-Bankruptcy Condition

is circumstantial at best, Nano asks the court to draw inferences in its favor, arguing

that Desktop impermissibly blocked access to the relevant information in the

following ways:

• Nano notes that Desktop confidentially submitted to CFIUS material statements about its financial state, purposefully withholding that information from Nano. That information includes Desktop’s restricted cash position, its operating cash number, and its cash forecast through February 2025. But Nano ultimately received those documents in discovery.426 And Nano does not argue that they show Desktop was unable to pay debts as they matured.

• Nano claims that Desktop breached its Buyer Information Rights under the Merger Agreement. But Desktop provided everything Nano requested.427

• Nano argues that Desktop impermissibly blocked discovery into its financial condition and evaded questions at trial. And it is true that Nano’s 30(b)(6) witness, Cole, found it difficult to provide hard-number answers to Nano’s questions based on incomplete mid-quarter results. And Desktop’s witness provided the information available to the

424 Trial Tr. at 67:10–18 (Nogueira).

425 Cole Dep. Tr. at 174:3–6 (“Q. And has Desktop retained restructuring counsel? . .

. THE WITNESS: No.”), 182:10–183:4 (describing conversations Desktop had with transactional counsel regarding solvency); Jordan Dep. 99:5–100:6 (explaining that the Desktop had conversations with its “general counsel, and . . . outside counsel” regarding solvency). 426 Nano Post-Trial Opening Br. at 67.

427 JX-1843.

86 company and good-faith estimates when possible.428 But Desktop’s financial witnesses gave clear testimony on this topic.429

In sum, Desktop’s actions do not support the adverse inferences Nano requests.

Nano also argues that the court should “consider motive when evaluating the

credibility of Desktop’s witnesses” because Desktop’s representations regarding its

financial situation rely “almost exclusively on the testimony of executives who stand

to make millions upon closing.”430 But this argument confuses who holds the burden

on this point—it is Nano’s job to prove that Desktop has violated the No-Bankruptcy

Condition, not Desktop’s job to prove that the company is solvent. Nano has not

established Desktop wrongfully withheld probative financial information, and

therefore, Nano’s failure to show that Desktop made a written admissions of its

inability to pay mature debts, definitively resolves this point in Desktop’s favor.

Although Nano failed to meet its burden, the evidence is quite close. It is

undeniable that Desktop is extremely cash strapped. As Desktop told CFIUS,

operating the company became “increasingly challenging” as its cash balance fell

below $10 million, which it did by December 2024.431 Desktop was well aware of the

risks of “triggering a bankruptcy requirement,”432 and acknowledged that those

“risks” were “escalating weekly.”433 It was a dire situation, as Desktop projected.

428 Cole Dep. Tr. at 157:24-162:4.

429 Trial Tr. at 393:10–21 (Cole); id. at 636:8–14 (Austin).

430 Dkt. 275 (“Nano Post-Trial Answering Br.”) at 15.

431 JX-1782 at 4.

432 Id.

433 Id.

87 This is why Desktop emphasized speed when negotiating the Merger Agreement and

in communications with CFIUS, secured a commitment from Nano to use its

reasonable best efforts to close “as soon as reasonably possible,”434 negotiated for a

January 31, 2025 End Date to be extended only absent regulatory approval, and

further negotiated for heightened efforts requirements as to CFIUS approval. As

discussed above, the Murchinson board caused Nano to breach these obligations.

“[W]here a party’s breach by nonperformance contributes materially to the

non-occurrence of a condition of one of his duties, the non-occurrence is excused.”435

To invoke the doctrine, the non-breaching party must prove by a preponderance of

the evidence that the breach “contributed materially to the failure of the condition by

making its satisfaction less likely.”436 But “if it can be shown that the condition would

not have occurred regardless of the lack of cooperation, the failure of performance did

not contribute materially to its non-occurrence and the rule does not apply. The

burden of showing this is properly thrown on the party in breach.”437 The doctrine

does not require a finding of bad faith, but only some form of deliberate action.438

434 Merger Agr. § 6.7(a).

435 Snow Phipps Gp, LLC v. KCAKE Acq., Inc., 2021 WL 1714202, at *52 (Del. Ch.

Apr. 30. 2021). 436 In re Anthem-Cigna, 2020 WL 5106556, at *91.

437 Restatement (Second) of Contracts § 245 cmt. b (Am. Law Inst. 1981).

438 Snow Phipps, 2021 WL 1714202, at *54.

88 Nevertheless, “[d]eliberate acts to sink a ship, while not necessary, can be sufficient

to warrant application of the prevention doctrine.”439

Even if Nano proved the No-Bankruptcy Condition as of February, Nano did

not prove that condition as of December. If Desktop did experience a Bankruptcy

after December, Nano materially contributed to that circumstance by intentionally

slow rolling the CFIUS approval process to delay closing.

