IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

AKORN, INC.,

Plaintiff and Counterclaim Defendant,

v.

FRESENIUS KABI AG, 

QUERCUS ACQUISITION, INC., and

FRESENIUS SE & CO. KGAA,

Defendants and Counterclaim Plaintiffs.

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C.A. No. 2018–0300–JTL

MEMORANDUM OPINION

Date Submitted: September 25, 2018

Date Decided: October 1, 2018

William M. Lafferty, Thomas W. Briggs, Jr., John P. DiTomo, Richard Li, MORRIS, 

NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Robert H. Baron, Daniel 

Slifkin, Michael A. Paskin, Justin C. Clarke, CRAVATH, SWAINE & MOORE LLP, New 

York, New York; Counsel for Plaintiff and Counterclaim Defendant.

Donald J. Wolfe, Jr., Michael A. Pittenger, T. Brad Davey, Matthew F. Davis, Jacob R. 

Kirkham, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Stephen P. 

Lamb, Daniel A. Mason, Brendan W. Sullivan, PAUL, WEISS, RIFKIND, WHARTON 

& GARRISON LLP, Wilmington, Delaware; Lewis R. Clayton, Andrew G. Gordon, 

Susanna M. Buergel, Jonathan H. Hurwitz, Daniel H. Levi, Paul A. Paterson, PAUL,

WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, New York; Counsel for 

Defendants and Counterclaim Plaintiffs.

LASTER, V.C.
1

Pursuant to an agreement and plan of merger dated April 24, 2017 (the “Merger 

Agreement”), Fresenius Kabi AG agreed to acquire Akorn, Inc. In the Merger Agreement, 

Akorn made extensive representations about its compliance with applicable regulatory 

requirements and committed to use commercially reasonable efforts to operate in the 

ordinary course of business between signing and closing. Both Fresenius and Akorn 

committed to use their reasonable best efforts to complete the merger, and Fresenius 

committed to take all actions necessary to secure antitrust approval, without any effortsbased qualification. The parties agreed to a contractually defined “Outside Date” for 

closing, set initially at April 24, 2018. If the need for antitrust approval was the only 

condition to closing that had still not been met at that point, then the Outside Date would 

extend automatically to July 24, 2018.

If the merger closed, then each share of Akorn common stock would be converted 

into the right to receive $34 per share. Closing, however, was not a foregone conclusion. 

First, Fresenius’s obligation to close was conditioned on Akorn’s representations having 

been true and correct both at signing and at closing, except where the failure to be true and 

correct would not reasonably be expected to have a contractually defined “Material 

Adverse Effect.” If this condition was not met and could not be cured by the Outside Date, 

then Fresenius could terminate the Merger Agreement. Fresenius could not exercise this 

termination right, however, if Fresenius was in material breach of its own obligations under 

the Merger Agreement.

Second, Fresenius’s obligation to close was conditioned on Akorn having complied 

in all material respects with its obligations under the Merger Agreement. Once again, if 
2

this condition was not met and could not be cured by the Outside Date, then Fresenius 

could terminate the Merger Agreement. Here too, Fresenius could not exercise the

termination right if Fresenius was in material breach of its own obligations under the 

Merger Agreement.

Third, Fresenius’s obligation to close was conditioned on Akorn not having suffered 

a Material Adverse Effect. The failure of this condition did not give Fresenius a right to 

terminate. Once the Outside Date passed, however, either Fresenius or Akorn could 

terminate, as long as the terminating party’s own breach of the Merger Agreement had not 

been a principal cause of or resulted in the parties’ failure to close before the Outside Date.

Akorn and Fresenius entered into the Merger Agreement shortly after announcing 

their results for the first quarter of 2017. During the second quarter of 2017, Akorn’s 

business performance fell off a cliff, delivering results that fell materially below Akorn’s 

prior-year performance on a year-over-year basis. The dismal results shocked Fresenius, 

because on the same date that the parties signed the Merger Agreement, Akorn had 

reaffirmed its full-year guidance for 2018 at Fresenius’s request. Akorn’s performance fell 

well below the guidance, forcing management to adjust Akorn’s full-year guidance 

downward. Fresenius consulted with Akorn about the reasons for the sudden decline, which 

Akorn attributed to unexpected competition and the loss of a key contract. 

Akorn’s CEO reassured Fresenius that the downturn was temporary, but Akorn’s 

performance continued to slide in July and again in August 2018. By September, 

Fresenius’s management team had become concerned that Akorn had suffered a Material 
3

Adverse Effect, although its legal counsel was not certain at that point that Fresenius could 

satisfy the high burden imposed by Delaware law. 

In October 2017, Fresenius received a letter from an anonymous whistleblower who 

made disturbing allegations about Akorn’s product development process failing to comply 

with regulatory requirements. In November 2017, Fresenius received a longer version of 

the letter that provided additional details and made equally disturbing allegations about 

Akorn’s quality compliance programs. The letters called into question whether Akorn’s 

representations regarding regulatory compliance were accurate and whether Akorn had 

been operating in the ordinary course of business. 

Fresenius provided the letters to Akorn. Although Fresenius understood that Akorn 

would have to investigate the allegations in the ordinary course of business, Fresenius 

informed Akorn that Fresenius also needed to conduct its own investigation into the 

allegations. Under the Merger Agreement, Fresenius had bargained for a right of 

reasonable access to Akorn’s officers, employees, and information so that Fresenius could 

evaluate Akorn’s contractual compliance and determine whether the conditions to closing 

were met. Invoking this right, Fresenius had expert attorneys and advisors investigate the 

issues raised by the whistleblower letters.

Fresenius’s investigation uncovered serious and pervasive data integrity problems 

that rendered Akorn’s representations about its regulatory compliance sufficiently 

inaccurate that the deviation between Akorn’s actual condition and its as-represented 

condition would reasonably be expected to result in a Material Adverse Effect. During the 

course of the investigation, tensions escalated between the parties. Matters came to a head 
4

after Akorn downplayed its problems and oversold its remedial efforts in a presentation to 

its primary regulator, the United States Food and Drug Administration (“FDA”). As one of 

Akorn’s own experts recognized at trial, Akorn was not fully transparent with the FDA. 

Put more bluntly, the presentation was misleading. From Fresenius’s standpoint, Akorn 

was not conducting its operations in the ordinary course of business, providing an 

additional basis for termination.

During this same period, Akorn’s business performance continued to deteriorate. In 

mid-April 2018, Fresenius sent Akorn a letter explaining why conditions to closing could 

not be met and identifying contractual bases for terminating the Merger Agreement. 

Fresenius nevertheless offered to extend the Outside Date if Akorn believed that further 

investigation would enable Akorn to resolve its difficulties. Akorn declined. 

On April 22, 2018, Fresenius gave notice that it was terminating the Merger 

Agreement. Fresenius asserted that Akorn’s representations regarding regulatory 

compliance were so incorrect that the deviation would reasonably be expected to result in 

a Material Adverse Effect. Fresenius also cited Akorn’s failure to comply in all material 

respects with its contractual obligations under the Merger Agreement, including Akorn’s 

obligation to use commercially reasonable efforts to operate in the ordinary course of 

business in all material respects. Fresenius also cited the section in the Merger Agreement 

that conditioned Fresenius’s obligation to close on Akorn not having suffered a Material 

Adverse Effect.

Akorn responded by filing this action, which seeks a declaration that Fresenius’s 

attempt to terminate the Merger Agreement was invalid and a decree of specific 
5

performance compelling Fresenius to close. Fresenius answered and filed counterclaims, 

contending it validly terminated the Merger Agreement and is not required to close.

This post-trial decision rules in favor of Fresenius and against Akorn. First, 

Fresenius validly terminated the Merger Agreement because Akorn’s representations 

regarding its compliance with regulatory requirements were not true and correct, and the 

magnitude of the inaccuracies would reasonably be expected to result in a Material Adverse 

Effect. Second, Fresenius validly terminated because Akorn materially breached its 

obligation to continue operating in the ordinary course of business between signing and 

closing. Third, Fresenius properly relied on the fact that Akorn has suffered a Material 

Adverse Effect as a basis for refusing to close. 

If Fresenius had been in material breach of its own obligations under the Merger 

Agreement, then Fresenius could not have exercised either of the termination rights on 

which it relied. Akorn tried to prove that Fresenius failed to use its reasonable best efforts 

to complete the merger and breached its obligation to take all actions necessary to obtain 

antitrust approval. By piecing together bits of documents and testimony, Akorn’s skilled 

counsel weaved a tale of buyer’s remorse. I have taken this theory seriously, and there is 

some evidence to support it. 

Having weighed the evidence and evaluated the credibility of the witnesses, I find

that Fresenius fulfilled its contractual obligations. In prior cases, this court has correctly

criticized buyers who agreed to acquisitions, only to have second thoughts after cyclical 

trends or industrywide effects negatively impacted their own businesses, and who then 

filed litigation in an effort to escape their agreements without consulting with the sellers. 
6

In these cases, the buyers claimed that the sellers had suffered contractually defined 

material adverse effects under circumstances where the buyers themselves did not seem to 

believe their assertions.

This case is markedly different. Fresenius responded to a dramatic, unexpected, and 

company-specific downturn in Akorn’s business that began in the quarter after signing. 

After consulting with Akorn about the reasons for the decline and receiving unconvincing 

answers, Fresenius appropriately began evaluating its contractual rights under the Merger 

Agreement. While doing so, Fresenius continued to move forward with the transaction. 

Later, Fresenius received whistleblower letters that made alarming allegations about data 

integrity issues at Akorn. Once again, Fresenius consulted with Akorn, then relied on an 

informational access covenant in the Merger Agreement to conduct an investigation. That 

too was proper, because buyers obtain informational rights so they can continue to evaluate 

the seller after signing and determine whether to close. 

Akorn did prove that for approximately a one-week period during February 2018, 

Fresenius embarked on a strategy for achieving antitrust approval that would have breached 

its contractual obligation to take all steps necessary to satisfy that condition to closing. 

Fresenius promptly reversed course, and the parties were on the cusp of receiving antitrust 

approval when Fresenius terminated the Merger Agreement. If all other conditions to 

closing had been met on the initial Outside Date such that it would have extended 

automatically to June 24, 2018, then the parties easily would have obtained antitrust 

approval. Fresenius technically breached its contractual obligation, but it was not a material 
7

breach sufficient to deprive Fresenius of its ability to exercise the termination rights on 

which it relied. 

Any second thoughts that Fresenius had about the Merger Agreement were justified 

by unexpected events at Akorn. The parties agreed to provisions in the Merger Agreement 

that addressed those events, and Fresenius properly exercised its rights under those 

provisions. As a result, the Merger Agreement terminated on April 22, 2018.

I. FACTUAL BACKGROUND

A five-day trial took place on July 9–13, 2018. The parties introduced 1,892 exhibits 

into evidence and lodged fifty-four deposition transcripts—forty from fact witnesses and 

fourteen from experts. Nine fact witnesses and seven experts testified live at trial. 

The parties prepared for trial during eleven weeks of highly expedited litigation. 

Despite the massive effort this entailed, the parties required assistance with only one 

significant discovery dispute, which involved contentious privilege issues. This case

exemplifies how professionals can simultaneously advocate for their clients while 

cooperating as officers of the court. The parties were aided in this effort by a discovery 

facilitator who helped them craft and live by a detailed discovery plan.

My task is to make factual findings based on the record the parties generated. For 

that purpose, Fresenius bore the burden of proving by a preponderance of the evidence the 

facts supporting the exercise of its termination rights. Akorn bore the burden of proving by 

a preponderance of the evidence the facts necessary to establish its claim that Fresenius 

could not exercise those rights because Fresenius was in material breach of its own 
8

obligations. Akorn bore the burden of proving by clear and convincing evidence the facts 

necessary to justify a decree of specific performance. 

Fresenius would have borne the burden of proving the facts necessary to establish 

its affirmative defense of unclean hands. In this case, however, there was no meaningful 

distinction between its contractual arguments and its unclean hands defense. Fresenius 

simply repackaged its contractual arguments as an equitable theory. In my view, the Merger 

Agreement governs the parties’ relationship. If there were issues or actions that could 

support a defense of unclean hands and which did not come within the analytical 

framework of the Merger Agreement, then I would have analyzed that defense. In this case, 

however, the facts fit neatly within the analytical framework of the Merger Agreement and 

point to a contract-based outcome. Under those circumstances, applying the doctrine of 

unclean hands would either duplicate the contractual outcome or create uncertainty by 

departing from the result that the parties sought to achieve for themselves. This decision 

therefore does not address the defense of unclean hands.

Based on these allocations of the burden of proof, the evidence supported the 

following findings of fact.

A. Fresenius

Defendant Fresenius Kabi AG is a pharmaceutical company headquartered in 

Germany.

1

It employs approximately 37,000 people worldwide, has seventy manufacturing 

 

1 PTO ¶ B.2. Citations in this form refer to stipulated facts in the pre-trial order. See

Dkt. 165. Citations in the form “[Name] Tr.” refer to witness testimony from the trial 

transcript. Citations in the form “[Name] Dep.” refer to witness testimony from a 
9

sites around the world, and is worth about €6.5 billion.

2

Its particular areas of focus lie in 

clinical nutrition, injectable drugs, IV solutions, and medical devices.3 Fresenius Kabi is a 

signatory to the Merger Agreement.

Fresenius Kabi is the parent corporation of defendant Quercus Acquisition, Inc., a 

wholly owned acquisition subsidiary. Under the Merger Agreement, Quercus would merge 

with and into Akorn in a reverse triangular merger (the “Merger”). Although a necessary 

party for purposes of Akorn’s request for specific performance, Quercus does not play a 

meaningful role in the dispute.

Fresenius Kabi is also the parent corporation of non-party Fresenius Kabi USA, 

LLC (“Fresenius USA”), another wholly owned subsidiary.

4

In the United States, Fresenius 

Kabi operates through Fresenius USA. Fresenius Kabi viewed the Merger as a way to 

expand its business in the United States, and personnel from Fresenius USA figure 

prominently in the record.

Fresenius Kabi is itself a wholly owned subsidiary of defendant Fresenius SE & Co. 

KGaA (“Fresenius Parent”), a German company whose shares trade publicly on the 

 

deposition transcript. Citations in the form “JX –– at ––” refer to a trial exhibit with the 

page designated by the last three digits of the control or JX number or, if the document 

lacked a control or JX number, by the internal page number. If a trial exhibit used paragraph 

numbers, then references are by paragraph. 

2 Henriksson Tr. 933, 1027; see PTO ¶ B.2. 

3 Henriksson Tr. 933–34.

4 PTO ¶ C.2.
10

Frankfurt Stock Exchange.5 Through various business segments, Fresenius Parent offers 

products and services for hospitals, dialysis, and outpatient treatment.6 Fresenius Parent 

has been in existence for more than a century, operates in more than 100 countries, and 

employs approximately 277,000 people worldwide.7 For its fiscal year 2017, Fresenius 

Parent had sales of approximately €34 billion and an operating profit of nearly €5 billion.8

Fresenius Parent is a signatory to the Merger Agreement for the purpose of causing 

Fresenius Kabi to comply with its obligations.9

The resulting three-tiered corporate structure puts Fresenius Parent at the top, then 

Fresenius Kabi, then Fresenius USA. The corresponding human hierarchy starts with the 

Supervisory Board of Fresenius Parent, which plays the same role as the board of directors

of a Delaware corporation. Because it is a German company, Fresenius Parent also has a 

Management Board, consisting of the senior executives of that entity. Since July 2016, 

Stephan Sturm has served as the top executive at Fresenius Parent and Chairman of the 

Management Board.

10 Since 2013, Mats Henriksson has served as CEO of Fresenius 

 

5

Id. ¶¶ B.2–3.

6

Id. ¶ B.3. 

7 Sturm Tr. 1171, 1195.

8

Id. at 1171.

9

JX 1 § 8.16.

10 Sturm Tr. 1169–71.
11

Kabi.11 He also serves as a member of the Management Board of Fresenius Parent.

12 For 

many years, John Ducker has served as President and CEO of Fresenius USA.13

Although critically important for many purposes, distinguishing among the 

Fresenius entities is generally not necessary in this decision. It therefore refers only to 

Fresenius, unless context requires a more specific referent. 

B. Akorn

Plaintiff Akorn is a specialty generic pharmaceuticals company organized under the 

laws of the State of Louisiana and headquartered in Lake Forest, Illinois.14 Akorn’s stock 

trades publicly on NASDAQ under the symbol “AKRX.”

15 Akorn is defined as the 

“Company” in the Merger Agreement, and this decision sometimes uses that term. During 

the events giving rise to this litigation, Raj Rai was its President and CEO.

Akorn’s business model focuses on selectively targeting products with complex 

manufacturing processes or that are deliverable in alternative dose forms, such as 

 

11 Henriksson Tr. 933–34. 

12 Sturm Tr. 1172. 

13 Henriksson Tr. 935–36; Bauersmith Tr. 575–76.

14 PTO ¶ B.1. Attentive readers will have noted that none of the parties to the Merger 

Agreement is a Delaware entity. Even Quercus, the acquisition subsidiary, is a Louisiana 

corporation. The parties nevertheless chose Delaware law to govern the Merger Agreement 

(excluding internal affairs matters governed by Louisiana law) and selected the courts of 

this state as their exclusive forum for litigation. See JX 1 §§ 8.06 & 8.07.

15 PTO ¶ B.1. 
12

injectables, eye drops, oral liquids, inhalants, and nasal sprays.

16 Akorn’s management 

team believes this strategy carries less risk and generates more consistent profit margins

than other generic drug company strategies.

17 Akorn has manufacturing facilities in 

Decatur, Illinois; Somerset, New Jersey; Amityville, New York; Hettlingen, Switzerland;

and Paonta Sahib, India. Akorn has research and development centers in Vernon Hills, 

Illinois, and Cranbury, New Jersey.18

Akorn’s primary regulator is the FDA.

19 Akorn’s quality operations function is 

responsible for ensuring that Akorn’s plants and R&D centers meet FDA requirements.20

To carry out this function, Akorn’s Global Quality Compliance (“GQC”) team conducts 

periodic audits; Akorn also retains consultants who evaluate its sites and processes.

21

Akorn’s quality operations function is also responsible for ensuring that Akorn 

complies with FDA requirements when making submissions to the FDA, such as when 

filing an Abbreviated New Drug Application (“ANDA”) to seek approval for a new generic 

 

16 See Rai Tr. 455–56; PTO ¶ B.1. 

17 See Rai Tr. 456–57; see also Bauersmith Tr. 614; Bauersmith Dep. 111–12.

18 Wasserkrug Tr. 7–8.

19 Id. at 18–19.

20 Id. at 8–9, 15–16.

21 See id. at 14–15, 18; Pramik Tr. 219–220; Kaufman Tr. 272; Chesney Tr. 1240–

41. 
13

drug.

22 When reviewing an ANDA, the FDA relies on data submitted by the applicant. To 

ensure that data is reliable, the FDA imposes rigorous data integrity requirements on 

pharmaceutical companies.23 From the FDA’s standpoint, “ensuring data integrity is an 

important component of [the pharmaceutical] industry’s responsibility to ensure the safety, 

efficacy, and quality of drugs, and of [the] FDA’s ability to protect the public health.”24

The FDA’s data integrity requirements place the burden on the pharmaceutical 

company to “prove the origin, transmission, and content of the company’s data and that 

data is what it is purported to be.”25 “A properly designed and managed data integrity 

program strives to mitigate the risk of purposeful data manipulation or fraud by putting 

controls in place that limit to the greatest extent possible the opportunities to manipulate 

data . . . .”

26 To minimize those risks, the FDA’s data integrity requirements impose strict 

requirements that data regarding testing and manufacturing be attributable, legible, 

contemporaneously recorded, original or a true copy, and accurate (“ALCOA”), as well as 

complete, consistent, enduring, and available.27 The FDA’s data integrity requirements are 

part of its current Good Manufacturing Practices (“cGMP”), which are designed to ensure 

 

22 See Wasserkrug Tr. 22.

23 JX 1251 ¶¶ 17–20.

24 JX 112 at 1.

25 JX 143 at 1; accord Kaufman Tr. 323; Kaufman Dep. 196; see Wasserkrug Tr. 9.

26 JX 1252 ¶ 2.1.

27 See JX 1247 ¶ 35; Wasserkrug Tr. 8–9, 22; Franke Dep. 33–36.
14

the systematic safety, quality, and reliability of drug products.28 These requirements are set 

out in federal regulations and clarified by FDA guidance.29

A critical component of a modern data integrity system is the company’s IT 

infrastructure.

30 The FDA requires that computer systems have adequate “access controls” 

that restrict who may access electronic data, as well as “change controls” designed to 

“ensure that no unnecessary changes are made, that all changes are documented, and that 

the possible effect of a change is evaluated prior to its implementation.”31 The FDA also 

requires that lab equipment have “audit trails” to document who uses the equipment, when, 

and for what purpose.

32

Data integrity also requires ensuring the authenticity of entries in laboratory 

notebooks.33 Notebooks contain original source data that should be contemporaneously 

recorded by chemists. Notebooks must be preserved, and missing notebooks are “an 

important data integrity issue” because “that data is no longer available” and cannot be 

 

28 Wasserkrug Tr. 8, 12; JX 1251 ¶ 22; JX 1249 ¶ 26.

29 See, e.g., 21 C.F.R. Pt. 211. See generally Wasserkrug Tr. 12–13; JX 934 at 3; JX 

1247 ¶¶ 34–35; JX 1251 ¶¶ 22–23.

30 JX 439 at ‘436 (IT is a “core component of a 21st century quality control 

management structure”); see Pramik Dep. 26.

31 JX 1249 ¶ 96 n.141; see 12 C.F.R. § 211.68(b); Pramik Dep. 27; JX 934 at 3.

32 JX 1247 ¶ 36; see 12 C.F.R. § 211.192; Franke Dep. 56; JX 934 at 3.

33 See 21 C.F.R. §§ 211.68(b) & 211.194(a); JX 934 at 3; JX 1251 ¶ 83; see also JX 

1247 ¶¶ 39–40; Wasserkrug Tr. 22 (describing FDA site visits to inspect notebooks and 

batch records “to assure the ALCOA principles of that data”). 
15

verified.34 At Akorn, each notebook is assigned to a particular individual; making unsigned 

entries in another analyst’s notebook violates fundamental principles of data integrity.

35

The FDA’s data integrity rules require that all test data—both failing results and 

passing ones—be properly recorded.

36 The FDA forbids the practice of “testing into 

compliance,” or running tests again and again until passing results are secured and 

recording only the passing results.

37

FDA regulations require that potential data integrity violations be promptly 

investigated and remediated. FDA guidance calls for “potential data falsification” to be 

“fully investigated” by the firm’s “quality system to determine the effect of the event on 

patient safety, product quality, and data reliability; to determine the root cause; and to 

ensure the necessary corrective actions are taken.”38

The FDA is required to inspect manufacturing facilities on a risk-based schedule39

and typically inspects Akorn’s sites at least once a year.40 The FDA may also conduct 

 

34 Franke Dep. 51–52.

35 Sherwani Dep. 54–57; Silverberg Dep. 54–55.

36 Wasserkrug Dep. 86–87; see 21 C.F.R. § 211.194(a); JX 934 at 3. 

37 Wasserkrug Dep. 52–53, 86–87; JX 1252 at 3. 

38 JX 112 at 9–10 (citing 21 C.F.R. §§ 211.22(a), 211.125(c), 211.192, 211.198, 

211.204); see Rai Dep. 26 (acknowledging that Akorn “absolutely” has “responsibilities to 

investigate and remediate data integrity problems”).

39 21 U.S.C. § 360(h)(3).

40 See Wasserkrug Tr. 20.
16

directed “for cause” inspections.41 At the conclusion of an inspection, the FDA holds a 

close-out meeting and shares its observations.42 The FDA may provide only oral 

observations, or it may document observations in a Form 483, which is a written report 

from the FDA documenting “observations [that] are intended to denote significant 

conditions that constitute violations of cGMPs.”43 The company has an obligation to 

respond to the FDA’s observations within fifteen business days with a root cause analysis, 

impact assessment, and a set of corrective and preventative actions (“CAPAs”).

44 If the 

FDA determines that the company has proposed adequate CAPAs, it will typically classify 

the inspection as voluntary action indicated (“VAI”).45 If the FDA determines that the 

remedial measures are insufficient, it may classify the inspection as official action indicated 

(“OAI”).46 An OAI classification can lead to further regulatory action, such as follow-up 

inspections or the issuance of a Warning Letter.47 After the issuance of a Warning Letter, 

the FDA typically will not approve new product applications from the facility until the 

 

41 JX 934 at 4; JX 1249 ¶ 55; Wasserkrug Tr. 23. 

42 Wasserkrug Tr. 24.

43 JX 1249 ¶ 56; see JX 1247 ¶ 48; Wasserkrug Tr. 24.

44 Wasserkrug Tr. 24–25; see JX 1249 ¶ 58. 

45 JX 1247 ¶ 52; Wasserkrug Tr. 25–26.

46 JX 1247 ¶ 53; Wasserkrug Tr. 26.

47 Wasserkrug Tr. 13, 25–28, 72; JX 1247 ¶ 53. 
17

observations are remediated.

48 If the FDA has concerns about a company’s data or a 

submission, it may send the company a Complete Response Letter (“CRL”) which, as its 

name indicates, requires a complete response.

49

Data integrity violations are particularly serious because they “break trust” between 

the offending company and the FDA.

50 The FDA may require the withdrawal of an ANDA 

if the FDA finds that it contains an untrue statement of material fact.51 In cases of repeated, 

intentional submission of inaccurate data, the FDA may invoke its Application Integrity 

Policy (“AIP”), which “halts all ongoing scientific review of pending applications to the 

agency until specific milestones are accomplished by the company.”

52 Exiting from the 

AIP is a time-consuming and expensive process that involves an independent investigation, 

corrective action plan, recall or retesting of products, and withdrawal and resubmission of 

applications.53 If systemic issues remain uncorrected, the FDA may seek a court-enforced 

permanent injunction. In extreme cases, the FDA may bar a company from making 

 

48 JX 1249 ¶ 61; Wasserkrug Tr. 28; see also JX 1247 ¶ 53; Chesney Dep. 149. 

49 Chesney Dep. 148–49.

50 JX 1251 ¶ 19.

51 See 21 U.S.C. § 355(e); JX 934 at 4.

52 JX 1251 ¶ 33; see JX 1247 ¶ 53; JX 1355.

53 JX 1251 ¶ 34.
18

submissions, exclude it from other federal programs, or refer matters for criminal 

prosecution.54

At the time the Merger Agreement was signed, Mark Silverberg was the head of 

Akorn’s quality function, holding the title of Executive Vice President, Global Quality 

Affairs.55 Silverberg had been Akorn’s most senior quality official for over ten years. In 

that role, he reported directly to Rai, Akorn’s CEO.

The record demonstrated that Silverberg was not a suitable individual to be 

responsible for Akorn’s quality efforts. One year before the Merger Agreement was signed, 

Akorn’s board of directors and Rai concluded that Silverberg was not up to task of carrying 

out his duties and needed to retire.56 Silverberg nevertheless remained at his post until 

nearly one year after the signing of the Merger Agreement, on March 1, 2018, when Kim 

Wasserkrug, previously the head of quality at Akorn’s Decatur site, took over the quality 

function. Silverberg was shifted to the role of “Quality Advisor.”57 His new role had no 

substantive responsibilities (other than to help with this litigation), came with a 20% 

 

54 See JX 934 at 5; JX 1249 ¶ 61.

55 See JX 204 at ‘056; Rai Tr. 498–99.

56 See JX 115; JX 132; JX 137; see also JX 121; JX 890 at ‘274.

57 JX 955 at ‘702.
19

diminution in pay, and was originally to last for the lesser of 90 days or until the Merger 

closed. It was a constructive termination for cause.

58

Akorn took employment action against Silverberg only after learning that in August 

2017, during the period between signing and closing, Silverberg submitted a response to a 

CRL that he had been told—and I believe knew—would result in the submission of 

fabricated data to the FDA.

59 If he had not signed off on the CRL, Akorn would have had 

to withdraw the ANDA, which would have been a red flag for Fresenius that could have 

put the Merger in jeopardy. In my judgment, Silverberg submitted the false CRL in an

effort to avoid inviting any scrutiny of Akorn’s data integrity deficiencies until after the 

Merger closed, when it would be Fresenius’s problem.

60 Akorn ultimately withdrew the 

ANDA in March 2018.61 But for an investigation that Fresenius was conducting into two 

whistleblower letters it received, Akorn would not have withdrawn the ANDA or taken 

 

58 See Rai Tr. 496 (“Q. And, of course, as we all know, [Silverberg] was fired, right, 

by Akorn? A. Yes.”); Wasserkrug Tr. 105 (“In my mind, he was fired, but yes.”).

59 See Wasserkrug Tr. 105 (agreeing that Silverberg was fired “because he failed to 

direct the withdrawal of an ANDA submitted to the FDA for the drug azithromycin after 

being told that the submission contained likely false or fabricated data” and “for knowingly 

resubmitting that inaccurate data, or highly likely inaccurate data, to the FDA in a CRL 

response back in August of 2017”).

60 In a submission made after post-trial argument, Akorn informed the court that the 

database of a stand-alone high accuracy liquid particle counter had been deleted at the 

Somerset site on August 22, 2018. Dkt 201 at 1. In a moment of brazen candor, Akorn 

argued that if Fresenius had not “repudiated the Merger Agreement itself, the deal would 

have closed months earlier and the risk of such an event would have fallen on Fresenius.” 

Dkt. 209 at 7; see also Wasserkrug Dep. 157; Wasserkrug Tr. 139; JX 590 at ‘472.

61 See JX 1070 at ‘771; Wasserkrug Tr. 43–44.
20

any action against Silverberg. After constructively firing Silverberg, Akorn did not use the 

opportunity to deliver any type of message to its employees about the importance of data 

integrity or its intolerance for inaccurate submissions to the FDA.62

During his ten years heading up the quality compliance function, Silverberg placed 

“a lot of pressure” on employees “to just get things done and get products out [the] door.”63

In an employee survey conducted in January 2016 that went to Rai and other members of 

senior management, a whistleblower submitted the following comment:

Our current Executive Vice President of Quality Assurance is not fostering a 

willingness to change the current Akorn culture. Instead of acknowledging 

and embracing our compliance gaps and working collaboratively with other 

groups to change and mature our quality systems, he actively works to 

prevent collaboration and transparency. He has actually counselled his staff 

to not speak to Global Quality Compliance staff and to not share information 

with GQC. This is not in line with our new mission and values statement. He 

has also provided misleading information to regulatory bodies including the 

US FDA.64

The comment was exceptional both in its content and its source: it came from someone 

who worked in Akorn’s headquarters in Lake Forest, where Silverberg himself worked 

along with Rai and the executive team. Yet Akorn did not investigate it. During the same 

period when the problems with the azithromycin CRL were unfolding, Silverberg 

instructed the head of quality at Akorn’s Swiss site not to open an investigation into a 

 

62 Rai Tr. 497, 502–03.

63 JX 870 at ‘895 (“[T]here was a lot of pressure from Mark S to just get things done 

and get products out [the] door.”).

64 JX 246 at ‘573.
21

quality issue he reported, not to put Silverberg’s response in any file relating to the matter, 

and not to put FDA-sensitive subjects in emails.65

On Silverberg’s watch, Akorn did very little to address data integrity issues. In June 

2016, Ron Johnson, an Akorn board member with FDA experience,66 wrote to Silverberg 

to express concerns about Akorn’s state of compliance: 

I continue to be concerned that our position always seems to be that FDA got 

it wrong and we are just fine. I do not think we are fine, I think there are 

signals that we are missing. As the leader of the quality function, I do not 

understand how you can tolerate the continued non-compliance by 

employees, supervisors and quality assurance staff. . . . We have dogged [sic] 

a bullet a number of times, but at some point, our number will be up unless 

we, once and for all, fix the underlying reasons why our people do not adhere 

to procedures. Why do we not see an effort to do this?67

Silverberg’s initial response was “I think we should communicate live (on the phone).”68

In December 2016, during a meeting of the board of directors’ Quality Oversight 

 

65 See JX 623 (Silverberg stating, “Please do not incorporate this correspondence 

into any related complaint investigations or files[,]” and instructing, “Please do not put 

FDA sensitive subjects into emails as such.”); JX 667 (Silverberg: “Let’s discuss by phone 

please at your earlier convenience.”); JX 778 at ‘557 (Silverberg instructing Sherwani in 

connection with the azithromycin investigation, “No more emails.”). Stuart testified that 

during Cravath’s investigation into the azithromycin problems, discussed below, they 

determined that Silverberg subsequently ordered an investigation into the issue. Stuart Tr. 

868–69.

66 See, e.g., JX 470 at 14 (April 2017 consultant report quoting unnamed FDA 

official: “Ron Johnson [a board member at Oak] is ex-FDA and highly respected. He gives 

the company excellent credibility.”) (alteration in original). 

67 JX 1403 at ‘004.

68 Id.
22

Committee, Johnson again “expressed his concern around the repetitiveness of issues 

between sites and across sites identified during audits & external inspections.”69

Also in December 2016, Akorn received a “Compliance Gap Analysis Summary 

and Recommendation Report” for its Decatur facility from John Avellanet of Cerulean 

Associates LLC, who had inspected the facility during a four-day visit in September 

2016.

70 The report was blunt: “Overall, the review found that the data integrity controls at

. . . Akorn’s Decatur, Illinois site . . . are insufficient to support compliance with current 

data integrity expectations and [FDA] regulatory requirements.”71 The report warned that 

“[a]s a result, Akorn currently shoulders significant regulatory and negative public 

perception risk.”72

Cerulean identified seven critical, seven major, and at least five minor 

nonconformities at the Decatur site.

73 The report defined a critical nonconformity as one 

that is “reasonably likely to directly impact (e.g., either immediately cause, enable, or be a 

non-compliance) the regulatory compliance status of the organization.”

74 The report 

warned that “[h]istorically, these findings have consistently resulted in public enforcement 

 

69 JX 235 at ‘598; see Rai Tr. 515–16.

70 See JX 231; Wasserkrug Tr. 31–32.

71 JX 231 at ‘062.

72 Id. 

73 Id. at ‘062, ‘067.

74 Id. at ‘067.
23

actions (e.g. FDA Warning Letter, product recall, etc.) and have been significant factors in 

product liability litigation.”75 The report also warned that “[r]epeat non-conformities . . . 

pose an increased risk because they are indicators that an organization did not take adequate 

corrective actions and thus may not treat its responsibilities as seriously as appropriate.”76

The seven critical findings were:

 “Failure to exercise sufficient controls to prevent data loss.”77

 “Insufficient data integrity controls (both procedural and technical) to prevent 

unauthorized changes to electronic data.”78

 “Insufficient registered record archival controls and retention for records involved 

in drug product manufacture, testing and release, and quality records.”79

 “Failure to have sufficient controls over computerized equipment used in regulated 

processes and used to create, manipulate, edit, [and] store . . . regulated data for drug 

product safety and quality testing and release.”80

 “Inadequate validation of computerized systems to ensure the ongoing suitability of 

systems for Akorn processes, data, and personnel.”81

 

75 Id.

76 Id.

77 Id. at ‘068.

78 Id. at ‘069.

79 Id. at ‘071.

80 Id. at ‘072.

81 Id. at ‘074.
24

 “Inadequate control over approved specifications for drug product and raw 

materials, and failure to ensure that product testing data is derived from compliance 

with established specifications and standards.”82

 “Inadequate corrective action and preventative action and out-of-specification 

investigations, explanations, and corrective actions.”83

Specific deficiencies included that any Akorn employee could add, delete, or modify 

electronic data, which undermined “all of the test data [and] all of the production data” at 

the Decatur site,

84 thereby “call[ing] into serious question the identity, strength, quality, 

safety, purity, and sterility of Akorn’s drug products.”

85 Cerulean also found that Akorn 

had failed to use an audit trail function that would have enabled Akorn to determine 

whether employees had exploited their unlimited access, which also “rais[ed] questions 

over the integrity of the laboratory’s data since initial usage of the instruments.”86

In January 2017, Cerulean conducted a similar assessment at the Somerset site. 

Cerulean was not able to complete its inspection because of inadequate IT support.87 In 

 

82 Id. at ‘075.

83 Id. at ‘076.

84 Avellanet Dep. 111–15.

85 JX 231 at ‘075.

86 Id. at ‘070. Avellanet also found that Akorn was claiming a clearly fraudulent 

number of hours for training on quality issues. See id. at ‘077 (“The Akorn Decatur site 

alone averages 7,000 trainings a month. Assuming each individual works 7 days a week, 

with no vacations or sick leave, that’s 232 trainings a day.”); Avellanet Dep. 120–24.

87 Wasserkrug Tr. 131; Wasserkrug Dep. 156–57; Avellanet Dep. 142–45; see JX 

439 at ‘430; JX 500; JX 504; JX 505; JX 509.
25

May 2017, Cerulean provided Akorn with a preliminary report on the Somerset facility, 

which identified three additional critical findings and three major findings.88 This time, 

Avellanet believed that some of the violations were so severe that Akorn’s senior 

management should be concerned about potential criminal liability under the Park

doctrine.89 Cerulean found that senior management had failed “to ensure an effective 

quality system” and that the IT department failed to “ensure the reliability of the controls 

around data used to make, test, [and] release” sterile drug products.90 As at Decatur, 

Cerulean determined that the latter deficiency raised “serious questions about the reliability 

of any data integrity controls and thus the trustworthiness of any electronic information 

used throughout Akorn to make safety, efficacy and quality decisions.”91 Cerulean also 

identified additional “critical” computer access and audit trail deficiencies at Somerset 

similar to those it found at Decatur.92

 

88 JX 439 at ‘430.

89 Id. at ‘435–36; see United States v. Park, 421 U.S. 658 (1975).

90 JX 439 at ‘435–36.

91 Id. at ‘436.

92 See id. at ‘437 (citing Akorn’s “[f]ailure to have sufficient controls over 

computerized systems . . . used to create, manipulate, edit, [and] store” data used for 

product testing); id. at ‘438 (“Audit trails appear to be inconsistently reviewed . . . .”); see 

also JX 564 at ‘352 (Somerset employee complaining in August 2017 that quality-tracking 

software’s audit trails showed she had completed investigations for matters to which she 

was not even assigned: “It is alarming to me that in light of all the issues that we have 

presented with the Trackwise System, we are being told by IT that these issues do not 

warrant a re-validation of the system.”).
26

Akorn made “no effort” to schedule a date for Cerulean to complete the inspection

at the Somerset site.

93 Akorn cancelled Cerulean’s previously scheduled assessment of its 

Amityville site.

94 Silverberg and other members of senior management identified the 

Merger as the reason for not having Cerulean do any more work.

95 I infer that they did not 

want Cerulean to identify any more data integrity gaps that could jeopardize their efforts 

to sell the Company. The only interest that Akorn’s executives showed in the Cerulean 

report was a request by Joseph Bonaccorsi, Akorn’s Executive Vice President, General 

Counsel, and Corporate Secretary, that Cerulean remove the reference to potential criminal 

liability for Akorn’s executives.96

Avellanet testified that Akorn’s data integrity issues were among the “top three 

worst” of the 120+ pharmaceutical companies that he has assessed,97 a notorious status

given that his practice only involves companies that “have problems.”98 Avellanet testified 

that some of Akorn’s data integrity failures were so fundamental that he would not even 

 

93 Wasserkrug Tr. 132; see Avellanet Dep. 139; see also JX 507 at ‘317 (“executive 

leadership” decided “that IT resources would not be engaged in the third party data 

integrity audit [Cerulean]”).

94 Avellanet Dep. 47; see JX 509 at ‘746.

95 Wasserkrug Tr. 132.

96 Avellanet Dep. 203–07. Gill voiced the request on Bonaccorsi’s behalf. See 

Bonaccorsi Dep. 175–78, 196; Avellanet Dep. 203–05. 

97 Avellanet Dep. 172–73.

98 Kaufman Tr. 317–19; accord Avellanet Dep. 301. 
27

expect to see them “at a company that made Styrofoam cups,” let alone a pharmaceutical 

company manufacturing sterile injectable drugs.99 He believed that the “FDA would get 

extremely upset” about Akorn’s lack of data integrity “because this literally calls into 

question every released product [Akorn has] done for however many years it’s been this 

way.”100

Roughly contemporaneously, in June 2016, Akorn’s GQC team identified a critical 

data integrity failure at the Vernon Hills site that paralleled the problems identified by 

Cerulean: a failure to establish proper computer access controls and audit trials.

101 In 

December 2017 and January 2018, an investigation by Lachman Consulting Services, a 

 

99 Avellanet Dep. 173; see also id. at 111–12 (testifying that he had never before 

seen a company where any employee could make changes to electronic data “willy-nilly 

with no traceability or accountability”).

