DealLawyers.com Blog

I recently blogged about the interesting circumstances surrounding the buyer’s decision to try to get out of the deal at issue in Desktop Metal v. Nano Dimension (Del. Ch.; 3/25). The lawsuit concluded with Chancellor McCormick requiring the buyer to sign a national security agreement with CFIUS to satisfy the final closing condition.

This Sheppard Mullin blog focuses on the court’s weight of the CFIUS-imposed national security-related conditions against the buyer’s contractual closing obligations. Here are the blog’s key takeaways:

Hell-or-High-Water Provision: A pivotal aspect of the court’s decision was the interpretation of a “hell-or-high-water” clause in the transaction merger agreement. This clause required Nano Dimension to undertake all necessary actions—including agreeing to several enumerated conditions typically requested by CFIUS—to secure approval, subject to limited exceptions (i.e., a condition that would require Nano to relinquish control of 10% or more of its business). The court found that Nano Dimension breached this obligation through both its negotiating posture with CFIUS in relation to the NSA and by delaying the CFIUS approval process.

CFIUS Approval Strategy: Desktop Metal’s operations in critical technology sectors resulted in a complicated CFIUS approval process. The ruling emphasized that transaction parties should be aware of the potential for CFIUS to rely on NSAs impacting post-closing operations to address potential national security risks associated with foreign control.

It concludes with this recommendation:

The court’s decision illustrates the importance of clear contractual language detailing the relative obligations of the parties to obtain CFIUS approvals. We recommend that transaction parties carefully consider the implications of CFIUS approval language included in transaction documents:

– For example, agreements should clearly delineate what conditions would be considered reasonable mitigation conditions that a potential buyer must accept (e.g., data security practices and auditing mechanisms) and those conditions that would not trigger an obligation to close (e.g., divestment of certain business lines or the use of proxy boards).

– The use of clear language outlining stakeholder alignment, permissible negotiation strategies and timing considerations with respect to CFIUS approval also contribute to the likelihood of a better outcome with CFIUS.

– Meredith Ervine