In all, Nano claims that Desktop failed the No-Bankruptcy Condition. This is

Nano’s strongest claim. And the evidence is quite close—almost equipoise. But Nano

bears the burden of proof, which it has not met. Moreover, even if the evidence tilted

in Nano’s favor, Desktop has demonstrated that Nano prevented Desktop from

meeting the No-Bankruptcy Condition by delaying CFIUS approval in breach of the

Merger Agreement. The No-Bankruptcy Condition offers Nano no offramp from the

road to closing.

2. The Covenant-Compliance Condition

a. Ordinary-Course Covenant

The Ordinary-Course Covenant obligates Desktop to “use commercially

reasonable efforts to (x) conduct its business in the ordinary course consistent with

past practice in all material respects; and (y) preserve intact its business organization

and advantageous business relationships and keep available the services of its

439 Chordia v. Lee, 2024 WL 49850 at *37 (Del. Ch. Jan. 4, 2024), aff’d sub nom Lee v.

Chordia, ---A.3d--- 2025 WL 754003 (Del. Mar. 10, 2025).

89 current officers and key employees and maintain its relationships with key

customers” and suppliers.440

To assess whether a party has complied with an ordinary-course obligation,

the court will “compare the company’s actions with how the company has routinely

operated and hold[s] that a company breaches an ordinary course covenant by

departing significantly from that routine.”441 Even where a company takes actions

that could be “characterized as an ordinary course response to” an extraordinary

event, “what matter[s] for the covenant [is] the departure from how the company . . .

operated routinely in the past.”442

Under common law, ordinary course covenants are subject to a materiality

standard. They have been interpreted as intending to “reassure a buyer that the

target company has not materially changed its business or business practices during

the pendency of the transaction.”443 In this case, the Merger Agreement applies an

express materiality overlay. Under the Covenant-Compliance Condition, Nano must

show that Desktop failed to comply “in all material respects.”444

Nano argues that Desktop violated the Ordinary-Course Covenant in three

ways, by: failing to keep available the services of its current officers and key

440 Merger Agr. § 5.1(a).

441 AB Stable, 2020 WL 7024929, at *70.

442 Id. at *69.

443 Anschutz Corp. v. Brown Robin Capital, LLC, 2020 WL 3096744, at *11 (Del. Ch.

June 11, 2020). 444 Merger Agr. § 7.2(b).

90 employees; failing to maintain its relationships with key customers and suppliers;

and failing to conduct a 2024 audit.

i. Current Officers And Key Employees

Nano’s first argument rests on its assertion that Desktop was “hemorrhag[ing]

dozens of engineers and several key executives, totaling 10% of its workforce.” 445 But

Nano must show more than head-count decline under the Ordinary-Course Covenant,

which requires that Nano demonstrate that Desktop’s efforts were not “commercially

reasonable,” and that Desktop lost the “services of” “current officers” or “key

employees.”

Nano cannot prove that Desktop’s efforts were commercially unreasonable

given that Nano was involved in those efforts. According to Nano’s CFO, Nano

“worked together on plans to retain Desktop’s employees after the merger agreement

was signed” and “Desktop did what Nano and Desktop had agreed to do with respect

to [employee] retention.”446 Nano does show that any of the 10% of the workforce that

Desktop allegedly lost were “current officers” or “key employees.”447 Nor does Nano

claim that “the services of its current officers and key employees” were lost, as would

also be required to show breach.448

445 Nano Post-Trial Opening Br. at 61.

446 Trial Tr. at 480:4–14 (Pinchas); see also Pinchas Dep. Tr. at 105:9–106:12.

447 Merger Agr. § 5.1(a).

448 Id. § 5.1(a) (“keep available the services of its current officers and key employees”).

91 Nano also makes no effort to demonstrate materiality. On this score, Nano’s

10% figure is misleading. The headcount decline in the second of half of 2024 was

just 6% after accounting for post-signing hires (who provided the same “services”).449

Plus, headcount decline was not unordinary for Desktop. As Nano’s CFO testified at

trial, Desktop “was implementing workforce reductions prior to execution of the

[M]erger [A]greement.”450 Indeed, Desktop announced in January 2024 that it was

planning to reduce its workforce by 20% that year,451 and the total headcount decline

for 2024 was squarely in-line with that projection. Further, the 6% net number for

the second half of 2024 was lower than the 8.9% reduction in the second half of

2023.452

Nano cites AB Stable to show that a workforce reduction can breach an

ordinary-course covenant,453 but the target there “radically” departed from the

ordinary course of business in multiple ways. The target was a hotel chain facing an

unprecedented decline in business due to the COVID-19 pandemic. It closed two of

its fifteen hotels, kept the other thirteen open in name only with a skeletal staff,

449 Trial Tr. at 81:16–82:6 (Nogueira).

450 Id. at 474:13–16 (Pinchas); see also Stern Dep. Tr. at 61:22–62:8; Nedivi Dep. Tr.

at 103:5–19. 451 JX-614 at 14. Compare JX-1755 at Tab Headcount_12.28.23 (total headcount at the end of 2023 being 1054), with JX-1943 at 21 (Fig. 4) (total headcount at 2024 Q4 being 834). 452 JX-614 at 64.