100 Id. at 116–17. Avellanet’s first report concerned Decatur, but the record evidence 

supports a finding that conditions at Decatur were representative of company-wide 

problems at Akorn. See JX 411 (Wasserkrug sending gap assessment to Sherwani: “I 

suspect you will have similar problems with your systems there.”). Witnesses for Akorn 

also claimed that its IT problems did not matter because Akorn was a paper-based 

company. See Wasserkrug Tr. 66. As one of Fresenius’s experts explained, that claim in 

itself is an alarming red flag, because in the current age, a company cannot operate 

compliantly using paper-based systems, and regardless, a company’s computerized 

systems still must be in compliance. George Tr. 1146.

101 JX 655 at ‘479 (“The program . . . is unable to record audit trails and cannot 

support accounts with unique user names and passwords for individual users. Analysts 

routinely log in as ‘Admin’ without a password.”); id. at ‘472 (“[T]he audit observations 

together with the areas of risk identified within Data Integrity; require Akorn to take 

immediate action to mitigate said risk.”); see Wasserkrug Tr. 109–12; see also JX 242 

(GQC audit report on Amityville from October 2016 identifying “critical” deficiency 

related to data integrity).
28

consultant hired by Fresenius, identified similar issues at all of the sites that Lachman 

visited. Beginning in March 2018, an investigation conducted by NSF International, a 

consultant hired by Akorn, found extensive issues at the sites it examined.

Akorn did not do anything meaningful to address the issues raised by Cerulean until 

March 2018, after the investigation that Fresenius conducted into the whistleblower letters 

led to Akorn uncovering Silverberg’s false CRL response, self-reporting to the FDA, and 

committing to address its data integrity problems. Until Fresenius’s investigation forced its 

hand, Akorn was not devoting resources to data integrity. It is true that Silverberg 

facilitated the preparation of a data integrity plan for Decatur in August 2017, but he made 

clear in his contemporaneous communications that it was just so Akorn would have a 

document to show the FDA. When Akorn’s IT department opposed the plan, Silverberg 

reassured them that it was not meant to be implemented. In his jargon, it “serves to 

represent to outside authorities our cognizance of the subject, without committing IT to 

any near term work or responsibility.”102 In late 2017, Patty Franke, Decatur’s Quality 

Assurance Manager for Data Integrity and Compliance,

103 told Cerulean that Akorn was 

“making 0 progress on our DI remediation efforts” at Decatur, which she attributed to “the 

 

102 JX 590 at ‘472; see Wasserkrug Tr. 136–38, 142–43.

103 Franke Dep. 25–26. 
29

culture and the message from management.”104 Wasserkrug testified that she was told that 

“a lot of this stuff would wait until the Fresenius merger occurred,” which was an excuse 

“we heard . . . actually quite often” in late 2017.105

To reiterate, Akorn only started making a concerted effort to address its data 

integrity issues in March 2018, after Fresenius had flagged Akorn’s data integrity problems 

and prompted Akorn to uncover Silverberg’s false CRL response, and after Akorn felt it 

had to try to get ahead of the problem by going to the FDA and committing to address its 

data integrity issues. At that point, Akorn formed an executive steering committee on data 

integrity remediation, which held its kickoff meeting on April 19, 2018.

106 It took until 

June 7, 2018 for Akorn to assemble a list of the hundreds of deficiencies it had 

accumulated, many of which went back years.107 Over a year after receiving the Cerulean 

report, the Somerset facility had not taken any action to address the deficiencies it 

 

104 JX 754 at ‘740. Separate from the periodic audits conducted by GQC and the 

consultant assessments, Akorn’s quality assurance personnel conduct ongoing site 

monitoring and represent “the eyes and ears” for each facility. See Wasserkrug Tr. 14. 

105 Wasserkrug Dep. 157–58.

106 JX 1155; see Rai. Tr. 530.

107 See JX 1885; Rai Tr. 531–34; Wasserkrug Dep. 27–28.
30

identified.108 Decatur had only completed “32% of the corrective actions thus far.”109 By 

the time of trial, Akorn still did not have a remediation plan because it was still in the 

process of figuring out all of the deficiencies that the Company needed to address.110

In its post-trial briefs, Akorn attempted to paint a picture of compliance at Akorn 

that differed radically from what the evidence showed at trial. Notably absent from the 

witness list at trial was any representative from Akorn’s quality function who could speak 

to Company-wide conditions before March 2018. Wasserkrug testified, but she took over 

the company-wide quality function from Silverberg in March 2018 and could not speak to 

matters preceding her tenure, except at the Decatur site where she had been the site quality 

director.111 Silverberg was the obvious candidate, but neither he nor Jaspreet Gill, the head 

of Akorn’s GQC team, nor any other senior member of the quality function testified at trial. 

Rai made claims about quality, but having considered his answers and evaluated his 

demeanor while he was being cross-examined about his commitment to quality, I am forced 

to conclude that he does not regard it as a priority.112 Bonaccorsi gave testimony about the 

 

108 JX 1077 at ‘065–66; see JX 1885 at ‘754; Wasserkrug Tr. 153–54 (“[I]n 2017, 

after getting the Somerset Cerulean report, no actions were taken in response.”).

109 JX 1094 at ‘623; see JX 1885 at ‘754; Wasserkrug Dep. 204–06; Franke Dep. 

239. I do not credit Wasserkrug’s contrary claim at trial that Decatur had completed 70–

75% of the corrective actions. Wasserkrug Tr. 42, 148. 

110 See Rai Tr. 533–34 (Akorn’s data remediation effort “does not have a 

timetable”).

111 Wasserkrug Tr. 106–07.

112 See Rai Tr. 496–519. Another plausible and more alarming inference is that Rai 

consciously disregarded Akorn’s quality issues, including its data integrity problems. Rai 
31

overall structure of Akorn’s quality function, but he is not a quality expert, nor is he part 

of the quality department.113

The evidence at trial demonstrated that Akorn took the steps necessary to establish

the formal structure of a quality function. The evidence also revealed a gulf between 

appearance and reality.114 The extensive and recurring quality and data integrity problems 

 

is the chair of Akorn’s Quality Oversight Committee and its executive steering committee 

on data integrity remediation. Rai Dep. 33, 207. He receives Akorn’s internal audit reports, 

but he does not read them. Rai Tr. 489; see Rai Dep. 201. Rai did not read the Cerulean 

reports either. Rai Dep. 40–41, 67; Rai Tr. 486. After being asked about these documents 

at his deposition, he made no effort to familiarize himself with them between his deposition 

and trial. See Rai Tr. 486–87; see also id. at 474. At his deposition, Rai could not recall 

whether he had ever seen the Decatur internal audit report that GQC sent him on March 

23, 2018. Rai Dep. 200; see JX 1095. When asked for Akorn’s timetable to address the 

critical findings in the Cerulean report and March 2018 GQC report, Rai said he would “go

back and ask” for one. Rai Dep. 207–08. Rai made that decision at his deposition and only 

because opposing counsel showed him the GQC report. See id. at 208–09. At trial, Rai 

asserted that Akorn was “still assessing” a timetable for data remediation. Rai Tr. 534. 

113 See Bonaccorsi Tr. 872–77; see also id. at 923.

114 See, e.g., JX 50 at ‘885 (Akorn board’s Quality Oversight Committee minutes 

from 2014 citing need for a “change of culture” around quality); JX 235 at ‘598 (December 

2016 Quality Oversight Committee minutes in which director Ron Johnson “expressed his 

concern about the repetitiveness of issues between sites and across sites identified during 

audits & external inspections” and emphasized need for “corrective actions on a global 

basis[,]” and director Brian Tambi noted that “it appears that the implementation of 

corrective action is lacking or not timely”); Rai Tr. 514 (“Q. . . . [Y]ou were on a board 

committee [in November 2016] that was aware of significant and repeat problems that 

Akorn was having in its quality function; isn’t that right? A. Yes.”); id. at 518 (Rai agreeing 

that Akorn was having problems across all sites); see also JX 67 at ‘923 (discussion of 

problems with logbooks including use of post-it notes); JX 93 (discussion of missing 

logbooks and data); JX 104 (email discussing changing data and reporting only one set so 

that the FDA would not “point at the data for high impurities”); JX 105 (Franke being told 

that lack of password control and data insecurity were longstanding issues; Franke 

indicating that “[o]n all of the computerized systems within the [Amityville] lab, all users 

have the ability to change the PC time/date while logged in, which is used as a stamp on 
32

at Akorn convinced me that Akorn did not have a well-functioning quality system and 

lacked a meaningful culture of compliance.

 

the data file”); JX 106 (Franke noting concerns about Amityville facility that would require 

“a difficult explanation to any regulatory agency”); JX 107 (Franke expressing concern to 

Silverberg about “[l]ab data system administration” and “[l]ack of [a]ccountability for 

invalid or incomplete data sequences”); JX 116 (Gill calling it “too much to be a 

coincidence” where FDA’s 2016 investigation of Somerset yielded multiple observations 

identical to those made in 2014); JX 126 (Franke noting data integrity problem with piece 

of equipment); JX 133 (“The Somerset findings suggest a step back to focus on remedial 

improvements before true quality advancement to current industry practices can be 

made.”); JX 203 (email regarding investigation into “Falsification/Backdating of 

information”); JX 209 (Pramik emailing about competitor’s Form 483 regarding computer 

controls and remarking, “From discussions with IT, I have the impression this is an area 

we haven’t stayed on top of . . . . Impression is we also have instrumentation that is not 

validated.”); JX 216 (“I wanted to make you aware of another documentation (back dating 

/ falsification) issue identified this week. . . . Obviously, very concerning given this is the 

second issue in as many weeks.”); JX 234 (Franke noting that the absence of a password 

for an Akorn backup server “does not meet industry data integrity and protection 

standards”); JX 241 at ‘113 (December 2016 Executive Leadership Overview on R&D / 

Quality / Compliance IT Systems: “There is FDA compliance risk & likely large 

remediation efforts, but not collective visibility to what we’re dealing with”); JX 328 

(Wasserkrug informing Silverberg and Franke about “a very serious data integrity issue” 

because of lack of access controls in TrackWise); JX 864 (Franke weighing in on quality 

issues from audit that remained unresolved); JX 377 at ‘206 (March 2017 presentation to 

Akorn Board Quality Committee: “Observations revealed a systemic breakdown in Quality 

system across functions, which included management responsibility, training, procedural 

deficiencies, qualification program weaknesses and 21 CFR Part 11 deficiencies.”); JX 499 

(“We have noticed multiple late entries/incomplete information in the log books in the 

lab.”); JX 518; JX 526; JX 565; JX 566; JX 569; JX 870 at ‘895 (“If certain FDA inspectors 

come to Somerset, there will be problems there.”); cf. Rai Tr. 484, 496 (Rai backing 

Silverberg and crediting his explanation for the false submission to the FDA); id. at 486–

88 (Rai admitting that he never read the Cerulean reports and did not attend the training 

Cerulean was hired to give). 
33

C. Akorn Explores Strategic Alternatives.

In February 2016, Akorn’s board of directors consulted with management and J.P. 

Morgan Securities LLC about strategic opportunities.115 The board decided that Akorn 

should explore strategic alternatives once it completed a restatement of its 2014 financial 

information and became current with its financial reporting.

116

In July 2016, Akorn’s then-Chairman of the Board and largest stockholder, John N. 

Kapoor, met with Rai and J.P. Morgan to develop a preliminary list of potential buyers.

117

During a meeting later in July, the board decided to “commence a process to solicit 

proposals to acquire the Company from potential strategic and financial counterparties.”

118

In August 2016, J.P. Morgan approached Alexander Dettmer, Head of Corporate 

Business Development/M&A and Senior Vice President of Fresenius Parent, to explore 

whether Akorn would be a good fit for Fresenius Kabi.119 In early October 2016, Rai and 

J.P. Morgan met with Ducker and gave him a presentation about Akorn.120 During the same 

 

115 See JX 520 at ‘823.

116 Id.

117 Id. at ‘824.

118 Id.

119 JX 520 at ‘824; see PTO ¶ C.1; Rai Tr. 460.

120 PTO ¶ C.2; JX 520 at ‘824.
34

period, J.P. Morgan approached other potential strategic acquirers and private equity 

funds.

121 At later points, other potential acquirers dipped in and out of the process.122

D. Fresenius’s Initial Evaluation Of Akorn

After being approached by Akorn, Fresenius evaluated Akorn with assistance from 

Moelis & Company. A Moelis presentation identified positive attributes, including:

 “Attractive portfolio of niche, high-value generics focused primarily on ophthalmic 

and sterile injective products”123

 “[P]roduction expertise across difficult-to-manufacture alternative dosage forms 

(i.e., other than oral solid dose)”124

 “Deep pipeline of 85% filed ANDAs representing ~$9bn in brand revenue”125

 “Management expects 25 approvals (~$1bn in brand revenue) by March 2017”126

 “Management expects to file at least 20 ANDAs during 2017”127

At the same time, the Moelis presentation highlighted risks:

 

121 See JX 520 at ‘824–25.

122 See id. at ‘828–29, ‘832. See also JX 224 at ‘339 (March 2017 draft J.P. Morgan 

presentation observing that “[s]ince May 2016, J.P. Morgan and [Akorn] have held 

discussions with 8 strategics and 5 financial sponsors”).

123 JX 180 at ‘879.

124 Id.

125 Id.

126 Id.

127 Id.
35

 “Ephedrine challenges – Akorn is the sole supplier for an unapproved product that 

drives ~20% of revenues; however, Flamel has launched the first FDA-approved 

version and other entrants (e.g., Endo/Par) could emerge”128

 “Akorn’s Ephedrine NDA has been impacted by Form 483 deficiencies at its 

Decatur, IL facility”129

 “However, 483 issues do not impact products outside of Ephedrine”130

An internal Fresenius assessment identified similar pros and cons.

131

On November 4, 2016, Akorn announced its financial results for the third quarter.132

Akorn management spoke about the threat of competition for ephedrine and said their 

market share and revenue remained stable.133 Moelis sent Fresenius an updated 

presentation that provided additional detail on ephedrine, including by modeling base, 

downside, and upside cases for that product.134 Fresenius also obtained and reviewed a 

 

128 Id.

129 Id.

130 Id.

131 See JX 188 at ‘007 (citing “[l]arge pipeline of pending ANDAs” but noting risk 

of “competition to Ephedrine” and “[c]ompliance status of manufacturing assets”). The 

Fresenius team also identified the risk posed by Kapoor’s involvement with Akorn as 

Chairman of the Board and its largest stockholder. Kapoor previously had sold a company 

he took public, LyphoMed Inc., in a transaction that resulted in the buyer suing for fraud. 

See JX 183; see also JX 453 at ‘163; JX 470.

132 See JX 194.

133 Id. at ‘246.

134 See id. at ‘246–47.
36

redacted version of a Form 483 for Decatur.

135 James Bauersmith, a Fresenius employee 

charged with evaluating Akorn’s pipeline,136 expressed concern about the Form 483, noting 

that it was the site where Akorn manufactured ephedrine.137

On November 8, 2016, Akorn and Fresenius USA entered into two confidentiality 

agreements, one covering due diligence generally and the second permitting a “clean team” 

to review competitively sensitive information that might have antitrust implications.138 On 

November 11, Akorn management gave a lengthy presentation to representatives of 

Fresenius and provided them with a forecast.

139 Among other things, the presentation 

addressed Akorn’s developmental pipeline,140 the steps Akorn was taking to improve 

quality control at Decatur,141 and the actions Akorn had taken to remediate its financial 

reporting and controls after its financial restatement.

142

 

135 See JX 199.

136 See JX 296 at ‘991.

137 JX 202; see Bauersmith Tr. 591–94.

138 PTO ¶ C.3; Bonaccorsi Tr. 878–79.

139 PTO ¶ C.4; see JX 224 at ‘339; JX 204.

140 See JX 204 at ‘073–79.

141 See id. at ‘058–69.

142 See id. at ‘082.
37

After the presentation, Fresenius looked more closely at the Form 483 for Decatur 

and two earlier Form 483’s that Decatur received in 2013 and 2014.143 A Fresenius 

executive reported that “[t]he 483 shows weaknesses in the quality system but it does not 

look [like] a not working quality system. . . . In summary the 483 does not indicate any 

topic which should lead to further regulatory measures.”144

E. Fresenius’s Initial Proposal

On November 23, 2016, Fresenius proposed to acquire Akorn for $30.00 per share 

plus a contingent value right (“CVR”) that would pay up to $5.00 per share based on 

cumulative ephedrine sales over the next three years.145 The proposal was conditioned on 

satisfactory due diligence and acceptable deal documents. On the day Fresenius made its 

proposal, Akorn’s stock closed at $22.40 per share.146

On December 5, 2016, Rai met with Ducker, stressed the value of Akorn’s pipeline 

and pending ANDAs, and told him that Fresenius’s proposal was too low.

147 He said 

Fresenius would need to improve its bid to gain access to the data room.148

 

143 JX 207.

144 Id. at ‘280.

145 JX 222; PTO ¶ C.5.

146 See JX 520 at ‘826.

147 JX 230 at ‘809; see Rai Tr. 461.

148 See JX 520 at ‘827.
38

F. Fresenius Improves Its Bid.

On January 9, 2017, Rai met with Sturm and reiterated the message about improving 

Fresenius’s bid.

149 Ducker wanted to improve the bid,150 but he encountered resistance 

internally: Bauersmith was heading up a group that was analyzing Akorn’s pipeline,

151 and 

they questioned Akorn’s ability to obtain FDA approval for as many new products as they 

planned, then launch those products as scheduled.

152 Bauersmith regarded Akorn’s 

schedule for launching new products as “the definition of insanity.”

153 Bauersmith and his 

team wanted to use more conservative assumptions.154 Ducker disagreed, describing the 

more conservative assumptions as “a sure way to kill this project.”155

On January 30, 2017, the FDA granted approval for a third competitor to sell 

ephedrine.156 Akorn’s stock price fell on the news, closing at $18.40 per share.157 After this

 

149 JX 520 at ‘828; see PTO ¶ C.7.

150 Bauersmith Tr. 621–23; see id. at 583–84.

151 See JX 296 at ‘991; Bauersmith Tr. 574–75, 581.

152 JX 245 at ‘314; Bauersmith Tr. 577, 581–82.

153 See JX 261 at ‘424 (criticizing assumption of 113 launches over three years); see 

also JX 268 (Fresenius employee expressing view Akorn’s “stated plan of about 25 

products per year is unrealistic and not doable” and that a more realistic goal would be 

“10–12 products per year”); see also JX 278; JX 279; JX 280.

154 See Bauersmith Tr. 584–85, 624; JX 260. 

155 JX 278 at ‘948; see JX 245 at ‘315–16.

156 JX 264 at ‘690.

157 JX 263; see JX 264.
39

development, Fresenius considered restructuring the proposed CVR to focus on revenue 

growth.158 As Bauersmith explained, “We were buying an ephedrine company with a 

pipeline, now we are buying a pipeline company.”159 Bauersmith suggested a CVR that 

paid out if Akorn achieved its projections for FDA approvals in 2017.160 Ducker agreed 

with a CVR tied to revenue, but wanted to base the improved bid on more optimistic 

assumptions than Bauersmith’s group would endorse.

161 Over the years, Ducker had 

developed a high level of credibility with his superiors because he consistently beat his 

forecasts.

162 When push came to shove, the Management Board supported Ducker.

On February 3, 2017, Fresenius increased the cash component of its bid to $32.00 

per share and modified the CVR to pay up to $4.00 per share based on Akorn’s sales in 

2018.163 Ducker told Rai that the CVR would “mitigate the risk inherent in the ambitious 

 

158 JX 281.

159 Id. at ‘517–18; see Bauersmith Tr. 619–20, 627–28.

160 JX 281 at ‘518 (“Specifically, something like a $5/share CVR based on achieving 

25 approvals by the end of 2017.”); see also JX 284 at ‘887 (Ducker agreeing with the idea 

of a “CVR link[ed] to approvals”).

161 See JX 283; JX 284; Bauersmith Tr. 586–87.

162 See Sturm Tr. 1194; Henriksson Tr. 936 (“Internally in Fresenius Kabi, Mr. John 

Ducker is known as Mr. Sandbag. He is a person who has never made a budget or a forecast 

which has not overachieved.”); see, e.g., Sturm Tr. 1185 (“John ‘Freight Train’ Ducker had 

overdelivered relative to the expectations of ours and of the market.”).

163 PTO ¶ C.8; see JX 285.
40

product launch projections contained in [Akorn’s] business plan.”164 On the day Fresenius 

made its proposal, Akorn’s stock closed at $20.08 per share.165

After receiving guidance from Akorn’s directors, Rai told Ducker on February 4, 

2017 that Akorn would give Fresenius access to the data room, but with the expectation 

that Fresenius would improve its bid and drop the CVR.166 Ducker agreed to proceed on 

those conditions.

167

On February 13, 2017, Akorn gave Fresenius access to its data room.168 Fresenius 

conducted detailed due diligence that included an examination of Akorn’s product portfolio 

and regulatory issues.169

On March 1, 2017, Akorn announced its financial results for the quarter and fiscal 

year that ended on December 31, 2016.

170 Akorn also issued annual guidance for 2017.171

On March 2, Akorn announced that it had received approval from the FDA for a new drug 

 

164 JX 1601 at ‘759; see Rai Tr. 463.

165 JX 520 at ‘828. 

166 Id. at ‘829; see JX 1601 at ‘760; Rai Tr. 460–62; JX 286 at ‘360. 

167 JX 1601 at ‘759; JX 520 at ‘829; see Rai Tr. 463; PTO ¶¶ C.9–10.

168 PTO ¶ C.12.

169 See, e.g., JX 301; JX 303; JX 304; JX 313; JX 314; JX 319; JX 323; JX 325; JX 

326; JX 327; JX 331; JX 332.

170 JX 520 at ‘830. 

171 See JX 341; JX 342.
41

application involving ephedrine.172 Later that day, Rai spoke with Ducker about the 

product, Akorn’s guidance, and the regulatory and tax environment.173

By March 2, 2017, the Fresenius due diligence team had been working for just over 

two weeks. A presentation prepared as of that date identified a “preliminary red flag DD 

finding” under the heading of “Sales & Marketing”: “Risk to achieve forecasts due to 

stronger competition, especially for Ephedrine, Lidocaine ointment, clobetasol, 

Fluticasone.”174 The presentation identified two “Preliminary red flag DD findings” under 

the heading of “I&D Regulatory”: (i) “Regulatory Affairs organization appears to be underresourced” and (ii) “2016 and 2017 R&D budgets do not substantiate the ambitious 

pipeline.”175 The presentation did not identify any data integrity issues. The presentation 

concluded: “So far, no deal breakers identified.”176 A Fresenius management presentation 

reported that “[t]he level of access being given/promised by [Akorn] is above average for 

a public company target.”177 Subsequent versions of the presentations largely offered the 

same assessments.178

 

172 JX 520 at ‘830. 

173 See id. 

174 JX 339 at 6.

175 Id. at 6.

176 Id. at 7.

177 JX 343 at ‘073; accord JX 339 at 5.

178 See JX 353; JX 357.
42

During this period, Fresenius developed its own projections for Akorn’s product 

portfolio and pipeline. Once again, Ducker’s team was more optimistic;

179 Bauersmith’s 

group was more conservative.

180 Fresenius’s final numbers were a mix of their views.181

Fresenius had largely finalized its due diligence by March 17, 2017.182 During a 

meeting that same day, Ducker told Rai that Fresenius would increase its bid.

183 On March 

20 and 21, Rai and Ducker had further discussions about Fresenius’s due diligence and 

Akorn’s financial results for the quarter ending March 31.184 Fresenius reported that Akorn 

personnel indicated that “it was a ‘solid’ quarter; and they are on track to meet their full 

year expectations.”185

On March 23, 2017, Fresenius increased its bid to $33 per share and eliminated the 

CVR. In its offer letter, Fresenius stated that it had largely completed its due diligence and 

was prepared to begin negotiating a merger agreement, but that senior management wanted 

to conduct site visits and that Fresenius would need additional information about the 

 

179 See, e.g., JX 350; JX 354.

180 See JX 365; JX 366; JX 367.

181 See JX 385; see also JX 395; Bauersmith Tr. 579–90.

182 See JX 379; JX 390.

183 JX 520 at ‘830.

184 Id. at ‘830; see generally JX 433.

185 See JX 433 at ‘619.
43

Company’s efforts to comply with FDA serialization requirements.

186 On the day when 

Fresenius made its proposal, Akorn’s stock closed at $22.30 per share.187

On March 25, 2017, Akorn’s advisors posted a proposed merger agreement to the 

data room.188 On March 30, Rai, Kapoor, Ducker, Henriksson, and Sturm met in person.189

Rai said that the Akorn board needed Fresenius to increase its proposal. On March 31, 

Kapoor spoke with Sturm and reiterated the need for an improved proposal.

190

On April 2, 2017, Fresenius increased its price to $34 per share and said this was 

the highest it would go.

191 On the day Fresenius made its proposal, Akorn’s stock closed at 

$23.69 per share.192 The Akorn board accepted the $34 per share price.

193

 

186 PTO ¶ C.15; JX 403; see also JX 422 at ‘001 (“Implementation of serialization 

may not be performed in time at all [Akorn] sites, specifically Amityville and Decatur, 

resulting in the risk to not being able to sell prescription drugs until they are serialized. . . 

. However, Raj Rai assured John Ducker that Decatur facility status is NAI following 

December 2016 audit.”).

187 JX 520 at ‘830.

188 See JX 413.

189 JX 520 at ‘831.

190 Id.

191 See JX 520 at ‘831; see also JX 477 (Moelis analysis supporting offer of $34 per 

share); id. at ‘730 (finding price “in-line with the DCF [even] without synergies”).

192 JX 520 at ‘831.

193 JX 441; see Rai Tr. 466.
44

When the Supervisory Board of Fresenius Parent formally approved the bid, the 

final presentation they received from management cited Akorn’s strengths as including “92 

ANDAs under FDA review and over 75 additional ANDAs in various stages of 

development.”194 Management noted that Fresenius would need to integrate and modernize 

Akorn’s production network, which would involve closing two Akorn plants and providing 

“supplementary capex investment to bring [Akorn] up to [Fresenius] standards while 

minimizing compliance risks.”195 In the “Key DD items summary,” the presentation 

identified a high risk of a potential exposure of $100+ million from the postponement of 

product launches.196 The presentation also cited high risk of a potential exposure of $100+ 

million from cGMP “deficiencies related to premises and equipment” in the Amityville 

and Decatur facilities.

197 The presentation projected a need for capital expenditures of $127 

million for Amityville and $21 million for Decatur, with the Decatur facility to be closed 

 

194 JX 428 at ‘643.

195 Id.

196 Id. at ‘673 (categorizing potential exposure as a “[o]ne-time effect”); see JX 422 

at ‘001 (“Akorn has an aggressive product launch plan, which leads to risk of postponement 

for several products . . . and an estimated exposure above $100m. [Fresenius] prepared a 

bottom-up model for each molecule and adjusted the launch plan, R&D costs and revenues 

accordingly in the business plan.”).

197 JX 428 at ‘673; see JX 422 at ‘001 (“Site visit at Amityville and Decatur revealed 

[good manufacturing practice] deficiencies related to premises and equipment, which could 

result in negative outcome of regulator inspections and a mix of gross profit loss and capex 

need amounting to a maximum exposure over $100m. This finding is mitigated via the 

business plan.”).
45

once products were transitioned to other sites.198 The presentation did not identify a risk 

from data integrity issues. 

G. The Merger Agreement

After the agreement on price, the parties negotiated the terms of the transaction 

documents.

199 On April 24, 2017, they executed the Merger Agreement.200

In the Merger Agreement, the parties allocated risks through detailed 

representations, warranties, covenants, and conditions:

 Akorn made extensive representations about its compliance with FDA regulations, 

including (i) “compliance with . . . all applicable Laws . . . relating to or promulgated 

by the” FDA,

201 (ii) “compliance with current good manufacturing practices[,]”202

(iii) that all studies or tests had “been conducted in compliance with standard 

medical and scientific research procedures and applicable Law,”

203 (iv) that Akorn 

had not “made an untrue statement of a material fact or a fraudulent statement to the 

FDA,”

204 and (v) that all “ANDAs submitted by [Akorn] . . . are true, complete and 

correct,”205 in each case except where failure of the representation to be true and 

correct would not reasonably be expected to have a Material Adverse Effect.

 

198 JX 428 at ‘712.

199 See JX 520 at ‘831–32.

200 PTO ¶ D.1.

201 JX 1 § 3.18(a).

202 Id. § 3.18(b).

203 Id. § 3.18(c).

204 Id. § 3.18(d).

205 Id. § 3.18(g).
46

 Akorn committed to “use . . . commercially reasonable efforts to carry on its 

business in all material respects in the ordinary course of business” between signing 

and closing.206

 Akorn agreed to “afford to [Fresenius and Fresenius’s representatives] reasonable 

access” to information about its business.207

 Fresenius agreed to take “all actions necessary” to secure antitrust clearance.208

 Fresenius had the right to terminate the Merger Agreement if any of Akorn’s 

representations or warranties were not true and correct at signing or at closing, 

except, in the case of certain representations and warranties (including those at issue 

in this case), where “the failure to be true and correct would not individually or in 

the aggregate, reasonably be expected to have a Material Adverse Effect.”209

 Fresenius had the right to terminate the Merger Agreement if Akorn “failed to 

perform any of its covenant or agreements” “in all material respects” and the breach 

was “incapable of being cured . . . .”210

 Fresenius could refuse to close the Merger if Akorn had suffered “any effect, 

change, event or occurrence that, individually or in the aggregate, has had or would 

reasonably be expected to have a Material Adverse Effect.”211

 Fresenius could not exercise its termination right for an inaccurate representation or 

breach of covenant if Fresenius was “then in material breach of any of its 

representations, warranties, covenants or agreements” under the Merger 

Agreement.212

 

206 Id. § 5.01(a).

207 Id. § 5.05.

208 Id. § 5.03(c).

209 Id. §§ 6.02(a) & 7.01(c)(i).

210 Id. §§ 6.02(b) & 7.01(c)(i).

211 Id. § 6.02(c).

212 Id. § 7.01(c)(i).
47

 Both sides had the ability to terminate if the Merger was not completed by the 

Outside Date, defined initially as April 24, 2018, but if antitrust approval had not 

been received by April 24 and all other conditions to closing were met, then the 

Outside Date would extend automatically to July 24.213

This decision addresses the pertinent provisions in greater detail in the Legal Analysis.

After the close of trading on April 24, 2017, Akorn and Fresenius announced the 

Merger.214 The total purchase price was $4.75 billion, comprising $4.3 billion in cash plus 

assumption of approximately $450 million in debt.215 Fresenius stated in a press release

that “Akorn brings to Fresenius Kabi specialized expertise in development, manufacturing 

and marketing of alternate dosage forms, as well as access to new customer segments like 

retail, ophthalmology and veterinary practices. Its pipeline is also impressive, with 

approximately 85 ANDAs filed and pending with the FDA and dozens more in 

development.”216

When committing Fresenius to the transaction, Sturm asked Akorn to reaffirm its 

guidance for 2017. Sturm viewed guidance as a promise to the markets, and he felt a public 

reaffirmation would confirm that Akorn management had committed to its numbers and 

 

213 Id. § 7.01(b)(i).

214 JX 520 at ‘833.

215 JX 481 at 1.

216 Id.
48

would continue to perform post-signing.217 As part of its announcement of the transaction, 

Akorn reaffirmed its full-year guidance, projecting $1,010–$1,060 million for revenue and 

$363–$401 million in EBITDA.218

Fresenius Parent held a conference call with its investors to discuss the Merger. 

During the call, Sturm described the due diligence process as follows:

[W]e performed a detailed due diligence [with] access to a comprehensive 

data room, held countless expert sessions, and were able to address all our 

questions and concerns. Have we overlooked anything material? Possible, 

but unlikely. The due diligence also included plant visits, by me and much 

better qualified experts, as well as a detailed review of Akorn’s product 

portfolio. That led to us building a solid bottom-up business plan, which 

formed then the basis of our decision to make a bid.219

Sturm stated that during due diligence, Fresenius found Akorn operating at a “generally 

good regulatory standard.”220 He noted that while Akorn had received a Form 483 for 

Decatur, Fresenius had “received quite a number of form 483s also in the past” and 

therefore “should be humble and avoid any form of arrogance” regarding regulatory 

issues.”221

 

217 See Sturm Tr. 1176–77; see also id. at 1178 (explaining that guidance “where 

I’m coming from, is a promise”); id. at 1180 (“[A]t Fresenius, we consistently make our 

numbers. We view a guidance as a promise. We tend to keep promises.”).

218 JX 341; JX 481 at 2; Rai Tr. 538.

219 JX 490 at ‘907.

220 Id. at ‘918.

221 Id. at ‘919; see Sturm Tr. 1199–1200.
49

During a special meeting on July 19, 2017, Akorn’s stockholders approved the 

Merger by a wide margin. 

H. Akorn Management Makes Changes In Response To The Merger.

Under the Merger Agreement, Akorn was required to continue operating in the 

ordinary course of business between signing and closing.

222 This obligation included, 

among other things, investigating and remediating quality issues and data integrity 

violations as they were identified.223

Instead of operating in the ordinary course, Akorn changed how its quality function 

and IT function approached their jobs.224 Employees in these groups were told that 

“[p]riorities have been revised, and some 2017 initiatives will be stopped[,]” with the cited 

reason being the “implications of the pending Fresenius Kabi transaction.”225

For the quality function, Akorn replaced certain regular internal audits scheduled 

for the end of 2017 with “verification” audits that would only assess Akorn’s progress in 

 

222 JX 1 § 5.01(a); see JX 488 at ‘574 (presentation to Akorn senior executives on 

interim operating covenants highlighting Akorn’s obligation to “[c]arry on in the ordinary 

course”); Rai Tr. 521 (agreeing that Akorn was obligated “to operate as an independent 

business between the signing of the acquisition agreement and any closing of the deal”); 

see also JX 551 at ‘999 (announcement to all Akorn employees: “Until the transaction 

closes, it is business as usual and Akorn and Fresnius Kabi will continue to operate as two 

independent companies.”).

223 Rai Tr. 525; Kaufman Tr. 371.

224 See JX 538; JX 539.

225 JX 539 at ‘105; see id. at ‘106 (“2017 initiatives to be stopped” including 

“Quality Assurance overview” and “IT overview”); id. at ‘107 (“STOP - the identified 

2017 projects and associated activities / spend”); JX 538 at ‘471 (“Reset 2017 Priorities”).
50

addressing prior audit findings.

226 One of the sites that switched to verification audits was 

Decatur, the site Cerulean had visited.

227 The shift to verification audits meant that Akorn 

would not be identifying any new problems at those sites that might cause difficulties for 

the Merger. Akorn also used the Merger as grounds for stopping Cerulean’s engagement.228

Fresenius never gave approval for Akorn to change its audit and investigatory practices 

pending closing.229

 

226 Wasserkrug Tr. 17 (“[A]fter the merger was announced, it was decided that we 

would only do verification audits in the remaining facilities, which meant we were just 

going to look at the previous audits and the corrective actions that were applied from those 

previous audits to make sure that they were closed.”); accord id. at 156–58; JX 532 at ‘276; 

JX 692; see Gill Dep. 60; Rai Dep. 42–43; JX 692; see also JX 1026 (“[T]he two are very 

different activities (audits vs. verifications). Verification is the last step in an audit 

lifecycle.”); Rai Tr. 480–81 (explaining why certain audits “were not done deliberately”); 

id. at 525–26 (agreeing that Akorn only conducted verification audits for certain facilities 

because of the Merger). Wasserkrug recognized that Akorn had “a responsibility to 

continue with our audits[,]” and when the Merger did not close, Akorn resumed them. 

Wasserkrug Tr. 18.

227 See Rai Tr. 551.

228 See Wasserkrug Tr. 132.

229 See Rai Tr. 527–28, 554–55. Wasserkrug suggested at trial that Fresenius 

supported the decision to move from regular audits to verification audits, but her testimony 

on this subject consisted of hearsay and was not reliable. Wasserkrug Tr. 165–67. The more 

persuasive evidence is that Akorn did not mention this change to Fresenius. See Gill Dep. 

61–63; Rai Tr. 527–29. Rai asserted at trial that Akorn made the switch so that Akorn could 

give Fresenius a short document summarizing open audit findings. Rai Tr. 526; Rai Dep. 

42–43; see Gill Dep. 63. Rai did not know whether Akorn ever prepared (or started) a 

report, and during discovery Akorn did not produce one. See Rai Tr. 526–27. 
51

For the IT function, Wasserkrug testified at trial that “[a]ny [IT] projects that we 

wanted to put in place were deferred by the merger or had to be approved.”230 In light of 

the freeze, Akorn’s IT department could not provide resources for data integrity projects.

231

In July 2017, Tammy Froberg, Executive Director of R&D and Quality Compliance 

Systems, told a quality manager at Vernon Hills that “we are not actioning any Data 

Integrity activities in 2017.”232 In August, Misbah Sherwani, the head of quality at 

Somerset, reported to Silverberg that even though Akorn was “on the cusp of the FK” 

merger, Somerset was “in a state of jeopardy as it relates to data integrity[,]” and IT was 

refusing to provide resources.233 Also in August, Kathy Pramik, Akorn’s acting Chief 

Information Officer, told Silverberg and other executives that she was “not authorizing” IT 

resources for Decatur’s Data Integrity Site Master Compliance Plan, the first plan Akorn 

ever developed.

234 She admonished that it was “not appropriate” to “establish[] Data

 

230 Wasserkrug Tr. 141–42.

231 See Pramik Tr. 223–24; see also JX 957 at ‘921 (“In July, we . . . reset 2017 

priorities. . . . We also communicated that some 2017 priorities were being adjusted, per 

implications of the pending Fresenius Kabi transaction.”). Ostensibly these projects were 

only put on hold until Silverberg assembled “an overall roadmap for data integrity,” but 

the roadmap was never finalized. Pramik Tr. 234–36, 248.

232 JX 891; see Kaster Dep. 118–20.

233 JX 564 at ‘352.

234 JX 589 at ‘192. Pramik is not an Akorn employee, but rather a consultant. She 

was retained in August 2016 to fill the CIO role while Akorn searched for a permanent 

hire. They never found one. See Pramik Tr. 191–92; JX 149. When she took the role, 

Pramik had no prior experience in how pharmaceutical companies handle data integrity 

issues. See id. at 242–45. To be fair to Pramik, it also appears that she inherited a bad 

situation. When she arrived, she found that “[t]here were foundational processes not in 
52

Integrity Plans” because “Fresenius Kabi Quality & IT Leaders will drive any actions in 

this area.”235 That same month, Froberg refused a data integrity project, stating bluntly that 

“[e]xecutive leadership have discussed and aligned that data integrity changes are not 

actionable in 2017 in regards to adding responsibilities to cross functional teams.”

236 In 

December 2017, Franke complained to another employee that “DI remediation activities 

 

place at Akorn[,]” including “no project governance” for IT. Id. at 196–97; see JX 150 (list 

of “IT Key Risks Identified By IA”); JX 223 (Rai in November 2016: “It seems like IT is 

a disaster across the company and out of control.”). A significant motive for shutting down 

data integrity projects appears to have been her desire to focus her under-resourced 

department on senior management’s priorities, which did not include data integrity. It 

nevertheless remains true that Pramik and her staff prevented any data integrity work that 

required IT resources from getting off the ground in 2017 and early 2018. This did not 

change until March 2018, when in response to Fresenius’s investigation, Pramik rebranded 

an existing but dormant committee that had not met since early 2017. See Pramik Dep. 76–

77 (formerly “R&D quality and compliance IT counsel”); Pramik Tr. 230–32 (now “data 

integrity steering committee”); JX 1082 (also referring to a “DI Oversight Committee”); 

see also Pramik Dep. 254–58 (agreeing that the rebranded committee is largely “the same 

governing body” as the executive steering committee Rai chaired a month later). Pramik 

gave much of her testimony in response to leading questions based on a demonstrative 

exhibit, resulting in my giving it diminished weight. See Pramik Tr. 199–224.

