Desktop Metal, Inc. v. Nano Dimension LTD

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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,

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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

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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."²⁹¹It 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.²⁹²Good faith is relevant. A party cannot go "looking for a way out of its deal."²⁹³

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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."²⁹⁵They are the strongest possible commitment a party can make in a merger agreement with request to regulatory approval.²⁹⁶They are, therefore, rare.²⁹⁷ Hell-or-high-water provisions often retain some degree of buyer flexibility in negotiating with the regulatory body.²⁹⁸Section 6.7(b) does so expressly through the 10% Carveout, which provides that Nano may object to conditions that would

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"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."³⁰⁰If 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

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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

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publicly in no uncertain terms.³⁰²The self-described "team"³⁰³of Murchinson's board nominees, who comprised the entire Nano board as of December 6, 2024, were aligned with the mission³⁰⁴to "[s]uspend . . . the deal."³⁰⁵And 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

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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,"³⁰⁷Nano 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 14.³⁰⁸Nano 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 22.³⁰⁹Nano responded on December 4.³¹⁰CFIUS sent back comments on December 10.³¹¹Nano responded on January 17.³¹²CFIUS 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 14.³¹³Nano instead sent further comments on February 24.³¹⁴CFIUS responded with a redline on March

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5, setting a March 12 deadline to respond.³¹⁵On 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.³¹⁷Nano accepted these provisions in principle, requesting targeted modifications only.³¹⁸Indeed, Nano used the board-observer provision as a reason to strike CFIUS's proposed third-party monitor provision.³¹⁹Momentarily 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.

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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."³²⁰Second, 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.³²¹CFIUS 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.³²³This 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.³²⁴CFIUS

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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."³²⁶But Nano rejected CFIUS's proposed language, stating that it was inconsistent with other portions of the NSA.³²⁷CFIUS then proposed language intended to address Nano's concerns while mitigating the national security risk.³²⁸Again, 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.³³⁰Again 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."³³¹In its March 5 draft, CFIUS requested that the parties provide a legal analysis or legal opinion regarding the potential conflict between the board-

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observer provision and Israeli law.³³²It 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."³³⁶Desktop observes that this definition of

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"control" mirrors SEC Rule 405, which provides definitions for terms used in the Securities Act of 1933.³³⁷The 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

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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."³⁴⁰Putting 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[.]"³⁴¹After 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.³⁴²The parties' understanding of control thus was limited only by the

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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]."³⁴⁴Nedivi 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."³⁴⁵The 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").

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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.³⁴⁶On 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.³⁴⁷That 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.³⁴⁸CFIUS can in its discretion prohibit any such relocation for five years, and afterward compel Nano to license its software indefinitely to a third party.³⁴⁹This is no doubt a limitation on Nano's right to

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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.³⁵⁰U.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.³⁵¹To be a viable competitor in the additive manufacturing space, Nano desires the freedom to move manufacturing to lower-cost geographical regions.³⁵²They 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

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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.³⁵⁵Accordingly, 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,

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PwC prepared an integration presentation for Nano emphasizing that Gersthofen is a "core business" that is "recommended to stay."³⁵⁹That presentation identified no fewer than 13 manufacturing facilities for potential closure or downsizing, including four in Germany.³⁶⁰For Gersthofen, PwC recommended a broader strategy of

"consolidation into Gersthofen,"³⁶¹touting the resulting $1.1 million in savings as a

"Quick Win" Nano could achieve within "Day 1-100."³⁶²Nano's leadership agreed,³⁶³ and that remained the plan.³⁶⁴Until 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."³⁶⁵As 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

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facility consolidation planning."³⁶⁷Baker admitted he was not "aware of any discussions about closing the Gersthofen facility."³⁶⁸During trial, Baharav invoked the expiration of the Gersthofen lease as justification for seeking to close that facility.³⁶⁹But 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."³⁷¹They are all defined by reference to the

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Covered Products.³⁷²There is thus no requirement in any of these provisions that governs anything other than "existing or future contracts with the U.S. Government."³⁷³By 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.³⁷⁵The 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."³⁷⁶The supply obligation is not indefinite, but rather lasts only

"for [a] defined period[,]" as Required Action 10 requires.³⁷⁷The duties appearing in Article II.A are "[s]ubject to . . . Article III,"³⁷⁸which 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

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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."³⁸¹The 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

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interest[.]"³⁸⁴Nano claims that this requirement is exceedingly uncommon and

"likely"³⁸⁵conflicts 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.³⁸⁶In 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.³⁸⁷Professor 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

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practice of appointing observers in various contexts, both in public and private Israeli companies."³⁸⁹And both the Israeli court and Israeli government have appointed observers on Israeli boards.³⁹⁰In 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.

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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[.]"³⁹³Nano need not close the Merger unless Desktop has complied with this covenant (and others) "in all material respects."³⁹⁴Nano 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.³⁹⁵In relevant part, the Merger Agreement defines Bankruptcy as

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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.³⁹⁷To 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.³⁹⁸Kopa 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

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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.⁴⁰⁰Kopa bases his opinions on Desktop's: public statements regarding bankruptcy, internal projections, communications with vendors, internal statements, and predictions concerning its cash position.⁴⁰¹Kopa 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"⁴⁰²and 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

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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.⁴⁰⁵But 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

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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.⁴⁰⁷Some 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.⁴⁰⁹In 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).