453 Nano Post-Trial Opening Br. at 61 (quoting AB Stable, 2020 WL 7024929, at *76

(finding that “slash[ing] employee headcount” constituted an ordinary course covenant breach)).

92 dramatically reduced marketing and capital expenditures, and also furloughed over

5,000 employees.454 These facts are far more dramatic than Desktop’s 6% reduction

in force.

Nano has failed to prove that Desktop’s decline in workforce violated the

Ordinary-Course Covenant.

ii. Maintaining Business Relationships

Nano next argues that Desktop breached the Ordinary-Course Covenant by

suspending payments to vendors and undertaking aggressive collections efforts with

customers, resulting in deteriorated relationships with each. In support, Nano cites

the vendor communications discussed in connection with the No-Bankruptcy

Condition,455 as well as an internal email regarding Desktop’s “weekly AR Collections

report.”456

The vendor communications do not support Nano’s Ordinary-Course Covenant

argument.457 Those communications collectively show that Desktop was struggling

with vendor relationships and disputing bills and payment terms. But Nano did not

take discovery from any customers or suppliers to test whether those relationships

had discontinued or even changed.458 Some of the exchanges resulted in revised, more

454 AB Stable, 2020 WL 7024929, at *75–78.

455 Nano Pre-Trial Br. at 19; Nano Post-Trial Opening Br. at 58, 61–62.

456 Nano Pre-Trial Br. at 19 (citing JX-1206).

457 See supra Part II.B.1.

458Trial Tr. at 99:7–10 (Nogueira) (describing Desktop’s “vendor relations” as “ebb[ing] and flow[ing] . . . over the years”).

93 flexible payment terms.459 At most, the vendor emails suggest that some vendor

relationships had become strained. They do not do the work of establishing that these

vendor relationships were “key”460 or that they were so strained as to no longer be

“intact.”461

Nano cites Cooper Tire & Rubber Company v. Apollo for the proposition that

altered payment practices that disrupt vendor relationships can violate an ordinary-

course covenant.462 But in Cooper Tire, the seller halted payments to vendors

shipping supplies to one of its key subsidiaries with the express intent to hold up

production at the subsidiary and compel an end to an ongoing labor strike there.463

In contrast, Nano points to no evidence suggesting Desktop intentionally withheld

payment from vendors to cause disruption to Desktop’s production as a means of

exerting pressure (or for any other purpose). Cooper Tire is inapposite.

Nano’s argument that Desktop has failed to maintain its customer

relationships stands on even shakier ground. The sole support that Nano cites for

this premise is an email from Desktop’s accounts receivable department relaying that

459 See supra Part II.B.1.

460 One of the vendor emails is for less than $2,000 from “BostonBean,” which provides

coffee, breakroom, and pantry services to Boston offices. Nano does not argue that BostonBean was a “key” supplier with which Desktop had an “advantageous business relationship[].” Nano Post-Trial Opening Br. at 44–45 (citing JX-4124). 461 Trial Tr. at 108:17–6 (Nogueira) (credibly testifying that despite conversations

regarding past-due invoices, Desktop still had “good relationship[s]” with two of its key vendors, Jabil and Align). 462 Nano Post-Trial Opening Br. at 61.

463 Cooper Tire & Rubber Co. v. Apollo (Mauritius) Hldgs. Pvt. Ltd., 2014 WL 5654305,

at *17 (Del. Ch. Oct. 31, 2014).

94 the company had spent a “significant amount of time . . . pursuing balances 2,500-

60K.”464 Nano characterizes such collection efforts as “aggressive” and argues that it

did not consent to them.465 Nano’s characterization of this exchange does not make

it so. Nano has not met its burden to establish that Desktop failed to maintain

customer relationships.

Nano has failed to prove that Desktop failed to preserve intact its

advantageous business relationships and maintain its relationships with key

customers.

iii. 2024 Audit

Nano argues that Desktop has not conducted a 2024 audit and does not plan

to file a Form 10-K within the statutory deadline, in violation of its obligation to

maintain financial accounting practices.466

Prior to the Murchinson takeover, the parties reasonably expected the

transaction to close before the end of 2024.467 Further, both parties expected that

Nano would prepare the combined company audit in consultation with its auditor,

KPMG.468 Because the transaction would result in Desktop no longer being a public

464 Nano Pre-Trial Br. at 19 (citing JX-1206).

465 Id.

466 Nano Post-Trial Opening Br. at 53–54, 61–62.

467 See JX-3215 at 10; JX-3213 at 6.

468 JX-1202 at 48 (11/19/24 Nano presentation regarding post-Merger integration stating, “Audit—KMPG to audit combined company”); JX-3210 (12/4/24 email from Nano introducing its “audit partner from KPMG” to Desktop personnel); JX-3214 at 2 (Email exchange between KPMG and Desktop regarding ongoing inventory counts).