235 JX 589 at ‘192–93.

236 JX 596; accord JX 769 (Froberg writing in December 2017 that “[b]ased on a 

previous executive leadership directive, data integrity is not a 2017 approved project for 

cross functional teams [such as IT]. I wanted to . . . confirm IT resources will not be 

involved in [Franke’s visit to the Cranbury site to discuss data integrity].”); JX 950 

(Froberg reminding Pramik in February 2018 to draft an email from “executive leadership 

. . . to align all sites that we are not launching data integrity remediation initiatives at the 

sites at this time”); JX 957 at ‘921–22 (Pramik’s draft email with Silverberg’s comments: 

“With . . . the close of the acquisition transaction not occurring in fiscal 2017, unapproved 

project requests related to such things as Data Integrity are starting to arise again from the 

sites, and we need to alignment [sic] and focus on our priority initiatives, which are 

continuing in 2018 (e.g., Serialization, Somerset and Decatur lab modernizations / 

expansions, etc.).”).
53

are not something that we are resourced to address at the moment.”237 There is no evidence 

that Fresenius ever gave approval for Akorn to stop working on data integrity projects.238

I. The Downturn In Akorn’s Business

After the signing of the Merger Agreement, Akorn’s business performance fell 

dramatically. On July 21, 2017, two days after Akorn’s stockholders approved the Merger, 

Akorn gave Fresenius a preview of their second quarter results. The headline was revenue 

of $199 million, compared to a business plan of $243 million.239 Management attributed 

$12 million of the miss to competition for ephedrine, but told Fresenius that “[m]arket 

share in Q2 is meeting expectations.”240 Management lowered its revenue forecast for the 

year from $1 billion to $930 million.241 Management also reduced expectations for revenue 

from Akorn’s pipeline, which fell to $24 million, down from the $80 million projected 

earlier in 2017.242

On July 31, 2017, Akorn publicly announced its results. The reported revenue 

number of $199 million represented a year-over-year decline of 29%. Akorn’s reported 

 

237 JX 832.

238 See Pramik Tr. 249; Bowles Dep. 152–158. 

239 JX 547 at 1.

240 Id. at 2.

241 Id. at 15.

242 JX 554.
54

operating income of $15 million represented a year-over-year decline of 84%. Akorn’s 

reported earnings of $0.02 per share represented a year-over-year decline of 96%.243

Rai attributed the bad results to unexpected new market entrants who competed with 

Akorn’s three top products—ephedrine, clobetasol, and lidocaine.244 Akorn also faced a 

new competitor for Nembutal, another important product, which Akorn management had 

not foreseen.245 As Rai testified, “There were way more than what [Akorn] had potentially 

projected in [its] forecast for 2017.”246 The new competition resulted in unexpected price 

erosion.247 Akorn also unexpectedly lost a key contract to sell progesterone, resulting in a 

loss of revenue where Akorn had been forecasting growth.248

 

243 JX 1250 ¶ 8.

244 Rai Tr. 542–44; Rai Dep. 237.

245 Rai Tr. 545; Rai Dep. 238–39.

246 Rai Tr. 545; Rai Dep. 238.

247 Rai Tr. 542; see JX 693 at 35 (attributing poor performance to “more significant 

than expected declines in net revenue”).

248 Rai Tr. 546–47.
55

Ducker described the results bluntly, “Not very pretty I’m afraid.”249 Sturm was 

“very unhappy.”250 He asked his executive team whether they thought Fresenius “had been 

defrauded.”251 They did not think so. Sturm “also asked if there was a way to cancel the 

deal.”252 His team said “not at this point.”253

Sturm and Henriksson flew to Lake Forest, Illinois to meet in person with Ducker 

and the Akorn executives.254 Sturm told Rai that the “complete drop” in Akorn’s business 

post-signing was “the most embarrassing personal or professional thing” that had happened 

to him.255 Sturm could not understand how the parties had signed up a deal, only to have 

Akorn’s results fall “off the cliff.”256 Rai told Sturm that “[m]any, if not most” of the 

 

249 JX 547 at 1; see Sturm Tr. 1177 (describing performance as “dismal” and “well 

below our expectations and theirs”); Henriksson Tr. 952 (describing results as “very, very 

disappointing” with “a big miss, both on sales and profit, compared to the estimates that 

had been provided to us before”); Bauersmith Tr. 595 (describing Akorn’s performance in 

the quarter after signing compared to is projections as “[a]bysmal”); id. at 596 (testifying 

that Akorn’s performance was “even worse than what I thought, as the pessimist”).

250 Sturm Tr. at 1202; see Henriksson Tr. 952 (“Stephan was, rightfully, very, very 

upset.”).

251 JX 550 at ‘924.

252 Id.

253 Id.

254 Sturm Tr. 1178.

255 JX 554.

256 Rai Tr. 468.
56

reasons for the poor performance were “temporary in nature.”257 Sturm was not satisfied. 

He felt that Akorn management exhibited “a complete lack of commitment” and that the 

guidance for 2017 “had been forgotten and was a thing of the very long past.”258 He did 

not perceive any sense of urgency to rectify the underperformance.259

After the meeting in Lake Forest, Sturm had his team analyze Fresenius’s options. 

He tasked Henriksson and Ducker with finding new synergies and developing a business 

plan that would offset Akorn’s problems.260 Sturm also had his legal department look into 

whether Akorn’s terrible financial performance qualified as a Material Adverse Effect.

261

Although Akorn has asserted that Fresenius decided at this point to find a way to terminate 

 

257 Sturm Tr. 1178.

258 Id. 

259 Id. at 1178–79.

260 See Henriksson Tr. 956–58; Sturm Tr. 1179–80; JX 554 (“Our marching orders 

are to find a way so we can hold to guidance on EBITA and Top line for 2018.”). 

Bauersmith, the primary skeptic about the deal, believed Fresenius needed to close the 

transaction quickly so that they could take control of Akorn and try to right the ship. See 

JX 554 (“The need to close fast is even more pressing as we can’t really steer this wayward 

vessel until we are aboard.”). Bauersmith couldn’t resist an I-told-you-so, noting that “it is 

looking more and more like we should have pushed for a CVR on 2017 approvals as [I] 

suggested back in February.” JX 549; see Bauersmith Tr. 600; see also JX 602; JX 603; 

JX 674. Other contemporaneous documents support the finding that closing remained a 

high priority within Fresenius. See JX 568 (Pramik reporting on Ducker making it a “very 

high priority” to plan IT integration); JX 572 (Fresenius executives exploring whether they 

could mitigate negative reactions by Fresenius Parent’s stockholders by closing and then 

immediately stopping the reporting of separate results for Akorn); JX 575 (August 2017 

Fresenius presentation regarding financial integration).

261 See JX 581; JX 587.
57

the deal, I do not agree. Sturm testified credibly that he wanted “to get myself 

knowledgeable about my options under the merger agreement, but also my responsibility, 

my fiduciary duties in serving my shareholders, and hence I was asking my colleagues on 

the legal side to get us appropriate legal advice.”262

As part of this process, the Fresenius team looked at precedent deals gone bad. One 

involved Abbott Laboratories’s attempt to terminate its acquisition of Alere Inc. Paul, 

Weiss, Rifkind, Wharton & Garrison LLP had represented Alere, and Fresenius began 

consulting with Paul Weiss.263

Fresenius also began looking closely at Akorn’s monthly results to determine 

whether the second quarter performance was an isolated occurrence, as Rai maintained, or 

the harbinger of deeper problems. Akorn’s preliminary results for July did not show any 

improvement, but Rai claimed that Akorn was on track to deliver $80 million in sales in 

August.264 If Akorn hit that figure and repeated the performance in September, then Akorn 

would meet its lowered forecast for the third quarter.

265

 

262 Sturm Tr. 1183; see id. at 1209 (Sturm testifying that Paul Weiss was hired “[t]o 

make me acquainted with my rights and obligations”).

263 See id. at 1183–84.

264 JX 592 at ‘100.

265 Id.
58

In mid-September 2017, Fresenius heard that Akorn would fall short of its August 

revenue target.266 Akorn later confirmed that it had achieved only $70 million.267 Sturm 

was furious: “10m less within a few days? Without any sense of embarrassment? . . . These 

guys are shameless. I’m afraid we’ve got to build our legal case.”268 At trial, Sturm noted 

that over the same period, Fresenius USA exceeded expectations.269

Nor was the revenue miss Akorn’s only bad news. The FDA issued a CRL for 

Difluprednate, a key pipeline product, and Akorn had to push back its launch from 2017 

until 2019.270

Fixating on Sturm’s email about “build[ing] our legal case,” Akorn argues that 

Fresenius set out to manufacture a basis for termination. At trial, Sturm testified credibly 

to a more nuanced and responsible view. He candidly admitted that at this point, he 

personally wanted to terminate the transaction. He was “very unhappy” with Akorn’s 

performance, believed that “the underperformance was more likely to be longer-lasting,” 

and felt that Fresenius had overpaid.271 At the same time, he knew that Fresenius had signed 

 

266 See JX 636 at ‘891. 

267 See JX 646 at ‘654. 

268 JX 647 at ‘657.

269 Sturm Tr. 1185.

270 JX 610; JX 611 at 2; Sturm Tr. 1185; see JX 615 (“[A]korn got a deficiency letter 

from FDA regarding Difluprednate which is the biggest launch in 2018. The effect from 

this is 57 M.”).

271 Sturm Tr. 1186–88.
59

a contract, and “[t]he last thing [he] wanted to do was to . . . to go to court . . . without a 

valid case.”272 He also recognized that if Akorn had a stronger performance in the fourth 

quarter, then the situation would be different, although he was “not very optimistic.”273

Sturm is a sophisticated international businessman. He speaks English fluently, but 

it is not his native language, and I therefore do not draw the inference that by “build our 

legal case,” he meant to manufacture one. At trial, his testimony was direct and credible. I 

accept his explanation that in September 2017, he was “in an exploratory phase.”274 He no 

longer liked the deal, and he would seek to terminate it if Akorn’s performance continued 

to deteriorate, but Fresenius also would live up to its obligations.

Consistent with this testimony, the contemporaneous evidence shows that Fresenius 

continued to assess how it could close the Merger and make the numbers work.275 Fresenius 

also tasked a team with reviewing Akorn’s most significant product launches to determine 

whether any of them could be accelerated to replace lost pipeline revenue.

276 Instead, 

Fresenius learned that three other launches would be delayed.277 At the same time, 

 

272 Id. at 1189.

273 See id.

274 Id.; see id. at 1206 (“Q. Okay. And you started looking for a way to get out of 

the transaction, did you not? A. No. I did not.”).

275 See JX 627 at ‘498; JX 657; JX 658; JX 661; JX 664; JX 670 at 20; JX 684 at 

‘911.

276 See JX 605; JX 619; JX 620.

277 See JX 624.
60

Fresenius began examining whether there were grounds to assert a Material Adverse 

Effect.

278 Based on advice from Paul Weiss, Fresenius concluded that it did not have clear 

grounds for termination.279 Given the Delaware precedent, this was hardly surprising.

J. Akorn’s Third Quarter Results

On October 30, 2017, Akorn provided Fresenius with a presentation describing the 

quarterly results that Akorn expected to announce the next day.280 Akorn would report 

revenue of $202 million, representing a miss from its reduced forecast of $225 million.

281

Akorn described the results as “[d]riven mostly by unanticipated supply interruptions and 

unfavorable impact from competition across [the] portfolio (Ephedrine, lack of new 

awards, unfavorable customer contract mix . . .).”

282 Akorn also noted that its “[a]verage 

product pricing [was] lower than expected due to [an] unfavorable customer/contract mix 

and price erosion [that was] not considered in our forecast.”283

 

278 See JX 634; JX 635; JX 637. 

279 See Sturm Tr. 1211–12; Empey Dep. 106–08. In her deposition, the CFO of 

Fresenius Parent testified from memory about her understanding of these discussions, in 

which she did not personally participate. She stated the outcome in absolute terms: “[W]e 

concluded that there was no basis for a termination of the transaction.” Empey Dep. 107. 

Based on Sturm’s testimony, my knowledge about how rarely lawyers frame their legal 

advice in absolute terms, and the CFO’s distance from the discussions, I am confident that 

this testimony oversimplifies matters and states the outcome too strongly. 

280 JX 688; cf. JX 732 (Ducker describing October 2016 results as “awful”).

281 JX 688 at ‘605.

282 Id. at ‘606.

283 Id. at ‘607.
61

On October 31, 2017, Akorn informed Fresenius that Kapoor had resigned from the 

Akorn board.284 Five days earlier, federal law enforcement had arrested Kapoor and 

charged him with criminal fraud in connection with his leadership of another 

pharmaceutical company.285

On November 1, 2017, Akorn announced its financial results.286 Akorn’s reported 

revenue of $202 million represented a year-over-year decline of 29%. Akorn’s operating 

income of $9 million represented a year-over-year decline of 89%. Akorn reported a loss 

of $0.02 per share, a year-over-year decline of 105%.

287

In addition to another poor quarter, Akorn fell further behind in its product launches. 

Akorn had anticipated thirty-four launches in 2017; by mid-November it had launched only 

fourteen, with another six planned by year end. The fourteen launches netted only $3.3 

million in sales. Akorn originally had projected $60 million from new product launches in 

2017.288 These results were far worse than what even Bauersmith, the biggest critic of 

 

284 See JX 689.

285 See JX 696 at ‘041; Press Release, District of Massachusetts, U.S. Attorney’s 

Office, Department of Justice, Founder and Owner of Pharmaceutical Company Insys 

Arrested and Charged with Racketeering (Oct. 26, 2017), https://www.justice.gov/usaoma/pr/founder-and-owner-pharmaceutical-company-insys-arrested-and-chargedracketeering. 

286 JX 693.

287 JX 1250 ¶ 9.

288 See JX 707 at ‘505.
62

Akorn’s pipeline, had anticipated.289 He viewed the performance of Akorn’s launches as 

“almost comical,” because it did not make commercial sense to launch a drug if that was 

the expected return.290

In spite of the bad news from Akorn, Sturm maintained a positive outlook about the 

Merger when speaking with Fresenius Parent’s investors. He described Akorn’s results as 

“for sure not what we had hoped for, but at least a sequential stabilization.”291 He also 

stated that “the reasons for the disappointing financial performance are broadly unchanged 

from the second quarter,” citing three factors:

A, more pronounced competition. Akorn continues to experience price 

pressure and market share losses on some of its key molecules. And while 

increased competition was generally anticipated, the impact has was [sic] 

unfortunately been greater than expected. . . .

B, supply disruptions. And while some supply issues from the second quarter 

were resolved, new constraints have occurred, leading again to higher than

normal backorders and inability to supply charges. Frankly, [we] can’t wait 

to assume management control, so we can help with our expertise and our 

financial power.

C, new product launches. And even though Akorn has launched a respectable 

13 new products year-to-date, it had even higher expectations. So launch 

delays, including to some significant molecules, contributed to the shortfall 

versus projected revenues. We have reviewed these delays with Akorn’s 

management, and we believe that the opportunities are essentially postponed 

rather than significantly diminished.292

 

289 Bauersmith Tr. 596.

290 Id. at 598.

291 JX 699 at ‘669.

292 Id.
63

Notwithstanding these problems, Sturm said that Fresnius Parent would not revise its 

expectations for Akorn’s performance in 2018, explaining:

First, let me remind you that our 2018 expectations came[,] by our 

standards[,] extremely early and were based on the comprehensive but still 

outside[-]in due diligence process. Couple that with injectable generics, 

arguably Fresenius’ most volatile business, and so we called it very 

consciously an expectation rather than a guidance. Now, in light of Akorn’s 

year-to-date performance, it appears likely the 2017 base will be lower than 

assumed. And as a consequence, the stretch required to reach our 2018 

expectations is clearly larger. 

But as I just said, this is a highly volatile business with limited visibility, 

notoriously hard to predict, and where you just cannot extrapolate from a 

quarterly run rate, where individual drugs and launches can make and have 

made a major difference. So I’m not ready to revise those expectations for 

next year. Please bear with us until February. By then, we will be Akorn’s 

controlling owner and we’ll provide you with a guidance of a reliability level 

that you’re used to.293

My impression is that Sturm knew that expectations would have to be lowered, but he did 

not have numbers that he trusted and would not have them until his own people were 

running the Company.

After Akorn and Fresenius announced their third quarter results, Fresenius updated 

its business plan for Akorn. During a teleconference on November 12, 2017, Ducker

presented the plan to the Management Board.

294

 

293 Id.

294 See JX 714 (Ducker circulating presentation to senior Fresenius Parent 

executives in advance of call).
64

Ducker’s presentation noted that the “[s]trategic rationale for the Akorn acquisition 

remains compelling.”295 The compelling strategic rationale was Fresenius Kabi’s desire to 

expand its North American footprint, which acquiring Akorn facilitated.296

The Akorn deal, by contrast, had become far from compelling. The presentation 

observed that Akorn’s “2017 business performance has been disappointing and has fallen 

well short of guidance”297 To partially address the shortfall, “[c]ost reduction opportunities 

well in excess of the deal model are now planned.”298 Even with these additions, the 

changes in the 2018 business plan were striking:

Original Plan299 November Update % Change

Revenue $1,061 $783 (26%)

Gross Profit $612 $414 (32%)

EBITDA $397 $241 (39%)

EBIT $239 $125 (47%)

Net Income $33 $(38) (215%)

 

295 Id. at 2; see JX 730 at ‘832 (“The strategic rationale for the acquisition remains 

sound.”). Fresenius made this same point in other presentations and in a call with its 

investors. See JX 743 at ‘306; JX 781 at ‘398; JX 874 at ‘779; JX 994 at 5, 15.

296 See JX 994 at 5.

297 JX 714 at 2. 

298 Id.

299 In millions of dollars.
65

Akorn’s performance was so bad, and the situation in such flux, that the 

Management Board excluded Akorn from their 2018 budget, which they presented to the 

Supervisory Board in December 2017.300 The presentation explained the omission:

Akorn is not included in the budget. We see some deviations to the original 

business plan and we are working on counter measures to mitigate these 

effects. This process will be ongoing until early February 2018. Until then 

we will also have better clarity about when closing will happen and we will 

only then seek for approval for the Akorn budget.301

This explanation is consistent with Sturm’s earlier refusal to change his Akorn-related 

guidance to the market: the Management Board did not have any numbers they trusted for 

Akorn. I believe they also considered the possibility that Fresenius would terminate the 

Merger Agreement and either never own Akorn at all, or at least not own it during 2018, 

while the litigation over a broken deal would be ongoing.

Despite the senior management team’s powerful internal misgivings, Fresenius did 

not change its public stance on the Merger. In roadshow materials dated November 27, 

2017, Fresenius told investors the following:

 “[Akorn] Q3 performance below expectations.”302

 “Achievement of 2018 expectation challenging.”303

 

300 JX 716; see JX 744 at 4.

301 JX 744 at 4.

302 JX 743 at ‘306.

303 Id.
66

 “Strategic rationale unchanged: Deal offers offensive and defensive merits.”304

 “Substantial cost and growth synergies paired with limited integration 

complexity.”305

 “Accretive to Group net income from 2018.”306

Fresenius described the Merger in similar terms in a presentation to investors at 

conferences in December 2017 and January 2018.

307

K. The Whistleblower Letters

On October 5, 2017, Fresenius received an anonymous letter from a whistleblower 

who raised allegations about Akorn’s product development processes at Vernon Hills, 

Decatur, and Somerset.308 On November 2, Fresenius received a longer version of the letter 

that added more detail about the problems and included assertions about flaws in Akorn’s 

quality control processes.309

During a teleconference on November 12, 2017, the senior executives of Fresenius 

Parent discussed the November letter. When circulating his presentation, Ducker noted that 

he had asked Jack Silhavy, the general counsel of Fresenius USA, “to join us for the first 

 

304 Id.

305 Id. at ‘307.

306 Id.; accord id. at ‘308 (“Accretive [to EPS] in 2018 (excluding integration costs), 

from 2019 (including integration costs)”).

307 See JX 781 at ‘398–400; JX 874 at ‘779–81.

308 See JX 789; see also JX 934 at 11.

309 See JX 788; see also JX 934 at 11.
67

part of the call to brie[f] everyone on the letter just received from an Akorn employee, and 

the possible implications and next steps.”310 On November 13, the Fresenius executives 

had a call with Paul Weiss.311 After the call, Fresenius personnel began looking into the 

information Akorn provided during due diligence about its R&D facilities and past FDA 

inspections.312

Having considered the evidence, I believe that during the teleconference on 

November 12, 2017, the Fresenius executives decided that they did not want to proceed 

with the Merger as negotiated and would seek to terminate the Merger Agreement if they 

had a valid contractual basis for doing so. They had ample grounds to reach this conclusion. 

My sense is that they regarded Akorn’s disastrous performance as falling within a 

businessperson’s understanding of what should qualify as a material adverse effect, but 

their legal advisors were not confident that they could prove to the satisfaction of a court 

applying Delaware law that Akorn had suffered a Material Adverse Effect within the 

meaning of the Merger Agreement. 

The whistleblower allegations about regulatory problems were yet another blow to 

the deal. The letters called into question the accuracy of Akorn’s representations regarding 

regulatory compliance. They also called into question whether Akorn was operating in the 

 

310 JX 714.

311 JX 717.

312 See JX 718; JX 720; JX 721.
68

ordinary course of business.

313 It was not clear yet whether the allegations were true, but 

the whistleblower letters gave Fresenius good cause to investigate.

In the Merger Agreement, Fresenius had bargained for a customary right of 

reasonable access to Akorn’s “officers, employees, agents, properties, books, Contracts, 

and records.”314 The purpose of that covenant is to enable a buyer to investigate issues that 

arise between signing and closing. The Fresenius executives decided to use their 

information right for its intended purpose.

L. Fresenius Notifies Akorn.

On November 16, 2017, Ducker and Henriksson called Rai, informed him about the 

whistleblower letters, and conveyed Fresenius’s view that both companies needed to 

investigate the allegations.315 Ducker followed up with a formal notice letter, which stated:

[P]ursuant to Section 5.05 of the [Merger Agreement] and for other reasons, 

Fresenius Kabi will be providing Akorn with requests for documents, 

information and access to potentially knowledgeable individuals regarding 

the allegations in these letters and related issues. We are in the process of 

identifying and retaining a team of third party experts with the skills and 

experience to properly investigate these matters expeditiously, and we ask 

that Akorn immediately take steps to begin to gather all related documentary 

material.316

 

313 See JX 1 §§ 6.02(a)(ii) & (b), 7.01(c)(i).

314 See id. § 5.05.

315 See JX 723 at ‘800–01.

316 JX 724 at ‘204.
69

The letter closed by noting that Fresenius “reserve[d] all of our rights under the merger 

agreement.”317

After receiving the whistleblower letters from Fresenius, Akorn shared them with 

its board members. Johnson, a director with substantial FDA experience, described them

as “very worrisome,” noting that “[i]f they were to get to FDA, we should expect an 

intensive investigation” and that “[m]ost data integrity issues are surfaced through 

whistleblowers going to FDA.”318 He advised that Akorn needed to conduct a “responsive 

and credible” investigation that “would require a review of named applications including 

product development files and lab notebooks” as well as “[i]nterviews of those involved, 

in any way, with the named submissions . . . .”319 He advised that if the investigation 

uncovered problems, then “a much broader investigation following FDA guidance would 

be necessary.”320

On November 17, 2017, Silhavy told Bonaccorsi that Fresenius could not simply 

rely on the investigation that he expected Akorn to conduct, but rather Fresenius would 

have to do its own investigation as well.321 As it turned out, Akorn decided not to conduct 

 

317 Id. at ‘205.

318 JX 761.

319 Id.

320 Id.

321 JX 726 at ‘084 (Silhavy reporting to Ducker about call with Bonaccorsi: “We 

then discussed how to proceed . . . . I told him I needed to be very clear that we needed to 

do our own investigation, not just rely on the one they needed also to do.”); see also JX 

723 at ‘801 (Fresenius anticipating that both companies would conduct investigations). In 
70

its own investigation into the whistleblower letters because Akorn did not want to uncover 

anything that would jeopardize the Merger. 

In the ordinary course of business, an FDA-regulated company confronted with a 

detailed whistleblower letter would conduct an investigation using counsel experienced in 

data integrity issues and knowledgeable about FDA compliance. Akorn chose to rely on its 

deal counsel, Cravath, Swaine & Moore LLP. Cravath’s job was not to conduct an 

investigation, but rather to monitor Fresenius’s investigation and head off any problems.

322

David M. Stuart, a litigation partner, led the Cravath team.323 Stuart previously 

worked for the SEC and had experience conducting internal investigations.324 He is clearly 

a skilled and careful attorney, but he had never conducted a data integrity investigation for 

 

response to Fresenius’s argument that Akorn breached its obligation to operate its business 

in the ordinary course by failing to conduct its own investigation, Bonaccorsi testified at 

trial that Silhavy instructed him over the phone that Akorn should not investigate.

Bonaccorsi Tr. 887–88. Given the seriousness of the whistleblower allegations, that would 

not have been a viable position for Silhavy to take, and it would have contravened the 

ordinary course covenant in the Merger Agreement. The contemporaneous documents 

convince me that Bonaccorsi misremembered this conversation. Silhavy instead conveyed 

that Fresenius could not rely on Akorn’s investigation and would also have to conduct its 

own investigation. See JX 723 at ‘801; JX 726 at ‘084.

322 See Stuart Tr. 673 (“Q. So were you actually asked at that time to conduct an 

internal investigation for Akorn? A. I was asked to coordinate with Fresenius’ counsel in 

conducting an investigation but not to do an independent investigation on my own.”); 

accord id. at 728.

323 See id. at 671.

324 See id. at 671–72.
71

a pharmaceutical company, had never appeared before the FDA, and had no familiarity 

with FDA rules, regulations, or administrative guidance.

325

Fresenius, by contrast, conducted a real investigation. Fresenius turned to the FDA 

Enforcement and Compliance Group at Sidley Austin LLP.326 Nathan Sheers, a Sidley 

partner who specializes in FDA enforcement and compliance, led the team.

327 The Sidley 

 

325 Id. at 688, 703, 730–31 (“Q. And prior to this moment in time [when Stuart was 

charged with leading the investigation], you weren’t even familiar with the FDA rules, 

regulations, and guidance for the industry on data integrity and compliance. A. That’s 

correct.”); Stuart Dep. 30–40.

326 See JX 719; Stuart Tr. 674 (testifying that Sidley “said that they had been hired 

to do an investigation to assess the validity of the allegations in these anonymous 

whistleblower letters”). Stuart claimed not to have known that Sidley’s work could be used 

to evaluate whether Akorn was in compliance with its representations in the Merger 

Agreement and that he would have acted differently if he had known. See Stuart Tr. 675. I 

do not credit that testimony. Stuart is a sophisticated partner at one of the world’s most

sophisticated law firms. He certainly knew that if the whistleblower allegations were true, 

then they posed problems under the Merger Agreement. He also certainly knew that 

Fresenius would be assessing that issue when reviewing Sidley’s work. Cravath’s approach 

to the common interest agreement, discussed below, evidences an understanding of the 

dual implications of Sidley’s work and an unsuccessful attempt to secure the high ground 

for Akorn by including contractual provisions that could trip up Sidley and Fresenius. 

Stuart also testified that if he had known that Sidley’s work would be used to evaluate 

Akorn’s compliance with the Merger Agreement, he would have prepared Akorn’s 

witnesses before their interviews. Cravath did prepare Akorn’s witnesses, although it was 

relatively “low-key prep.” See JX 1443 at ‘130 (Stuart: “Similar to what we did in 

Somerset, I think a little low-key prep for each interviewer [sic] is important. We should 

let them know that while we have no reason to think there are concerns about operations 

in Decatur, Sidley will ask whether the interviewee is aware of any data integrity issues 

and, if the interviewee is, we should address that before the Sidley interview.”); JX 1445 

(Stuart directing Cravath associates on how to “instruct” Akorn employees during preinterview “screening”); Sheers Tr. 1039–41 (describing his observations regarding 

Cravath’s preparation of witnesses).

327 Sheers Tr. 1029–30.
72

team also included Jeff Senger, the former acting chief counsel at the FDA.328 Fresenius 

and Sidley determined that they needed technical expertise from a firm that could evaluate 

the integrity of the data Akorn used to support its drug applications.329 For that task, they 

hired Lachman.330 The Lachman team was led by Ron George, a scientist with over 40 

years of experience in the pharmaceutical industry and who now specializes in data 

integrity audits and remediation.331 Having heard George testify at trial, I judge him to be 

among the most credible witnesses I have seen in court.

Sidley started its investigation by examining the materials on regulatory compliance 

that Akorn posted to the virtual data room.332 Before doing so, Sidley considered whether 

 

328 Sheers Tr. 1035.

329 See JX 776 at ‘758 (describing Lachman’s role). Fresenius also needed a firm to 

extract the data for Lachman to analyze and retained Ernst & Young LLP for that purpose. 

See id.

330 See Sheers Tr. 1035–36. Formally retaining Lachman took some time. Lachman 

told Fresenius that it had a conflict and would require waivers from both Fresenius and 

Akorn, but Lachman declined to disclose whether or not Akorn was or had been a client or 

to discuss the nature of any engagement. Silhavy worried about granting a blind waiver, 

noting that although it was unlikely, “Lachman could have worked for Akorn on the very 

topics that are at issue here.” JX 734 at ‘192. See id. at ‘191 (noting that in the most extreme 

case, Lachman might have “evaluated the very data integrity issues that we want them to 

investigate, and opined to Akorn [that] those are not of a type or magnitude that would 

cause there to have been fraud on the FDA?”). After considerable effort, an agreement was 

reached with Lachman in early December. See JX 772. Akorn contends that Silhavy wanted 

an expert who would give him the answer he wanted, but I find that he correctly wanted a 

consultant who would take a fresh look at the issues, not one who had worked on the same 

issues for Akorn.

331 George Tr. 1115–17.

332 See JX 735.
73

anything in the confidentiality agreement between Fresenius and Akorn prevented them 

from using the information. After reviewing the agreement, Sidley concluded that they 

were “Representatives” of Fresenius who could receive the “Evaluation Material” in the 

virtual data room without prior written consent from Akorn. The Sidley attorneys noted 

that the Evaluation Material could be used “solely for the purpose of evaluating, 

negotiating, and executing” a transaction. Sidley concluded that their investigation was part 

of the process of executing (i.e., carrying out) the transaction, and hence they could use the 

Evaluation Material in their investigation.333 I agree with that interpretation.

Next, Fresenius provided Akorn with a request for access, information, and 

documents to conduct its investigation.334 Demonstrating the importance of the 

investigation to Fresenius, Sturm and his fellow senior executives at Fresenius Parent were 

personally involved in reviewing and revising the requests.335

 

333 See JX 747; Sheers Tr. 1106. Sidley also noted that the confidentiality agreement 

foreclosed speaking with the FDA, or anyone else, about regulatory issues related to the 

Akorn transaction. See JX 748. Akorn has argued that executing the agreement only meant 

signing it, but the meanings of the verb include to carry out. Akorn also says that Fresenius 

could not have been seeking to carry out the Merger Agreement if it was considering 

terminating it, but carrying out the deal includes evaluating one’s rights and obligations 

under the deal, including rights and obligations which turn on a counterparty’s compliance 

with its obligations. 

334 JX 771; JX 776.

335 See JX 767.
74

After receiving the requests, Cravath spoke with Sidley about how to proceed.336

During these discussions, Sidley learned that Cravath would not be conducting its own 

investigation, but rather facilitating Fresenius’s investigation, sitting in on interviews, and 

generally “shadowing” Sidley.

337 The lawyers also discussed “whether the interviews 

would be conducted under a ‘common interest privilege.’”338 Internally, Sidley expressed 

concern that “the only common interest at this point is the solicitation of information from 

the interviewees and to conduct a thorough investigation,” but that how the resulting 

information was used “likely is outside the scope of any common interest.”339

To support the common interest privilege, Cravath proposed a draft agreement 

which recited that Sidley and Cravath were conducting “a privileged joint investigation for 

the purpose of assisting our clients close the acquisition.”340 The draft elaborated that the

mutual interest arises from the desire of both Fresenius and Akorn to 

consummate the pending merger between the two companies and prepare a 

defense for the surviving entity in anticipation of any litigation that might 

arise, including by the FDA, another interested government entity or private 

litigant, based on the substance or fact of the allegations in the anonymous 

communications.341

 

336 See JX 784.

337 See Bonaccorsi Tr. 908; Stuart Tr. 728; Rai Tr. 509–11; JX 784; JX 793. 

338 JX 784; see Sheers Tr. 1085–86 (“Before they would permit us to interview 

anyone, they said we had to sign a common interest agreement.”).

339 JX 784.

340 JX 793.

341 JX 792 at ‘700.
75

Proposing this language was a clever way to try to box in Fresenius and prevent them from 

using any information to evaluate Akorn’s compliance with its representations. For 

precisely this reason, the Fresenius executives reacted negatively to this language.342

The parties ended up agreeing to a modified version of the common interest 

agreement that struck the concept of a joint investigation and stated in its place that “[t]he 

investigation may include joint interviews, document collection and review and sharing of 

information related to Akorn’s processes, procedures and controls.”

343 The final agreement 

also changed the language on mutual interest to state that it “arises from and under the 

Merger Agreement dated April 24, 2017 between Fresenius (and certain affiliates) and 

Akorn, and additionally because of the possibility of claims made by third parties.”

344 The 

final agreement stated expressly that “either party shall be free to use or disclose the fact 

of, and any and all information learned or obtained during, the referenced investigation, 

including information exchanged hereunder, in any dispute between them.”345 These 

changes put Akorn on notice that Fresenius could use the fruits of the investigation to 

 

342 See JX 794 (Silhavy emailing Sheers: “Cravath’s proposal has caused a stir in 

Germany. They would like a call tomorrow . . . and do not want us signing anything until 

after that call.”); see also JX 798 at ‘812 (Sidley attorney referring to Akorn as “our 

adversary here”).

343 JX 804 at ‘988.

344 Id. at ‘988.

345 Id. at ‘989.
76

evaluate its rights and obligations under the Merger Agreement and not merely for the 

purpose of closing the Merger.

M. The Site Visits Begin.

Between December 11 and December 15, 2017, the Fresenius team visited Vernon 

Hills. Sidley interviewed nineteen employees, and Fresenius’s consultants toured the 

laboratory and questioned employees about equipment, software, controls, processes, and 

procedures. The Fresenius team identified serious data integrity issues.346

Between December 18 and December 21, 2017, the Fresenius team visited Somerset 

and Cranbury. Sidley interviewed ten employees while the consultants toured the 

laboratory. The Fresenius team again identified serious data integrity issues.347

From January 2 until January 5, 2018, the Fresenius team visited Decatur. They 

interviewed eleven employees while the consultants toured the laboratory facilities. The 

Fresenius team again identified serious data integrity issues.348

 

346 See JX 809; JX 856 at ‘872–77; JX 934 at 14; Sheers Tr. 1092. Sidley and 

Lachman later had a follow-up visit at Vernon Hills. See Sheers Tr. 1094. Akorn has fixated 

on a comment that George made when visiting the Vernon Hills site about looking for 

“smoking gun[s].” Sheers Tr. 1090. The details and context of this statement are too vague 

for me to draw any inferences from it.

347 See JX 828; JX 856 at ‘878–86; JX 934 at 14; Sheers Tr. 1093. 

348 See JX 934 at 14; JX 856 at ‘887–94; Sheers Tr. 1093. Sidley and Lachman later 

had a follow-up visit at Vernon Hills. See Sheers Tr. 1094–95. 
77

On January 5, 2018, Fresenius received a third whistleblower letter, which alleged 

that Vernon Hills personnel had concealed information from Fresenius.349 Fresenius sent 

the letter to Akorn.350 Based on the letter’s allegations and its own concerns, Fresenius 

questioned whether Akorn was providing Fresenius with reasonable access to information. 

Akorn provided a pointed and detailed response.351

On December 18, 2017, while the Fresenius team was starting its visit at the 

Somerset site, Cravath commenced the only investigatory work that it did on its own, in 

contrast to simply shadowing Sidley.352 While preparing witnesses for their interviews, 

Cravath learned about problems with the data supporting Akorn’s ANDA for azithromycin

and about Silverberg’s submission in August 2017 of a response to a CRL that relied on 

false data.

353 Cravath started investigating what had happened.354

Two days after Cravath started investigating, on December 20, 2017, Silverberg 

went to Misbah Sherwani, Executive Director of Quality at Somerset, to try to coordinate 

their stories. Sherwani immediately called an associate at Cravath, telling the associate that 

 

349 JX 842 (alleging that personnel were instructed “not to cooperate with” Fresenius 

and “not to disclose any information” to Sidley); see also JX 934 at 12.

350 See JX 848; JX 851.

351 See JX 853.

352 See Stuart Tr. 728.

353 See id. at 679–80.

354 See id. at 680–82; Sheers Tr. 1041–42.
78

she is uncomfortable being in the same room with Mark right now because 

he is telling her to do things with respect to opening a [T]rackwise 

investigation that she is seriously concerned about (including inaccurate 

justifications for why an investigation was not opened earlier and telling her 

he will “eat” the drafts of the language about that).

355

The associate called Stuart, who spoke by phone with Silverberg and Sherwani.356

Stuart claimed at trial that the phrase “eat the draft” did not mean anything to him.357

It sounds to me like a fairly obvious reference to coordinating stories, documenting the 

coordinated story in Trackwise, the software Akorn uses to track quality issues and 

investigations, then concealing the evidence of the coordination. This is exactly how 

Sherwani understood it.358 She said Silverberg told her that they should agree on a 

description of the investigation and then Silverberg would “get rid of” what they had 

drafted.359 Stuart “very quickly” dismissed this as a “fleeting issue” by deciding that 

Silverberg and Sherwani simply had a miscommunication.

360

Cravath’s investigation took approximately four weeks. The resulting record 

supports the following findings:

 

355 JX 825.

356 Stuart Tr. 767, 769.

357 Id. at 690, 768.

358 See Sherwani Dep. 114–116.

359 Stuart Tr. 691, 718, 771.

360 Id. at 690, 693, 769, 773–74.
79

 In 2012, Akorn began developing a topical ophthalmic form of azithromycin, a 

prescription antibiotic, at its Somerset site, but could not perform particulate matter 

stability testing due to its viscosity.361

 In September 2012, an Akorn lab supervisor at Somerset named Jim Burkert entered 

stability testing data into the lab notebook of an Akorn chemist. There is no evidence 

that he had the data; he seems to have made it up.362

 In December 2012, Akorn submitted to the FDA an ANDA for azithromycin which 

included the false data.363

 In fall 2014, the stability testing issue came up again, and the chemist discovered

the entries in her notebook. She also noticed other entries in the same notebook and 

in two other notebooks that were not in her handwriting. She reported it to Burkert,

who did not ask any questions or follow up. The chemist next brought the issue to 

the attention of a quality manager who instructed all scientists to review their 

notebooks. The review discovered numerous instances of altered and missing data. 

In addition, two of Burkert’s notebooks were missing.

364

 On December 30, 2014, Burkert resigned voluntarily.365

 In July 2016, Silverberg visited Somerset. He interviewed the chemist and told her 

to note in her notebooks where the writing was not hers. She identified six additional 

products where the writing was not hers. After learning about the missing 

notebooks, Silverberg instructed that going forward, all notebooks would be stored 

 

361 See JX 890 at ‘268–69; JX 821 at ‘207; JX 1889 at 1; Stuart Tr. 682–83.

362 See JX 890 at ‘268–69; JX 821 at ‘207; JX 1889 at 1; see also JX 914 at ‘087 

(“In brief, Stuart admitted that the company submitted to FDA ‘fabricated’ stability data—

i.e., data for which the company has no support—for the Azithromycin ANDA . . . .”); id. 

at ‘088 (“[T]he data was in fact ‘fabricated.’”); Stuart Tr. 740–41 (“Q. . . . Cravath 

concluded that there was a high likelihood that the data was false; correct? A. Yes.”).

363 JX 890 at ‘269; JX 1889 at 2.

364 JX 1889 at 2–4.

365 JX 890 at ‘273; JX 1889 at 4.
80

in the quality manager’s office and checked in and out. Employees expressed 

concern that Silverberg was not addressing the issues properly.

366

 In August 2017, Somerset was attempting to respond to a CRL that asked questions 

about the stability testing for azithromycin, albeit not specifically the fabricated test. 

When preparing the response, Akorn personnel identified the problems with the data

and brought them to Sherwani’s attention. She and a colleague, Michael Stehn, 

concluded that Akorn would need to withdraw the ANDA, and they elevated the 

issue to Silverberg.367

 During Silverberg’s discussion with Sherwani and Stehn, Silverberg was told that it 

was highly likely that there was false or fabricated data in the initial ANDA 

submitted to the FDA.368

 During a meeting on August 17, 2017, Silverberg told Sherwani and Stehn that 

Akorn would not withdraw the ANDA and should instead pull samples and test 

them to see if the samples passed the test.369 Silverberg subsequently instructed 

Sherwani and Stehn to respond to the CRL, not to ask for an extension, and not to 

open an investigation in the data issues.370

 Sherwani believed it was essential to conduct an investigation and to obtain an 

extension from the FDA. Sherwani asked Silverberg whether he was “allowing 

Regulatory Affairs to continue to submit inaccurate information” to the FDA.371

Silverberg argued that the FDA was asking about different data.372

 

366 See JX 821 at ‘208; JX 890 at ‘274–75; JX 1889 at 6–8; Stuart Tr. 683.

367 See JX 853 at ‘545; JX 579; JX 821 at ‘209–10; JX 890 at ‘278; JX 1889 at 8–

10; Stuart Tr. 683–84, 744–45.

