Desktop Metal, Inc. v. Nano Dimension LTD, et al., C.A. No. 2024-1303-KSJM (Del. Ch. Mar. 23, 2025) (McCorkmick, C.)

In this memo opinion authored by Chancellor McCormick, the Delaware Court of Chancery (the “Court”) addressed a broken-deal suit to enforce a merger agreement between Nano Dimension, Ltd. (“Nano”) and Desktop Metal, Inc. (“Desktop”), where Nano sought to back out of the agreement. The Court ultimately awarded Desktop specific performance, compelling Nano to close the merger and describing its ruling as “yet another victory for deal certainty.”

Background

In July 2024, Nano entered into a merger agreement to acquire Desktop for $183 million. The merger agreement included a provision that closing the deal was conditional on regulatory approval, including from the Committee on Foreign Investment in the United States (“CFIUS”). The agreement to merge with Nano followed a previous deal between Desktop and Stratasys falling through when Nano, acting as the largest stockholder in Stratasys, led a campaign to have stockholders vote down what would have been a $600 million deal.

Given the nature of Desktop's business, CFIUS approval would be complex and likely require Nano to enter into a national security agreement (“NSA”). Desktop negotiated for a "hell or high water" provision, compelling Nano to take all necessary actions to secure CFIUS approval, and a reasonable best-efforts provision. Nano could, however, back out of the merger under certain circumstances, including if CFIUS forced Nano to relinquish control of 10% of Desktop, unless such terms of the NSA were required actions (“Required-Action Exceptions”); if Desktop entered bankruptcy, which required Desktop to admit it could not pay its debts (“No-Bankruptcy Condition”); or if Desktop did not meet other conditions or covenants specified within the merger agreement. Concerns about Desktop’s cash position led to an agreement for Nano to make a bridge loan available to Desktop. Within the merger agreement the parties agreed that “irreparable damage would occur in the event [of breach], and that monetary damages, even if available, would not be an adequate remedy[.]” The merger agreement then stipulated specific performance as a remedy for breach.

Initially, both companies cooperated towards CFIUS approval and consummation of the merger.
Then, Murchinson Ltd. (“Murchinson”) stepped in. Murchinson was Nano's second-largest stockholder, who had consistently opposed the merger and was not content with Nano’s efforts to scuttle the earlier Stratasys deal. Emboldened by the significant drop in price from the earlier Stratasys deal falling through, Murchinson believed that Nano should wait for Desktop to become insolvent and then acquire the company in bankruptcy. Despite this opposition, the Nano board initially approved the merger. Murchinson then launched a proxy contest, won control of Nano’s board, and pushed to unwind the merger. Meanwhile, CFIUS approval remained the only condition remaining to close.

In December, Nano received an updated draft NSA from CFIUS, this draft followed after prior negotiations between Nano and CFIUS which occurred before the regime change. Nano delayed responding to the new CFIUS draft. Desktop then filed suit to enforce the "hell or high water" provision, but Nano responded to the suit by employing delay tactics, further endangering Desktop's financial position, and filing counterclaims alleging Desktop had failed to meet certain covenants and conditions of the merger agreement.

Key Issues and Court Holdings

After acknowledging the merger agreement’s stipulation for specific performance in the event of a breach, the Court explained that the parties would need to prove their claims of breach by a preponderance of the evidence rather than the typical burden at common law, absent such stipulation, clear and convincing evidence.

Desktop claimed that Nano did not use reasonable best efforts to close the merger and obtain CFIUS approval come “hell or high water.” The Court held that Desktop satisfied the burden of proof to show that Nano did not use reasonable best efforts, as demonstrated by Nano’s stymying of the NSA negotiation with CFIUS. The Court rejected Nano’s defense that CFIUS’s proposed terms restricting the manufacturing location and software involvement of products to be sold to the United States would result in Nano relinquishing 10% or more of its control of Desktop, reasoning that such restrictions would not implicate 10% or more of Desktop’s revenue. Separately, the Court explained even if the restrictions met the 10% threshold, the restrictions fall within the Required-Actions Exceptions.

The Court also rejected Nano’s affirmative defense of illegality under Israeli law because, even though the merger agreement permitted refusal to close on the basis of illegality if an actual “legal restraint” prevented consummation, the appointment of a board observer by regulatory authorities, as required by CFIUS in the NSA, was permitted under Israeli law.

Nano claimed that Desktop violated the No-Bankruptcy Condition, violated the ordinary-course covenant, and breached the bridge-loan provision. The Court held Desktop did not “admit” it could not pay its debts as required by the No-Bankruptcy Condition, and, even if it had, Desktop demonstrated that Nano materially contributed to the circumstances that would have led to such a breach by delaying regulatory approval of the merger agreement.

The Court rejected Nano’s claims that Desktop breached ordinary course covenants when Nano failed to prove that (i) Desktop’s workforce reduction was material, (ii) that Desktop failed to preserve relationships with key customers, and (iii) that it was unreasonable that Desktop did not conduct a 2024 audit in light of the pending merger. Similarly, the Court held that Nano failed to prove violations of covenants related to accounts receivable and accounts payable, where Nano’s data set was narrow and misleading, and transaction expenses, which Nano incorrectly calculated to include litigation expenses.

Finally, the Court held Desktop did not breach its good faith obligation to negotiate a bridge loan when Desktop refused to agree to covenants in the bridge loan that were inconsistent with the term sheet negotiated in the merger agreement.

As a result of the above holdings, the Court awarded Desktop specific performance, compelling Nano to close the merger.

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