95 company, there was no need at that time for Desktop to retain a separate auditor for

its 2024 10-K, due to be filed until March of 2025.469 Nano’s pre-merger integration

documents said as much, setting out that Desktop would begin unified financial

reporting with Nano well in advance of the 10-K filing date.470

Nano’s conduct is to the same effect. On December 4, 2024, Nano connected

Desktop with its auditor, KPMG, to conduct inventory counts for purposes of a

combined audit.471 These communications make no mention of involving Desktop’s

auditor, Deloitte, in the inventory counts. The parties understood that, in Nano’s

words, “KPMG [will] audit [the] combined company.”472 Around this time, Nano also

contacted a vendor that Desktop uses for SEC filings and encouraged Desktop to

cancel the service before it automatically renewed on January 8, 2025. Nano

reasoned that the service would not be needed once the two companies combined.473

Desktop stated that it was “not until December 17, 202[4]—after Murchinson’s

takeover of Nano—that KPMG informed Desktop that it would no longer proceed with

the combined company audit[.]”474 But even that communication from KPMG does

not clearly relay that KPMG will not be performing the combined audit; it only states

that KPMG is going to “hold off on attending inventory counts until the close date of

469 Dkt. 101 (Am. Compl.) ¶ 79; Dkt. 106 (Am. Counterclaims) ¶ 4.

470 JX-1202 at 48–49.

471 JX-3210.

472 JX-1202 at 48.

473 JX-3214 at 77–82.

474 Nano Pre-Trial Brief at 60.

96 the transaction is certain” in order to “avoid doing unnecessary work [because] if the

transaction close date is not close to the count date, [KPMG] would need to perform

more extensive roll forward procedures.”475 This email suggests that the combined

company audit was delayed, not foreclosed.

In these circumstances, Nano cannot show that it would have been reasonable

for Desktop to engage Deloitte to conduct an audit—an audit that Nano did not want

and that would be immediately called off post-closing.

Nano’s cites to Akorn, Inc. v. Fresenius Kabi AG, but that case is inapposite.476

There, the court found that a generic pharmaceuticals company departed from its

ordinary course when it elected to pare down its FDA audit procedures ahead of

closing.477 The audits at issue in Akorn were essential to the seller’s core function as

a drug manufacturer—any departure from ordinary audit practices would necessarily

be material. Here, Desktop’s failure to file a Form 10-K in time will have no similarly

material effect on its ability to conduct business post-closing.

Desktop’s failure to conduct a 2024 audit, and the fact that it does not plan to

file a Form 10-K within the statutory deadline, does not violate the Ordinary-Course

Covenant.

475 JX-1490 at 1.

476 Nano Post-Trial Answering Br. at 5, 41.

477 Akorn, 2018 WL 4719347, at *19–20.

97 b. Receivables/Payables Covenant

The Receivables/Payables Covenant prohibits Desktop from “chang[ing] or

modify[ing] in any manner the existing credit, collection and payment policies,

procedures and practices in respects to accounts receivable and accounts payable.”478

In support of its argument that Desktop breached this covenant, Nano points to

Desktop’s aggregate financial data, which it argues reflects that Desktop materially

slowed its payables between July 2024 and February 2025 and drastically increased

its collection efforts over the same period.479 Nano also relies on Desktop’s internal

guidance, including board decks and emails from management and directors, which

Nano characterizes as “demonstrat[ing] a concerted action to speed up collections and

slow down payables.”480 Nano has failed to prove that either Desktop’s financials or

its internal communications regarding the company’s accounts receivable and

accounts payable reflect a breach of the Receivables/Payables Covenant.

i. Accounts Receivable

Nano argues that the following changes in Desktop’s financials reflect that the

company accelerated accounts receivables post-signing: (i) accounts receivables

decreased by a significant amount from Q2 2024 to Q4 2024, particularly as compared

to the decrease in Desktop’s total revenue over the same period; and (ii) Desktop’s

“days sales outstanding” (“DSO”) declined from Q2 2024 to Q4 2024, from

478 Merger Agr. § 5.1(b)(vi).

479 Id.

480 Id. at 65.

98 approximately 68 days to 50 days.481 Nano’s analysis however, focuses only on three

quarters in 2024.482 As a result, it does not capture whether the highlighted changes

are from modified practices or procedures or market forces, like seasonal

differences.483 Kopa’s narrow data set is problematic in this situation, where the

court must determine if Desktop’s post-signing business practices comport with their

ordinary-course activities.

On this point, Desktop’s financial expert, Yvette R. Austin, is more persuasive.