368 Stuart Tr. 741.

369 See JX 591 (Silverberg describing request for extension as “stupid”); JX 821 at 

‘210; JX 1889 at 10–11; Stuart Tr. 745.

370 See JX 607 at ‘105–06; JX 821 at ‘210–11; JX 1887 at 2; JX 1888 at 1–2; Stuart 

Tr. 759–63.

371 JX 607 at ‘103; JX 821 at ‘211; JX 1889 at 11.

372 See JX 607 at ‘102–03; JX 821 at ‘211; JX 1889 at 11.
81

 Sherwani disagreed with Silverberg’s positon and declined to sign the CRL.373

 Silverberg instructed Sherwani that there should be “[n]o more emails.”374

 Silverberg signed the CRL on Sherwani’s behalf while she was out of the office.

375

 By signing off on the CRL, Silverberg validated the attachments, which were not 

yet attached to the form he signed. The attachments included the false stability 

data.376 Sherwani had made clear to Silverberg that signing the CRL would 

constitute a resubmission of the false data.377

N. Cravath Reports To Sidley On Its Investigation.

On January 12, 2018, Stuart gave Sidley a preliminary report on Cravath’s

investigation.378 At that point Cravath had interviewed twenty-four employees and 

reviewed 6,000 emails. Stuart told Sidley that the investigation would take another three to 

four weeks.379

 

373 See JX 777 at ‘221–22; id. at ‘216 (forwarding her exchange between Silverberg 

and herself to a colleague, Sherwani comments, “I’m not going to be his scapegoat”); JX 

890 at ‘279.

374 JX 778 at ‘557.

375 See JX 821 at ‘211; JX 1889 at 12.

376 See JX 873 at ‘320; Stuart Tr. 684–85, 786–89.

377 JX 1425 at ‘102; Stuart Dep. 153; Sherwani Dep. 99–103; JX 1891 at 1, 3–5, 7; 

Stuart Tr. 802.

378 See JX 873 at ‘320; Stuart Tr. 695; Sheers Tr. 1042–43.

379 JX 873 at ‘323. But see Stuart Tr. 681 (“We were substantially complete by the 

middle of January”); id. at 697 (Stuart testifying that the investigation was “substantially 

complete” by January 22, 2018). 
82

After receiving the preliminary report, Fresenius sent Akorn a letter identifying 

“extremely serious data integrity concerns.”380 Internally, Fresenius started a project to 

determine what it would cost to remediate the data integrity issues at Akorn so they could 

evaluate whether the issues constituted a Material Adverse Effect.381

On January 22, 2018, Stuart, Bonaccorsi, and members of the Cravath team gave a 

follow-up report to Silhavy and Sidley.382 Stuart stated that Silverberg’s explanations 

“were not satisfactory, they didn’t hang together.”

383 He also said that he would not be 

 

380 JX 866; see Sheers Tr. 1037–39 (summarizing concerns). There is evidence that 

Fresenius executives wanted Sidley and Lachman to be even more critical of Akorn than 

they were. See JX 900; Sheers Tr. 1099–01. I find that Sidley and Lachman properly 

resisted this pressure and conducted appropriately professional investigations. 

381 See JX 887; JX 889; see also JX 888. Bauersmith handled the initial modeling 

and led the project team. In a bit of gallows humor, he labeled his draft presentations and 

some communications with the faux code name “Project CERAFA.” See, e.g., JX 978. 

Commonly known as oak rot, cerafa fagacearum is a fungus that kills oak trees. 

Baeursmith Tr. 609. Fresenius’s code name for the Akorn acquisition was Project Oak, and 

Akorn understandably infers from this name that Bauersmith had been instructed to come 

up with a way to kill Project Oak. While this is one plausible interpretation of the evidence, 

I credit Bauersmith’s testimony that he believed Akorn was already rotten, and that his job 

was to determine the extent of the rot. Id. (“[W]e thought that the tree was rotted.”). 

Consistent with his testimony, Bauersmith had questioned Akorn’s pipeline from the outset 

and been skeptical of its value. Bauersmith resigned effective May 4, 2018, and had no 

reason to shade his testimony to favor Fresenius. JX 1182; Bauersmith Tr. 573. In my 

judgment, he was a credible witness.

382 JX 914.

383 Stuart Tr. 700; accord JX 914 at ‘093; JX 1128; see Stuart Tr. 697 (“My 

assessment was that Mr. Silverberg’s conduct was wholly unacceptable, that his 

explanations for his conduct were not satisfactory, and that we needed to take some action 

with respect to Mr. Silverberg.”); id. at 748 (“Q. Okay. And in fact, you find [Silverberg’s] 

explanation about this totally unsatisfactory. A. That’s true.”); Sheers Tr. 1044 (“[W]e 

asked Mr. Stuart whether he found [Silverberg’s] statement credible, that explanation 
83

relying on Silverberg’s explanation “in an attempt to defend the [C]ompany before the 

FDA.”384 Although Stuart did not say this to the Fresenius team, he believed that there was 

“a high likelihood that [the FDA] would conclude, given the document trail that they’ll 

conclude [Silverberg] did act with intent.”385 Stuart did not report on (or ever tell Sidley 

about) the incident between Silverberg and Sherwani in which Silverberg attempted to 

coordinate their stories and suggested he would “eat the draft” if necessary.386

Bonaccorsi and other senior executives at Akorn thought the situation was serious, 

and they worried that if they disclosed the azithromycin incident to the FDA and withdrew 

 

credible, and he told us specifically that he did not find his story satisfactory; that it did not 

hang together; and he told us that he wasn’t going to defend it.”). At trial, Stuart and his 

counsel spent a lot of time attempting to distinguish between finding Silverberg’s 

explanation “not satisfactory” and finding it not credible. They did so in an attempt to 

justify the later presentation of Silverberg’s explanations to the FDA as findings from 

Cravath’s investigation. Based on the evidence, I do not perceive a meaningful distinction. 

Regardless of what adjective one uses, Akorn later presented the FDA with a finding from 

its investigation that parroted an explanation that the lead investigator did not find 

satisfactory. 

384 Stuart Tr. 700–01.

385 JX 935 at ‘031.

386 Sheers Tr. 1045–46. Based on Cravath’s presentation, Silhavy did not initially 

regard Silverberg’s findings as “earthshattering” or as providing a basis, standing alone, to 

terminate the Merger Agreement. Silhavy Dep. 158–60; see JX 878. Sturm scolded Silhavy 

for expressing this view before hearing from Fresenius’s subject-matter experts. Sturm Tr. 

1190–91, 1216–17; see Silhavy Dep. 158–60. Given this exchange and Sturm’s candid 

testimony about his view of the Merger after Akorn’s dismal performance, it is reasonable 

to infer that Sturm hoped the investigation would support a decision by Fresenius to 

terminate the Merger Agreement. 
84

the ANDA, then the FDA would invoke the AIP.387 To help them navigate dangerous 

waters, they decided to hire a law firm with specific FDA expertise. They selected Hyman, 

Phelps & McNamara, P.C., although this firm had also done work for Fresenius and 

therefore faced a potential conflict. They also decided to hire an outside consultant to 

conduct a review of Akorn’s procedures and potentially tainted submissions. Akorn later 

chose NSF to conduct the investigation.388

After consulting with Hyman Phelps, Akorn decided that they should go to the FDA 

relatively soon, disclose the problems they had discovered, and explain how the false CRL 

came to be submitted.389 Akorn also decided that Silverberg should no longer head up its 

quality function.390 Effective March 1, 2018, they removed him from his position of 

Executive Vice President, Global Quality Affairs and placed him in the new role of 

“Quality Advisor.”391 His new position paid $250,000 per year, a reduction from his prior 

salary of $318,000, and he was not eligible for any bonus. The initial placement was for 90 

days or until the Merger closed. He was “[n]ot to initiate any contact with Akorn employees 

 

387 JX 884 at ‘068 (“They’re going to invoke the application integrity policy.”); see 

Stuart Tr. 854; see also JX 908 at ‘831 (discussing AIP); JX 1127 (same).

388 JX 1078; see JX 932; JX 939; JX 951; JX 967; Stuart Tr. 707–08.

389 See Stuart Tr. 703.

390 Bonaccorsi Tr. 894–95.

391 See JX 955 at ‘702; JX 961; JX 984.
85

at any level except for inquiries to the CHRO or General Counsel.”392 He was “[n]ot to 

have any contact with the U.S. FDA or other regulatory facilities.”393 He was “[n]ot to 

physically report to any Akorn location unless specifically requested or directed by his 

manager, CHRO or General Counsel.”394 Akorn took these steps with the understanding 

that the FDA would expect to see this type of disciplinary outcome in a case of “deliberate 

misconduct.”395 As of trial, Silverberg remained in his new role.

To fill the hole this created at the top of Akorn’s quality function, Akorn promoted 

Wasserkrug to the position of Vice President, Quality Operations. Although historically 

the head of quality reported directly to the CEO, she would report to the head of 

pharmaceutical operations, where the entire quality assurance function would reside.

396

Akorn also decided that it would be a good idea to start working on some data 

integrity projects. Bonaccorsi had Pramik start planning for IT to address some projects in 

this area.397 The IT department also began responding to the issues raised in the Cerulean 

audits from December 2016 and May 2017.398

 

392 JX 955 at ‘702.

393 Id.

394 Id.

395 Stuart Tr. 705.

396 JX 955 at ‘703.

397 JX 957 at ‘921.

398 See JX 977.
86

O. Tensions Escalate.

By the second half of February 2018, tensions between the parties had escalated.399

On February 16, Sidley sent Cravath a letter attaching an extensive list of FDA submissions 

where Lachman had not been able to locate the underlying data. Sidley asked for the data 

or, alternatively, an explanation for why it was missing.400 Three days later, on February 

19, Bonaccorsi sent Silhavy a lengthy email in which he accused Fresenius of footdragging before the FTC and failing to use its reasonable best efforts to obtain antitrust 

clearance.401 Four days later, on February 23, Silhavy sent Bonaccorsi an email informing 

him that Fresenius would be making the following statement about the Merger on February 

27, when Fresenius Parent held it earnings call:

Fresenius is conducting an independent investigation, using external experts, 

into alleged breaches of FDA data integrity requirements relating to the 

product development at Akorn, Inc. 

In addition to FTC clearance, closing of the acquisition will now depend on 

the outcome of this investigation and the assessment of such outcome by the 

management and supervisory boards of Fresenius.402

Silhavy also sent Bonaccorsi an email complaining that Cravath had not yet provided 

Sidley with the emails from Cravath’s investigation into the fabricated-data issues and 

expressing concern that “Akorn has not been and is not acting in good faith to fulfill its 

 

399 See Stuart Tr. 709, 866.

400 JX 970.

401 JX 972.

402 JX 983 at ‘002.
87

obligation to provide prompt and reasonable access to information under Section 5.05 of 

the Merger Agreement.”403

The very next day, on February 24, 2018, a Cravath litigation partner sent a letter to 

Fresenius’s outside deal counsel asserting that Fresenius had “made clear that it does not 

intend to perform its obligations under the Merger Agreement.”404 The letter cited 

Fresenius’s positions regarding antitrust clearance and its planned disclosure about closing 

depending on the outcome of its investigation.405

Over the weekend, Cravath produced a portion of the emails to Sidley, and 

Bonaccorsi promised that the balance would be coming soon.406 On February 26, 2018, 

Akorn’s newly retained regulatory counsel at Hyman Phelps reached out to the FDA to 

advise them about the potential data integrity issues involving fabricated data.407 The FDA 

agreed to a “listening only meeting” on March 7.408

P. The Earnings Calls

On February 27, 2018, Fresenius held its quarterly earnings call. Sturm announced 

that Fresenius was investigating “information which originated from an anonymous source 

 

403 JX 991 at ‘948.

404 JX 986 at ‘186.

405 Id. at ‘187.

406 JX 991 at ‘946.

407 See JX 987; JX 988; Stuart Tr. 706.

408 JX 1000 at ‘031.
88

alleging deficiencies and misconduct regarding the product development process for new 

drugs at Akorn.”409 He stated that during due diligence, Fresenius had “examined and 

audited [Akorn] as intensively, carefully, and conscientiously as possible,” and he 

described the due diligence as “the most intensive and comprehensive that I have 

experienced during my time at Fresenius,” but he added that “when you wish to acquire a 

competitor, there are restrictions,” and “[t]here are areas where you simply are not allowed 

to look, including product development and drug approval processes.”410

So how do you protect yourself in these areas? You ask the seller for 

assurances, representations [and] warranties, to use the legal term, on certain 

key facts and issues. The task now is to verify whether these assurances 

provided by the seller actually hold true. . . . [S]hould the allegations prove 

to be of a nonmaterial nature, then we will complete the acquisition, as 

planned, and together make it a success . . . .

If, however, the allegations are proved and prove to be so serious that we 

must question the very basis of the takeover agreement, then in the interest 

of our shareholders, we may use our rights to withdraw from the 

transaction.411

Akorn’s stock price plummeted on the news.412

 

409 JX 994 at 5.

410 Id.

411 Id. Sturm “stress[ed] that the strategic rationale behind our offer for Akorn 

remains absolutely sound,” and that Fresenius remained “determined to pursue the strategic 

goal of expanding our liquid pharmaceutical product offering in North America.” Id.; see 

also id. at 15.

412 See JX 992.
89

On February 29, 2018, Akorn reported its financial results for the final quarter of 

2017, along with annual results for 2017.413 For the quarter, Akorn reported revenue of 

$186 million, representing a year-over-year decline of 34%. Akorn reported operating 

income of negative $116 million, representing a year-over-year decline of 292%. Akorn 

reported a loss of $0.52 per share, representing a year-over-year decline of 300%.414

For 2017 as a whole, Akorn reported revenue of $841 million, representing a yearover-year decline of 25%. Akorn reported operating income of $18 million, representing a 

year-over-year decline of 105%. Akorn reported a loss of $0.20 per share, representing a 

year-over-year decline of 113%.415 Akorn reported EBITDA of $64 million for 2017, down 

86% from 2016, and adjusted EDBITA of $249 million, down 51% from 2016.416 Akorn’s

actual revenue declined by 17% from the low end of the guidance of $1,010–$1,060 million 

that Akorn reaffirmed when announcing the Merger Agreement. Akorn’s adjusted 

EBDITA declined by 31% from the low end of Akorn’s reaffirmed guidance of $363–$401 

million.417

 

413 JX 998.

414 JX 1250 ¶ 11; see JX 941 at 5.

415 JX 1250 ¶ 11; see JX 941 at 5.

416 JX 1250 ¶ 11.

417 Id. ¶ 22.
90

Q. The FDA Meeting

During the weeks leading up to Akorn’s meeting with the FDA, Akorn withdrew 

the ANDA for azithromycin,

418 and the parties butted heads over several issues. When 

Fresenius realized that Hyman Phelps would be attending the meeting, they asserted a 

conflict based on Hyman Phelps’s contemporaneous representation of Fresenius.419 Akorn 

complained that Fresenius was trying to harm its ability to present its case to the FDA, but 

Fresenius had a legitimate concern that Akorn was going to whitewash its problems, and 

Hyman Phelps was contemporaneously appearing for Fresenius in matters before the FDA. 

Fresenius did not want any blowback from a misleading depiction to hurt its own counsel’s 

credibility. Akorn replaced Hyman Phelps with Ropes & Gray LLP.

420 The meeting was 

rescheduled for March 16, and the change in counsel does not appear to have made any 

difference. 

Akorn took similar stances towards Fresenius. When Sidley asked to attend the 

meeting, Akorn said no.

421 When Sidley asked to interview Avellanet, the author of the 

 

418 See JX 1091.

419 See JX 1003; JX 1006; JX 1017; Stuart Tr. 710; Bonaccorsi Tr. 901–02.

420 Stuart Tr. 710–11.

421 See JX 1013 at ‘486; Sheers Tr. 1049. At trial, Stuart cited three reasons. First, 

by conflicting out Hyman Phelps, Fresenius had taken the position that Akorn and 

Fresenius’s interests were not aligned regarding the meeting. Second, “by that time, the 

relationship between Sidley and Cravath, as well as between Fresenius and Akorn, had 

grown to be hostile.” Stuart Tr. 711. Third, Akorn feared that Sidley would try to sabotage 

the meeting. Id. at 711–12. All three seem to be variants on a theme: both sides’ interests 

were becoming adverse.
91

Cerulean reports, Akorn again said no.422 Akorn also instructed Sidley that they could not 

interview any former Akorn employees without Akorn’s approval.

423 Akorn also instructed 

Sidley that no one other than Fresenius’s outside consultants could review the documents 

Akorn was providing unless Akorn gave prior consent to provide specific documents to 

specific individuals.424

In advance of the in-person meeting on March 16, 2018, a lawyer from Ropes & 

Gray had a “sidebar” call with an FDA representative in which he denigrated Fresenius’s 

motives and suggested that Fresenius would try to call Akorn’s presentation into 

question.425 During the subsequent in-person meeting, eight Akorn representatives, 

including Stuart and Bonaccorsi, met with sixteen FDA representatives, with four 

participating by phone.426

 

422 See JX 1023; JX 1032.

423 JX 1037.

424 JX 1038 at ‘447.

425 JX 1066 at ‘893; see JX 1063 at ‘005; Stuart Tr. 840–44. Stuart failed to mention 

the criticisms of Fresenius when he described the sidebar call for Sidley. See JX 1071 at 

‘707; Stuart Tr. 845–46. At trial, Sheers identified statements in the talking points for the 

sidebar call that did not accurately describe the state of the record. See Sheers Tr. 1055–

58. Based on the trial record, Sheers’s assessment appears correct. The sidebar call was 

thus another means by which misleading information reached the FDA.

426 JX 1066 at ‘894.
92

As Akorn’s expert conceded at trial, Akorn was “not fully transparent” with the 

FDA during the meeting.

427 First, Akorn presented the overall investigation into the 

whistleblower letters as one conducted jointly by Akorn and Fresenius.428 In reality, Akorn 

did not conduct an investigation into the whistleblower letters. Fresenius expected Akorn 

to conduct an investigation, but Akorn chose to have Cravath shadow the Sidley 

investigation instead. Akorn’s presentation cited investigatory work that Sidley and 

Lachman had performed in a manner that implied that Akorn had been responsible for it.429

Akorn also described its production of emails to Sidley in a manner that implied it had 

happened months earlier, at the start of the investigation and as part of a joint effort,430

when in fact the emails had been provided only three weeks before in response to pressure 

 

427 Kaufman Tr. 378. Kaufman claimed that Akorn later became transparent by 

sending the FDA a letter containing Sidley’s criticisms and the Cerulean reports. Id. at 402, 

414. In fact, Akorn has never sent the FDA the Cerulean reports. Wasserkrug Tr. 40. 

Moreover, Akorn’s regulatory counsel undermined the curative efficacy of sending the 

Sidley letter by priming the FDA not to give any credence to Sidley’s concerns.

428 See JX 1066 at ‘895 (“Dave Stuart presented briefly on . . . the whistleblower 

letters sent to Fresenius and the investigation conducted by Akorn and Fresenius as a result 

of those letters.”); JX 1068 at ‘009 (“In response to anonymous letters, Akorn and 

Fresenius conduct investigation focused on data integrity controls.”); JX 1068 at ‘038 

(“Akorn has extensively investigated the concerns raised by the anonymous letters . . . .”). 

Stuart described the investigation differently when he reported on the meeting to Sidley. 

See JX 1071 at ‘707 (Stuart telling Sidley that they had told the FDA that “Fresenius, 

Sidley, Lachman, and EY had been given access to Akorn’s sites, raw data, audit trails, 

emails and employees” and that “you were analyzing all of the information and data you 

had obtained”).

429 See JX 1068 at ‘009 (citing site visits, “65+ interviews of current and former 

Akorn personnel”; and “[l]ab walk-throughs”)

430 See JX 1066 at ‘895.
93

from Fresenius. Akorn likewise presented the investigation into the azithromycin ANDA 

as a joint investigation, when Cravath had conducted that investigation on its own.431 Akorn 

also represented that Cravath’s investigation into the azithromycin issue was “supported 

by Akorn GQC,”432 without disclosing that Akorn GQC had been kept in a constrained and 

limited role. 

Even more problematic, Akorn’s presentation endorsed as valid Silverberg’s 

claimed justification for signing the CRL with fabricated test results. Under the heading, 

“Investigative Findings,” the presentation stated:

Silverberg authorized submission of AET data without knowing stability 

table containing particulate matter data would be submitted because stability 

table not attached to CRL response Silverberg authorized for submission.433

This statement to the FDA adopted Silverberg’s explanation for his actions. Stuart gave the 

presentation and called the FDA’s attention to this statement during the meeting,434 yet 

 

431 See Stuart Tr. 728–29.

432 JX 1068 at ‘009.

433 JX 1068 at ‘014.

434 Stuart Tr. 713. At trial, Stuart testified on direct that he “felt the FDA should 

know that that was [Silverberg’s] position on the submission of the CRL response.” Id. at 

714. The presentation does not identify the statement as Silverberg’s position. It identifies 

the statement as a finding from an Akorn internal investigation conducted by Cravath. See 

Stuart Tr. 794; Stuart Dep. 276. I empathize with Stuart, because I suspect that he was 

under a great deal of pressure to depict events in this way. I also give Stuart credit for 

testifying as directly as he did given the difficult position that his client had put him in. He 

appears to be an honest and conscientious person. The record shows that many lawyers 

revised and commented on the presentation, and their collective efforts to present Akorn 

to the FDA in the best light possible ultimately produced a misleading document. In the 

pressure of the moment, Stuart went along.
94

Stuart had said previously that “he did not find Silverberg’s explanations satisfactory.”435

He also believed that there was “a high likelihood that [the FDA] would conclude, given 

the document trail that they’ll conclude [Silverberg] did act with intent.”436 Most important, 

he had told the Sidley team that he would not be relying on Silverberg’s explanation “in an 

attempt to defend the Company before the FDA.”437 Yet that is what the presentation did.

Finally, Akorn told the FDA that it had placed an “emphasis . . . on improving data 

integrity controls in the last few years,”

438 and the presentation cataloged a number of steps 

Akorn had taken. Akorn in fact historically prioritized other matters over data integrity and 

only began making a serious effort on data integrity after Sidley and Lachman identified

pervasive problems. Moreover, while highlighting favorable information for the FDA, 

Akorn omitted the many deficiencies identified by Cerulean and Akorn’s internal audit 

function. This approach resulted in a one-sided, overly sunny depiction. Akorn’s witnesses 

have stressed that the FDA usually does not ask for or receive internal audit reports or 

 

435 JX 914 at ‘093; see Stuart Tr. 697, 699–700.

436 JX 935 at ‘031.

437 Stuart Tr. 700–01.

438 JX 1066 at ‘897; see JX 1068 at ‘016 (presentation representing (inaccurately 

based on the evidence in this case) that “Akorn management emphasizes the importance of 

data integrity and the data governance policy is endorsed at the highest levels of the 

organization”); id. at ‘017 (presentation representing (inaccurately based on the evidence 

in this case) that “[i]mprovement activities have been prioritized using a risk-based focus 

across all facilities”).
95

consultant reports when it conducts an inspection,439 but that is a different scenario than a 

company approaching the FDA voluntarily and purporting to come clean.

440

After the meeting, Akorn provided Fresenius with a summary of the meeting and a 

copy of the presentation.441 On March 22, 2018, Sidley sent Cravath a letter accusing Akorn 

of having given the FDA “false, incomplete and misleading information.”442 Sidley’s 

leading criticism was the presentation’s description of Silverberg’s reason for approving 

the response to the CRL.443 Although Sidley’s language was strident, that was a fair 

criticism of the presentation. Sidley also criticized the presentation’s portrayal of Akorn’s 

“many supposed improvements in its data integrity practices.”444 The language was again 

quite strong, but the criticism was a fair one.445

Akorn’s regulatory counsel at Ropes & Gray sent Sidley’s letter to the FDA.

446 He 

also sent the FDA copies of letters from Sidley to Cravath in which Sidley identified 

 

439 See Wasserkrug Tr. 19; Kaufman Tr. 275.

440 See Kaufman Tr. 399 (agreeing that self-disclosure is different than an audit).

441 See JX 1073.

442 JX 1084 at ‘171; see Sheers Tr. 1050–54 (describing Sidley’s concerns).

443 JX 1084 at ‘171–72. 

444 Id. at ‘173.

445 See Wasserkrug Tr. 167–72 (Wasserkrug on cross-examination agreeing that 

Akorn did not disclose numerous problems with the data integrity accomplishments it 

touted to the FDA).

446 See JX 1105.
96

various data integrity issues, along with Cravath’s response to those letters. He followed 

up with a call with an FDA representative, during which he sought to undermine 

Fresenius’s criticisms.447 He correctly noted that “the heated tone of the correspondence 

was somewhat embarrassing.”448

R. Fresenius Terminates The Merger Agreement.

On March 16, 2018, Sturm raised with the Supervisory Board of Fresenius Parent 

the possibility of terminating the Merger Agreement. He cited the results of Fresenius’s 

data integrity investigation, which he noted was still ongoing, but which had revealed 

evidence of breaches of representations in the Merger Agreement.449 He told the 

Supervisory Board that they did not yet have to make a decision.450

On April 13, 2018, the senior executives at Fresenius Kabi decided to recommend

terminating the Merger Agreement to their superiors at Fresenius Parent. They based their 

decision on the data integrity problems at Akorn, the costs of remediation, and the decline 

in Akorn’s business performance.451

On April 17, 2018, the Supervisory Board met. Management gave the directors a 

presentation that detailed (i) the downward revisions in the business plan for Akorn made 

 

447 See JX 1106.

448 Id. 

449 JX 1143 at ‘975–76.

450 Id. at ‘976.

451 JX 1142 at ‘496.
97

necessary by Akorn’s dismal business performance, (ii) the cost of data integrity 

remediation, and (iii) the lost value from suspending sales of existing products and delaying 

production of pipeline products until data could be verified.

 For 2018, Akorn’s projected EBIT fell from $239 million in the signing case to $14 

million in the updated case. Of the total, a decline of $221 million was attributable 

to on-market products and a decline of $127 million to pipeline products, with these 

declines partially offset by deal-related factors.452

 For 2018, data integrity remediation would cost another $48 million, with a decline 

in EBIT of $272 million attributable to suspending on-market products pending data 

verification. With these effects, Akorn’s adjusted EBIT in 2018 would be negative 

$313 million.453

 Over a ten-year period, Akorn would incur $254 million in direct costs to redevelop 

the twenty-four most commercially valuable Akorn products.

454

 The biggest valuation hit to Akorn would come from suspending on-market 

products and pushing out pipeline products while data was verified. Depending on 

the assumptions used, the loss in value from the deferral could reach $1.6 billion, 

excluding the direct remediation costs.455

 Taking into account both the direct remediation costs and the lost value from 

product suspensions and deferrals, Akorn’s value fell from $5.236 billion at the time 

of the Merger to $3.307 billion, representing a decline of 37%.456

 

452 JX 1152 at 17.

453 Id. at 18.

454 Id. at 19; see Henriksson Tr. 979, 1009.

455 JX 1152 at 25.

456 Id.
98

The estimates were developed by a team of Fresenius personnel that included senior 

executives and staff who had first-hand experience based on Fresenius’s efforts to 

remediate data integrity issues at one of its sites in India.457

Although Sturm and his colleagues were prepared to terminate the Merger 

Agreement, they recommended that Fresenius offer Akorn the choice of extending the 

outside date for the Merger to the end of August to facilitate further investigation into the 

data integrity issues, including the investigations by NSF that Akorn had pledged to the 

FDA to conduct. In a letter dated April 18, 2018, Paul Weiss surfaced for the first time and 

communicated this offer. The letter asserted that Akorn had breached various provisions in 

the Merger Agreement, including its representations regarding regulatory compliance. The 

letter noted that “[i]f Akorn believes Fresenius is mistaken in its assessment of the facts 

and that Akorn’s own investigation, when complete, would support its position, then 

extending the Outside Date could be advantageous to both parties.”458 Akorn declined.

 

457 See Henriksson Tr. 1005, 1022–23. Given that litigation was on the horizon, 

Fresenius also consulted with lawyers from Paul Weiss. Akorn has stressed this point and 

observes that Fresenius initially designated the analysis as privileged. See Henriksson Tr. 

1002. The fact is that both sides involved lawyers extensively and labeled many internal 

documents and analyses privileged. The major difference is that Fresenius used three firms: 

Allen & Overy for deal work, Sidley for regulatory work, and Paul Weiss for litigation. 

Akorn only used Cravath. It is therefore easier for Akorn to track when Paul Weiss became 

involved. I suspect that Akorn took similar steps to consult with Cravath after its disastrous 

post-deal performance. Akorn used Cravath litigators to address the whistleblower letters 

and had other Cravath litigators involved by February 2018. See JX 986; JX 1337 at ‘405. 

I see no reason to criticize either side for consulting with top-flight law firms about the 

implications of unfolding events for a high-profile deal.

458 JX 1153 at ‘553.
99

On April 22, 2018, Fresenius gave notice that it was terminating the Merger 

Agreement. Fresenius cited its right to terminate under Section 7.01(c)(i) based on (i) 

Akorn’s breaches of representations and warranties, including those related to regulatory 

compliance, and (ii) Akorn’s breaches of its covenants, including its obligation to operate 

in the ordinary course of business. Fresenius also cited its right not to close under Section 

6.02(c) because Akorn had suffered a General MAE, which would give rise to a right to 

terminate two days later, on April 24, 2018, when the initial Outside Date in the Merger 

Agreement was reached.459

S. This Litigation

On April 23, 2018, Akorn filed this action. Fresenius answered and asserted 

counterclaims. Akorn sought an expedited trial on or before July 24, 2018.460 Over 

Fresenius’s opposition, I granted the request and scheduled trial for July 9–13.461

While the litigation was ongoing, factual developments continued apace. On May 

2, 2018, Akorn announced its financial results for the first quarter of 2018. Akorn reported 

revenue of $184 million, representing a year-over-year decline of 27%. Akorn reported

operating income of negative $25 million, representing a year-over-year decline of 134%. 

 

459 JX 1165.

460 Dkt. 22.

461 Dkt. 171.
100

Akorn reported a loss of $0.23 per share, a year-over-year decline of 170%. Akorn reported 

EBITDA of negative $6 million and Adjusted EBITDA of $24 million.462

While the parties litigated, NSF moved forward with its investigation. The original 

plan consisted of (i) conducting data integrity audits at six facilities (but not Somerset), (ii) 

reviewing both the ANDAs where Burkert had some involvement and the ANDAs 

generated at Somerset since 2006, (iii) examining any lab notebooks to which Burkert had 

access and sampling other notebooks at Somerset, and (iv) reviewing sample 

manufacturing data for thirty-two products manufactured at Somerset.463

By the time Fresenius issued its termination notice, NSF had only delivered its data 

integrity audit for one site (Vernon Hills). By the time of trial, NSF had completed its audits 

at four of the five other sites. NSF’s inspection of the Decatur facility was postponed due 

to an FDA inspection that began on April 9, 2018, lasted through trial, and eventually ended 

on July 23. As noted, NSF did not plan to conduct a data integrity audit at Somerset.

The following table identifies the facilities reports that NSF had conducted by the 

time of trial, along with the number and types of findings made by NSF.

 

462 JX 1250 ¶ 19.

463 See JX 1078 at ‘886.
101

Site Date of Report Major Findings Minor Findings Exhibit

Vernon Hills April 13, 2018 7 7 JX 1141

Amityville April 29, 2018 9 3 JX 1178

Lake Forest May 7, 2018 2 7 JX 1189

Cranbury May 9, 2018 10 8 JX 1190

Hettlingen May 10, 2018 6 9 JX 1192

As the table shows, NSF found major data integrity deficiencies at each site. 

Importantly, NSF’s definition of a major deficiency resembled Cerulean’s definition 

of a critical deficiency. For NSF, a major finding 

documents a systematic failure of a regulatory requirement, correlates to 

product defects, and/or represents uncorrected repeat findings cited by FDA 

in previous inspections. These findings would appear on a form FDA 483 

and may provide the basis for further enforcement action.464

For NSF, a critical finding was more extreme: a “condition which has produced or leads to 

a significant risk of producing an unsafe or hazardous product which may be harmful and 

puts the consumer at risk of serious injury or death.”465 Minor findings were regulatory 

violations that fell short of these standards. A minor finding “would most likely appear on 

a Form FDA 483, but would not be a basis for further enforcement action unless it 

represents a repeated finding . . . .”466

On May 16, 2018, part way through its investigation of Decatur, the FDA issued a 

twenty-four page Form 483 for that facility which identified thirteen categories of 

 

464 JX 1141 at 7.

465 Id.

466 Id.
102

deficiencies.467 Two of the categories addressed the types of data integrity problems that 

Fresenius had cited: one identified a “[f]ailure to maintain complete data derived from all 

testing and to ensure compliance with established specifications and standards pertaining 

to data retention and management;”

468 another identified a failure “to thoroughly 

investigate any unexplained discrepancy or failure of a batch or any of its components to 

meet any of its specifications, whether or not the batch has already been distributed.”469

The former category included five specific deficiencies; the latter included ten specific 

deficiencies, including “[r]epeat observation[s] from 11/2004, 9/2006, 8/2007, 6/2009, 

5/2013, 6/2016.”470 This was not the only instance of repeat observations that the Form 483 

raised. Another category of deficiencies identified “[r]epeat observations from 11/2004, 

9/2006, 8/2007, 6/2009 & 2017.”

471 Still another identified a “[r]epeat observation from 

11/2004.”

472 Based on the Form 483, Wasserkrug testified at trial to her belief that the FDA 

had placed Decatur on OAI status and that Akorn will not receive any product approvals 

 

467 JX 1198.

468 Id. at ‘973.

469 Id. at ‘975.

470 Id. at ‘980.

471 Id. at ‘966.

472 Id. at ‘969.
103

until Decatur is cleared.473 The two prior times when an Akorn facility was on OAI status, 

it took six months to a year to clear the facility.474

In May 2018, while the FDA inspection at Decatur was ongoing, the FDA approved

two of Akorn’s pending ANDAs.475 Akorn has cited these approvals to suggest that the 

FDA had no concerns about Akorn’s facilities, but the more persuasive interpretation is 

that the ANDAs had been in the FDA pipeline for some time and were ready for approval 

when Akorn’s issues arose. Consistent with the latter interpretation, the FDA subsequently 

declined to approve two other ANDAs, citing quality issues at Decatur.476 Akorn also has 

received two CRLs for products that would be manufactured at Decatur.477

In addition to the data integrity audits, NSF reviewed ANDAs from the Somerset 

facility. NSF was only able to review two ANDAs before Fresenius terminated the Merger 

Agreement. In the first, NSF found thirty-six major deficiencies and twenty-nine minor 

deficiencies.478 In the second, NSF found eleven major deficiencies and three minor 

deficiencies.479 After receiving the reports, the most Cravath felt it could say to Akorn’s 

 

473 Wasserkrug Tr. 72–73, 77.

474 Id. at 73–74.

475 See JX 1187; JX 1188.

476 JX 1223; JX 1226.

477 Wasserkrug Tr. 71–72.

478 See JX 1156 (Azelastine Hydrochloride Opthalmic Solution (0.05%)).

479 See JX 1157 (Moxifloxacin HCI Ophthalmic Solution, 0.5%).
104

directors was that they did not believe that the approval of either product was in “immediate 

jeopardy,” but that the process was still unfolding.480 At the time, NSF still planned on 

reviewing another twenty-eight ANDAs.

481 Notably, Akorn was not planning to address 

the broader universe of products that Silverberg oversaw, precisely because it was 

everything the Company had produced during the preceding decade.

By the time of trial, NSF had reviewed another six ANDAs. The following table 

summarizes the results:

Product Critical Major Minor Exhibit

Cyclopentolate Hydrochloride Ophthalmic 

Solution

1 34 8 JX 1185

Gentamicin Sulfate Opthalmic Ointment 0 30 5 JX 1196

Neomycin and Polymxin B Sulfate and 

Bacitracin Zinc Ophthalmic Ointment Sterile 

(Veterinary)

0 17 15 JX 1201

Epinastine HCI Opthalmic Solution 0.5% 0 22 19 JX 1204

Olopatadine Hydrochloride Opthalmic 

Solution

0 26 18 JX 1221

Olopatadine Ophtalmic Solution 1 34 23 JX 1224

The two critical deficiencies involved data fabrication. One involved an employee from 

Vernon Hills who engaged in a deliberate act to force a passing result for cyclopentolate.

482

The other involved an employee from Cranbury who engaged in the practice of testing into 

 

480 JX 1159 at ‘389.

481 See JX 1177 at ‘229–31.

482 Wasserkrug Tr. 176–77.
105

compliance for olopatadine.

483 NSF’s findings meant that the total number of individuals 

at Akorn involved in data fabrication had increased to four: Silverberg, Burkert, and the 

two additional employees. It also meant that the number of ANDAs that Akorn had 

submitted to the FDA based on false or misleading data had risen to three: azithromycin, 

cyclopentolate, and olopatadine.

484 NSF expanded its investigation based on its findings.

During its investigation, NSF also found extensive evidence of Akorn employees 

performing trial injections, a prohibited practice.485 In response to these findings, on April 

5, 2018, Stuart expressed concern about the risk that the FDA would impose the AIP:

[G]iven how prevalent this bad practice was, the FDA is likely to have a very 

negative reaction to our report. . . . Potential FDA reactions include (1) 

suspension of review of all pending submissions; (2) mandating review by a 

third party of product released for the market; and—the worst—(3) “AIP”

(Application Integrity Policy), which requires a third-party monitor to 

oversee all activity at Akorn’s sites.486

During a conference call the following day, Akorn’s regulatory counsel expressed concern 

that “[i]f audit reports make it look like there are similar issues across the company, FDA 

might see need to get whole company under decree.”487 At trial, Wasserkrug testified that 

 

483 Wasserkrug Tr. 179.

484 Id. at 179–80. In addition to inspecting facilities and auditing ANDAs, NSF 

conducted employee interviews. The one interview memorandum in the record, dated April 

16, 2018, provides striking insight into the absence of a well-functioning quality system at 

Akorn and the lack of a top-down culture of compliance. See JX 1149.

485 Wasserkrug Tr. 181–85.

486 JX 1127. 

487 JX 1496 at ‘055; see id. at ‘056 (“Sheer number of issues across all sites audited 

by NSF . . . could raise concern.”); JX 1493 (“[A]s other audit reports roll out,” it may 
106

Akorn still had not yet been able to resolve fifty instances of trial injections involving 

approximately twenty analysts and multiple products.

488

Through the remediation process that Akorn initiated after its meeting with the 

FDA, Akorn identified so many open deficiencies from past internal audits and received

so many new deficiencies flagged by NSF that it retained PricewaterhouseCoopers LLP as 

a program manager to keep track of them. PwC’s task was to organize all of the findings 

so that they could be evaluated and addressed.489 Before April 2018, no one had ever tried 

to create and maintain a master list of deficiencies at Akorn.490

At trial, Akorn asserted that fully remediating its data integrity problems would take 

approximately three years.491 Akorn estimated the cost at $44 million.492 The estimate 

assumed that Akorn would not uncover any additional problems with data, that no other 

ANDAs would be withdrawn, that no products would be recalled, and that there would not 

be any effect on Akorn’s pipeline.493

 

“look[] like multiple sites are having similar issues” and the FDA “may see it as the whole 

corporation/multiple sites under decree.”).

488 Wasserkrug Tr. 63, 87, 182–83.

489 Id. at 67–68, 94–95.

490 Id. at 116–17.

491 Id. at 69.

492 JX 1318.003. Wasserkrug read the $44 million figure of the page, but she did not 

have any personal knowledge about how it was derived. Wasserkrug Tr. 95, 115–16.

493 See Wasserkrug Tr. 69, 77–78.
107

T. Post-Trial Events

On July 23, 2018, the FDA initiated an inspection at Akorn’s Somerset facility.