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legal action regarding Desktop's outstanding unpaid invoices if Desktop agreed to participate in a payment plan.⁴¹⁰Weeks 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.⁴¹¹This 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)."⁴¹²Nano also notes that Desktop's

"overdue vendor bills with respect to its U.S. operations alone, far exceed[] the total

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cash that Desktop has in the U.S. to satisfy those bills."⁴¹³This does not include, Nano argues, the amounts that Desktop will owe in transaction expenses under the Merger Agreement.⁴¹⁴But 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.⁴¹⁵Kopa 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."⁴¹⁶But 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.⁴¹⁷Nano does not explain why these other assets should be ignored when assessing Desktop's ability to pay its debts.

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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 24.⁴²⁰Once 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

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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.⁴²³But 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

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& Watkins.⁴²⁴That is consistent with deposition testimony Desktop employees gave on the same point.⁴²⁵This 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.⁴²⁶And 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

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company and good-faith estimates when possible.⁴²⁸But 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."⁴³⁰But 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 2024.⁴³¹Desktop was well aware of the risks of "triggering a bankruptcy requirement,"⁴³²and acknowledged that those

"risks" were "escalating weekly."⁴³³It was a dire situation, as Desktop projected.

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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,"⁴³⁴negotiated 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."⁴³⁶But "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."⁴³⁷The doctrine does not require a finding of bad faith, but only some form of deliberate action.⁴³⁸

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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

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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."⁴⁴¹Even 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."⁴⁴³In 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

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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."⁴⁴⁵But 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."⁴⁴⁶Nano does show that any of the 10% of the workforce that Desktop allegedly lost were "current officers" or "key employees."⁴⁴⁷Nor does Nano claim that "the services of its current officers and key employees" were lost, as would also be required to show breach.⁴⁴⁸

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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."⁴⁵⁰Indeed, Desktop announced in January 2024 that it was planning to reduce its workforce by 20% that year,⁴⁵¹and 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,⁴⁵³but 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,

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dramatically reduced marketing and capital expenditures, and also furloughed over 5,000 employees.⁴⁵⁴These 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,⁴⁵⁵as 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.⁴⁵⁷Those 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.⁴⁵⁸Some of the exchanges resulted in revised, more

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flexible payment terms.⁴⁵⁹At 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"⁴⁶⁰or 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.⁴⁶²But 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

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the company had spent a "significant amount of time . . . pursuing balances 2,500- 60K."⁴⁶⁴Nano characterizes such collection efforts as "aggressive" and argues that it did not consent to them.⁴⁶⁵Nano'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 2024.⁴⁶⁷Further, both parties expected that Nano would prepare the combined company audit in consultation with its auditor, KPMG.⁴⁶⁸Because the transaction would result in Desktop no longer being a public

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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 2025.⁴⁶⁹Nano'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.⁴⁷¹These 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."⁴⁷²Around 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[.]"⁴⁷⁴But 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

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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."⁴⁷⁵This 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.⁴⁷⁷The 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.

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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.⁴⁷⁹Nano 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."⁴⁸⁰Nano 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

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approximately 68 days to 50 days.⁴⁸¹Nano's analysis however, focuses only on three quarters in 2024.⁴⁸²As a result, it does not capture whether the highlighted changes are from modified practices or procedures or market forces, like seasonal differences.⁴⁸³Kopa'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 2024,⁴⁸⁵Austin also compared Desktop's working capital levels for the entirety of 2024 against previous

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years.⁴⁸⁶Austin'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.⁴⁸⁷For 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.⁴⁸⁸Both 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.⁴⁸⁹Beginning 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.⁴⁹¹Kopa notes that Desktop's accounts

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receivable declined by nearly 17% between Q1 and Q2 2024.⁴⁹²The Q2 2024 actual accounts receivable figures (from the period before signing) were 30% below projections.⁴⁹³And the Q4 2024 revenues—which affect accounts receivables—were approximately 35% below projections.⁴⁹⁴In 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%[.]"⁴⁹⁵In addition to the amount of the payables increasing, Nano notes that the days outstanding for payment as to

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Desktop's accounts payable "more than doubled" between Q2 and Q4 of 2024.⁴⁹⁶But 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.⁴⁹⁸But 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.⁵⁰⁰But these materials are not persuasive on the issue. Nano notes that a

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Desktop board deck from September included a "Cash Management" page, which laid out Desktop's "[h]ighest priorities," including "[e]xpense control."⁵⁰¹But with respect to accounts payable, the same slide notes that the company's days payable outstanding has "remained around 60 days."⁵⁰²Rather 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.⁵⁰³But 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."⁵⁰⁴Again 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[]."⁵⁰⁵And 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.

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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.⁵⁰⁸Still, 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.⁵⁰⁹Nano 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."⁵¹⁰Desktop further argues that the definition of Company Transaction Expenses explicitly addresses various

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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.⁵¹³Nano'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.⁵¹⁴Nano's reading effectively means that only Nano has a right to zealously enforce the Merger Agreement due to the asserted cap on litigation fees.⁵¹⁵This 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.⁵¹⁶That is because Desktop

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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.⁵¹⁷The 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

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loan facility.⁵¹⁹Nano rejected the proposal, stating that Nano "commit[ted] to lend, the loan agreement, including the covenants, should be binding."⁵²⁰Desktop responded that "[t]he business ask isn't going to change."⁵²¹Desktop 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.⁵²²There 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.⁵²³But Desktop agreed to a reduction in merger consideration for draws on the loan facility, not for executing loan documentation.⁵²⁴

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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.⁵²⁵Nor was that term "customary for facilities of this type,"

according to Desktop's expert Jonathan F. Foster.⁵²⁶Foster'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").

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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

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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.⁵²⁹If 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.⁵³¹There are also "significant national security repercussions" if the deal does not go through.⁵³²There is no evidence of harm to Nano if this court enforces

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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.⁵³³There, 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.

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