Austin is the Senior Managing Director and Chair of Compass Lexecon’s Global

Finance Practice and has 30 years of experience in a wide range of economic areas

including valuation, credit and solvency analysis, and other financial damages.484

Austin takes a longer view of Desktop’s receivables and payables practices. In

addition to reviewing trends over the course of Q2 to Q3 of 2024,485 Austin also

compared Desktop’s working capital levels for the entirety of 2024 against previous

481 Nano Post-Trial Opening Br. at 63–64; Nano Post-Trial Answering Br. at 9–11;

JX-1943 ¶ 64(1). 482 Desktop also raises that Kopa’s reliance on Desktop’s Oracle ERP system to conduct his payables analysis is flawed because those figures have not been adequately validated. Dkt. 268 (Desktop Post-Trial Opening Br.) at 80–81. Nano responds that it cannot be blamed for using unreliable data, because that is all Desktop provided. Nano Post-Trial Answering Br. at 12. In all events, the court finds Desktop’s financial expert more reliable on this issue because of her expanded scope of review, and thus, does not reference Kopa’s use of Oracle ERP data to challenge his findings. 483 JX-1969 (Austin Rep’t) ¶ 76.

484 Id. ¶ 1.

485 Austin excludes Q4 2024 from her analysis on the basis that the market was aware

of the heightened risk that the transaction would not close in 2024. JX-1969 ¶ 72.

99 years.486 Austin’s analysis demonstrates that Desktop’s average DSO from Q1 2021

to Q1 2024 was 70 days, whereas average DSO for Q2 2024 and Q3 2024 was nearly

identical at 71 days.487 For the years 2021 to 2023, Desktop’s historical DSO averaged

69 days, compared to the average during the four quarters of 2024 of 70 days.488 Both

comparisons show that Desktop has not accelerated its receivables collections during

the post-signing period.

Nano also argues that Desktop’s internal guidance to employees was to ramp

up its collection processes, but Desktop CFO Cole credibly testified that the push to

accelerate collections was not a modification to its pre-signing procedures or

practices. Since 2023, Desktop has steadily intensified its efforts to collect on its

receivables.489 Beginning in early 2024, Desktop augmented this effort by having

business leaders leverage their relationships with customers to collect aged

balances.490

It is worth noting that although the court does not adopt them, Kopa’s own

findings comport with Cole’s testimony.491 Kopa notes that Desktop’s accounts

486 Id.

487 JX-1969 ¶ 74.

488 Id.

489 Trial Tr. at 367:19–368:19 (Cole).

490 Id. at 424:17–425:7 (Cole). It bears noting that these efforts focused on aged balances, as do many of the emails Nano cites in briefing. See Nano Post-Trial Opening Br. at 27 (citing JX-1710 at 5 (discussing 40% reduction in aged receivables over 60 days due); JX-1206 (discussing efforts to collect “aged” receivables)). Collection of aged receivables is definitionally not an acceleration. 491 Trial Tr. at 367:19–368:19 (Cole).

100 receivable declined by nearly 17% between Q1 and Q2 2024.492 The Q2 2024 actual

accounts receivable figures (from the period before signing) were 30% below

projections.493 And the Q4 2024 revenues—which affect accounts receivables—were

approximately 35% below projections.494 In sum, the delta between the actual results

and projections evidence that—consistent with the period immediately preceding

signing—Desktop converted working capital to cash at a higher rate than it

conservatively assumed, and revenues were lower than projected.

Nano failed to prove that Desktop materially changed or modified any aspect

of its accounts receivable policy.

ii. Accounts Payable

Nano’s arguments regarding Desktop’s financial results and internal direction

on how to treat payables also fail to establish that Desktop violated the

Receivables/Payables Covenant.

As to the financial data, Nano notes that “between July 2024 and February

2025, Desktop’s accounts payable due to third-party vendors increased by 50% and

the amounts overdue increased by 63%[.]”495 In addition to the amount of the

payables increasing, Nano notes that the days outstanding for payment as to

492 Trial Tr. at 565:14–20 (Kopa); compare JX-471 at 3, with JX-669 at 3.

493 JX-679 (Sheet BS-CF) (showing projected Q2 AR balance of $41.9 million); JX-667

at 3 (showing Q2 AR balance of 29.5m). 494JX-679 (Sheet Simple PL) (showing projected Q4 revenues of $50.8 million); JX1831 (Sheet FS_IncomeStatement QTD) (showing actual Q4 revenues of $32.8 million). 495 Id. at 64 (citing JX-4217 at Exhibit 2).