Between July 23 and August 30, 2018, the FDA spent a total of twenty-one days inspecting 

the site.494

By letter dated August 3, 2018, Akorn reported to the FDA about NSF’s expanded 

investigation into the work performed by the miscreant Vernon Hills employee. As part of 

this work, NSF found an additional critical deficiency involving fabricated data, this time 

for palonosetron hydrochloride.495 NSF also identified major deficiencies related to data 

falsification involving six other products.496 NSF found that the fabrication of data by the 

Vernon Hills employee was “not isolated but more systemic in nature” and “call[ed] into 

question the reliability of data” he had generated.497 As a result, NSF concluded that “a 

further comprehensive assessment of [his] work and the work produced by the Vernon 

Hills facility in support of GMP activities” was necessary to determine “potential impact 

to marketed product, regulatory findings, and submission supporting data.”498 NSF also 

 

494 Dkts. 199–200.

495 See Dkt. 191, Ex. A at ‘826.

496 See Dkt. 191, Ex. B at ‘098.

497 Id. at ‘098.

498 Id.
108

determined that it would need to sample “all GMP testing . . . conducted by the Cranbury 

R&D organization, since its relocation [from Somerset] in October, 2016.”499

By letter dated August 9, 2018, the FDA sent Akorn a letter formally classifying the 

Decatur facility as OAI. 500 The August 9 letter stated:

Based on [the FDA’s] inspection, this facility is considered to be in an 

unacceptable state of compliance with regards to current good manufacturing 

practice (CGMP). The facility may be subject to a CGMP regulatory or 

enforcement action based on this inspection, and FDA may withhold 

approval of any pending applications or supplements in which this facility is 

listed.501

The letter thus not only informed Akorn of Decatur’s OIA status, but also noted the 

possibility of “regulatory or enforcement action.”

On August 30, 2018, the FDA issued a twenty-two page Form 483 for the Somerset 

site that detailed serious regulatory deficiencies, many of which echoed the evidence 

presented at trial.502 The violations included the following:

 Akorn distributed batches of adulterated sterile eye drops that failed four separate 

stability tests. Akorn could not provide data for the batches at the beginning of the 

FDA’s inspection, and the inspectors later witnessed Akorn employees 

retrospectively modifying the relevant laboratory notebooks.503

 

499 See Dkt. 191, Ex. C at ‘047.

500 Dkt. 191, Ex. D (“FDA has determined that the inspection classification of this 

facility is ‘official action indicated’ (‘OAI’).”).

501 Dkt. 191, Ex. D.

502 Dkt. 204, Ex. A.

503 Id. at ‘516–17.
109

 Akorn conducted trial injections as a “widespread practice” dating back to 2015, 

and “[n]o corrective measures to prevent this practice were implemented until” May 

2018. Akorn’s prior investigation was inadequate and, as a result, “there is limited 

assurance in the reliability of data submitted to the Agency and generated for 

commercial batches.”504

 Akorn failed to exercise “[a]ppropriate controls . . . over computers or related 

systems to assure that changes in master production and control records are 

instituted only by authorized personnel.”505

 Akorn “invalidated” negative test results in more than 70% of cases between 

January 2017 and July 2017 “without adequately supporting [the reasons for 

invalidation] with scientific evidence,” and the investigations into these failing 

results did not “determine why the [issues] . . . kept on recurring nor were there 

effective CAPAs implemented to minimize these incidents going forward.”506

 Akorn delayed investigating quality issues for months “without adequate 

justification.”507

 Akorn failed to review laboratory notebook testing data for months, and an Akorn 

employee informed the FDA that “due to personnel resource issue[s], they could not 

review the notebooks in a timely manner.”508

By letter dated September 3, 2018, Akorn reported to the court that on August 22, 

during the later stages of the FDA’s investigation, the database for a high accuracy liquid 

particle counter had been deleted along with the local backup file and the associated 

 

504 Id. at ‘518–19.

505 Id. at ‘527.

506 Id. at ‘518–20.

507 Id. at ‘525–26.

508 Id. at ‘526.
110

electronic security logs.509 These databases contained all of Somerset’s data for the relevant 

testing, which is designed to ensure that sterile intravenous products do not contain 

excessive amounts of undisclosed solids. Akorn’s preliminary investigation suggested that 

the files were deleted intentionally using an electronic shredding utility.510 Given the timing 

of the deletion, it is reasonable to infer that the perpetrator may have been trying to hide 

information from the FDA, or from personnel who would follow up on the deficiencies 

that the FDA identified in its Form 483.

By letter dated September 21, 2018, Akorn submitted its response to the Somerset 

Form 483.511 The response is lengthy, spanning seventy-three pages, and makes expansive 

claims about Akorn’s commitment to quality and the steps it has taken or will take to 

address the problems that the FDA identified. In light of the record presented at trial, 

including my evaluation of the credibility of Akorn’s witnesses, it is difficult to put much 

faith in Akorn’s claims about its commitment to quality. Having seen the divergence 

between Akorn’s representations to the FDA during the March 2018 meeting and what 

Akorn’s internal documents and witness testimony showed, it is equally difficult to have 

confidence that Akorn is being fully transparent in describing the corrective actions that it 

 

509 Dkt. 199.

510 Dkt. 201.

511 See Dkt. 234, Exs. A & B.
111

has taken or will take. It would require an additional round of discovery and another merits 

hearing to assess the accuracy of Akorn’s claims.

Even taking Akorn’s response at face value, the document evidences the deep and 

pervasive nature of Akorn’s quality problems are at Akorn. In an effort to respond to the 

FDA’s concerns, Akorn took a barrage of actions, including:

 Stripping the Head of Quality at Somerset of daily oversight responsibilities and 

assigning those duties to PwC;

 Stripping the Quality Control Laboratory Director at Somerset of daily oversight 

responsibilities responsibility and assigning those duties to NSF;

 Engaging NSF to provide supplemental oversight of the daily operation of the 

quality Control laboratory;

 Engaging NSF personnel to act as mentors for the Somerset Quality Control 

laboratory supervisory team;

 Engaging NSF to oversee Akorn’s process for reviewing its laboratory data and to 

provide mentoring for Akorn’s staff;

 Committing to retrain and certify all of its quality control laboratory personal, all 

data reviewers, and all investigators;

 Committing to review and revise all of its laboratory procedures including for 

titration, chromatography, and notebook handling;

 Committing to review all of its analytical testing methods;

 Recalling its Azelastine HCl Ophthalmic Solution and Gentamicin Ophthalmic 

Solution based on confirmed stability failures;

 Recalling its Ciprofloxacin Ophthalmic Solution based on concerns expressed by 

the FDA;

 Committing to investigate the use of trial injections at all Akorn sites;

 Committing to re-investigate all Out-of-Specification results generated in the past 

three years at all of its sites;
112

 Committing to address backlogs in reviewing and approving data in notebooks and 

procedures for handling notebook retention and storage;

 Committing to review user level access across all laboratory and manufacturing 

equipment;

 Committing to review each piece of Somerset laboratory equipment and the data 

associated with the equipment;

 Committing to conduct a complete review of all unsigned data and to investigate 

any instances that fail to meet acceptance criteria; and

 Recognizing that all of its sites would need to be assessed based on the issues 

identified at Somerset.

After hearing the evidence at trial, I did not have any confidence that Akorn would be able 

to support its data if the FDA called upon Akorn to do so. Based on developments since 

trial, Akorn’s situation has grown even worse.

II. LEGAL ANALYSIS

The disputes in this case are primarily contractual. Fresenius contends that it 

terminated the Merger Agreement in accordance with its terms. Akorn contends that 

Fresenius did not validly terminate the Merger Agreement and seeks an order of specific 

performance to compel Fresenius to close the Merger. Both parties are highly sophisticated 

and crafted the Merger Agreement with the assistance of expert counsel. The pertinent 

provisions are dense and complex.

The analysis turns on three conditions that Akorn must meet before Fresenius is 

obligated to close the Merger:

 Under Section 6.02(a)(ii), Akorn’s representations must be true and correct as of the 

Closing Date, except “where the failure to be true and correct would not, individually
113

or in the aggregate, reasonably be expected to have a Material Adverse Effect” (the 

“Bring-Down Condition”).512

 Under Section 6.02(b), Akorn must have “complied with or performed in all material 

respects its obligations required to be complied with or performed by it at or prior to 

the Effective Time” (the “Covenant Compliance Condition”).513

 Under Section 6.02(c), Akorn must not have suffered a Material Adverse Effect (the 

“General MAE Condition”).514

The failure of either the Bring-Down Condition or the Covenant Compliance Condition 

 

512 JX 1 § 6.02(a)(ii). See generally Lou R. Kling & Eileen T. Nugent, Negotiated 

Acquisitions of Companies, Subsidiaries and Divisions § 1.05[2], at 1-41 (2018 ed.) 

(describing “the critical ‘bringdown’ condition”); id. § 1.05[4], at 1-41 (“[O]ne critical 

condition almost always found is that the other party’s representations and warranties be 

true at closing. If this is not the case, the party need not close.”) (footnote omitted); id. § 

14.02, at 14-9 (“From a business point of view, the condition that the other party’s 

representations and warranties be true and correct at closing is generally the most 

significant condition for Buyers.”).

513 JX 1 § 6.02(b). See generally Kling & Nugent, supra, § 1.05[3], at 1-41 

(explaining that the actions that parties commit to take in a transaction agreement are 

described as covenants and identifying three general categories); id. § 14.02[7], at 14-16 

to -17 (discussing customary condition requiring “that the parties have performed and 

complied with all of their obligations and agreements in the acquisition agreement required 

to be performed and complied with prior to the closing”); Simon M. Lorne & Joy Marlene 

Bryan, Acquisitions & Mergers: Negotiated and Contested Transactions § 3:59 (2018 ed.)

(“The principal conditions to a closing under an acquisition agreement usually include . . . 

confirming compliance with all covenants that have been made.”).

514 In the Merger Agreement, the General MAE Condition appears as a formal 

condition to closing. Sometimes, a seller may represent that no General MAE has occurred. 

When that representation has been made, the bring-down condition also operates as a 

General MAE Condition. See Kling & Nugent, supra, § 11.04[9], at 11-57 to -58 

(discussing forms of representation); In re IBP, Inc. S’holders Litig., 789 A.2d 14, 42–43 

(Del. Ch. 2001) (Strine, V.C.) (analyzing seller’s representation that “since the Balance 

Sheet Date,” there had not been “any event, occurrence or development of a state of 

circumstances or facts which has had or reasonably could be expected to have a Material 

Adverse Effect”).
114

gives Fresenius a right to terminate the Merger Agreement, but only if (i) the breach that 

would give rise to the failure of the condition is incapable of being cured by the Outside 

Date and (ii) Fresenius is not “then in material breach of any of its representations, 

warranties, covenants, or agreements.”515 The failure of the General MAE Condition does 

not give Fresenius an independent right to terminate the Merger Agreement, but it does 

give Fresenius the right to refuse to close.516

To establish a failure of the Bring-Down Condition, Fresenius relies on Section 3.18 

of the Merger Agreement, where (in overly simplistic terms) Akorn represented that it was 

in full compliance with all of its regulatory obligations (the “Regulatory Compliance 

Representations”).517 To establish a failure of the Covenant Compliance Condition, 

Fresenius relies on Akorn’s obligation to “use its . . . commercially reasonable efforts to 

carry on its business in all material respects in the ordinary course of business” (the 

“Ordinary Course Covenant”).518

 

515 JX 1 § 7.01(c)(i).

516 With the passage of time, however, the failure to close ripens into a termination 

right, because under Section 7.01(b)(i) of the Merger Agreement, either side can terminate 

once the Outside Date has passed, assuming that the party exercising the termination right 

has not itself breached the Merger Agreement in a manner that was a principal cause of the 

Merger not closing by the Outside Date. Fresenius terminated the Merger Agreement 

before the Outside Date.

517 JX 1 § 3.18.

518 Id. § 5.01(a). Fresenius also contends that Akorn breached its obligation to 

provide Fresenius with “reasonable access . . . to the Company’s officers, employees, 

agents, properties, books, Contacts and records.” Id. § 5.05. This decision does not reach 

the alleged breach of that covenant. 
115

To establish a failure of the Covenant Compliance Condition, Akorn relies on each 

party’s agreement to “cooperate with the other parties and use . . . their respective 

reasonable best efforts . . . to cause the conditions to Closing to be satisfied as promptly as 

reasonably practicable and to consummate” the Merger (the “Reasonable Best Efforts 

Covenant”).519 Akorn also relies on Fresenius’s specific commitment to “take all actions 

necessary” to secure antitrust clearance, which the Merger Agreement states shall require 

efforts that “shall be unconditional and shall not be qualified in any manner.”520 This level 

of commitment is generally called a “Hell-or-High-Water Covenant.” 

Like many transaction agreements, the Merger Agreement deploys the concept of a 

Material Adverse Effect in multiple locations, including (i) in the General MAE Condition, 

(ii) in various representations for purposes of evaluating any inaccuracies in those 

representations at the time of signing, and (iii) in the Bring-Down Condition for purposes 

of evaluating any inaccuracies in Akorn’s representations when determining whether 

Fresenius is obligated to close.521 The General MAE Condition is not tied to a particular 

representation about a particular issue, leading this decision to describe the resulting event 

 

519 Id. § 5.03(a).

520 Id. § 5.03(c).

521 See Kenneth A. Adams, A Legal-Usage Analysis of “Material Adverse Change” 

Provisions, 10 Fordham J. Corp. & Fin. L. 9, 10–11 (2004) [hereinafter, Legal-Usage 

Analysis] (“MAC provisions are used in different parts of a contract. They occur most 

commonly in representations” but can “also occur in closing conditions.”). In their 

discussion of material adverse change provisions, Kling and Nugent cite this article with 

approval. See, e.g., Kling & Nugent, supra, § 11.04[9], at 11-59 n.100.
116

as a “General MAE.” The Bring-Down Condition examines the inaccuracy of specific 

representations and uses as its measuring stick whether the deviation between the asrepresented condition and the actual condition would reasonably be expected to constitute 

a Material Adverse Effect. The critical representations for this case are the Regulatory 

Compliance Representations, and this decision refers to a sufficient inaccuracy in those 

representations as a “Regulatory MAE.”522

Working through the pertinent provisions requires determining whether Akorn has 

suffered either a General MAE or a Regulatory MAE, whether Akorn complied in all 

material respects with the Ordinary Course Covenant, whether Akorn could cure, and 

whether Fresenius itself was in material breach of the Reasonable Best Efforts Covenant 

or the Hell-or-High-Water Covenant. This decision makes the following findings:

 The sudden and sustained drop in Akorn’s business performance constituted a General 

MAE. 

 Akorn’s Regulatory Compliance Representations were not true and correct, and the 

deviation between Akorn’s as-represented condition and its actual condition would 

reasonably be expected to result in a Regulatory MAE. 

 Akorn materially breached the Ordinary Course Covenant.

 

522 Commentators have used different terms for the two types of MAEs. Adams 

refers to an “absolute MAC” and a “modifying MAC.” Legal-Usage Analysis, supra, at 

10–11, 15–17, 50. In its annotated model merger agreement, the Mergers and Acquisitions 

Committee of the American Bar Association distinguishes between a “MAC condition,” 

and a “back-door MAC.” See ABA Mergers and Acquisitions Committee, Model Merger 

Agreement for the Acquisition of a Public Company 233, 243–44 (2011) [hereinafter, 

Model Merger Agreement].
117

 None of Akorn’s breaches could be cured by the Outside Date, which remained April 

24, 2018. 

 Fresenius did not breach the Reasonable Best Efforts Covenant. 

 Fresenius breached the Hell-or-High-Water Covenant, but the breach was not material. 

Based on these findings, Fresenius validly terminated the Merger Agreement under Section 

7.01(c)(i) because of (i) a non-curable failure of the Bring-Down Condition and (ii) a noncurable failure of the Covenant Compliance Condition. Fresenius could validly exercise its 

termination rights because it was not in material breach of its obligations. Regardless, 

Akorn has suffered a General MAE, so Fresenius cannot be forced to close.

A. The Failure Of The General MAE Condition

From the standpoint of contract interpretation, the most straightforward issue is 

whether Akorn suffered a General MAE. Starting with this issue is also helpful because 

much of the commentary on MAE clauses has focused on General MAEs. Because 

Fresenius seeks to establish a General MAE to excuse its performance under the Merger 

Agreement, Fresenius bore the burden of proving that a General MAE had occurred.523

This decision concludes that Akorn suffered a General MAE.

 

523 See Hexion Specialty Chems., Inc. v. Huntsman Corp., 965 A.2d 715, 739 (Del. 

Ch. 2008) (“[A]bsent clear language to the contrary, the burden of proof with respect to a 

material adverse effect rests on the party seeking to excuse its performance under the 

contract.”); Frontier Oil Corp. v. Holly Corp., 2005 WL 1039027, at *35 (Del. Ch. Apr. 

29, 2005) (“[T]he expectation of the parties, as reflected in the Merger Agreement and as 

informed by the case law, was that the burden of demonstrating that the Beverly Hills 

Litigation would have (or would not reasonably be expected to have [sic]) an MAE falls 

on Holly [the buyer who was asserting breach].”); IBP, 789 A.2d at 53 (“Under both New 
118

In any M&A transaction, a significant deterioration in the selling company’s 

business between signing and closing may threaten the fundamentals of the deal. “Merger 

agreements typically address this problem through complex and highly-negotiated 

‘material adverse change’ or ‘MAC’ clauses, which provide that, if a party has suffered a 

MAC within the meaning of the agreement, the counterparty can costlessly cancel the 

deal.”524

Despite the attention that contracting parties give to these provisions, MAE clauses 

 

York and Delaware law, a defendant seeking to avoid performance of a contract because 

of the plaintiff’s breach of warranty must assert that breach as an affirmative defense.”).

524 Robert T. Miller, The Economics of Deal Risk: Allocating Risk Through MAC 

Clauses in Business Combination Agreements, 50 Wm. & Mary L. Rev. 2007, 2012 (2009) 

(footnote omitted); accord Andrew A. Schwartz, A “Standard Clause Analysis” of the 

Frustration Doctrine and the Material Adverse Change Clause, 57 UCLA L. Rev. 789, 

820 (2010) (“[T]he MAC clause allows the acquirer to costlessly avoid closing the deal if 

the target’s business suffers a sufficiently adverse change during the executory period.”); 

see Jeffrey Manns & Robert Anderson IV, The Merger Agreement Myth, 98 Cornell L. 

Rev. 1143, 1153 (2013) (“The MAC/MAE Clause gives teeth to the closing conditions in 

specifying what type of events would entitle the acquiring company to call the deal off if 

events occur between signing and closing that make the deal less advantageous than 

expected.”).

“Although the phrase ‘material adverse effect’ (MAE) is more commonly used in 

merger agreements, MAC and MAE are generally understood to be synonymous.” Miller, 

supra, at 2012 n.2; see Ronald J. Gilson & Alan Schwartz, Understanding MACs: Moral 

Hazard in Acquisitions, 21 J.L. Econ. & Org. 330, 331 (2005) (characterizing an MAE 

clause as the “equivalent” of a MAC clause). This decision uses the terms interchangeably. 

That said, one commentator has argued (in my view, persuasively) that the “material 

adverse change” formulation facilitates greater drafting clarity. See Legal-Usage Analysis, 

supra, at 17–20.
119

typically do not define what is “material.”525 Commentators have argued that parties find 

it efficient to leave the term undefined because the resulting uncertainty generates 

productive opportunities for renegotiation.526 Parties also risk creating more problems 

 

525 See Frontier Oil, 2005 WL 1039027, at *33 (“It would be neither original nor 

perceptive to observe that defining a ‘Material Adverse Effect’ as a ‘material adverse 

effect’ is not especially helpful.”); Y. Carson Zhou, Essay, Material Adverse Effects as 

Buyer–Friendly Standard, 91 N.Y.U. L. Rev. Online 171, 173 (2016) (noting that in the 

typical MAE provision, the core concept of materiality is “left undefined”),

http://www.nyulawreview.org/sites/default/files/NYULawReviewOnline-91-Zhou.pdf;

Steven M. Davidoff & Kristen Baiardi, Accredited Home Lenders v. Lone Star Funds: A 

MAC Case Study 17 (Wayne State Univ. Law Sch. Legal Studies Research Paper Series, 

Paper No. 08-16, 2008), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1092115

(“MAC clauses are typically defined in qualitative terms and do not describe a MAC in 

quantitative terms.”); Albert Choi & George Triantis, Strategic Vagueness in Contract 

Design: The Case of Corporate Acquisitions, 119 Yale L.J. 848, 854 (2010) (“[T]he typical 

MAC provision is not quantitative and remains remarkably vague.”); Schwartz, supra, at 

826 (“A few MAC clauses include a quantitative definition of materiality, but the 

overwhelming majority offer no definition for the key term ‘material.’”) (footnote 

omitted); Kenneth A. Adams, A Manual of Style for Contract Drafting 229 (4th ed. 2017) 

[hereinafter, Contract Drafting] (“[Q]uantitative guidelines are little used.”). One 

commentator sees no reason to criticize the MAE definition for its self-referential quality. 

See Legal-Usage Analysis, supra, at 22 (“It has been suggested that there is some 

circularity or tautology involved in using the phrase material adverse change in the 

definition of MAC. . . . [I]n contracts it is routine, and entirely appropriate, for a definition 

to include the term being defined.”) (footnotes omitted); Contract Drafting, supra, at 169 

(“Dictionaries shouldn’t use in a definition the term being defined, as that constitutes a 

form of circular definition. . . . In a contract, a defined term simply serves as a convenient 

substitute for the definition, and only for that contract. So repeating a contract defined term 

in the definition is unobjectionable.”).

526 See Choi & Triantis, supra, at 888–892 (arguing that vague MAE clauses are 

efficient partly because uncertainty facilitates renegotiation); Eric L. Talley, On 

Uncertainty, Ambiguity, and Contractual Conditions, 34 Del. J. Corp. L. 755, 788 (2009) 

(“A number of practitioners . . . suggested that, in addition to concerns about uncertainty, 

one of the key reasons for a MAC/MAE provision is to provide a backdrop for possible 

deal restructuring should market conditions change.”); ABA Mergers and Acquisitions 

Committee, Model Stock Purchase Agreement with Commentary 268 (2d ed. 2010) 

[hereinafter, Model Stock Purchase Agreement] (explaining that a buyer may prefer a price 
120

when they attempt to include specific quantitative thresholds, both during the 

negotiations527 and for purposes of subsequent litigation.528 “What constitutes an MAE, 

then, is a question that arises only when the clause is invoked and must be answered by the 

presiding court.”529

 

renegotiation rather than engaging in costly litigation over a “subjective” and “vague” 

MAE clause); see also Davidoff & Baiardi, supra, at 19 (reasoning that if a buyer credibly 

asserts an MAE, then both parties have incentives to renegotiate to a lower price to avoid 

an all-or-nothing litigation outcome); Katherine Ashton et al., MAC Clauses in the U.K. 

and U.S.: Much Ado About Nothing?, The M&A Lawyer (LegalWorks), Mar. 2014 (“[T]he 

lack of clear standards for determining whether a material adverse change has occurred 

may inure to [the buyer’s] benefit . . . as the ambiguity might allow the buyer to use the 

threat of litigation concerning the MAC clause . . . to pressure the seller to renegotiate the 

deal.”). 

527 See Claire A. Hill, Bargaining in the Shadow of the Lawsuit: A Social Norms 

Theory of Incomplete Contracts, 34 Del. J. Corp. L. 191, 198 (2010) (“[A]chieving clarity 

[in an MAE clause] may simply be exceedingly difficult: as a practical, and perhaps, 

theoretical, matter, defining ex ante such a change in a manner that commands assent by 

the parties and applies cleanly to a significant number of circumstances may be 

impossible.”); Kling & Nugent, supra, § 11.04[9], at 11-66.2 (“The problem is that it is 

very difficult in most cases for the parties to reach agreement on a particular percentage or 

dollar decrease in sales, earnings or net worth.”); Contract Drafting, supra, at 228 

(“[E]stablishing one or more numerical thresholds for materiality can complicate the 

negotiation process.”). That said, achieving agreement on a specific metric is not 

impossible. See, e.g., Nip v. Checkpoint Sys, Inc., 154 S.W.3d 767, 769–70 (Tex. App.

2004) (enforcing MAE clause that set monetary threshold for materiality; affirming jury 

determination that target suffered an MAE when its second-largest customer attempted to 

cancel all orders from target’s Far East factories).

528 Contract Drafting, supra, at 228 (“Setting a [quantitative] threshold for all 

possible [adverse changes] would seem impractical, and addressing only a limited number 

could be arbitrary.”); id. (“[I]f the quantitative indicia are illustrative rather than exclusive, 

adding them to the definition of MAC would increase the risk that a court wouldn’t 

consider to be a MAC a change that doesn’t resemble the examples.”).

529 Zhou, supra, at 173; see Frontier Oil, 2005 WL 1039027, at *34 (“The parties 

chose to use the term ‘Material Adverse Effect’ and it is the Court’s function to discern 
121

Rather than devoting resources to defining more specific tests for materiality, the 

current practice is for parties to negotiate exceptions and exclusions from exceptions that 

allocate categories of MAE risk.530 “The typical MAE clause allocates general market or 

industry risk to the buyer, and company-specific risks to the seller.”531 From a drafting 

perspective, the MAE provision accomplishes this by placing the general risk of an MAE 

on the seller, then using exceptions to reallocate specific categories of risk to the buyer.532

 

what they intended. . . . The notion of an MAE is imprecise and varies both with the context 

of the transaction and its parties and with the words chosen by the parties.”); Choi & 

Triantis, supra, at 876–77 (“The definition of material adverse event and the related 

material adverse change condition leave broad interpretive discretion to the court. For 

example, the definitions leave open the scope of changes that affect ‘business’ or 

‘operations.’”). 

530 See Miller, supra, at 2013 n.7 (“There is virtually universal agreement, among 

both practitioners and academics, that MAC clauses allocate risk between the parties.”);

Gilson & Schwartz, supra, at 339–54 (analyzing how MAE clauses allocate risk).

531 Zhou, supra, at 173; accord Choi & Triantis, supra, at 867 (“The principal 

purpose of carve outs from the definition of material adverse events or changes seems to 

be to remove systemic or industry risk from the MAC condition, as well as risks that are 

known by both parties at the time of the agreement.”). “A possible rationale” for this 

allocation “is that the seller should not have to bear general and possibly undiversifiable 

risk that it cannot control and the buyer would likely be subject to no matter its investment.” 

Davidoff & Baiardi, supra, at 15; see also Gilson & Schwartz, supra, at 339 (arguing that 

“an efficient acquisition agreement will impose endogenous risk on the seller and 

exogenous risk on the buyer”). As with any general statement, exceptions exist, and 

“different agreements will select different exogenous risks to shift to the counterparty, and 

in stock-for-stock and cash-and-stock deals, parties may shift different exogenous risks to 

each other.” Miller, supra, at 2070. 

532 See Miller, supra, at 2073 (“Because of the drafting conventions used in MAC 

Definitions—all the risks are on the party except for those shifted to the counterparty by 

the MAC Exceptions—this class of risks would, strictly speaking, probably be best defined 

negatively.”); Schwartz, supra, at 822 (“[T]he risk of a target MAC resulting from a 

carved-out cause is allocated to the acquirer, while the risk of a target MAC resulting from 
122

Exclusions from the exceptions therefore return risks to the seller. A standard exclusion 

from the buyer’s acceptance of general market or industry risk returns the risk to the seller 

when the seller’s business is uniquely affected. To accomplish the reallocation, the relevant 

exceptions are “qualified by a concept of disproportionate effect.”

533

“For example, a buyer 

might revise the carve-out relating to industry conditions to exclude changes that 

disproportionately affect the target as compared to other companies in the industries in 

which such target operates.”

534

A more nuanced analysis of the types of issues addressed by MAE provisions 

reveals four categories of risk: systematic risks, indicator risks, agreement risks, and 

business risks.535

 Systematic risks are “beyond the control of all parties (even though one or both parties 

may be able to take steps to cushion the effects of such risks) and . . . will generally 

affect firms beyond the parties to the transaction.”536

 

any other cause is allocated to the target.”). See generally Hexion, 965 A.2d at 737 (“The 

plain meaning of the carve-outs found in [the MAE clause’s] proviso is to prevent certain 

occurrences which would otherwise be MAE’s being found to be so.”).

533 Model Merger Agreement, supra, at 242.

534 Model Merger Agreement, supra, at 242; accord Miller, supra, at 2048; see Choi 

& Triantis, supra, at 867 (“The most common carve outs remove from the MAC definition 

changes in the general economic, legal, or political environment, and conditions in the 

target’s industry, except to the extent that they have ‘disproportionate’ effects on the 

target.”).

535 See generally Miller, supra, at 2071–91. 

536 Id. at 2071; see Richard A. Brealey & Stewart C. Myers, Principles of Corporate 

Finance 168 & n.22 (7th ed. 2003) (explaining that market risk, also known as systematic 
123

 Indicator risks signal that an MAE may have occurred. For example, a drop in the 

seller’s stock price, a credit rating downgrade, or a failure to meet a financial projection 

is not itself an adverse change, but rather evidence of such a change.537

 “Agreement risks include all risks arising from the public announcement of the merger 

agreement and the taking of actions contemplated thereunder by the parties.”538

Agreement risks include endogenous risks related to the cost of getting from signing to 

closing, e.g., potential employee flight.539

 Business risks are those “arising from the ordinary operations of the party’s business 

(other than systematic risks), and over such risks the party itself usually has significant 

control.”540 “The most obvious” business risks are those “associated with the ordinary 

business operations of the party—the kinds of negative events that, in the ordinary 

course of operating the business, can be expected to occur from time to time, including 

those that, although known, are remote.”

541

Generally speaking, the seller retains the business risk. The buyer assumes the other 

risks.542

 

risk, “stems from the fact that there are . . . economywide perils that threaten all 

businesses”). 

537 Miller, supra, at 2072, 2082–83. 

538 Id. at 2087. 

539 Id.

540 Id. at 2073.

541 Id. at 2089. 

542 See, e.g., id. at 2073 (explaining that “(a) systematic risks and agreement risks 

are usually, but not always, shifted to the counterparty, (b) indicator risks are so shifted in 

a significant minority of cases, and (c) business risks are virtually always assigned to the 

party itself”).
124

In this case, as a condition to Fresenius’s obligation to close, Akorn must not have 

suffered a General MAE. Section 6.02 of the Merger Agreement, titled “Conditions to the 

Obligations of [Fresenius Kabi] and Merger Sub,” states:

The obligations of [Fresenius Kabi] and Merger Sub to effect the Merger 

shall be subject to the satisfaction (or written waiver by [Fresenius Kabi], if 

permissible under applicable law) on or prior to the Closing Date of the 

following conditions:

* * *

(c) No Material Adverse Effect. Since the date of this Agreement there 

shall not have occurred and be continuing any effect, change, event or 

occurrence that, individually or in the aggregate, has had or would reasonably 

be expected to have a Material Adverse Effect.

The effect of this condition is to place the general risk of an MAE on Akorn. 

The Merger Agreement defines the concept of a “Material Adverse Effect” in 

customary albeit complex and convoluted prose. The following reproduction of the 

definition adds formatting to enhance legibility:

“Material Adverse Effect” means any effect, change, event or occurrence 

that, individually or in the aggregate

(i) would prevent or materially delay, interfere with, impair or hinder 

the consummation of the [Merger] or the compliance by the Company with 

its obligations under this Agreement or 

(ii) has a material adverse effect on the business, results of operations 

or financial condition of the Company and its Subsidiaries, taken as a whole; 

provided, however, that none of the following, and no effect, change, event 

or occurrence arising out of, or resulting from, the following, shall constitute 

or be taken into account in determining whether a Material Adverse Effect 

has occurred, is continuing or would reasonably be expected to occur: any 

effect, change, event or occurrence 

(A) generally affecting (1) the industry in which the Company and its 

Subsidiaries operate or (2) the economy, credit or financial or capital 
125

markets, in the United States or elsewhere in the world, including changes in 

interest or exchange rates, monetary policy or inflation, or 

(B) to the extent arising out of, resulting from or attributable to 

(1) changes or prospective changes in Law or in GAAP or in 

accounting standards, or any changes or prospective changes in the 

interpretation or enforcement of any of the foregoing, or any changes or 

prospective changes in general legal, regulatory, political or social 

conditions, 

(2) the negotiation, execution, announcement or performance of this 

Agreement or the consummation of the [Merger] (other than for purposes of 

any representation or warranty contained in Sections 3.03(c) and 3.04), 

including the impact thereof on relationships, contractual or otherwise, with 

customers, suppliers, distributors, partners, employees or regulators, or any 

litigation arising from allegations of breach of fiduciary duty or violation of 

Law relating to this Agreement or the [Merger], 

(3) acts of war (whether or not declared), military activity, sabotage, 

civil disobedience or terrorism, or any escalation or worsening of any such 

acts of war (whether or not declared), military activity, sabotage, civil 

disobedience or terrorism, 

(4) pandemics, earthquakes, floods, hurricanes, tornados or other 

natural disasters, weather-related events, force majeure events or other 

comparable events, 

(5) any action taken by the Company or its Subsidiaries that is 

required by this Agreement or at [Fresenius Kabi’s] written request, 

(6) any change or prospective change in the Company’s credit ratings, 

(7) any decline in the market price, or change in trading volume, of 

the shares of the Company or 

(8) any failure to meet any internal or public projections, forecasts, 

guidance, estimates, milestones, budgets or internal or published financial or 

operating predictions of revenue, earnings, cash flow or cash position

(it being understood that the exceptions in clauses (6), (7) and (8) shall not 

prevent or otherwise affect a determination that the underlying cause of any 

such change, decline or failure referred to therein (if not otherwise falling 

within any of the exceptions provided by clause (A) and clauses (B)(1) 

through (8) hereof) is a Material Adverse Effect); 
126

provided further, however, that any effect, change, event or occurrence 

referred to in clause (A) or clauses (B)(3) or (4) may be taken into account 

in determining whether there has been, or would reasonably be expected to 

be, a Material Adverse Effect to the extent such effect, change, event or 

occurrence has a disproportionate adverse affect [sic] on the Company and 

its Subsidiaries, taken as a whole, as compared to other participants in the 

industry in which the Company and its Subsidiaries operate (in which case 

the incremental disproportionate impact or impacts may be taken into 

account in determining whether there has been, or would reasonably be 

expected to be, a Material Adverse Effect).543

As is common, the definition starts with a general statement of what constitutes an MAE. 

It next carves out certain types of events that otherwise could give rise to an MAE. It then 

creates two broad exceptions to the carve-outs. One is that while the carve-outs confirm 

that certain evidentiary indicators of an MAE will not themselves constitute an MAE, such 

as a decline in the seller’s market price or an adverse change in its credit rating, those carveouts do not foreclose the underlying cause of the negative events from being used to 

establish an MAE, unless it otherwise falls within a different carve-out. The other is that 

four of the identified carve-outs will give rise to an MAE if the effect, change, event or 

occurrence has had a disproportionately adverse effect on the Company.

Fresenius relies on subpart (ii) of the MAE definition, which establishes (subject to 

the carve-outs and their exceptions) that an MAE means “any effect, change, event or 

occurrence that, individually or in the aggregate that . . . (ii) has a material adverse effect 

on the business, results of operations or financial condition of the Company and its 

Subsidiaries, taken as a whole.” This aspect of the MAE definition adheres to the general 

 

543 JX 1 at 58. 
127

practice and defines “Material Adverse Effect” self-referentially as something that “has a 

material adverse effect.”

The subsequent exceptions to the definition and exclusions from the exceptions 

implement a standard risk allocation between buyer and seller. Through the exceptions in 

subparts (A)(1) and (A)(2), Fresenius accepted the systematic risks related to Akorn’s 

industry and “the economy, credit or financial or capital markets, in the United States or 

elsewhere in the world, including changes in interest or exchange rates, monetary policy 

or inflation.”544 Through the exceptions in subparts (B)(3) and (B)(4), Fresenius also 

accepted the systematic risks related to acts of war, violence, pandemics, disasters, and 

other force majeure events. Each of these allocations is subject to a disproportionate-effect 

exclusion that returns the risk to Akorn to the extent that an event falling into one of these 

categories disproportionately affects Akorn “as compared to other participants in the 

industry.”545 Under subpart (B)(1), Fresenius also assumes the systematic risk relating to 

changes in GAAP or applicable law. This exception is not subject to a disproportionateeffect exclusion and therefore would remain with Fresenius in any event.

The exceptions in subparts (B)(2) and (B)(5) identify agreement risks. Through 

these exceptions, Fresenius assumes these risks.

 

544 Id.

545 Id.
128

The exceptions in subparts (B)(6), (B)(7), and (B)(8) identify indicator risks. The 

MAE definition explicitly treats these risks as indicators, first by excluding them through 

the exceptions, then by confirming that although these indicators would not independently 

give rise to an MAE, the underlying cause of a change in the indicators could give rise to 

an MAE. 

What remains is business risk, which Akorn retains. Scholars view this outcome as 

economically efficient because the seller “is better placed to prevent such risks (i.e., is the 

cheaper cost avoider) and has superior knowledge about the likelihood of the 

materializations of such risks that cannot be prevented (i.e., is the superior risk bearer).”546

1. Whether The Magnitude Of The Effect Was Material

The first step in analyzing whether a General MAE has occurred is to determine 

whether the magnitude of the downward deviation in the affected company’s performance 

is material: “[U]nless the court concludes that the company has suffered an MAE as defined 

in the language coming before the proviso, the court need not consider the application of 

 

546 Miller, supra, at 2091; see also id. (arguing that it “would be ludicrous to suggest, 

for example, that the [buyer] would be a cheaper risk avoider or superior risk bearer with 

respect to, say, design or manufacturing defects in the [seller’s] products or with respect to 

hidden liabilities resulting from the [seller’s] operations long ago”); Gilson & Schwartz, 

supra, at 357 (arguing that an MAE definition with carve-outs “allocates transaction risks 

to the party that can most efficiently bear them”).
129

the . . . carve-outs.”547 Whether the party asserting the existence of an MAE has adduced 

sufficient evidence to carry its burden of proof is a question of fact.548

“A buyer faces a heavy burden when it attempts to invoke a material adverse effect 

clause in order to avoid its obligation to close.”549“A short-term hiccup in earnings should 

not suffice; rather the Material Adverse Effect should be material when viewed from the 

longer-term perspective of a reasonable acquiror.”

550

“In the absence of evidence to the 

 

547 Hexion, 965 A.2d at 737.

548 See ChyronHego Corp. v. Wight, 2018 WL 3642132, at *9 (Del. Ch. July 31, 

2018) (“At this pleading stage, the Plaintiffs have met their burden to allege a knowingly 

false representation of the absence of an MAE, the proof of which is inherently factintensive.”); Osram Sylvania Inc. v. Townsend Ventures, LLC, 2013 WL 6199554, at *7 

(Del. Ch. Nov. 19, 2013) (finding it reasonably conceivable that the defendants’ “alleged 

practice of billing and shipping excess product, without applying the proper credits or 

discount, could have a materially adverse effect on the financial condition of the Company 

when the excess product is returned and revenues are reduced.”); H–M Wexford LLC v. 

Encorp, Inc., 832 A.2d 129, 144 (Del. Ch. 2003) (“If Wexford’s allegations are accepted 

as true, then it could show that there was a material adverse change in Encorp’s financial 

position between the Balance Sheet Date and the date the Purchase Agreement was 

executed.”); see also Pine State Creamery Co. v. Land-O-Sun Dairies, Inc., 201 F.3d 437, 

1999 WL 1082539, at *3–6 (4th Cir. 1999) (per curiam) (TABLE) (holding that whether 

severe operating losses over a two-month period constituted an MAE was a question of 

fact for the jury where there was evidence that the business was seasonal and that 

downturns were expected each fall); RUS, Inc. v. Bay Indus, Inc., 322 F. Supp. 2d 302, 314 

(S.D.N.Y. 2003) (“[M]aterial issues of fact exist as to whether the need for the Phase II 

investigation, when considered in light of the transaction as a whole and the nature of the 

environmental issues involved, constituted a material adverse effect that caused the 

representations in § 4.8 to be untrue.”). 

549 Hexion, 965 A.2d at 738; see also Kling & Nugent, supra, § 11.04[9], at 11-69 

(“[I]t is much tougher to prove the existence of a material adverse effect than clients 

realize.”). 

550 IBP, 789 A.2d at 68.
130

contrary, a corporate acquirer may be assumed to be purchasing the target as part of a longterm strategy.”

551

“The important consideration therefore is whether there has been an 

adverse change in the target’s business that is consequential to the company’s long-term 

earnings power over a commercially reasonable period, which one would expect to be 

measured in years rather than months.”

552

 

This, of course, is not to say that evidence of a significant decline in earnings 

by the target corporation during the period after signing but prior to the time 

appointed for closing is irrelevant. Rather, it means that for such a decline to 

constitute a material adverse effect, poor earnings results must be expected 

to persist significantly into the future.553

Put differently, the effect should “substantially threaten the overall earnings potential of 

the target in a durationally-significant manner.”

554

The Hexion decision teaches that when evaluating the magnitude of a decline, a 

company’s performance generally should be evaluated against its results during the same 

quarter of the prior year, which minimizes the effect of seasonal fluctuations.555 The Hexion 

 

551 Hexion, 965 A.2d at 738. Commentators have suggested that “the requirement of 

durational significance may not apply when the buyer is a financial investor with an eye to 

a short-term gain.” Choi & Triantis, supra, at 877; see Genesco, Inc. v. The Finish Line, 

Inc., 2007 WL 4698244, at *19 (Tenn. Ch. Dec. 27, 2007) (finding that two quarters of bad 

performance would be material to a buyer in a highly leveraged acquisition). 

552 Hexion, 965 A.2d at 738.

553 Id.

554 IBP, 789 A.2d at 68.

555 Hexion, 965 A.2d at 742 (“The proper benchmark . . . (and the analysis the court 

adopted here) is to examine each year and quarter and compare it to the prior year’s 

equivalent period.”). 
131

court declined to find an MAE where the seller’s 2007 EBITDA was only 3% below its 

2006 EBITDA, and where according to its management forecasts, its 2008 EBITDA would 

be only 7% below its 2007 EBITDA. Even using the buyer’s more conservative forecasts, 

the seller’s 2008 EBTIDA would still be only 11% below its 2007 EBITDA.556 The average 

of analyst estimates for the seller’s 2009 EBITDA was only 3.6% below the seller’s 

average results during the prior three years. The court noted that the buyer had 

contemplated scenarios consistent with these results.557

In their influential treatise, Lou R. Kling and Eileen T. Nugent observe that most 

courts which have considered decreases in profits in the 40% or higher range found a 

material adverse effect to have occurred.558 Chancellor Allen posited that a decline in 

 

556 Id.

557 Id. at 743.

558 Kling & Nugent, supra, § 11.04[9], at 11-66. Both the Delaware Supreme Court 

and this court regularly rely on this treatise as an authoritative source on M&A practice. 

See, e.g., Chicago Bridge & Iron Co. N.V. v. Westinghouse Elec. Co., 166 A.3d 912, 921 

& nn.32, 34 (Del. 2017) (citing Kling & Nugent as authority on post-closing 

indemnification); ev3, Inc. v. Lesh, 114 A.3d 527, 530–31 & nn.6, 8 (Del. 2014) (citing 

Kling and Nugent as authority on letters of intent); Martin Marietta Materials, Inc. v. 

Vulcan Materials Co., 68 A.3d 1208, 1219 & n.45 (Del. 2012) (citing Kling & Nugent as 

authority on NDAs); Ford v. VMWare, Inc., 2017 WL 1684089, at *13 & n.8 (Del. Ch. 

May 2, 2017) (citing Kling & Nugent as authority on the purpose of representations and 

warranties); Alliance Data Sys. Corp. v. Blackstone Capital P’rs V L.P., 963 A.2d 746, 763 

n.60 (Del. Ch.) (Strine, V.C.) (citing Kling & Nugent as authority on best efforts 

covenants), aff’d, 976 A.2d 170 (Del. 2009) (TABLE); ABRY P’rs V, L.P. v. F & W Acq. 

LLC, 891 A.2d 1032, 1042, 1044 & nn.9, 14 (Del. Ch. 2006) (Strine, V.C.) (citing Kling 

& Nugent as authority on representations regarding financial statements and bring-downs). 

See generally GRT, Inc. v. Marathon GTF Tech., Ltd., 2011 WL 2682898, at *12 (Del. Ch. 

July 11, 2011) (Strine, C.) (“[Y]oung lawyers are now often pointed to the sections of 

Negotiated Acquisitions of Companies, Subsidiaries and Divisions, by Lou R. Kling and 
132

earnings of 50% over two consecutive quarters would likely be an MAE.559 Courts in other 

jurisdictions have reached similar conclusions.560 These precedents do not foreclose the 

possibility that a buyer could show that percentage changes of a lesser magnitude 

constituted an MAE. Nor does it exclude the possibility that a buyer might fail to prove 

that percentage changes of a greater magnitude constituted an MAE.

An example of the latter scenario is IBP, where Chief Justice Strine held while 

serving as a Vice Chancellor that a 64% drop in quarterly earnings did not constitute a 

material adverse effect. There, a major producer of beef suffered a large quarterly decline 

 

Eileen T. Nugent, which address in even more depth than Freund, just how complex 

acquisition agreements work.”); id. at *12–13 (describing Kling & Nugent as among the 

“leading works” and “most incisive learned commentary” on M&A practice).

559 Raskin v. Birmingham Steel Corp., 1990 WL 193326, at *5 (Del. Ch. Dec. 4, 

1990) (Allen, C.) (“While it is possible that on a full record and placed in a larger context 

one might conclude that a reported 50% decline in earnings over two consecutive quarters 

might not be held to constitute a material adverse development, it is . . . unlikely to think 

that that might happen.”).

560 See Allegheny Energy v. DQE, Inc., 74 F. Supp. 2d 482, 518 (W.D. Pa. 1999) 

(finding an MAE and permitting termination of merger agreement where write-off 

exceeded company’s annual net income and regulatory action denied company “a large 

stream of guaranteed future revenues that it had been receiving prior to deregulation”), 

aff’d, 216 F.3d 1075 (3d. Cir. 2000) (TABLE); Peoria Sav. & Loan Ass’n v. Am. Sav. 

Ass’n, 441 N.E.2d 853, 854–55, 858–59 (Ill. App. Ct. 1982) (affirming trial court decision 

finding an MAE and preliminarily enjoining merger where after signing counterparty 

acquired two troubled savings and loan associations but failed to obtain expected federal 

financial assistance); Genesco, 2007 WL 4698244, at *16–20 (in the context of highly 

leveraged transaction where short-term losses were durationally significant, finding that 

weak performance in consecutive quarters would have constituted an MAE if not for carveout for materially adverse effects that are not “materially disproportionate” to those 

suffered by similarly situated industry participants).
133

in performance primarily due to widely known cycles in the meat industry, exacerbated by 

a harsh winter that also affected the buyer.561 After the bad quarter and the onset of spring, 

“IBP began to perform more in line with its recent year results.”562 The Chief Justice 

concluded that “IBP remain[ed] what the baseline evidence suggests it was—a consistently 

but erratically profitable company struggling to implement a strategy that will reduce the 

cyclicality of its earnings.”563 The Chief Justice nevertheless noted that “the question of 

whether IBP has suffered a Material Adverse Effect remains a close one”564 and that he 

was “confessedly torn about the correct outcome.”565 He further posited that 

[i]f IBP had continued to perform on a straight-line basis using its first 

quarter 2001 performance, it would generate earnings from operations of 

around $200 million. This sort of annual performance would be 

consequential to a reasonable acquiror and would deviate materially from the 

range in which IBP had performed during the recent past [thus giving rise to 

an MAE].566

 

561 IBP, 789 A.2d at 22 (“During the winter and spring of 2001, Tyson’s own 

business performance was dismal. Meanwhile, IBP was struggling through a poor first 

quarter. Both companies’ problems were due in large measure to a severe winter, which 

adversely affected livestock supplies and vitality. As these struggles deepened, Tyson’s 

desire to buy IBP weakened.”).

562 Id. at 70.

563 Id. at 71. 

564 Id. at 68.

565 Id. at 71; accord id. (“I admit to reaching this conclusion [that no MAE occurred] 

with less than the optimal amount of confidence.”). 

566 Id. at 69.
134

IBP’s prior year earnings from operations during the preceding five years were $528 

million (1999), $374 million (1998), $227 million (1997), $323 million (1996), and $480 

million (1995).567 An annual performance of $200 million would have represented a 52% 

decline from IBP’s five-year average of $386 million. The Chief Justice also noted that the 

buyer’s arguments were “unaccompanied by expert evidence that identifies the diminution 

in [the seller’s] value or earnings potential as a result of its first quarter performance” and 

observed that “[t]he absence of such proof is significant.”568

In this case, Fresenius made the showing necessary to establish a General MAE. At 

trial, Professor Daniel Fischel testified credibly and persuasively that Akorn’s financial 

performance has declined materially since the signing of the Merger Agreement and that 

the underlying causes of the decline were durationally significant.569 The factual record 

supports Fischel’s opinions.

 

567 Id. at 66.

568 Id. at 69–70. 

569 See Fischel Tr. 1352 (describing the “collapse in Akorn’s stand-alone value from 

the time of the signing of the merger agreement to the termination and collapse that’s 

expected to continue into the future”). In contrast to Fischel’s testimony, I did not find the 

testimony of Akorn’s rebuttal witness, Professor Anil Shivdasani, to be helpful or, in some 

instances, credible. In one telling example, Shivdasani would not even agree that Akorn’s 

share price at the time of trial was supported to some degree by the possibility of the 

transaction closing. Shivdasani Tr. 1412.
135

As contemplated by Hexion, the following table depicts the year-over-year declines 

that Akorn suffered during each of the three quarters of FY 2017 that took place after 

signing, plus full-year results for FY 2017, plus first quarter results for FY 2018:

Year-Over-Year Change In Akorn’s Performance570

Q2 2017 Q3 2017 Q4 2017 FY 2017 Q1 2018

Revenue (29%) (29%) (34%) (25%) (27%)

Operating Income (84%) (89%) (292%) (105%) (134%)

EPS (96%) (105%) (300%) (113%) (170%)

Akorn did not report EDBITA or adjusted EBITDA figures on a quarterly basis for 2017.571

It reported full-year EBITDA of $64 million, a year-over-year decline of 86%. Akorn 

reported full-year adjusted EBITDA of $241 million, a year-over-year decline of 51%.572

As these figures show, Akorn’s performance declined dramatically, year over year, with 

positive operating income and positive earnings per share turning to losses. 

In addition to representing a dramatic decline on a year-over-year basis, Akorn’s 

performance in FY 2017 represented a departure from its historical trend. Over the fiveyear span that began in 2012 and ended in 2016, Akorn grew consistently, year over year, 

when measured by revenue, EBITDA, EBIT, and EPS.573 During 2017, Akorn’s 

 

570 See JX 1250 ¶¶ 8–9, 11, 19. To be clear, quarterly declines are measured against 

performance in the same quarter the previous year. 

571 Id. ¶ 11 n.17.

572 Id. ¶ 11.

573 Fischel Tr. 1353–55; JX 1250 ¶¶ 26–30, Exs. 1–4.
136

performance fell dramatically when measured by each metric.574 For example, Akorn’s 

EBITDA and EBIT grew each year from 2012 to 2016, but in 2017, fell by 55% and 62%, 

respectively.575 Fischel prepared the following chart that illustrates the percentage change 

from year to year in Akorn’s EBITDA.

Notably, Akorn’s performance during the first quarter of 2017—before the Merger 

Agreement was signed—did not exhibit the downturn that the ensuing three quarters did.576

 

574 See Fischel Tr. 1354; JX 1250 Exs. 1–4.

575 Fischel Tr. 1354; JX 1250 ¶¶ 28–29, Exs. 2 & 3.

576 JX 1250 ¶ 26 & n.44. 
137

But immediately after the signing of the Merger Agreement, Akorn’s performance dropped 

off a cliff.

Akorn’s dramatic downturn in performance is durationally significant. It has already 

persisted for a full year and shows no sign of abating.577 More importantly, Akorn’s 

management team has provided reasons for the decline that can reasonably be expected to 

have durationally significant effects.578 When reporting on Akorn’s bad results during the 

second quarter of FY 2017, Rai attributed Akorn’s poor performance to unexpected new 

market entrants who competed with Akorn’s three top products—ephedrine, clobetasol, 

and lidocaine.579 He noted that Akorn also faced a new competitor for Nembutal, another 

important product, which Akorn management had not foreseen.580 As Rai testified, “There 

were way more [competitors] than what [Akorn] had potentially projected in [its] forecast 

for 2017,”581 and the new competition resulted in unexpected price erosion.582 Akorn also 

unexpectedly lost a key contract to sell progesterone, resulting in a loss of revenue where 

 

577 See Rai Tr. 545–46 (agreeing that he has no reason to think that any of Akorn’s 

unexpected competitors will withdraw); Portwood Dep. 64–65 (Akorn’s CFO testifying 

that he was not aware of any factors indicative of an “uptick”).

578 See JX 1250 ¶ 23.

579 Rai Tr. 542–44.

580 Id. at 545.

581 Id.

582 Id. at 542; see JX 693 at 35 (attributing poor performance to “more significant 

than expected declines in net revenue”).
138

Akorn had been forecasting growth.583 When explaining its third quarter results, Akorn 

described its poor performance as “[d]riven mostly by unanticipated supply interruptions 

and unfavorable impact from competition across [the] portfolio.”584 Akorn also noted that 

its “[a]verage product pricing [was] lower than expected due to [an] unfavorable 

customer/contract mix and price erosion [that was] not considered in our forecast.”585 There 

is every reason to think that the additional competition will persist and no reason to believe 

that Akorn will recapture its lost contract.

Additional support for the collapse in Akorn’s value and its durational significance 

can be found in recent analyst valuations. In connection with the Akorn board’s approval 

of the Merger, the board’s financial advisor, J.P. Morgan, submitted a discounted cash flow 

valuation for Akorn with a midpoint of $32.13 per share.586 Based on Akorn’s post-signing 

performance, analysts have estimated that Akorn’s standalone value is between $5.00 and 

$12.00 per share.587 Analysts also have dramatically reduced their forward-looking 

estimates for Akorn.588 For example, as of the date of termination, analysts’ estimates for 

Akorn’s 2018, 2019, and 2020 EBITDA were lower than their estimates at signing by 

 

583 Rai Tr. 546–47.

584 JX 688 at ‘606.

585 Id. at ‘607.

586 See JX 520 at ‘841.

587 See Fischel Tr. 1352–53; JX 1505; JX 1508; JX 1250 ¶ 45.

588 See Fischel Tr. 1362–65.
139

62.6%, 63.9%, and 66.9% respectively.

589

 Analysts’ estimates for Akorn’s peers have 

declined by only 11%, 15.3%, and 15%, respectively, for those years.590 Analysts thus 

perceive that Akorn’s difficulties are durationally significant.591

To contest this powerful evidence of a Material Adverse Effect, Akorn contends 

that any assessment of the decline in Akorn’s value should be measured not against its 

performance as a standalone entity, but rather against its value to Fresenius as a synergistic 

buyer.592 In my view, the plain language of the definition of an MAE makes clear that any 

MAE must be evaluated on a standalone basis. First, the broad definition of an MAE refers 

to any “material adverse effect on the business, results of operations or financial condition 

of the Company and its Subsidiaries, taken as a whole.” If the parties had contemplated a 

 

589 See id. at 1363–1365; JX 1250 ¶ 39, Ex. 7.

590 See Fischel Tr. 1364–65; JX 1250 ¶ 39, Ex.7.

591 See Fischel Tr. 1365–66 (“[I]f there was an expectation of a big reversal, the 

stand-alone values wouldn’t be what they are.”). Akorn misleadingly argues that the mean 

of analyst consensus forecasts for Akorn’s EPS from 2018 to 2020 is 46% higher than the 

mean of Akorn’s historical EPS from 2011 to 2013. Dkt. 186 at 123. This comparison 

leaves out four years of results: 2014, 2015, 2016, and 2017. Akorn attempts to justify its 

cherry-picking by claiming that Akorn should be compared to a prior period when it 

struggled, but the record does not support a finding that Akorn struggled during this period, 

only that it was a smaller company. What is necessary is to evaluate a company’s 

performance over a meaningful time horizon to take into account trends, such as cyclicality. 

See IBP, 789 A.2d at 71 (noting that analyst EPS forecasts for the seller “for the next two 

years would not be out of line with its historical performance during troughs”). Here, 

Akorn’s performance improved steadily over the past five years across all of the metrics 

that Fischel examined, only to reverse dramatically after the parties signed the Merger 

Agreement. 

592 See Dkt. 186 at 122–23 n.607. 
140

synergistic approach, the definition would have referred to the surviving corporation or the 

combined company. Second, subpart (B)(2) of the definition carves out any effects 

resulting from “the negotiation, execution, announcement or performance of this 

Agreement or the consummation of the [Merger,]” and the generation of synergies is an 

effect that results from the consummation of the Merger. A review of precedent does not 

reveal any support for Akorn’s argument; every prior decision has looked at changes in 

value relative to the seller as a standalone company.593 Akorn’s desire to include synergies 

is understandable—it increases the denominator for purposes of any percentage-based 

comparison—but it is not supported by the Merger Agreement or the law.

Akorn also argues that as long as Fresenius can make a profit from the acquisition, 

an MAE cannot have occurred.594 The MAE definition does not include any language about 

the profitability of the deal to the buyer; it focuses solely on the value of the seller. 

Assessing whether Fresenius can make a profit would introduce a different, noncontractual standard. It would effectively require that Fresenius show a goodwill 

impairment before it could prove the existence of an MAE. The parties could have 

bargained for that standard, but they did not. Requiring a loss before a buyer could show 

 

593 See Hexion, 965 A.2d at 740–42 (analyzing quarter-over-quarter and year-overyear changes in EBITDA without referring to synergies); id. at 745 (“[U]nder the terms of 

the merger agreement, an MAE is to be determined based on an examination of Huntsman 

[the seller] taken as a whole.”); IBP, 789 A.2d at 66 (comparing IBP as it existed as of 

December 25, 1999, and as portrayed in the merger agreement, with IBP’s later condition).

594 See Dkt. 186 at 122.
141

an MAE also would ignore the fact that acquirers evaluate rates of return when choosing 

among competing projects, including acquisitions. A buyer might make money on an 

absolute basis, but the opportunity cost on a relative basis would be quite high. 

More broadly, the black-letter doctrine of frustration of purpose already operates to 

discharge a contracting party’s obligations when his “principal purpose is substantially 

frustrated without his fault by the occurrence of an event the non-occurrence of which was 

a basic assumption on which the contract was made.”595 This common law doctrine 

“provides an escape for an acquirer if the target experiences a catastrophe during the 

executory period.”596 “It is not reasonable to conclude that sophisticated parties to merger 

agreements, who expend considerable resources drafting and negotiating MAC clauses, 

intend them to do nothing more than restate the default rule.”597 In lieu of the default rule 

that performance may be excused only where a contract’s principal purpose is completely 

 

595 Wal–Mart Stores, Inc. v. AIG Life Ins. Co., 901 A.2d 106, 113 (Del. 2006) 

(quoting Restatement (Second) of Contracts § 265 (Am. Law Inst. 1981)); see also 14 

Corbin on Contracts § 77.1, at 242 (2001 ed.) (“If a frustration of both parties’ respective 

purposes were necessary to invoke the [frustration of purpose] doctrine, discharge would 

be rare.”); id. § 77.10, at 286 (“The frustration of a contractor’s purpose may be either 

complete or only partial. A partial frustration by subsequent events is less likely to 

discharge a contractor from its duties.”). 

596 Schwartz, supra, at 828. 

597 Id.; see id. at 829 (“Although the standard required to invoke a MAC clause is ‘a 

high one, the test does not require the offeror to demonstrate frustration in the legal sense.’” 

(quoting Takeover Panel, Practice Statement No. 15: Note 2 on Rule 13 – Invocation of 

Conditions 3 (Apr. 28, 2004), http://www.thetakeoverpanel.org.uk/wpcontent/uploads/2008/12/2004-13.pdf.)). 
142

or nearly completely frustrated,598 a contract could “lower this bar to an achievable level 

by providing for excuse when the value of counterperformance has ‘materially’ (or 

‘considerably’ or ‘significantly’) diminished.”599 That is what the parties did in this case. 

It should not be necessary for Fresenius to show a loss on the deal before it can rely on the 

contractual exit right it negotiated.

The record in this case established the existence of a sustained decline in business 

performance that is durationally significant and which would be material to a reasonable 

buyer. Akorn suffered a General MAE.600

2. Whether The Reason For The Effect Falls Within An Exception

Akorn’s litigation counsel attributes Akorn’s dismal performance to “industry 

headwinds” that have affected the generic pharmaceutical industry since 2013.601 One 

 

598 Wal–Mart Stores, Inc. v. AIG Life Ins. Co., 872 A.2d 611, 621 (Del. Ch. 2005), 

aff’d in part, rev’d in part on other grounds, 901 A.2d 106 (Del. 2006).

599 Schwartz, supra, at 807; see, e.g., Gilson & Schwartz, supra, at 336 (arguing that 

when a merger agreement “has a traditional MAC, the acquirer . . . no longer commits to 

purchase the bottom half of a probability distribution, but instead only commits to purchase 

if the realized value is close to the negotiated price”); id. at 331 n.5 (“We define a MAC as 

‘traditional’ if the acquisition agreement omits setting out explicit exceptions to the 

acquirer’s right to cancel in the event of a material adverse change or effect.”). 

600 In substance, Akorn and its expert do not contest that Akorn suffered a General 

MAE on a standalone basis. Instead, they try to sidestep that reality by arguing that (i) 

Akorn’s value should be measured with synergies and (ii) Akorn’s decline in value was 

not disproportionate to its peers. For reasons discussed elsewhere, neither of those 

arguments succeeds. This outcome leaves Fischel’s opinion that Akorn suffered a General 

MAE on a standalone basis effectively uncontested. 

601 See Dkt. 186 at 8–9, 123–24.
143

headwind has been a “consolidation of buyer power,” which has “led to large price 

reductions.”602 Another headwind has been the FDA’s efforts to approve generic drugs, 

“leading to increasing numbers of new entrants and resultant additional price erosion.”603

Akorn’s lawyers also cite “legislative attempts to reduce drug prices” and the FDA’s 

requirement that every product have a unique serial number, called serialization.604

According to Akorn, “Fresenius and the market were well aware of these challenges at the 

time [Fresenius] agreed to buy Akorn—and that if the headwinds were greater than 

expected, Akorn would likely underperform relative to its competitors.”

605 Akorn claims 

that Fresenius cannot claim the existence of an MAE because everyone, including 

Fresenius, knew about these “industry headwinds.”606

Consistent with standard practice in the M&A industry, the plain language of the 

Merger Agreement’s definition of a Material Adverse Effect generally allocates the risk of 

endogenous, business-specific events to Akorn and exogenous, systematic risks to 

Fresenius. The definition accomplishes this by placing the general risk of an MAE on 

Akorn, using exceptions to reallocate specific categories of risk to Fresenius, then using 

 

602 Id. at 8.

603 Id.

604 Id. at 8–9.

605 Id. at 9.

606 Id. at 120 (arguing that “[t]he risks of industry headwinds that ultimately caused 

Akorn to underperform were known before signing”).
144

exclusions from the exceptions to return risks to the Akorn. Through the exceptions in 

subpart (A)(1), Fresenius accepted the systematic risks “generally affecting (1) the industry 

in which the Company and its Subsidiaries operate.”607 But this allocation was subject to a 

disproportionate-effect exclusion that returned the risk to Akorn to the extent that an event 

falling into one of these categories disproportionately affects Akorn “as compared to other 

participants in the industry.”

608

Under the risk allocation established by the Merger Agreement, Akorn’s argument 

about “industry headwinds” fails because the causes of Akorn’s adverse performance were 

actually business risks allocated to Akorn. The primary driver of Akorn’s dismal 

performance was unexpected new market entrants who competed with Akorn’s three top 

products—ephedrine, clobetasol, and lidocaine.609 Akorn also unexpectedly lost a key 

contract to sell progesterone.610 These were problems specific to Akorn based on its product 

mix. Although Akorn has tried to transform its business-specific problems into “industry 

headwinds” by describing them at a greater level of generality, the problems were 

endogenous risks specific to Akorn’s business.

 

607 JX 1 at 58.

608 Id.

609 Rai Tr. 542–44.

610 Id. at 546–47.
145

Assuming for the sake of argument that these were industry effects, they 

disproportionately affected Akorn. As a result, under the structure of the contractual 

definition of a Material Adverse Effect, these risks were allocated to Akorn.

The record evidence shows that Akorn’s business has suffered a decline that is 

disproportionate to its industry peers.611 Ironically, Akorn concedes the point by asserting 

that “Akorn was particularly exposed to the risk of these [industry] headwinds.”612

Regardless, to analyze the relative effects of industry-wide conditions, Fischel compared 

Akorn’s performance against the performance of the industry peers selected by J.P. 

Morgan, Akorn’s financial advisor, when preparing its fairness opinion.

613 In each case, 

Fischel looked at Q2 2017, Q3 2017, Q4 2017, FY 2017, and Q1 2018 results and compared 

Akorn’s actual performance relative to consensus analyst estimates with the actual 

performance of the peer companies relative to their consensus analyst estimates. For 

revenue, EBITDA, EBIT, and EPS, Akorn’s underperformance in each period was 

 

611 See Hexion, 965 A.2d at 737 (noting that the seller performed “significantly 

worse than the mean, and in most, in the bottom decile” when compared to two sets of 

benchmark companies in the industry and that “[t]his potentially would be compelling 

evidence if it was necessary to reach the carve-outs”).

612 Dkt. 186 at 9.

613 Akorn used the same peer group when crafting the allegations of its complaint. 

See Dkt. 1 ¶ 6. Shivdasani did not propose any different peer companies. Shivdasani Tr. 

1402.
146

substantially worse than the median and mean of its peers.614 Fischel prepared the following 

chart to illustrate the divergence in EBTDA performance:

Fischel also compared the changes in analysts’ forward-looking estimates for Akorn 

with the changes in analysts’ forward-looking estimates for the peer companies used by 

J.P. Morgan. He found that analyst estimates of Akorn’s revenue, EBITDA, EBIT, and 

EPS for 2018, 2019, and 2020 have declined disproportionately more than their estimates 

for Akorn’s peers.615 Fischel prepared the following chart to illustrate the divergence in 

EBTDA estimates:

 

614 JX 1250 ¶¶ 33–36.

615 JX 1250 ¶¶ 37–41, Exs. 7 & 8.
147

Based on his analysis, Fischel testified that with “one or two minor exceptions, 

Akorn not only vastly underperform[ed] the median and the mean of comparable firms, but 

it underperform[ed] every single one of the comparable firms on all time periods, on all 

metrics, which is really dramatic underperformance.”616 Akorn’s expert recognized that 

Akorn underperformed the generics industry generally and its peers.617 He offered no 

opinion on whether the performance was disproportionate.618

 

616 Fischel Tr. 1361. 

617 Shivdasani Tr. 1400; see Grabowski Dep. 59–60.

618 Shivdasani Tr. 1400.
148

This decision finds that Akorn’s dismal performance resulted from Companyspecific factors, not industry-wide effects. Assuming for the sake of analysis that the causes 

were industry-wide effects, this decision credits Fischel’s analysis and finds that Akorn 

was disproportionately affected by the industry-wide effects.619 For these two independent 

reasons, Akorn’s “industry headwinds” argument fails.

 

619 For purposes of the analysis in this section, I have assumed that Fresenius bore 

the burden of proof as part of the general allocation to Fresenius of the burden to establish 

a General MAE. In my view, a preferable and more nuanced allocation would require 

Fresenius to bear the burden of showing a material decline in Akorn’s performance. At that 

point, Akorn would have the burden of proving that the cause of the decline fell into one 

of the exceptions in the MAE definition. See 29 Am. Jur. 2d Evidence § 176 (“A party 

seeking to take advantage of an exception to a contract is charged with the burden of 

proving facts necessary to come within the exception.”); accord Westlake Vinyls, Inc. v. 

Goodrich Corp., 518 F. Supp. 2d 947, 951–52 (W.D. Ky. 2007) (collecting cases); 

Zebrowski & Assocs., Inc. v. City of Indianapolis, 457 N.E.2d 259, 262 (Ind. Ct. App. 1983) 

(“[A] common rule of contract and insurance law states that when performance is promised 

in general terms, followed by specific exceptions and limitations, the obligor has the burden 

of proving that the case falls with the exception.”); see, e.g., Hollinger Int’l, Inc. v. Black, 

844 A.2d 1022, 1070 (Del. Ch. 2004) (Strine, V.C.) (“Black bears the burden to establish 

that this contractual exception applies.”); see also, e.g., E.I. du Pont de Nemours & Co. v. 

Admiral Ins. Co., 1996 WL 111133, at *1 (Del. Super. Feb. 22, 1996) (“The undisputed 

application of Delaware law in an insurance coverage suit requires the insured . . . to prove 

initially . . . that the loss is within a policy’s coverage provisions. Once the insured meets 

that burden, the burden shifts to the insurer to establish a policy exclusion applies.”); E.I. 

du Pont de Nemours & Co. v. Admiral Ins. Co., 711 A.2d 45, 53–54 (Del. Super. 1995) 

(placing burden of proof on insured to prove exception to exclusion from coverage; noting 

that the insured had better access to information about whether the exception to the 

exclusion applied and was better positioned to prevent events that might trigger coverage); 

Restatement of the Law of Liability Insurance § 32 cmt. e (Am. Law. Inst. 2018) (“It is the 

insurer that has identified the excluded classes of claims and will benefit from being able 

to place a specific claim into an excluded class. Thus, assigning the insurer the burden of 

proving that the claim fits into the exclusion is appropriate.”). If Akorn met its burden, then 

the same authorities would support placing the burden on Fresenius to show that Akorn’s 

performance was disproportionate to its peers, bringing the case within an exclusion from 

the exception. 
149

Akorn has also argued that its poor performance resulted from the restrictions that 

the Merger Agreement imposed on its ability to continue growing through acquisitions. In 

subpart (B)(2), the definition of Material Adverse Effect excludes effects resulting from 

“the . . . performance of this Agreement.” In other words, the definition allocates 

agreement-related risks to Fresenius. As Akorn sees it, Fresenius cannot criticize its poor 

results when the Merger Agreement prevented Akorn from buying other companies.

This argument fails for multiple reasons. First, Akorn suffered a Material Adverse 

Effect because of the sharp downturn in its existing business. It was the performance of 

that business that fell off a cliff shortly after the parties signed the Merger Agreement. The 

question is not whether Akorn might have been able to hide that downturn and post overall 

growth by buying other companies. The problem is what happened to the business that 

Fresenius agreed to buy. Second, the downturn happened so quickly as to defeat the 

suggestion that it was caused by the Merger Agreement’s restrictions on acquisitions. 

Acquisitions take time. It was Akorn’s legacy business that took a nosedive. Third, Akorn 

has not only grown through acquisitions. Akorn historically grew both organically and 

through acquisitions.620 Fourth, if Akorn wanted to pursue an acquisition, it could have

sought consent from Fresenius. Akorn has not pointed to any acquisition that Fresenius 

blocked. The no-acquisitions argument does not bring Akorn within an exception to the 

definition of a Material Adverse Effect.

 

620 See Rai Tr. 455; JX 38 at ‘428-30, ‘444-50; JX 98 at ‘035, ‘040; JX 188 at 9, 11; 

JX 204 at ‘021-24.
150

3. Whether Fresenius Knowingly Accepted The Risks That Led To 

The General MAE.

Akorn contends most vigorously that Fresenius cannot claim an MAE based on any 

risks that Fresenius (i) learned about in due diligence or (ii) generally was on notice about 

because of its industry knowledge and did not thoroughly investigate in due diligence. 

Akorn relies for its position on Chief Justice Strine’s observation in IBP that “[m]erger 

contracts are heavily negotiated and cover a large number of specific risks explicitly,” and 

that consequently, even a “broadly written” MAE provision “is best read as a backstop 

protecting the acquiror from the occurrence of unknown events that substantially threaten 

the overall earnings potential of the target in a durationally-significant manner.”621 In my 

view, Akorn goes too far by transforming “unknown events” into “known or potentially 

contemplated risks.” The legal regime that Akorn argues for would replace the enforcement 

of a bargained-for contractual provision with a tort-like concept of assumption of risk, 

where the outcome would turn not on the contractual language, but on an ex-post sifting of 

what the buyer learned or could have learned in due diligence.

The “strong American tradition of freedom of contract . . . is especially strong in 

our State, which prides itself on having commercial laws that are efficient.”622 “Delaware 

courts seek to ensure freedom of contract and promote clarity in the law in order to facilitate 

 

621 IBP, 789 A.2d at 68 (emphasis added); accord Hexion, 965 A.2d at 738.

622 ABRY, 891 A.2d at 1059–60; see GRT, Inc., 2011 WL 2682898, at *12 (“Under 

Delaware law, which is more contractarian than that of many other states, parties’ 

contractual choices are respected . . . .”). 
151

commerce.”623 “When parties have ordered their affairs voluntarily through a binding 

contract, Delaware law is strongly inclined to respect their agreement, and will only 

interfere upon a strong showing that dishonoring the contract is required to vindicate a 

public policy interest even stronger than freedom of contract.”624 Requiring parties to live 

with “the language of the contracts they negotiate holds even greater force when, as here, 

the parties are sophisticated entities that bargained at arm’s length.”625“The proper way to 

allocate risks in a contract is through bargaining between parties. It is not the court’s role 

to rewrite the contract between sophisticated market participants, allocating the risk of an 

agreement after the fact, to suit the court’s sense of equity or fairness.”

626

 

623 ev3, Inc., 114 A.3d at 529 n.3; see Aspen Advisors LLC v. United Artists Theatre 

Co., 843 A.2d 697, 712 (observing “Delaware law’s goal of promoting reliable and 

efficient corporate and commercial laws”) (Del. Ch. 2004) (Strine, V.C.), aff’d, 861 A.2d 

1251 (Del. 2004); see, e.g., Elliott Assocs. L.P. v. Avatex Corp., 715 A.2d 843, 854 (Del.

1998) (commending a “coherent and rational approach to corporate finance” and 

“uniformity in the corporation law”). 

624 Libeau v. Fox, 880 A.2d 1049, 1056 (Del. Ch. 2005) (Strine, V.C.), aff’d in 

pertinent part, 892 A.2d 1068 (Del. 2006); see also Related Westpac LLC v. JER Snowmass 

LLC, 2010 WL 2929708, at *6 (Del. Ch. July 23, 2010) (Strine, V.C.) (“Delaware law 

respects the freedom of parties in commerce to strike bargains and honors and enforces 

those bargains as plainly written.”); NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 35 

(Del. Ch. 2009) (“Delaware upholds the freedom of contract and enforces as a matter of 

fundamental public policy the voluntary agreements of sophisticated parties.”); Personnel 

Decisions, Inc. v. Bus. Planning Sys., Inc., 2008 WL 1932404, at *6 (Del. Ch. May 5, 2008)

(Strine, V.C.) (“Delaware is a freedom of contract state, with a policy of enforcing the 

voluntary agreements of sophisticated parties in commerce.”). 

625 Progressive Int’l Corp. v. E.I. Du Pont de Nemours & Co., 2002 WL 1558382, 

at *7 (Del. Ch. July 9, 2002) (Strine, V.C.).

626 Wal–Mart Stores, 872 A.2d at 624; see Nemec v. Shrader, 991 A.2d 1120, 1126 

(Del. 2010) (“[W]e must . . . not rewrite the contract to appease a party who later wishes 
152

The MAE definition in this case uses exceptions and exclusions to allocate risks 

between the parties. The MAE definition could have gone further and excluded “certain 

specific matters that [the seller] believes will, or are likely to, occur during the anticipated 

pendency of the agreement,”627 or matters disclosed during due diligence, or even risks 

identified in public filings.628 Or the parties could have defined an MAE as including only 

 

to rewrite a contract he now believes to have been a bad deal. Parties have a right to enter 

into good and bad contracts, the law enforces both.”) (footnote omitted); Allied Capital 

Corp. v. GC–Sun Hldgs., L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006) (Strine, V.C.) 

(explaining that Delaware courts “will not distort or twist contract language” because “[b]y 

such judicial action, the reliability of written contracts is undermined, thus diminishing the 

wealth-creating potential of voluntary agreements”); DeLucca v. KKAT Mgmt., L.L.C., 

2006 WL 224058, at *2 (Del. Ch. Jan. 23, 2006) (Strine, V.C.) (“[I]t is not the job of a 

court to relieve sophisticated parties of the burdens of contracts they wish they had drafted 

differently but in fact did not. Rather, it is the court’s job to enforce the clear terms of 

contracts.”). See generally 11 Williston on Contracts § 31:5 (4th ed. 2003) (“A contract is 

not a non-binding statement of the parties’ preferences; rather, it is an attempt by market 

participants to allocate risks and opportunities. [The court’s role] is not to redistribute these 

risks and opportunities as [it sees] fit, but to enforce the allocation the parties have agreed 

upon.”) (alterations in original).

627 Kling & Nugent, supra, § 11.04[9], at 11-59 to -60 (identifying examples such 

as “the loss or anticipated loss of a significant customer, specific operational problems, 

change in government regulation, a favorable contract that won’t survive the closing, writedowns of assets or adverse business trends”).

628 According to a survey of merger, stock purchase, and asset agreements executed 

between June 1, 2016 and May 31, 2017, 28% of deals valued at $1 billion or more involved

an MAE carve-out for developments arising from facts disclosed to the buyer or in public 

filings. See Nixon Peabody LLP, NP 2017 MAC Survey 5, 13, https://www.nixonpeabody.

com/-/media/Files/PDF-Others/mac-survey-2017-nixon-peabody.ashx; cf. Talley, supra, 

at 789 (opining that Nixon Peabody’s annual MAC survey’s methodology “has become 

sufficiently consistent to be usable in empirical investigations”). 
153

unforeseeable effects, changes, events, or occurrences.629 They did none of these things. 

Instead, for purposes of a General MAE, they agreed upon a condition that turned on 

whether an effect, change, event, or occurrence occurred after signing and constituted or 

would reasonably be expected to constitute an MAE.630 The contractual language is 

forward-looking and focuses on events. It does not look backwards at the due diligence 

process and focus on risks.

As discussed later in this decision, the evidence shows that the events that resulted 

in a General MAE at Akorn were unexpected. But assuming for the sake of argument that 

Akorn was correct and Fresenius had foreseen them, I do not believe that would change 

the result given the allocation of risk under the definition of a Material Adverse Effect set 

forth in the Merger Agreement. The IBP decision interpreted a broad MAE clause that did 

not contain lengthy lists of exceptions and exclusions, and then-Vice Chancellor Strine did 

not suggest that he was prescribing a standard that would govern all MAE clauses,

regardless of what the parties specifically bargained for in the contract. Nor did Hexion, 

which adhered closely to IBP on this point. Instead, both cases held that buyers could not 

 

629 See Schwartz, supra, at 834 (“[T]he MAC clause says nothing about 

foreseeability. It includes other characteristics of the change—“material” and “adverse”—

but does not mention unforseeability. Inclusio unius est exclusio alterius—the expression 

of one thing is the exclusion of another.”); see also id. (providing additional arguments 

why MAE provisions should not be interpreted to contain an implied foreseeability term). 

630 See JX 1 § 6.02(c) (“Since the date of this Agreement there shall not have 

occurred and be continuing any effect, change, event or occurrence that, individually or in 

the aggregate, has had or would reasonably be expected to have a Material Adverse 

Effect.”) (emphasis added).
154

rely on the manifested consequences of widely known systematic risks. In IBP, the 

financial performance of the seller (a beef producer) suffered due to cyclical effects in the 

meat industry, exacerbated by a harsh winter that put even greater pressure on the 

performance of the buyer (a chicken producer).631 In Hexion, the performance of the seller 

(a chemical company) suffered due to macroeconomic challenges, including “rapidly 

increased crude oil and natural gas prices and unfavorable foreign exchange rates.”632

Although the decisions framed the analysis in terms of known versus unknown risks, both 

cases actually allocated systemic risks to the buyers, consistent with general contracting 

practice and the clause at issue in this case.

Assuming for the sake of argument that IBP and Hexion did establish an overarching 

standard for analyzing every MAE, those decisions speak in terms of “unknown events,” 

not contemplated risks.633 As Akorn’s management admitted, the events that gave rise to 

 

631 See IBP, 789 A.2d at 22 (“During the winter and spring of 2001, Tyson’s own 

business performance was dismal. Meanwhile, IBP was struggling through a poor first 

quarter. Both companies’ problems were due in large measure to a severe winter, which 

adversely affected livestock supplies and vitality. As these struggles deepened, Tyson’s 

desire to buy IBP weakened.”); id. at 26 (“Cattle and hog supplies go through cycles that 

can be tracked with some general precision using information from the United States 

Department of Agriculture. . . . Livestock supply is also heavily weather driven.”); id. at 

45 (citing public statements by acquirer acknowledging the cyclical factors that affect 

commodity meat products); id. at 47–48 (“Tyson’s anxiety was heightened by problems it 

and IBP were experiencing in the first part of 2001. A severe winter had hurt both beef and 

chicken supplies, with chickens suffering more than cows.”). 