101 Desktop’s accounts payable “more than doubled” between Q2 and Q4 of 2024.496 But

for the reasons stated above, this analysis suffers from being too narrow in scope, and

thus the court adopts Austin’s analyses with respect to comparing Desktop’s pre- and

post-signing receivables practices. Austin’s report shows that Desktop averaged 50

days to pay its outstanding payables in Q4 2024, which is exactly the same as

Desktop’s historical average in the period from Q1 2021 to Q1 2024, before the Merger

Agreement.497

Kopa’s payables analysis is further undermined by his comparison between

Desktop’s non-GAAP cost of goods sold (“COGs”) and the amounts of the accounts

payable over the period from Q2 to Q4 2024, which he opines indicates that Desktop

materially slowed payables.498 But as Desktop pointed out at trial, the Non-GAAP

COGs would not include the company’s transaction and litigation expenses, while the

payables figure would, making a comparison between the rates of the decline

unreliable.499

Last, Nano points to internal guidance Desktop gave its employees via board

decks and emails from management as evidence of Desktop’s shift in payables

strategy.500 But these materials are not persuasive on the issue. Nano notes that a

496 Id. (citing JX-1969 ¶ 75, Exhibit 4).

497 JX-1969 ¶ 75.

498 JX-1943 ¶ 64(3); Trial Tr. 550:19–55:23 (Kopa).

499 Trial Tr. at 571:16–573:4 (Kopa) (agreeing that if one excludes Desktop’s transaction and litigation expenses from its payables figure, the rate of decline between its non-GAAP COGs and payables gets “closer to being . . . correlated”). 500 Nano Post-Trial Opening Br. at 65.

102 Desktop board deck from September included a “Cash Management” page, which laid

out Desktop’s “[h]ighest priorities,” including “[e]xpense control.”501 But with respect

to accounts payable, the same slide notes that the company’s days payable

outstanding has “remained around 60 days.”502 Rather than reflecting a change in

policy, the slide reflects that Desktop’s payables practices remained consistent.

Nano also points to emails from Desktop’s CFO and one of Desktop’s directors

urging the company to prioritize cash management.503 But the email from the CFO

begins with, “I’m certain it doesn’t come as a surprise that managing cash is a

cornerstone priority for DM.”504 Again this language evidences a continuation of cash

management practices or at most, a re-emphasis on them, not the installation of

completely new procedures. And the email from Desktop director Stephen Nigro,

though emphatic about Desktop’s need to “improve its cash management,” offers only

suggestions that he hopes Desktop will “seriously consider[].”505 And notably, none

of the suggestions concern Desktop’s accounts payable policies and procedures.

Nano failed to prove that Desktop materially changed of modified any aspect

of its accounts payable policy.

501 Id. at 22 (citing JX-925).

502 JX-925 at 11.

503 Nano Post-Trial Opening Br. at 65 (citing JX-748, JX-809).

504 JX-748.

505 JX-809.

103 c. Transaction-Expenses Covenant

Section 5.1(b)(xx) prohibits Desktop from “incur[ring] Company Transaction

Expenses that, in the aggregate, exceed $15,000,000.”506 “Company Transaction

Expenses” is defined to include “fees and expenses of legal counsel [and] advisors . . .

incurred by . . . the Company . . . in connection with this [Merger] Agreement or the

consummation of the transactions contemplated by this [Merger] Agreement[.]”507

Desktop has incurred only $13.47 million in Company Transaction Expenses,

under the $15 million cap.508 Still, Nano argues that Desktop should include “the

legal fees and expenses spent on this litigation,” in which case Desktop would have

exceeded the $15 million cap.509 Nano argues that the plain meaning of “expenses of

legal counsel incurred by . . . the Company . . . in connection with this Merger

Agreement” includes fees spent in enforcing the Merger Agreement.

Desktop responds that “Company Transaction Expenses” are just transaction

expenses, and limited to expenses “incurred or payable by the Company or any

Company Subsidiary . . . in connection with this Agreement or the consummation of

the transactions contemplated by this Agreement.”510 Desktop further argues that

the definition of Company Transaction Expenses explicitly addresses various

506 Merger Agr. § 5.1(b)(xx).

507 Id. § 9.2.

508 Nano Post-Trial Opening Br. at 66.

509 Id.

510 Merger Agr. at 56.

104 transaction-related fees and expenses, but nowhere contemplates post-signing

litigation expenses to enforce the agreement itself.511

“If a contract [is] susceptible of two constructions, one of which would produce

an absurd result and the other of which would carry out the purpose of the agreement,

the latter construction should be adopted.”512

Desktop’s argument is consistent with the parties’ contractual scheme. The

parties stipulate to specific performance in the event of breach.513 Nano’s reading of

Company Transaction Expenses would effectively preclude Desktop from seeking

specific enforcement of the agreement by limiting its litigation budget. Nano has

spent more than $17 million on this litigation.514 Nano’s reading effectively means

that only Nano has a right to zealously enforce the Merger Agreement due to the

asserted cap on litigation fees.515 This is the sort of non-sensical result that would

defy any party’s reasonable expectations.