632 Hexion, 965 A.2d at 743.

633 IBP, 789 A.2d at 68; Hexion, 965 A.2d at 738.
155

Akorn’s dismal performance were unexpected.634 Indeed, when announcing the Merger 

Agreement on April 24, 2017, Akorn reaffirmed the sales and earnings guidance that 

management had provided on March 1, 2017, which projected revenue of $1,010-$1,060 

million and adjusted EBITDA of $363-$401 million.635 Akorn underperformed the low end 

of its revenue guidance by 17% and the low end of its EBITDA guidance by 31%. If Akorn 

management had anticipated the competition and price erosion that was on the horizon, 

they would not have reaffirmed their guidance. 

Finally, Fresenius did not know about the specific events that resulted in Akorn’s 

collapse. Fresenius expected that Akorn would not meet its internal projections and adopted 

lower forecasts of its own, but Akorn dramatically underperformed Fresenius’s less 

 

634 See Rai Tr. 467 (citing “more competition than [Akorn] had projected”); id. at 

542 (citing “price erosion [for ephedrine] that we had not factored in”); id. at 544 (“Q. 

Okay. Now, in fact, you had unexpected competition in 2017 for all of your top three 

products, and the competition was way more than what you had projected; isn’t that right? 

A. That is correct.”); id. at 545 (“The[re] were way more [competitors] than what [Akorn] 

had potentially projected in [its] forecast for 2017.”); id. at 546–47 (discussing the 

unexpected loss of a key contract to sell progesterone); JX 688 at ‘606 (Akorn presentation 

describing its poor performance as “[d]riven mostly by unanticipated supply interruptions 

and unfavorable impact from competition across [the] portfolio”); id. at ‘607 (“Average 

product pricing [was] lower than expected due to [an] unfavorable customer/contract mix 

and price erosion [that was] not considered in our forecast.”); JX 693 at 35 (Akorn’s Form 

10-Q for Q3 2017 discussing “more significant than expected declines in net revenue”).

635 See JX 341; JX 481.
156

optimistic estimates.636 Bauersmith was the resident pessimist on the Fresenius deal team, 

and Akorn even performed worse than he anticipated.637

In my view, Fresenius did not assume the risk of the problems that resulted in a 

General MAE at Akorn. Instead, the General MAE Condition allocated those risks to 

Akorn.

4. The Finding Regarding A General MAE

Fresenius proved that Akorn suffered a General MAE. Fresenius carried its heavy 

burden and showed that the decline in Akorn’s performance is material when viewed from 

the longer-term perspective of a reasonable acquirer, which is measured in years. Fresenius 

also showed that Akorn’s poor performance resulted from Company-specific problems, 

rather than industry-wide conditions. Nevertheless, assuming for the sake of argument that 

the results could be attributed to industry-wide conditions, those conditions affected Akorn 

disproportionately. Neither Akorn nor Fresenius knew about the events that caused 

Akorn’s problems, which were unforeseen. Because Akorn suffered a General MAE, the 

condition in Section 6.02(c) has not been met, and Fresenius cannot be forced to close. 

 

636 Bauersmith Tr. 595–596 (explaining that Akorn’s performance was “much, 

much worse” than Fresenius’s projections); Henriksson Tr. 953 (“[T]he [ephedrine] 

decline was bigger than what we had in the original plan.”).

637 Bauersmith Tr. 596 (describing Akorn’s performance as “even worse than what

[he personally] had thought”).
157

B. The Failure Of The Bring-Down Condition

The next question is whether Fresenius validly terminated the Merger Agreement 

under Section 7.01(c)(i) because the Bring-Down Condition could not be met. The BringDown Condition permits Fresenius to refuse to close if Akorn’s representations are not true 

at closing, except where the deviation from Akorn’s as-represented condition would not 

reasonably be expected to constitute a Material Adverse Effect. To defeat the Bring-Down 

Condition, Fresenius relies on the Regulatory Compliance Representations, so the analysis 

boils down to whether Akorn would reasonably be expected to suffer a Regulatory MAE. 

Once again, because Fresenius sought to excuse its performance under the Merger 

Agreement, Fresenius bore the burden of proof.638

In a public-company acquisition, it is standard practice to require that the seller’s 

representations be true at signing and to condition the buyer’s obligation to close on the 

seller’s representations also being true at closing.639 “From a business point of view, the 

condition that the other party’s representations and warranties be true and correct at closing 

is generally the most significant condition for Buyers . . . . This is what protects each party 

 

638 See Hexion, 965 A.2d at 739; Frontier Oil, 2005 WL 1039027, at *35; IBP, 789 

A.2d at 53.

639 See Kling & Nugent, supra, § 1.05[2], at 1-40.2 to -41; Legal-Usage Analysis, 

supra, at 10–12. 
158

from the other’s business changing or additional, unforeseen risks arising before 

closing.”640

Section 7.01(c)(i) gives Fresenius the right to terminate if the Bring-Down 

Condition cannot be met. Formatted for greater legibility, Section 7.01(c)(i) states:

This Agreement may be terminated and the [Merger] abandoned at any time 

prior to the Effective Time (except as otherwise expressly noted), whether 

before or after receipt of the Company Shareholder Approval: . . .

(c) by [Fresenius Kabi]: (i) if the Company shall have breached any 

of its representations or warranties . . ., which breach . . . 

(A) would give rise to the failure of a condition set forth in 

Section 6.02(a) [the Bring-Down Condition] . . . and 

(B) is incapable of being cured . . . by the Outside Date . . .

provided that [Fresenius Kabi] shall not have the right to 

terminate this Agreement pursuant to this Section 7.01(c)(i) if 

[Fresenius Kabi] or Merger Sub is then in material breach of any of 

its representations, warranties, covenants or agreements hereunder . . 

. .

Whether Fresenius could terminate the Merger Agreement pursuant to Section 7.01(c)(i) 

therefore turns on three questions: (i) whether Akorn breached a representation in a manner 

that would cause the Bring-Down Condition to fail, (ii) whether the breach could be cured 

by the Outside Date, and (iii) whether Fresenius was otherwise in material breach of its 

obligations under the Merger Agreement. The answer to the third question also determines 

 

640 Kling & Nugent, supra, § 14.02[1], at 14-9; accord id. § 1.05[2], at 1-41; § 

1.05[4], at 1-41.
159

whether Fresenius may terminate based on the failure of the Covenant Compliance 

Condition, so this decision addresses it separately. 

1. The Operation Of The Bring-Down Condition

Section 6.02(a) is the Bring-Down Condition. Formatted for greater legibility, it 

states:

The obligations of [Fresenius Kabi] and Merger Sub to effect the Merger 

shall be subject to the satisfaction (or written waiver by [Fresenius Kabi], if 

permissible under applicable law) on or prior to the Closing Date of the 

following conditions:

(a) Representations and Warranties. The representations and warranties of 

the Company 

(i) set forth in Section 3.01(a), Section 3.02(a), Section 3.02(b), 

Section 3.03(a)-(c), Section 3.14 and Section 3.20 shall be true and correct 

in all material respects as of the date hereof and as of the Closing Date, with 

the same effect as though made as of such date (except to the extent expressly 

made as of an earlier date, in which case as of such earlier date) and 

(ii) set forth in this Agreement, other than in those Sections 

specifically identified in clause (i) of this paragraph, shall be true and correct 

(disregarding all qualifications or limitations as to “materiality”, “Material 

Adverse Effect” and words of similar import set forth therein) as of the date 

hereof and as of the Closing Date with the same effect as though made as of 

such date (except to the extent expressly made as of an earlier date, in which 

case as of such earlier date), except, in the case of this clause (ii), where the 

failure to be true and correct would not, individually or in the aggregate, 

reasonably be expected to have a Material Adverse Effect. . . . 

The Bring-Down Condition in the Merger Agreement thus requires Akorn’s 

representations to have been true “as of the date hereof,” viz., at signing, and “as of the 

Closing Date.” 

In this case, Fresenius asserts that Akorn breached the Regulatory Compliance 

Representations found in Section 3.18 of the Merger Agreement. In that section, Akorn 
160

made extensive representations regarding its compliance with regulatory requirements. 

Each of the relevant representations contained specific materiality or MAE qualifiers that 

applied for purposes of evaluating the accuracy of those representations in their own right, 

such as if Fresenius had asserted a fraud claim. For purposes of testing the Bring-Down 

Condition, the language of the condition scrapes away those specific qualifiers in favor of 

an aggregate MAE qualifier.641 Formatted for greater legibility, the following reproduction 

of the Regulatory Compliance Representations omits the specific qualifiers and the 

portions that are not at issue in this case:

(a) The Company and its Subsidiaries are and, to the Knowledge of 

the Company, since July 1, 2013, (1) have been in compliance with 

(A) all applicable Laws (including all rules, regulations, 

guidance and policies) relating to or promulgated by the U.S. Food 

and Drug Administration (the “FDA”), DEA, EMEA and other 

Healthcare Regulatory Authorities and 

(B) all Healthcare Regulatory Authorizations, including all 

requirements of the FDA, DEA, the EMEA and all other Healthcare 

Regulatory Authorities, in each case that are applicable to the 

Company and its Subsidiaries, or by which any property, product, 

filing, submission, registration, declaration, approval, practice 

(including without limitation, manufacturing) or other asset of the 

Company and its Subsidiaries is bound, governed or affected . . . . 

(b) All . . . reports, documents, claims and notices required or 

requested to be filed, maintained, or furnished to any Healthcare Regulatory 

Authority by the Company and its Subsidiaries since July 1, 2013, have been 

so filed, maintained or furnished and, to the Knowledge of the Company, 

were complete and correct . . . on the date filed (or were corrected in or 

supplemented by a subsequent filing) . . . . 

 

641 See Kling & Nugent, supra, § 14.02[3], at 14-12 to -13 (discussing materiality 

scrape as a solution to the double materiality problem).
161

The Company and its Subsidiaries are and have been, since July 1, 

2013, in compliance with current good manufacturing practices and have 

maintained appropriate mechanisms, policies, procedures and practices to 

ensure the prompt collection and reporting of adverse event or any other 

safety or efficacy data, notifications, corrections, recalls and other actions 

required by Law related to their products . . . . 

* * *

(d) Since July 1, 2013, neither the Company nor any of its Subsidiaries 

(i) have made an untrue statement of . . . fact or fraudulent statement to the 

FDA or any other Governmental Authority, (ii) have failed to disclose a . . . 

fact required to be disclosed to the FDA or other Governmental Authority, 

(iii) have committed any other act, made any statement or failed to make any 

statement, that (in any such case) establishes a reasonable basis for the FDA 

to invoke its Fraud, Untrue Statements of Material Facts, Bribery, and Illegal 

Gratuities Final Policy or (iv) have been the subject of any investigation by 

the FDA pursuant to its Fraud, Untrue Statements of Material Facts, Bribery, 

and Illegal Gratuities Final Policy . . . . 

When Section 3.18 and the Bring-Down Condition are read together, the operative question 

becomes whether Fresenius proved by a preponderance of the evidence that (i) the 

Regulatory Compliance Representations were inaccurate and (ii) the deviation between 

Akorn’s as-represented condition and its actual condition was so great that it would 

reasonably be expected to result in a Material Adverse Effect.642

 

642 See IBP, 789 A.2d at 66 (evaluating whether breach of contractual representation 

gave rise to an MAE by comparing IBP’s condition “against the December 25, 1999 

condition of IBP as adjusted by the specific disclosures of the Warranted Financials and 

the [Merger] Agreement itself. This approach makes commercial sense because it 

establishes a baseline that roughly reflects the status of IBP as Tyson indisputably knew it 

at the time of signing the Merger Agreement.”); see also Kling & Nugent, supra, § 

11.01[1], at 11-3 (“[T]he seller’s representations . . . . ‘paint a picture,’ as of the moment 

that the parties become contractually bound, of the business being acquired. It is the target 

company as so described that the Buyer believes it is paying for, and much of the remainder 

of the acquisition agreement deals with the consequences of this picture either proving in 

retrospect to have been inaccurate or changing prior to the closing.”) (footnote omitted); 
162

The “reasonably be expected to” standard is an objective one.643 When this phrase 

is used, “[f]uture occurrences qualify as material adverse effects.”644 As a result, an MAE 

“can have occurred without the effect on the target’s business being felt yet.”645 Even under 

this standard, a mere risk of an MAE cannot be enough. “There must be some showing that 

there is a basis in law and in fact for the serious adverse consequences prophesied by the 

party claiming the MAE.”646 When evaluating whether a particular issue would reasonably 

be expected to result in an MAE, the court must consider “quantitative and qualitative 

 

see also E. Thom Rumberger, Jr., The Acquisition and Sale of Emerging Growth 

Companies: The M & A Exit § 9:14 (2d ed. 2017) (“[I]t is through target’s representations 

and warranties that acquirer contractually sets forth the underlying assumptions for its 

investment decision. In effect, acquirer is saying that it is willing to pay the agreed upon 

purchase price if the business has the attributes described in the representations and 

warranties of target set forth in the merger agreement. The representations and warranties, 

in other words, act as a benchmark for acquirer’s investment in target.”). 

643 Frontier Oil, 2005 WL 1039027, at *33. 

644 Model Merger Agreement, supra, at 268. 

645 Kling & Nugent, supra, § 11.04[9], at 11-60 n.102. 

646 Frontier Oil, 2005 WL 1039027, at *36 n.224 (addressing claim that risk of 

litigation could reasonably be expected to result in an MAE); see also Kling & Nugent, 

supra, § 11.04[10], at 11-69 (“[W]hether a material adverse change has occurred depends 

in large part on the long-term impact of the event in question (a somewhat speculative 

analysis).”). One commentator argues that the “would reasonably be expected” formulation 

is best thought of as meaning “‘likely to happen,’ with likely, in turn, meaning ‘a degree 

of probability greater than five on a scale of one to ten.’” Legal-Usage Analysis, supra, at 

16 (first quoting The New Oxford American Dictionary 597 (2001) and then quoting Bryan 

A. Garner, A Dictionary of Modern Legal Usage 597 (2d ed. 1995)). In other words, it 

means more likely than not. 
163

aspects.”647 “It is possible, in the right case, for a party . . . to come forward with factual 

and opinion testimony that would provide a court with the basis to make a reasonable and 

an informed judgment of the probability of an outcome on the merits.”648

2. Qualitative Significance

The qualitative dimension of the MAE analysis strongly supports a finding that 

Akorn’s regulatory problems would reasonably be expected to result in a Material Adverse 

Effect. There is overwhelming evidence of widespread regulatory violations and pervasive 

compliance problems at Akorn. These problems existed at signing and got worse, rather 

than better, during the period between signing and when Fresenius served its termination 

notice. Akorn does not dispute that it has problems, only their extent and seriousness. 

As a generic pharmaceutical company, Akorn must comply with the FDA’s 

regulatory requirements. This is no small thing; it is an essential part of Akorn’s business. 

It was also essential to Fresenius, which cared a great deal about Akorn’s pipeline of 

 

647 Frontier Oil, 2005 WL 1039027, at *37; see also id. at *34 (“The notion of an 

MAE is imprecise and varies both with the context of the transaction and its parties and 

with the words chosen by the parties.”); Hexion, 965 A.2d at 738 & n.53 (“For the purpose 

of determining whether an MAE has occurred, changes in corporate fortune must be 

examined in the context in which the parties were transacting.”); IBP, 789 A.2d at 68 n.154 

(discussing federal court decision finding a MAC “in a context where the party relying on 

the MAC clause was providing funding in a work-out situation, making any further 

deterioration of [the company’s] already compromised condition quite important”); 

Genesco, 2007 WL 4698244, at *18 (considering “whether the change relates to an 

essential purpose or purposes the parties sought to achieve by entering into the merger”).

648 Id. at *36.
164

ANDAs and new products. The value of Akorn’s pipeline depended on Akorn’s ability to 

comply with the FDA’s regulatory requirements.

Under the FDA’s data integrity requirements, Akorn must be able “to prove the 

origin, transmission, and content of the company’s data and that data is what it is purported 

to be.”649 Data must meet be attributable, legible, contemporaneously recorded, original or 

a true copy, and accurate, as well as complete, consistent, enduring and available.650 A 

properly functioning data integrity system, including an effective IT infrastructure, is 

essential for meeting these requirements.651

Akorn has pervasive data integrity and compliance problems that prevent Akorn 

from being able to meet these standards. As discussed in the Factual Background, Akorn 

hired Cerulean in 2016 to assess its data integrity systems. Avellanet testified that some of 

Akorn’s data integrity failures were so fundamental that he would not even expect to see 

them “at a company that made Styrofoam cups,” let alone a pharmaceutical company 

manufacturing sterile injectable drugs.652 In his opinion, Akorn’s data integrity issues were 

 

649 See JX 143 at 1; accord Kaufman Tr. 323; Kaufman Dep. 196; see Wasserkrug 

Tr. 9.

650 Wasserkrug Tr. 8, 12; Franke Dep. 33–36; JX 1247 ¶ 35.

651 See JX 1252 ¶ 2.1; JX 439 at ‘435–36; Pramik Dep. 26.

652 Avellanet Dep. 173; see also id. at 111–12 (testifying that he had never before 

seen a company where any employee could make changes to electronic data “willy-nilly 

with no traceability or accountability”).
165

among the “top three worst” of the 120+ pharmaceutical companies that he has assessed,653

a notorious status given that his practice only involves companies that “have problems.”654

He believed that the “FDA would get extremely upset” about Akorn’s lack of data integrity 

“because this literally calls into question every released product [Akorn has] done for 

however many years it’s been this way.”655

As discussed at greater length in the Factual Background, Cerulean’s report on the 

Decatur facility identified seven critical, seven major, and at least five minor 

nonconformities.656 Cerulean’s report on the Somerset facility was never completed 

because Akorn’s IT department failed to provide adequate support,657 but the preliminary 

report identified three critical findings and three major findings.658 Avellanet believed that 

some of the violations were so severe that Akorn’s senior management should be concerned 

about potential criminal liability.

659 Akorn made “no effort” to schedule a date to complete 

 

653 Avellanet Dep. 172–73.

654 Kaufman Tr. 317–19; accord Avellanet Dep. 301. It was Akorn’s expert, Zena 

Kaufman, who pointed out the dubious exclusivity of Cerulean’s clientele. See Kaufman 

Tr. 282.

655 Avellanet Dep. 116–17.

656 JX 231 at ‘062, ‘067.

657 Wasserkrug Tr. 131; see JX 439 at ‘430.

658 JX 439 at ‘430.

659 Id. at ‘435–36.
166

the Somerset inspection660 and cancelled Cerulean’s previously scheduled assessment at 

Amityville.661

Akorn’s internal quality experts confirmed the validity of the critical deficiencies 

that Cerulean identified.662 They also determined that Akorn essentially ignored them. In 

March 2018, the GQC team found that Akorn had not yet addressed the vast majority of 

the deficiencies.663 Somerset had done absolutely nothing to address its deficiencies.664

Decatur likewise had “failed to appropriately investigate and remediate” Cerulean’s 

findings, having only completed “32% of the corrective actions.”665 These findings are 

consistent with a contemporaneous email written by Franke, who told Avellanet in late 

 

660 Wasserkrug Tr. 32; see Avellanet Dep. 139; see also JX 507 at ‘317 (“executive 

leadership” decided “that IT resources would not be engaged in the third party data 

integrity audit [Cerulean]”).

661 Avellanet Dep. 47, 164–65; see JX 509 at ‘746.

662 See JX 1077 at ‘143–47; Wasserkrug Tr. 155–56.

663 JX 1077 at ‘065; Wasserkrug Tr. 151–54.

664 See JX 1077 at ‘065–66 (“Somerset . . . while having received the draft audit 

report on 31 May 2017, decided to wait for the final report received on 3 March 2018 and 

failed to initiate formal corrective actions or have a documented plan to date.”); 

Wasserkrug Tr. 153–54 (“[I]n 2017, after getting the Somerset Cerulean report, no actions 

were taken in response.”).

665 JX 1094 at ‘623; see Wasserkrug Dep. 204–06; see Franke Dep. 239 (testifying 

that 11 of the 12 items scheduled for Q1 2018 on the Decatur data integrity plan had not 

been completed).
167

2017 that Akorn was “making 0 progress on our DI remediation efforts,” which she 

attributed to “the culture and the message from management.”666

As discussed in the Factual Background, during the same time frame that Cerulean 

was conducting its reports, Akorn’s GQC team identified similar data integrity violations.

 At Lake Forest, in April 2016, GQC found that audit trails were not being reviewed for 

even “minimum criteria,” including “data deletion” and “data manipulation.”667 GQC 

also found that “multiple Akorn staff members” had unauthorized “system access 

allowances” that enabled them to modify data and to delete audit trails.668 When GQC 

visited Lake Forest again in December 2017, the problems had not been remediated.669

 At Vernon Hills, in June 2016, a GQC audit identified a critical data integrity failure 

that permitted unauthorized personnel to “make changes in master production and 

control records.”670 The internal audit also found that laboratory equipment was “unable 

to record audit trails” and could not identify the users performing tests.671 More than a 

year later, a September 2017 GQC audit found exactly the same problems.672 The report 

observed that corrective actions had “been halted and remain incomplete,” and noted 

that Akorn’s failure to remediate these deficiencies “presents undue risk to the site’s 

ongoing operations.”673 By the time of trial, the problems had still not been fixed, and 

Vernon Hills did not even have a data integrity compliance plan.674

 

666 JX 754 at ‘740.

667 JX 124 at ‘764.

668 Id. at ‘769.

669 JX 782 at ‘799–802.

670 JX 136 at ‘344.

671 Id.

672 JX 655 at ‘479–80.

673 Id. at ‘472.

674 Wasserkrug Tr. 118, 136.
168

 At Somerset, in April 2017, GQC identified critical problems involving access controls 

and audit trail reviews.675 When GQC returned in December 2017, the problems had 

not been remediated.676 By the time of trial, Somerset still did not have an approved 

data integrity compliance plan.677

In 2017, GQC identified numerous other data integrity deficiencies at Akorn’s sites, with 

seventeen at Hettlingen, fifteen at Cranbury, five at Amityville, and five at Lake Forest.678

In addition to these reports, the factual record contains extensive evidence of other, 

widespread quality problems at Akorn.

After the signing of the Merger Agreement, Akorn’s exacerbated its compliance 

problems. As discussed in the Factual Background, Silverberg authorized a response to a

CRL for azithromycin in August 2017 that contained two sets of fabricated data.679 I am 

forced to conclude that Silverberg knew that the CRL would rely on fabricated data but 

authorized it anyway because he did not want to withdraw the ANDA and wave a red flag 

in front of Fresenius that would call attention to Akorn’s data integrity problems while the 

Merger was pending. Akorn and its advisors immediately recognized the seriousness of the 

 

675 JX 515 at ‘115. 

676 JX 801 at ‘663–64.

677 Wasserkrug Tr. 136.

678 See JX 1318.019–31; Wasserkrug Tr. 118, 122–24.

679 JX 1068 at ‘014.
169

issue and expressed concern that the FDA would invoke the AIP or take other significant 

action against Akorn.680

Akorn then aggravated the situation by providing the FDA with a misleading 

description of the investigation, its views on whether Silverberg acted knowingly, and the 

state of Akorn’s data integrity efforts. Akorn also concealed a troubling incident in which 

Silverberg sought to coordinate stories with Sherwani about the azithromycin incident and 

destroy evidence of the coordination. Even Akorn’s FDA expert agreed that Akorn was 

“not fully transparent” with the FDA.681 She suggested that Akorn had subsequently 

become transparent by providing the FDA with Cerulean’s reports and correspondence 

from Sidley, but in reality, Akorn never provided the FDA with Cerulean’s reports, and 

Akorn’s regulatory counsel primed the FDA to discount anything Sidley said.682

As part of its effort to get ahead of the issue with the FDA, Akorn retained NSF to 

conduct data integrity audits at six Akorn facilities (excluding Somerset). NSF would 

review a limited number of ANDAs from the Somerset facility and a sampling of product 

batch records. NSF quickly identified numerous major deficiencies that were consistent 

with the problems that Cerulean and Akorn’s GQC team had identified. As soon as the 

 

680 See JX 884 at ‘068; JX 908 at ‘831; see also Stuart Tr. 853–54.

681 Kaufman Tr. 378; see also id. at 391 (agreeing that Akorn should have disclosed 

Silverberg’s efforts to coordinate stories). 

682 See JX 1066 at ‘893–94; Stuart Tr. 840–44. Compare Kaufman Tr. 402, 414 with 

Wasserkrug Tr. 40 and JX 1063 at ‘004–05.
170

NSF reports began coming in, Akorn’s representatives worried about severe regulatory 

consequences, including the possibility that the FDA would impose the AIP.683 As NSF’s 

investigation continued, its data integrity reports largely confirmed the existence of 

widespread problems at Akorn’s facilities.684 By the time of trial, NSF had examined eight 

ANDAs involving currently marketed products that had been prioritized for review.685 NSF 

found two critical deficiencies involving the submission of intentionally manipulated data 

to the FDA and over 200 major deficiencies.686 NSF also found numerous trial injections

 

683 See JX 1127 (expressing concern that “the FDA is likely to have a very negative 

reaction to our report” and indicating that possible responses included the AIP, “suspension 

of review of all pending submissions,” and “mandat[ory] review by a third party of product 

released for the market”); JX 1496 at ‘055–56 (Akorn’s regulatory counsel observing that 

“[i]f audit reports make it look like there are similar issues across the company, FDA might 

see need to get whole company under decree” and that the “[s]heer number of issues across 

all sites audited by NSF . . . could raise concern”); JX 1493 (“[A]s other audit reports roll 

out,” the FDA “may see it as the whole corporation/multiple sites under decree.”).

684 See JX 1141 at ‘081 (Vernon Hills: “Data entry into notebooks does not appear 

to always be contemporaneous. In a large number of instances in every notebook reviewed, 

the date of the technician’s work in the notebook is a week or more later than the date that 

the HPLC sequences were run.”); id. (Vernon Hills: “Review and verification of notebook 

activities is not always timely. In a large number of instances in every notebook reviewed, 

the verified date is months later, and in some cases more than a year after the work was 

performed.”); id. (Vernon Hills: “The adequacy of notebook verification is questionable 

since the equations for some calculations are not described in the notebook.”); id. at ‘079 

(Vernon Hills: “User access levels are not appropriate to protect data from deletion or 

further manipulation.”); JX 1190 at ‘712–13 (finding that laboratory notebooks at Cranbury 

were “lacking in traceability, legibility, [and] authenticity”); JX 1178 at ‘356 (observing 

that analysts at Amityville could “delete or modify” data on “[a]ll stand-alone 

instruments”); id. (noting that many laboratory instruments at Amityville did not have audit 

trails).

685 See JX 1516 at ‘595–96; Wasserkrug Tr. 175–76.

686 See JX 1156; JX 1157; JX 1185; JX 1196; JX 1201; JX 1204; JX 1221; JX 1224.
171

that appeared to have been used in FDA submissions over a five-year period involving 

multiple Akorn analysts and products.687 NSF advised Akorn that this issue had major 

regulatory significance and was one of its “most serious observations.”688

At trial, Fresenius presented fact testimony from Sheers, the lawyer who led the 

Sidley team that investigated the whistleblower allegations. He testified credibly that 

Sidley’s interviews with Akorn employees revealed a “lack of awareness of compliance 

issues, with a lack of understanding as to what the FDA requires and why [Akorn’s] 

deficient practices would be problematic to the FDA.”

689 He also testified credibly that the 

Sidley team identified “serious fundamental flaws in the way [Akorn] managed their data 

such that there was no data integrity, essentially,” at Decatur, Vernon Hills, or Somerset.690

Based on its investigation, Sidley concluded that “all of the data that was generated was 

not reliable, and the FDA would consider all of the products that were made in those 

facilities adulterated.”691

 

687 JX 1141 at ‘090; see Wasserkrug Tr. 183 (testifying that the trial injections 

involved “approximately 20” analysts and multiple products).

688 JX 1141 at ‘090, ‘092; see JX 1164 at ‘421 (talking points prepared by Akorn’s 

counsel for a call with Akorn’s directors noting that “the Company has identified many 

[chromatography sequences] that are the type of problematic, unreported trial injections 

FDA has warned of”); JX 1127 (Akorn’s counsel acknowledging that the “problematic 

practice [of trial injections] went on for four years and involved about 25 chemists”). 

689 Sheers Tr. 1037.

690 Id. at 1036–39.

691 Id. at 1039. 
172

Lachman assisted Sidley and conducted onsite assessments at Vernon Hills, 

Somerset, Cranbury, and Decatur. Lachman identified “major, systemic data integrity 

gaps” at every location.692 Lachman determined that “cGMP compliance deficiencies” at 

Akorn’s sites “call[] into serious question” the reliability of Akorn’s testing data, the 

effectiveness of its quality system, the accuracy of its regulatory submissions, “and thus 

the safety and efficacy of Akorn’s products.”693 At trial, George gave highly credible 

testimony about these issues, including his assessment of the extreme nature of Akorn’s 

problems:

Everywhere that Lachman looked at policies, procedures, practices and data, 

we found noncompliance. And the unusual thing is, is when we go into a 

client’s site, we might find one area where they’re weak in compliance. But 

at Akorn, across the board, everything we looked at had significant 

noncompliance associated with it.

694

He reiterated that “a lot of clients may have one particular deficiency in compliance, but 

not the broad scope of systemic issues that we identified at the Akorn sites.”695 When asked 

 

692 See JX 1252 ¶ 2.3. Like Cerulean and Akorn’s GQC team, Lachman observed 

that Akorn’s computer and laboratory systems at multiple sites were “not secure from

unauthorized change.” See George Tr. 1133–34 (explaining that users of Akorn’s 

Chromeleon system—used for chromatography testing—were able “to access data, to 

modify data, to move data, to delete data, [and] to generate data” in hidden folders, which 

was “obviously a major concern” and meant that “the data itself is not trustworthy”); id. at 

1135 (testifying that he had never before seen “this kind of a complete system failure across 

all the electronic systems in the laboratory”).

693 JX 1252 ¶ 2.2; see George Tr. 1127–1128 (“[T]he trustworthiness of the data 

supporting [Akorn’s regulatory] submissions is -- it’s not there.”)

694 George Tr. 1126–27.

695 Id. at 1127.
173

to rank Akorn among the laboratories he had seen, George said he “would put them with 

the worst.”696 George opined that Akorn’s “problems were systematic in nature and the 

reliability of all the data should be questioned.”697 

David L. Chesney also testified as an expert for Fresenius. Chesney previously 

served at the FDA for twenty-three years and subsequently spent twenty-three years as a 

regulatory consultant. In his assessment, “Akorn has a number of very serious data integrity 

issues” which are “widespread” and “pervasive.”698 In his forty-six-year career, in which 

he has visited hundreds of companies, Chesney had “rarely seen integrity issues that exist 

at the scope and scale we see” at Akorn.699 He opined that in light of the severity of Akorn’s 

issues, the FDA has sufficient grounds to invoke the AIP.

700 He further opined that even if 

the FDA did not formally impose the AIP, the FDA likely would take action that would 

 

696 Id.; see JX 1252 ¶ 2.5 (opining that quality conditions at Akorn represented “one 

of the poorest states of compliance that I have encountered”).

697 George Tr. 1127–28. Akorn has attacked the credibility of George and Lachman, 

arguing that they were hired guns retained by Sidley to manufacture a case for Fresenius. 

Having seen George testify, I reject those assertions. At heart, George is a scientist, and he 

is clearly dedicated to data and the facts. He does not seem capable of shading the truth.

698 Chesney Tr. 1241.

699 Id. at 1249.

700 Id. at 1254 (“[T]he test for imposition of the AIP has been met.”); see JX 1251 ¶

15. Although Fresenius retained Chesney as an expert in this case, Akorn previously 

retained Chesney to give a presentation to its board of directors on FDA matters and to 

provide regulatory training for Akorn’s employees at Decatur and Somerset. See Chesney 

Tr. 1234–35.
174

halt the approval of Akorn’s ANDAs until Akorn proves that its data is reliable.701 Chesney 

explained that when evaluating what action to take, the FDA will view Silverberg’s 

intentional misconduct as an aggravating factor calling for more severe enforcement 

action.702 Chesney’s testimony was cogent and credible.

Akorn’s expert, Zena Kaufman, attempted to normalize the problems at Akorn by 

opining that they resemble problems found across the industry and at Fresneius. Kaufman 

appears to be a person of integrity, and as a result, aspects of her testimony supported 

Fresenius’s position.

Kaufman’s expertise in quality compliance stems primarily from a three-year stint 

between 2012 and 2015 as head of global quality for Hospira, Inc., a company that faced 

pervasive compliance problems when she joined.703 When she left, Hospira still had not 

completed its remediation efforts; it had resolved the issues at its U.S. plants, but its foreign 

plants still had outstanding Warning Letters.704 Despite having spent three years overseeing 

 

701 Chesney Tr. 1254, 1256–57; JX 1249 ¶¶ 59, 61. Akorn’s expert, David Adams, 

did not testify at trial and did not offer an opinion on whether Akorn had met the test for 

the AIP. JX 1289; Adams Dep. 83–85. Adams agreed that the FDA could suspend Akorn’s 

product approvals without invoking the AIP. Adams Dep. 126–28. I found Chesney’s 

opinions more credible and rely on his views.

702 See Chesney Tr. 1244–45 (testifying that Akorn’s violations are “not simply the 

result of innocent lapses, mistakes, sloppy procedures, [or] unclear forms, but have a 

deliberate element to them, which is definitely an aggravating factor in the FDA’s view”). 

One of Akorn’s experts, Kaufman, agreed that these facts are likely to lead to more severe 

action by the FDA. See Kaufman Tr. 374–75.

703 See Kaufman Tr. 257–62, 307–08, 312; see also JX 1388.

704 Kaufman Tr. 261–62.
175

quality at a deeply troubled generic manufacturer, Kaufman had never before encountered 

some of the data integrity problems that Akorn exhibited, including a senior quality officer 

who made misrepresentations to the FDA, company-wide computer access issues that 

allowed any employee to make changes to files without any traceability or accountability, 

and the pervasive backdating of lab entries.705 She agreed that the FDA would be “quite 

concerned” about Akorn’s lack of access controls because it undermined the security of 

Akorn’s data.706 She agreed that this concern would affect both Akorn’s ANDAs and 

“product released into the market.”707

Kaufman’s primary technique for normalizing Akorn’s problems was to analyze 

publicly available Form 483s and warning letters for other companies, then compare the 

“types of observations, the categories” raised in those filings with the types of observations 

at Akorn.708 Kaufman did not persuade me that her methodology enabled her to assess 

reliably the relative significance or pervasiveness of the problems.709 Compared to 

Fresenius’s experts, Kaufman had less experience with quality issues and data integrity 

 

705 Id. at 315, 317, 355, 362. 

706 Id. at 315–17, 322–24.

707 Id. at 324.

708 See id. at 266–79.

709 See id. at 349–55 (identifying omissions from her data set observations; noting 

that observations were limited to critical finding and excluded major findings); id. at 372–

74 (failing to consider whether and to what extent Akorn had responded to the observations 

or how long they had been outstanding); id. at 441 (agreeing that she provided different 

explanations for how her data set was compiled).
176

issues. She had never performed a data integrity audit or conducted a data integrity 

investigation.710 She did not claim to be an expert in data remediation plans.711 Unlike 

Fresenius’s experts, she did not visit any Akorn sites or speak to any Akorn personnel.712

When rendering her opinions, Kaufman also did not take into account Akorn’s failure to 

be transparent with the FDA.713

In its post-trial briefs, Akorn relied on its history of past inspections with the FDA 

to argue that it must not have serious quality or data integrity issues. But as Kaufman 

recognized, “you can get an FDA inspection with zero issues but then significant problems 

are discovered.”714 From the FDA’s standpoint, “you are . . . only as good as your last 

inspection.”715

Since trial, Akorn has received lengthy and detailed Form 483s for Decatur and 

Somerset, both of which identify data integrity issues. The FDA sent Akorn two CRLs that 

conditioned the approval of ANDAs for products from Decatur on “[s]atisfactory 

 

710 Id. at 304.

711 Id. at 267–68, 343.

712 Id. at 304.

713 See id. at 379 (“Q. You did not say in either of those two reports that Akorn was 

not transparent. Correct? A. Correct.”).

714 Id. at 437.

715 Klener Dep. 79–80; accord Klener Tr. 1321.
177

resolution of the observations” in its Form 483.

716 Akorn has not received any new ANDA 

approvals for any of its sites since May 4, even though approval for many of the ANDAs 

is now overdue.717 By letter dated August 9, 2018, the FDA formally classified Decatur as 

OAI and informed Akorn that “[t]he facility may be subject to a CGMP regulatory or 

enforcement action based on this inspection, and FDA may withhold approval of any 

pending applications or supplements in which this facility is listed.”718

Perhaps most strikingly, by letter dated September 3, 2018, Akorn reported to the 

court that on August 22, during the later stages of the FDA’s investigation, someone had 

erased the database at Somerset for a high accuracy liquid particle counter along with the 

local backup file and the associated electronic security logs. FDA inspectors had been on 

site at Somerset intermittently between July 23 and August 30.719 Akorn has reported the 

incident to law enforcement. Given the timing of the deletion, it is reasonable to infer that 

the perpetrator may have been trying to hide information from the FDA, or from personnel 

who would follow up on the deficiencies that the FDA identified in its Form 483. 

 

716 See JX 1223; JX 1226; JX 1198; JX 1249 ¶¶ 122–23.

717 JX 491. The two approvals from early May would have been “in the late, final 

stages of the review process” by the time Akorn disclosed its data integrity issues, 

indicating that “the FDA simply allow[ed]” the review process “to complete.” Chesney 

Tr. 1260–61. The only other approvals since that time have involved changes to labeling 

and the addition of new third-party manufacturers for already-approved Akorn drugs, 

neither of which concerns Akorn’s data. See Sheers Tr. 1061; Chesney Tr. 1262.

718 Dkt. 191, Ex. D. 

719 Dkt. 199 at 1. 
178

The systemic failures at Akorn raise questions about the accuracy and reliability of 

all of its data, regardless of site or product. As a result, Akorn cannot meet its burden to 

prove to the FDA that its data is accurate. To the contrary, Akorn’s products and facilities 

are known not to comply with cGMP and FDA requirements, as shown by the reports of 

its own internal audit team. Akorn does not make products where quality issues can be 

overlooked until problems arise. As Henriksson testified, “[W]e are talking about drugs 

which are used by people . . . who are critically ill . . . [and] many of those products . . . .

are going to be injected into people.”720

In my view, the regulatory situation at Akorn is qualitatively “material when viewed 

from the longer-term perspective of a reasonable acquiror.”721 Akorn has gone from 

representing itself as an FDA-compliant company with accurate and reliable submissions 

from compliant testing practices to a company in persistent, serious violation of FDA 

requirements with a disastrous culture of noncompliance. The qualitative aspect of the 

MAE analysis warrants a finding that the regulatory issues would reasonably be expected 

to result in a Material Adverse Effect.

3. Quantitative Significance

The quantitative aspect of the MAE analysis likewise warrants a finding that 

Akorn’s regulatory issues would reasonably be expected to result in a Material Adverse 

 

720 Henriksson Tr. 974; see Sturm Tr. 1196 (“[T]here is zero tolerance to exposing 

patients to known risks.”).

721 IBP, 789 A.2d at 68. 
179

Effect. Akorn and Fresenius have each provided estimates of the economic impact of the 

data integrity problems. Akorn’s estimate contemplates direct outlays of $44 million with 

no other effect on Akorn’s value.722 Fresenius’s estimate contemplates direct outlays of 

$254 million plus a valuation hit of up to $1.9 billion from suspending on-market products 

and pushing out pipeline products while Akorn’s data is verified.723 As might be expected 

given their respective positions in the litigation, Akorn’s estimate is a best case scenario. 

It contemplates a world in which consultants complete a limited process to correct Akorn’s 

protocols and confirm that everything is OK, but where nothing else is uncovered, no data 

needs to be revalidated, and no products need to be withdrawn or deferred. Fresenius’s 

estimate is a worst case scenario. It contemplates rebuilding Akorn’s quality systems, 

validating the data for its twenty-four leading products, obtaining new approvals for those 

products from the FDA, and not selling any products until Akorn’s data can be verified.

In my view, Akorn’s figure is not credible. Akorn did not present any fact witness 

at trial who could testify about the accuracy of the $44 million estimate or how it was 

developed. Wasserkrug read the figure off the page during her direct testimony, but she 

admitted that she had “no idea” whether the “number is correct or incorrect.”