If Nano correctly interpreted the definition of Company Transaction Expenses,

the prevention doctrine precludes Nano from terminating the Merger Agreement

based on a failure of the Transaction-Expenses Covenant.516 That is because Desktop

511 See id.

512 Osborn v. Kemp, 991 A.2d 1153, 1160 n.21 (Del. 2010).

513 Merger Agr. § 9.11.

514 JX-3388; JX-3389.

515See Manti Hldgs. v. Authentix Acquisition, 261 A.3d 1199, 1208 (Del. 2021) (“Contracts will be interpreted to ‘give each provision and term effect’ and not render any terms ‘meaningless or illusory.’”). 516 See supra Part II.B.1.

105 never would have incurred “legal fees and expenses spent on this litigation” but for

Nano’s breaches of the Merger Agreement. Allowing Nano to benefit from its own

breach by counting enforcement costs against the transaction expense cap would

improperly reward contractual violations.

Nano failed to prove that Desktop materially breached the Transaction-

Expenses Covenant.

3. Bridge-Loan Requirement

The Bridge-Loan Requirement obligates Desktop to “cooperate in good faith

with [Nano] to negotiate, agree upon and execute” the Bridge Loan facility, “on the

terms and subject to the conditions” set out on the Bridge Loan term sheet. 517 The

Bridge Loan term sheet incorporated the representations, warranties, and covenants

of the Merger Agreement and provided that any further covenants be “customary for

a facility of this type.”518

To show breach, Nano relies on the fact that Desktop ceased negotiations over

the Bridge Loan documentation around September 27. The relevant background is

brief: Nano’s September 12 draft required Desktop to make certain representations

at the time of signing documentation. For example, Nano’s draft included a

requirement that Desktop represent that it is solvent at the time of signing. Desktop

proposed that the covenant be “springing”—made when Desktop drew down on the

517 Merger Agr. § 6.15; JX-714 (term sheet).

518 JX-714 at 2.

106 loan facility.519 Nano rejected the proposal, stating that Nano “commit[ted] to lend,

the loan agreement, including the covenants, should be binding.”520 Desktop

responded that “[t]he business ask isn’t going to change.”521 Desktop did not send

further comments.

It is hard to make sense of Nano’s claim, given that the Bridge Loan was

intended to supply Desktop with working capital and thus intended to benefit

Desktop.522 There was no reason for Desktop to object to signing a Bridge Loan if the

terms were consistent with what it agreed to. And there is no harm to Nano resulting

from Desktop’s failure to negotiate the Bridge Loan documentation. Nano argues

that Desktop failed to negotiate toward documentation because it did not want a

reduction in the merger consideration, but this does not make sense either. It is true

that Desktop had no intention of drawing on the loan facility. As Fulop testified,

Desktop made that decision before signing the Merger Agreement.523 But Desktop

agreed to a reduction in merger consideration for draws on the loan facility, not for

executing loan documentation.524

519 JX-967.

520 JX-985.

521 Id.

522 JX-714 at 1.

523 Fulop Dep. Tr. at 68:19–69:3, 70:4–9, 304:11–15, 310:11–17, 312:3–13, 322:20–

323:1. 524 Merger Agr. at 56 (reducing “Per Share Merger Consideration” by the “Bridge

Loan Facility Consideration Adjustment Amount”), id. at 53 (defining “Bridge Loan Facility Consideration Adjustment Amount” as the quotient of the “Closing Loan Balance” divided by $2.5 million and $0.10, capped at $0.80), and id. at 54 (defining

107 In any event, the Merger Agreement required that the representations and

covenants in the Bridge Loan be those of the Merger Agreement or “customary of a

facility of this type.” Nano’s demands were neither. The Merger Agreement, for

example, did not contain a solvency representation like what Nano attempted to

insert in the Bridge Loan.525 Nor was that term “customary for facilities of this type,”

according to Desktop’s expert Jonathan F. Foster.526 Foster’s overall impression was

that the Bridge Loan as proposed by Nano contained requests consistent with those

a lender might make in the context of due diligence—that is, before making a

determination as to whether to extend credit. Foster opined it unusual that a lender

would demand such terms where (as here) the lender has already agreed to extend

credit and seeks additional information to help the lender monitor the loan.527

It was not bad faith for Desktop to refuse to agree to terms inconsistent with

the term sheet and not customary. Nano failed to prove that Desktop breached the

Bridge-Loan Requirement.

“Closing Loan Balance” as “the aggregate principal amount outstanding under the Bridge Loan Facility”). 525 JX-604 at 7 (6/11/24 email from Nano’s counsel attaching an issues list reflecting

that Nano agreed to remove the solvency representation “subject to agreement on operation of business covenant and loan term sheet”); see also JX-946 at 79 (9/24/24 email forwarding the latest draft of the Credit Agreement from Nano’s counsel, which contains a solvency representation); compare JX-553 at 36 (5/28/24 email from Nano’s counsel sending a draft merger agreement that included a solvency representation), with JX-616 (6/12/24 email from Nano’s counsel sending a draft merger agreement that does not include a solvency representation). 526 JX-414 (Foster Rep’t) at ¶¶ 25–27.

527 JX-414 ¶¶ 29–41.

108 C. The Remedy

Desktop has proven that Nano breached its obligation to “take[], all action

necessary to receive CFIUS Approval so as to enable the Closing” and use “reasonable

best efforts” to consummate the merger. As a remedy, Desktop seeks specific

performance of this provision and the Merger Agreement as a whole. Specifically,

Desktop asks the court to force Nano to consent to the March 5 NSA provided by

CFIUS and take all other actions necessary to obtain CFIUS approval for this deal.528

Nano has proven no reason to reject the March 5 NSA. The NSA is the last hurdle to

CFIUS approval, and CFIUS approval is the last condition to closing, meaning that

Nano will be obligated to close once CFIUS approves the transaction.

Desktop is entitled to the relief it seeks. The parties to the Merger Agreement

stipulated to specific performance in the event of breach. Section 9.11 provides:

The parties acknowledge and agree that irreparable damage would occur in the event that any provision of this Agreement were not performed in accordance with its specific terms or were otherwise breached, and that monetary damages, even if available, would not be an adequate remedy therefor. It is accordingly agreed that, prior to the termination of this Agreement pursuant to Section 8.1, the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the performance of terms and provisions of this Agreement as provided for herein, without proof of actual damages (and each party hereby waives any requirement for the securing or posting of any bond in connection with such remedy), this being in addition to any other remedy to which they are entitled at law or in equity. The parties further agree not to assert that a remedy of specific enforcement is unenforceable, invalid, contrary to Law or inequitable for any reason, nor

528 PTO ¶ 69.

109 to assert that a remedy of monetary damages would provide an adequate remedy for any such breach.

The parties’ stipulation to specific performance in the event of breach is enough

to deem such relief appropriate in this context.529 If Nano wants to disclaim its

acknowledgment in Section 9.11 based on a common law analysis, then Nano bears

the burden of proving that the equities balance in its favor.530

Regardless of who bears the burden, the equities favor specific performance.

Nano’s failure to take actions necessary to close has created uncertainty for

customers, suppliers, and employees, including the “700 families” who work for

Desktop.531 There are also “significant national security repercussions” if the deal

does not go through.532 There is no evidence of harm to Nano if this court enforces

529 Snow Phipps, 2021 WL 1714202, at *51 (“This [C]ourt has not hesitated to order

specific performance in cases of this nature … where sophisticated parties represented by sophisticated counsel stipulate that specific performance would be an appropriate remedy in the event of breach.”); Channel Medsystems, Inc. v. Bos. Sci. Corp., 2019 WL 6896462, at *40 (Del. Ch. Dec. 18, 2019) (enforcing contractual specific performance clause); Level 4 Yoga, LLC v. CorePower Yoga, LLC, 2022 WL 601862, at *30 (Del. Ch. Mar. 1, 2022), judgment entered, (Del. Ch. 2022), aff’d, 287 A.3d 226 (Del. 2022) (same); see also Kathaleen St. J. McCormick & Robert Erikson, Delaware’s Approach to Specific Performance in M&A Litigation, 20 NYU J.L. & Bus. 7 (2023). 530 Specific performance is appropriate when (1) a valid contract exists, (2) the plaintiff is ready, willing, and able to perform, and (3) the balance of equities tips in the plaintiff’s favor. Snow Phipps, 2021 WL 1714202, at *51. No one disputes the first two elements. The Merger Agreement is a valid contract and Desktop is ready, willing, and able to perform. 531 Trial Tr. at 504:17–508:19 (Fulop); Chiu-Rothell Dep. Tr. at 273:14–281:14; Jordan Dep. Tr. at 67:24–75:3. 532 Trial Tr. at 504:17–508:19 (Fulop); id. at 54:3-8 (Nogueira).

110 the clear contractual language requiring Nano to take “all action necessary” to obtain

CFIUS approval and use “reasonable best efforts” to consummate the merger.

This case is fundamentally different from Alliance Data Systems v. Blackstone

Capital Partners, on which Nano relies.533 There, the court found no breach of a

party’s “best efforts” obligation based on the failure to obtain a required regulatory

approval. The plaintiff’s merger partner was “willing to enter into assurances of the

kind the [agency] was demanding.” And closing was conditioned on the actions of a

third party that was not a signatory to the merger agreement.534 Here, Nano is the

only hold-up to the NSA, and Nano’s breaches are the only reason CFIUS approval

has not yet been granted.

Desktop is entitled to specific performance.

III. CONCLUSION

Partial final judgment is entered in favor of Desktop as set out in the Order

and Partial Final Judgment entered contemporaneously with this Post-Trial

Memorandum Opinion.

533 963 A.2d 746, 764 (Del. Ch. 2009) (cited in Nano Post-Trial Opening Br. at 90).

534 Id. at 764–65.