724 Kaufman 

thought the overall dollar figure felt right as a “benchmark,” but she focused on whether 

 

722 JX 1318.

723 JX 1152 at 19–20, 25; see Henriksson Tr. 978–82.

724 Wasserkrug Tr. 115–16.
180

Akorn had the right “compliance aspects” in the plan, such as IT systems, and admitted 

that she did not have the expertise to determine what the amounts should be.725

More significantly, Akorn’s estimate assumed that Akorn would continue with the 

relatively limited investigation that it proposed after reporting to the FDA on the 

azithromycin issue in March 2018. The estimate assumed that the investigation would not 

uncover any additional problems with Akorn’s data, would not result in any additional 

ANDAs being withdrawn, would not have any effect on Akorn’s pipeline, and would not 

result in any product recalls. Given Akorn’s pervasive data integrity issues and its 

obligation to prove the reliability of its data to the FDA, this seems highly unlikely. 

Wasserkrug agreed that Akorn will need to “pull a product off the market” if it cannot 

support the data on which the ANDA was based,726 and the evidence at trial indicates that 

Akorn cannot currently prove the accuracy of its data. Any suspensions of existing products 

or delays of new products will obviously have a negative effect on Akorn’s value.727 Since 

trial, Akorn has been forced to expand the scope of its remediation efforts dramatically.728

 

725 Kaufman Tr. 292–93.

726 Wasserkrug Tr. 69.

727 See JX 1253; JX 1254; Bowles Dep. 19–22, 67–68. Kaufman only was able to 

assert that Akorn’s remediation plan was adequate because she assumed that Akorn had 

committed to conduct “for any instrument or equipment found to have inadequate access 

control levels or permissions, a retrospective review of associated data and a root cause 

assessment.” JX 1295 ¶ 113. In other words, she assumed that if Akorn found problems, 

Akorn would do more. Kaufman declined to opine on “how many Akorn products and 

Akorn ANDAs have been affected” by data integrity issues. See Kaufman Tr. 324–25. 

728 See Dkt. 234, Exs. A & B.
181

Unlike Akorn’s estimate, Fresenius’s estimate takes into account the need to 

conduct a complete investigation and the strong likelihood that such an investigation will 

uncover additional problems with Akorn’s data, will result in additional ANDAs being 

withdrawn, will have effects on Akorn’s pipeline, and could result in product recalls. 

Sturm, Henriksson, and Bauersmith testified to the detailed analysis and care that went into 

preparing Fresenius’s plan. The views of Fresenius’s management team on this subject are 

particularly credible, because Fresenius has direct experience remediating serious data 

integrity issues at one of its facilities in India and understands what a project of this nature 

entails.729 Fresenius’s management team developed the plan so that the Supervisory Board

could understand Fresenius’s potential exposure if Fresenius closed the Merger, and the 

Supervisory Board relied on the document when deciding whether to terminate the Merger 

Agreement. Sturm testified publicly that Fresenius stands behind the analysis and will 

undertake those steps if Fresenius is forced to close.

Henriksson testified that to properly remediate the data integrity issues at Akorn, 

there must be a temporary halt on the release of Akorn products until additional safety 

measures can be instituted.730 Akorn’s R&D department must be comprehensively 

restructured to “build a culture of [] compliance,” implement IT systems with proper 

 

729 See Henriksson Tr. 1022–23. 

730 Id. at 975.
182

controls, and retrain personnel.731 He projected that these initial steps will take 

approximately one year. After that, Akorn will need to redevelop its products using reliable 

data, then obtain approval from the FDA for those products.732 Fresenius anticipates 

redeveloping Akorn’s twenty-four leading products, with a simple product taking one year 

and a complex product taking two years, followed in each case by an additional year to 

receive FDA approval. As a result, the overall remediation of Akorn’s data integrity issues

would take at least four years. During the first year of this period, Akorn’s ability to 

generate revenue would stop, then come back on line gradually as its products were 

reformulated and reapproved.

The evidence persuades me that a responsible remediation plan would be much 

closer to what Fresenius has proposed than what Akorn currently intends to pursue. Given 

the widespread problems at all of Akorn’s sites and the evidence implicating Akorn’s 

senior quality officer in data falsification, Akorn should be conducting a complete 

review.733 So far, NSF’s narrow review has identified two additional ANDAs that were 

 

731 Id. at 976–77.

732 Id. at 977–78.

733 JX 1298 ¶ 39 (“The investigation should . . . include a retrospective review of all 

test results . . . .”); see Henriksson Tr. 976 (“They have already looked at nine ANDAs. 

They have found severe data manipulation on three. You know, when do you stop sampling 

and when do you say that, okay, I’ve seen enough. We’ve got to check it all.”); Sheers Tr. 

1064 (“[T]hey should be doing a complete review. There are now several instances, 

confirmed instances, of data falsification and fabrication, and the [FDA] expects in those 

circumstances for a complete review to be conducted. And it’s not just enough to look at 

what is currently being done. You have to do a retrospective review, because there’s 
183

based on fabricated data and two additional persons of interest. A complete review is highly 

likely to uncover more problems with data integrity that will call ANDAs and products into 

question and push out the timing of Akorn’s pipeline. Even under Akorn’s more limited 

approach, its witnesses have agreed that the effort is “going to take about three years.”734

Fresenius developed a credible plan for a complete review and remediation of the 

serious problems at Akorn. It nevertheless represents a worst-case scenario in which every 

product at Akorn has to be fixed. What seems more likely, in my view, is that a complete 

investigation would determine that only some of Akorn’s products will require revalidation and that the level of disruption and delay will not be quite so extensive as 

Fresenius projects. Rajiv Gokhale submitted an expert report that addresses the impact of 

shorter deferrals of Akorn’s cash flows. Using the discounted cash flow model that 

Fresenius generated in the ordinary course of business to evaluate the Merger, he calculated 

that a delay of one-and-a-half years would have a negative impact on Akorn’s value of 

$604 million, and a two-year delay would have a negative impact on Akorn’s value of $808 

million.735 Gokhale observed that in April 2017, when the Merger Agreement was 

executed, Akorn had a standalone equity value of approximately $3.9 billion. The valuation 

 

product that’s still in the market that is supported by that data, and there’s product that’s 

going out the door today that is supported by data that is questionable.”).

734 Wasserkrug Tr. 68–69; see Avellanet Dep. 78–79 (“[I] have never seen a firm be 

able . . . to remediate all of its issues in less than three years.”); JX 1295 ¶ 61 (Kaufman 

relying on estimate of two to three years).

735 JX 1254 ¶ 6.
184

impact of a one-and-a-half or two-year delay therefore represented, respectively, 16% and 

21% of Akorn’s standalone equity value.736

It is not possible to define with precision the financial impact of Akorn’s data 

integrity issues. In an ideal world, I would run a series of Monte Carlo simulations using 

varying assumptions. Lacking that ability and having considered the record evidence, I 

suspect the most credible outcome lies in the vicinity of the midpoint of the parties’ 

competing submissions, at approximately $900 million. This rough estimate is also close 

to the $800 million that Gokhale calculated for a two-year delay, particularly when one 

adds to Gokhale’s estimate amounts for out-of-pocket remediation costs. Using the equity 

value of $4.3 billion that is implied by the Merger Agreement, a valuation hit of $900 

million represents a decline of 21%. That range of valuation consequence makes intuitive 

sense to me given the seriousness of Akorn’s regulatory problems and the ever-expanding 

efforts that Akorn has been forced to make to remediate them.737

 

736 Id. Gokhale also opined as to the effect of comparable delays on Akorn’s value 

in April 2018, when Fresenius terminated the Merger. In that analysis, the lost value from 

the deferred cash flows is higher and the standalone value of Akorn is lower, so the 

percentage decline is materially larger. See id. ¶¶ 8–9. To be conservative, this decision 

uses the lower values. In my judgment, that approach also makes sense for the Regulatory 

MAE, which compares the as-represented value of the seller with its value in light of the 

deviations from the representation. See IBP, 789 A.2d at 66. The measure of Akorn’s equity 

value at the time of signing pre-dated the dramatic downturn in Akorn’s business and the 

discovery of much of the information about Akorn’s data integrity problems. It therefore 

provides a better measure of Akorn’s as-represented value.

737 See Dkt. 234, Exs. A & B.
185

Unfortunately, the parties have not provided much assistance in determining 

whether remediation costs equal to approximately 20% of the target’s standalone value 

would constitute an amount that would “be material when viewed from the longer-term 

perspective of a reasonable acquiror.”

738 In Hexion, the court agreed that materiality for 

purposes of an MAE should be viewed as a term of art that drew its meaning from 

Regulation S-K and Item 7, “Management’s Discussion and Analysis of Financial 

Condition and Results of Operations.”739 It would have been helpful to have access to 

expert testimony or studies about the thresholds companies generally use when reporting 

material events, such as material acquisitions. It also would have been helpful to understand 

the thresholds that Fresenius and Akorn have used. No one addressed these issues.

Although both the factual record and the corpus of available authority are limited, I 

believe that for Akorn, this expense would be “material when viewed from the longer-term 

perspective of a reasonable acquiror.”

740 In making this finding, I have primarily weighed 

 

738 IBP, 789 A.2d at 68.

739 Hexion, 965 A.2d at 742.

740 IBP, 789 A.2d at 68. Some readers may get hung up on a perceived difference 

between this decision’s earlier discussion of a General MAE in terms of percentage 

declines in revenue and profitability, where Kling and Nugent highlighted 40% as a range 

where courts often find the existence of an MAE, see Part II.A.1, supra, and this section’s 

discussion of a Regulatory MAE in terms of remediation costs, which concludes that a loss 

in the vicinity of 21% of Akorn’s standalone value constituted a Material Adverse Effect. 

No one should fixate on a particular percentage as establishing a bright-line test. No one 

should interpret this decision as suggesting that there is one set of percentages for revenue 

and profitability metrics and another for liabilities. No one should think that a General 

MAE is always evaluated using profitability metrics and an MAE tied to a representation 

is always evaluated relative to the entity’s valuation. In this case, the parties briefed the 
186

the evidence in the record against my own intuition and experience (admittedly as a lawyer 

and judge rather than as a buyer or seller of businesses).

Among other things, the record demonstrates that Akorn pushed Fresenius to pay 

top dollar for Akorn, extracting every cent that Fresenius was willing to pay. When a deal 

is priced for perfection, a reasonable acquirer has less ability to accommodate an expense 

that equates to a substantial portion of the seller’s value. In this case, the record indicates 

that Fresenius remained willing to close despite identifying a high risk of a potential 

exposure in the amount of approximately $100 million due to postponement of product 

launches,741 as well as another high risk exposure of a similar amount related to cGMP 

“deficiencies related to premises and equipment” in the Amityville and Decatur 

facilities.742 The data integrity violations represent an incremental loss in value 

 

General MAE question based on profitability metrics and the Regulatory MAE question 

using remediation costs, so that is what the decision analyzed. In the context of this case, 

the narrower focus for the Regulatory MAE makes sense and gives effect to the contractdriven requirement that there be a sufficient connection between the breach of the 

Regulatory Compliance Representations and the Regulatory MAE. The General MAE 

Condition does not have an equivalent causal linkage to a particular issue. The question is 

simply whether a General MAE had occurred. 

741 JX 428 at ‘673; see JX 422 at ‘001 (“Akorn has an aggressive product launch 

plan, which leads to risk of postponement for several products . . . and an estimated 

exposure above $100m. [Fresenius] prepared a bottom-up model for each model and 

adjusted the launch plan, R&D costs and revenues accordingly in the business plan.”).

742 JX 428 at ‘673; see JX 422 at ‘001 (“Site visit at Amityville and Decatur revealed 

[good manufacturing practice] deficiencies related to premises and equipment, which could 

result in negative outcome of regulator inspections and a mix of gross profit loss and capex 

need amounting to a maximum exposure over $100m. This finding is mitigated via the 

business plan.”).
187

approximately four to five times greater than the combined exposure from both of these 

risks.

As a cross-check, I have considered external sources which, to my mind, might 

suggest how a reasonable buyer would view the situation. First, there is the general 

magnitude of a 20% change. By one common definition, a bear market occurs when stock 

prices fall at least 20% from their peak,743 which suggests a broad cultural sense that this 

level of losses is viewed as material. On a percentage basis, a 20% decline would be the 

second largest single-day drop in the history of Dow Jones Industrial Average, exceeded 

only by Black Monday in 1987, when the market fell by 22.61%.744

Second, there are the levels at which parties renegotiate after one side asserts an 

MAE. One unpublished study found that “[w]hen the target experiences a firm-specific 

 

743 See, e.g., Adrian R. Pagan & Kirill A. Sossounov, A Simple Framework for 

Analysing Bull and Bear Markets, 18 J. Appl. Econ. 23, 30 (2003) (“[M]ost bull markets 

rise more than 20% while a much smaller fraction of bear markets culminate in a fall of 

more than 20%.”); Asger Lunde & Allan Timmermann, Duration Dependence in Stock 

Prices: An Analysis of Bull and Bear Markets, 22 J. Bus. & Econ. Stat. 253, 253–55 (2004)

(discussing definition of bear market where “the stock market switches from a bull state to 

a bear state if stock prices have declined by a certain percentage since their previous (local) 

peak within that bull state” and observing that a 20% decrease “is conventionally used in 

the financial press”); E.S. Browning, Bear Sightings on Wall Street: Is This Really a Bear 

Market, or Some Other Animal?, Wall St. J., Jan. 16, 2001, at C1 (“If a bear market is a 

20% drop from a high—and that is the most common definition—the Nasdaq is in a nasty, 

growling bear.”); John R. Dorfman, If It Looks Like a Bear and Walks Like a Bear, Chances 

Are That the Bear Market Has Arrived, Wall St. J., Sept. 27, 1990, at C1 (chart of “[h]ow 

stocks have performed in bear markets (declines of 20% or more) since 1919”).

744 See Dow Jones Industrial Average All-Time Largest One Day Gains and Losses, 

Wall St. J., http://www.wsj.com/mdc/public/page/2_3024-djia_alltime.html (last visited 

Sept. 19, 2018).
188

MAE, the subsequent renegotiation reduces the price by 15%, on average.”745 The fact that 

acquirers force renegotiations and then reach agreement (on average) at the 15% level 

suggests that an acquirer would regard a drop in value of 20% as material.

Third, there are the ranges that parties generally use for the upper and lower bounds 

of collars in deals involving stock consideration.746 Two academic studies find that parties 

agree, on average, to a lower bound for the collar at a price approximately 10% below the 

initial deal consideration.747 Practitioners observe that the upper and lower bounds for 

collars generally fall within 10% to 20% of the consideration at signing.748 In other words, 

 

745 Antonio J. Macias, Risk Allocation and Flexibility in Acquisitions: The Economic 

Impact of Material-Adverse-Change (MACs) Clauses 27 (Apr. 17, 2009), http:/ssrn.com/ 

abstract=1108792; see also, e.g., JX 641 at ‘595, ‘599 (discussing negotiated 8.9% 

decrease in deal price after Abbott Labs asserted an MAE at Alere). 

746 Collars come in two broad types: (i) a fixed-consideration version in which the 

exchange ratio adjusts between an upper and lower bound to keep the value of the 

consideration constant, but floats above and below the lower bound, and (ii) a floatingconsideration version in which the exchange ratio remains constant between an upper and 

lower bound, thereby allowing the value of the consideration to float, then becomes fixed 

if the value rises above the upper bound or falls below the lower bound. See generally 

Rumberger, supra, § 5:48 (describing collars). For the basic directional inference that I 

seek to draw, the difference between these structures seems unlikely to be material.

747 See Micah S. Officer, The Market Pricing of Implicit Options in Merger Collars, 

79 J. Bus. 115, 128–29 (2006); Kathleen P. Fuller, Why Some Firms Use Collar Offers in 

Mergers, 38 Fin. Rev. 127 (2003). 

748 See Rumberger, supra, § 5:48 (“Typically, the collar is set at plus or minus 10% 

or 20% of acquirer’s stock price at the signing of the acquisition agreement, although the 

upper and lower prices are not always symmetrical.”); Craig M. Wasserman, Dealing With 

Market Risks in Stock-for-Stock Mergers, The M&A Lawyer (LegalWorks), Oct. 1998 

(noting that a collar “is often set at 10% to 15% up and down from the acquiror’s stock 

price at the time the deal is signed”). Wasserman likewise notes that agreements also often 

include walk-away rights that are triggered when the value changes by 15% or 20%, 
189

parties (on average) view a 10% change in value as a material breakpoint that results in the 

deal consideration being handled differently. I recognize that this is a noisy proxy for 

materiality, because parties who use collars typically also include MAE-based termination 

provisions.749 My point is not to argue that one type of provision is a substitute for the 

other, nor to offer any fine-grained opinions about their relative roles in different types of 

deals. The only inference I seek to draw is far more basic: If parties establish a lower bound 

for collars (on average) around 10% below the initial deal consideration and cause the deal 

pricing to change significantly at that point, then this suggests that they view a drop in 

value of 10% as material and would therefore also view a drop of more than 20% as 

material.750

Fourth, there is the magnitude of reverse termination fees. A reverse termination fee 

is an amount the buyer agrees to pay the seller if the buyer cannot or does not complete an 

 

effectively creating an objectively determined MAE. See id.; accord Lou R. Kling et al., 

Summary of Acquisition Agreements, 51 U. Miami L. Rev. 779, 811 (1997) (“At the outer 

limits of the collar (or, alternatively, at other, wider limits), parties may have termination 

rights.”); Officer, supra, at 128 (finding that the median termination right for a collar is 

approximately 20% below the initial deal consideration).

749 See Joel F. Houston and Michael D. Ryngaert, Equity Issuance and Adverse 

Selection: A Direct Test Using Conditional Stock Offers, 52 J. Fin. 197, 203–04 (1997) 

(noting that collar deals virtually always have material adverse change clauses). By the 

same token, in deals where parties negotiate walk rights that are triggered when the deal 

consideration floats outside of the collar, the materiality signal is even stronger.

750 Cf. Micah S. Officer, Collars and Renegotiation in Mergers and Acquisitions, 59

J. Fin. 2719, 2722–23 (2004) (arguing that collars represent a form of ex ante price 

renegotiation based on changes in the relative value of bidder and target).
190

acquisition. In its purest form, the seller’s sole remedy against the buyer is the payment of 

the reverse termination fee. That structure effectively creates an option for the buyer and 

establishes a floor for the loss in value that a buyer needs to contemplate: If the potential 

loss in value exceeds the amount of the termination fee, the buyer can pay the fee and walk 

away.751 A law firm study in 2011 found median reverse termination fees equal to 6.36% 

of transaction value.752 Studies of reverse termination fees during the period leading up to 

the financial crisis found fees hovering at the much lower level of approximately 3%.753

Even more so than collars, reverse termination fees provide a noisy indication of 

materiality because many are tied to contractual conditions, should be priced as options, 

and are frequently used in private equity deals rather than in strategic acquisitions. Taking 

all those distinctions into account, to the extent these amounts provide a rough indication 

of the point where certain buyers have bargained for the right to walk, they suggest a point 

at which transacting parties regard a change in value as material. Given that the amounts 

are far lower than the remediation expense in this case, they suggest that an expense 

amounting to 20% of Akorn’s value would be material to a reasonable acquirer.

 

751 See Steven M. Davidoff, The Failure of Private Equity, 82 S. Cal. L. Rev. 481, 

483, 497–98, 515 (2009).

752 See Matthew D. Cain et al., Broken Promises: The Role of Reputation in Private 

Equity Contracting, 40 J. Corp. L. 565, 593–94 (2015) (citing study).

753 See Brian JM Quinn, Optionality in Merger Agreements, 35 Del. J. Corp. L. 789, 

811 (2010) (3.29%); Elizabeth Nowicki, Reverse Termination Fee Provisions in 

Acquisition Agreements 6 (Jul. 5, 2009), http:/ssrn.com/abstract=1121241 (2.7%).
191

To reiterate, I do not pretend that any of these indicators is directly on point. I have 

considered them as cross-checks when attempting to evaluate my intuitive belief that the 

remediation expense would be material to a reasonable strategic acquirer. In this case, I am 

persuaded that the quantitative aspect of the MAE analysis warrants a finding that the 

regulatory issues would reasonably be expected to result in a Material Adverse Effect.

4. Whether Fresenius Knowingly Accepted The Risk

As it did when arguing against the existence of a General MAE, Akorn contends 

that Fresenius cannot claim that its regulatory issues would be reasonably likely to result 

in a Material Adverse Effect because Akorn knew about the risk of potential issues and 

signed the Merger Agreement anyway. I agree that Fresenius knew broadly about the risk 

of regulatory non-compliance; that is precisely why Fresenius bargained for 

representations on this subject. I do not agree, however, that Fresenius’s general knowledge 

about potential regulatory issues or questions about the extent to which it conducted due 

diligence into these issues means that Fresenius cannot now rely on the representation it 

obtained.

Writing as a Vice Chancellor in Cobalt Operating, LLC v. James Crystal 

Enterprises, LLC, Chief Justice Strine addressed whether a buyer who had reason to be 

concerned about the accuracy of a representation and had the ability to conduct due 

diligence to confirm whether or not it was accurate could nevertheless rely on the
192

representation for purposes of asserting its contractual rights.754 The seller argued that the 

buyer could not have relied on the representation and therefore should not be able to 

recover for breach. The Chief Justice rejected this argument:

[A] breach of contract claim is not dependent on a showing of justifiable 

reliance. That is for a good reason. Due diligence is expensive and parties to 

contracts in the mergers and acquisitions arena often negotiate for contractual 

representations that minimize a buyer’s need to verify every minute aspect 

of a seller’s business. In other words, representations like the ones made in 

[the agreement] serve an important risk allocation function. By obtaining the 

representations it did, [the buyer] placed the risk that [the seller’s] financial 

statements were false and that [the seller] was operating in an illegal manner 

on [the seller]. Its need then, as a practical business matter, to independently 

verify those things was lessened because it had the assurance of legal 

recourse against [the seller] in the event the representations turned out to be 

false. . . . 

[H]aving given the representations it gave, [the seller] cannot now be heard 

to claim that it need not be held to them because [the buyer’s] due diligence 

did not uncover their falsity. . . . Having contractually promised [the buyer] 

that it could rely on certain representations, [the seller] is in no position to 

contend that [the buyer] was unreasonable in relying on [the seller’s] own 

binding words.755

Other Delaware decisions reach the same conclusion.756

 

754 2007 WL 2142926 (Del. Ch. July 20, 2007), aff’d, 945 A.2d 594 (Del. 2008) 

(TABLE).

755 Id. at *28 (footnotes omitted).

756 See Gloucester Hldg. Corp. v. U.S. Tape & Sticky Prods., LLC, 832 A.2d 116, 

127–28 (Del. Ch. 2003) (“Reliance is not an element of a claim for indemnification” for 

“breach of any of the representations or warranties in [the agreement] . . . .”); id. at 127 

(rejecting contention that justifiable reliance was an element of breach of contract as 

“simply incorrect”); Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 548 (Del. 

Super.) (“No such reasonable reliance is required to make a prima facie claim for breach.”), 

aff’d, 886 A.2d 1278 (Del. 2005) (TABLE). See generally Victor P. Goldberg, Protecting 

Reliance, 114 Colum. L. Rev. 1033, 1080 (2014) (“The weight of authority, and practice, 

is with the pro-sandbagging side.”). Commentators often use the term “sandbagging” to 
193

Chief Justice Strine’s analysis in Cobalt comports with how Kling and Nugent 

describe the interaction between the due diligence process and the representations in the 

transaction agreement. As they explain, 

a party may well ask for a specific representation and warranty on a certain 

topic because its investigation of the business being acquired has it convinced 

that such topic is particularly important to that business or has made it aware 

 

refer to the practice of asserting a claim based on a representation despite having had reason 

to suspect it was inaccurate. See, e.g., Charles K. Whitehead, Sandbagging: Default Rules 

and Acquisition Agreements, 36 Del. J. Corp. L. 1081, 1087, 1092–93 (2011) (surveying 

jurisdictions and acquisition agreements; concluding that New York and Delaware are prosandbagging and that very few acquisition agreements have anti-sandbagging clauses).

This is a loaded and pejorative term: It “originates from the 19th century where gang 

members would fill socks full of sand to use as weapons against unsuspecting opponents. 

While at first glance, the socks were seemingly harmless, when used to their full potential 

they became very effective and would inflict substantial damage on a ‘sandbagged’ 

victim.” Stacy A. Shadden, How to Sandbag Your Opponent in the Unsuspecting World of 

High Stakes Acquisitions, 47 Creighton L. Rev. 459, 459 (2014) (footnote omitted). From 

my perspective, the real question is whether the risk allocation in the contract controls, or 

whether a more amorphous and tort-like concept of assumption of risk applies. To my 

mind, the latter risks having cases routinely devolve into fact disputes over what was 

provided or could have been provided in due diligence. The former seems more in keeping 

with Delaware’s contractarian regime, particularly in light of Delaware’s willingness to 

allow parties to restrict themselves to the representations and warranties made in a written 

agreement. See ChyronHego, 2018 WL 3642132, at *4–7; Novipax Hldgs. LLC v. Sealed 

Air Corp., 2017 WL 5713307, at *10–13 (Del. Super. Nov. 28, 2017); IAC Search, LLC v. 

Conversant LLC, 2016 WL 6995363, at *4–8 (Del. Ch. Nov. 30, 2016); Prairie Capital 

III, L.P. v. Double E Hldg. Corp., 132 A.3d 35, 50–51 (Del. Ch. 2015); Anvil Hldg. Corp. 

v. Iron Acq. Co., Inc., 2013 WL 2249655, at *8 (Del. Ch. May 17, 2013); ABRY, 891 A.2d

at 1035–36, 1051–64; Homan v. Turoczy, 2005 WL 2000756, at *17 & n.53 (Del. Ch. Aug. 

12, 2005) (Strine, V.C.); H–M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 142 & n.18

(Del. Ch. 2003); Great Lakes Chem. Corp. v. Pharmacia Corp., 788 A.2d 544, 555–56 

(Del. Ch. 2001). See generally Steven M. Haas, Contracting Around Fraud Under 

Delaware Law, 10 Del. L. Rev. 49 (2008).
194

of a specific problem or concern as to which it wants the added comfort of a 

specific representation.757

The identification of issues in due diligence thus does not simply lead to a binary go/no-go 

decision on the acquisition; it also affects how the parties use representations in the 

transaction agreement to allocate responsibility for those issues.

Suppose the Buyer requests the Seller to represent that the Company being 

sold is not in material breach of any material contracts. The Company may 

in fact be in violation of three material agreements, two of which violations 

the Seller is sure are material and one of which it believes to probably be 

immaterial. What does the Seller do? It modifies the representation to state: 

“Except as set forth on the Disclosure Schedule, the Company is not in 

material breach of any material agreement.” The referenced schedule will 

then list the two or possibly all three of the agreements in question.758

From the seller’s perspective, the representation is now true, and the buyer will not be able 

to claim an inaccuracy that would give the buyer a right not to close or, in a deal with postclosing remedies, a potential right to recover damages.759 But if the parties do not qualify 

the representation, then the party making the representation assumes the risk for a 

deviation.

Again relying on IBP’s statement that a “broadly written” MAE provision “is best 

read as a backstop protecting the acquiror from the occurrence of unknown events,”760

Akorn argues that these principles do not apply when a representation contains an MAE 

 

757 Kling & Nugent, supra, § 1.06, at 1-43. 

758 Id. § 10.02, at 10-3.

759 See id. § 10.02, at 10-3.

760 IBP, 789 A.2d at 68; accord Hexion, 965 A.2d at 738.
195

qualification. Akorn contends that adding an MAE qualification not only introduces a 

measure of variance from a flat representation, but also incorporates a broad carve-out for 

any risks that the buyer may have known about or issues which the buyer identified or 

could have identified through due diligence.

In my view, the analysis of the Regulatory MAE should take into account that the 

Material Address Effect is tied to an issue that the parties have addressed in a 

representation. The existence of the representation evidences the seller’s knowledge of a 

risk, and the representation constitutes an effort by the parties to allocate that risk.761 By 

adding an MAE qualifier, the parties do not change the nature of the representation or its 

risk allocation function; the qualifier instead addresses the degree of deviation from the 

representation that is permissible before the representation would be deemed inaccurate. In 

 

761 See, e.g., Model Merger Agreement, supra, at 27 (“The representations and 

warranties . . . provide a mechanism for allocating between the buyer and the target the risk 

of the occurrence of the events . . . described therein, whether before or (except for 

representations and warranties made as of a specific date) after the signing of the definitive

agreement. Given this potential role of the representations and warranties, in some cases 

the target may be asked to make representations that are not necessarily within the 

knowledge of the target, but are matters that the parties believe present a potential risk that 

should be addressed.”); JX 1239 ¶ 47 (Subramanian) (“The reps & warranties, when 

combined with the bring-down condition, serve an important risk allocation purpose. In 

effect, they provide downside protection on specific aspects of the deal. If those aspects 

are not true at the closing, the buyer has the right to walk away. This can include events 

that are outside the seller’s control. For example, if the target company represents that there 

are no material legal proceedings against the company (beyond what is contained in the 

disclosure schedule), but the target company is sued in a way that triggers a MAC between 

signing and closing, the buyer will have a contractual right to walk away.”).
196

this role, the MAE qualifier stands in for a specific dollar figure, replacing a specified 

amount with an ex post judicial determination based on the facts and circumstances. 

To illustrate the difference, assume that one of the Regulatory Compliance 

Representations was drafted using a dollar figure rather than an MAE qualifier.762 It might 

read as follows:

The Company and its Subsidiaries are and, to the Knowledge of the Company 

since July 1, 2013, have been in compliance with all applicable Laws relating 

to or promulgated by Healthcare Regulatory Authorities, except where 

noncompliance would not, individually or in the aggregate, reasonably be 

expected to result in a loss of more than $10 million.

Assume that at the time of signing, the seller had a data integrity issue that would cost $15 

million to remediate, and the buyer learns of it between signing and closing. The magnitude 

of this issue would render the representation inaccurate. In my view, the buyer should be 

able to pursue any rights it has under the merger agreement based on the inaccuracy of the 

representation. Under the rationale of the Cobalt decision and other Delaware cases, it 

should not matter that the buyer may have had concern about potential regulatory 

compliance issues and likely conducted some degree of due diligence into those issues. 

Indeed, the existence of the representation by itself evidences the fact that the buyer did 

have concerns about potential regulatory compliance issues. What should matter is that the 

parties allocated the risk of any regulatory compliance issues through the representation, 

 

762 See generally Kling & Nugent, supra, § 11.03[1], at 11-21 (discussing 

representations qualified by “the dollar level of an item or problem necessary to result in a 

representation being false”).
197

qualified by a dollar figure so that the representation would only be inaccurate and give 

rise to contractual rights if an issue exceeded the threshold.

To my mind, an MAE qualifier serves the same purpose; it just replaces the specific 

dollar figure with a threshold that turns on facts and circumstances.763 Drafted with an 

MAE qualifier, the same representation might read as follows:

The Company and its Subsidiaries are and, to the Knowledge of the Company 

since July 1, 2013, have been in compliance with all applicable Laws relating 

to or promulgated by Healthcare Regulatory Authorities, except where 

noncompliance would not, individually or in the aggregate, reasonably be 

expected to have a Material Adverse Effect.

From my standpoint, it still should not matter whether or not the buyer had concerns about 

potential regulatory compliance issues (which the representation evidences) or conducted 

some degree of due diligence. The parties allocated the risk of those issues through the 

representation, qualified so that the representation would only be inaccurate if an issue 

arose that was sufficiently serious that it would reasonably be expected to have a Material 

Adverse Effect.764

If parties wish to carve out anything disclosed in due diligence from the scope of a 

representation, then they can do so. If parties wish to carve out specific items or issues 

 

763 Cf. id. § 11.03[1], at 11-21 to -24 (discussing qualification of representations by 

the adjective “material” in lieu of a dollar value; noting that parties may also use the higher 

standard of “having a materially adverse effect on”).

764 Cf. id. § 11.03[2], at 11-25 (noting that with a materiality-qualified 

representation, “the Buyer will have the ability to walk from the transaction”; however, 

“[t]he only difference, which may be of some economical [sic] significance, is that none of 

these rights will be triggered unless there is a ‘material’ problem”).
198

from the scope of a representation, then they can use the common technique of qualifying 

the representation so that it excludes items listed on a corresponding schedule.765 A seller 

could, for example, represent that it was in compliance with all regulatory requirements 

except for those listed on Schedule 3.18(a), and on that schedule identify data integrity 

issues. In this case, the Regulatory Compliance Representations are not qualified by any 

carve-outs or scheduled exceptions, but only by an MAE qualification for purposes of the 

Bring-Down Condition. As Akorn’s counsel candidly conceded during post-trial argument, 

a regime which holds that a buyer cannot assert a breach of an MAE-qualified 

representation if the buyer learned or could have learned about aspects of the risk covered 

 

765 See, e.g., IBP, 789 A.2d at 39–40 (quoting examples of representations qualified 

by scheduled exceptions); Kling & Nugent, supra, § 10.01, at 10-2 (“[T]he disclosure 

schedule serves either to expand, or more commonly, to set forth exceptions to, the various 

representations. . . . Such schedules may affect whether the Buyer is required to close the 

acquisition of the Company as well as its ability to seek indemnification from the Seller 

for problems which may come to light after the closing.”); id. § 11.03[2], at 11-25 (“[I]n a 

large transaction the choice in many instances may be between use of materiality

exceptions and long disclosure schedules containing endless lists of exceptions to the 

representations. In the situation where speed and secrecy are essential, the use of 

materiality qualifiers becomes critical.”) (footnote omitted); id. (“[T]he addition of a 

materiality standard to a representation is not necessarily fatal to any of the three functions 

generally served by representations and warranties portions of the agreement. The due 

diligence role is still performed, albeit to a lesser extent; the Buyer won’t learn about the 

business with the level of detail that would be the case absent the qualification, but it should 

still find out about the serious problems. Similarly, the Buyer will have the ability to walk 

from the transaction as well as enjoy the benefit of any indemnification provisions.”). 

See also, e.g., id. § 11.04[9], at 11-69 (“[A]n acquiror’s pre-signing knowledge 

about trends and possible events, including what is learned in due diligence and disclosed 

on the schedules to the agreement, could diminish its ability to successfully claim that a 

material adverse effect has occurred.”) (discussing IBP). 
199

by the representation during due diligence turns an MAE-qualified representation into the 

functional equivalent of a scheduled representation that schedules everything provided in 

due diligence.766 One could likewise say that Akorn’s argument turns an MAE-qualified 

representation into the functional equivalent of a representation with an expansive 

knowledge-based exception framed in terms of everything the buyer knew or should have 

known. To my mind, that reading is not consistent with the plain language of the Merger 

Agreement.

Assuming for the sake of argument that a buyer who knew about a specific fact that 

rendered a seller’s representation inaccurate should not be permitted to close a transaction 

and then recover damages based on that specific fact, it does not necessarily follow that a 

buyer should be prevented from relying on a representation simply because the buyer knew 

about a risk. It also does not necessarily follow that a buyer should be prevented from 

relying on a representation when exercising a right not to close. As the Chief Justice 

observed in IBP, 

[t]he public policy reasons for denying relief to the buyer [when it seeks 

damages] are arguably much different than are implicated by a decision 

whether to permit a buyer simply to walk away before closing in reliance on 

a specific contractual representation that it had reason to suspect was untrue 

as of the time of signing.767

 

766 Dkt. 220 at 123–28. 

767 IBP, 789 A.2d at 82 n.200. 
200

In this case, Fresenius did not know about the data integrity issues that would reasonably 

be expected to result in a Regulatory MAE. Fresenius obtained and reviewed a redacted 

Form 483 for Decatur, but it identified manufacturing issues, not data integrity concerns.768

During an early pitch meeting in November, where Rai introduced Silverberg to Fresenius 

as Akorn’s head of quality, no one mentioned that Silverberg had overstayed his welcome 

at Akorn and was scheduled to retire in January 2017.769 Akorn did not provide Fresenius 

with its GQC audit reports on data integrity issues or the Cerulean gap assessments. Akorn 

has pointed out that Fresenius did not ask for them, but this also shows that Fresenius did 

not know about these issues.770

During due diligence, Fresenius did identify significant regulatory compliance and 

other business risks at Akorn, including risks related to Akorn’s product launch plan, its 

manufacturing and quality functions, and its ability to comply with FDA serialization 

requirements.771 But Fresenius’s comprehensive risk assessment did not reference data 

 

768 See JX 199; Bauersmith Dep. 217. 

769 Rai Dep. 156–57; see JX 137. 

770 See Ducker Dep. 269 (expressing regret that Fresenius did not request “internal 

and external audit reports” that “might have given us prior knowledge of their data integrity 

problems, because obviously they were well aware of those problems but had chosen not 

to inform us”); see also JX 882. 

771 See JX 422 at ‘000–002 (discussing twelve leading risks uncovered in due 

diligence); JX 428 at ‘673, ‘682, ‘710–14; JX 399 at 8–9; JX 431 (“Red Flag Tax Due 

Diligence Report”); see also JX 412 (“Quality Related Aspects in Due Diligence 

Activities”). Throughout due diligence, Fresenius kept track of “red flag DD findings.” See 

JX 331; JX 401 at 9; see also JX 416 ‘388–408 (final due diligence slide deck addressing 
201

integrity as a risk.

772 The final presentation to the Supervisory Board also did not identify 

risks related to data integrity.773 In any case, many of the events giving rise to the 

Regulatory MAE had not yet occurred at the time of signing. Even with full knowledge of 

the data integrity risks, Fresenius could not have foreseen Silverberg’s false CRL 

submission or Akorn’s misleading presentation to the FDA. Even under Akorn’s view of 

the law, the Merger Agreement allocates these unknowable risks to Akorn. 

In my view, the combination of the Regulatory Compliance Representations and the 

Bring-Down Condition allocated to Akorn the risk that Akorn would suffer a Regulatory 

MAE. Akorn cannot now seek to re-trade that contractual allocation by arguing that 

Fresenius knew or should have known about those risks.

5. The Possibility Of Cure

Section 7.01(c)(i) permits Fresenius to terminate if the failure of a condition

is incapable of being cured or, if capable of being cured by the Outside Date, 

the Company (x) shall not have commenced good faith efforts to cure breach 

or failure to perform within 30 calendar days following receipt by the 

Company of written notice of such breach or failure to perform from 

[Fresenius Kabi] stating [Fresenius Kabi’s] intention to terminate this 

Agreement pursuant to this Section 7.01(c)(i) and the basis for such 

termination . . . . 

 

“Areas of concern”). These files presumably would reference widespread data integrity 

issues if Fresenius knew about them.

772 See Henriksson Tr. 945 (testifying that Fresenius’s observations about quality 

and equipment had “nothing to do with data integrity”). The exception was data integrity 

risk at Akorn’s India site, which Fresenius identified based on a June 2014 FDA inspection. 

JX 331 at ‘680. 

773 See JX 428.
202

Under the plain language of this provision, Section 7.01(c)(i) permits Fresenius to 

terminate if the failure of a condition cannot be cured before the Outside Date.

Section 7.01(b)(i) defines the Outside Date as part of the right that both sides have 

to terminate the Merger Agreement if the closing does not occur before the Outside Date. 

Formatted for greater legibility, the provision states that either side may terminate

if the Effective Time shall not have occurred on or prior to April 24, 2018 

(as such date may be expected pursuant to the immediately succeeding 

proviso, the “Outside Date”);

provided that if on the Outside Date [1] any of the conditions set forth in 

Section 6.01(b) or Section 6.01(a) (to the extent relating to the matters set 

forth in Section 6.01(b)) shall not have been satisfied but [2] all other 

conditions set forth in Article VI shall have been satisfied or waived . . . then 

the Outside Date shall be automatically extended to July 24, 2018 . . .;

provided, further, that if the Outside Date shall have been extended pursuant 

to the preceding proviso and on the extended Outside Date any of the 

conditions set forth in Section 6.01(b) or Section 6.01(a) (to the extent 

relating to the matters set forth in Section 6.01(b)) shall not have been 

satisfied but all other conditions set forth in Article VI shall have been 

satisfied or waived . . ., and [Fresenius Kabi] is then actively engaged in 

actions required to discharge its obligations under the second sentence of 

Section 5.03(c), then [Fresenius Kabi] shall have the right to extend the 

Outside Date to October 24, 2018 . . . . 

Under this provision, the Outside Date starts out as April 24, 2018, can extend 

automatically to July 24, 2018, and can be extended at Fresenius’s option to October 24, 

2018.

As determined in the previous section, Akorn had experienced a General MAE 

before April 24, 2018, so “all other conditions set forth in Article VI” were not “satisfied 

or waived.” Therefore, the Outside Date did not extend beyond April 24. When the Outside 

Date came and went, Akorn was only beginning to attempt to determine what it needed to 
203

do to remediate its data integrity issues. NSF was in the early stages of its investigation. 

PwC was just getting started on its master list of deficiencies.

Even if the Outside Date had extended, Akorn could not have cured its regulatory 

problems in time. The evidence at trial demonstrated that Akorn had pervasive regulatory 

issues that would require years to fix. Akorn’s witnesses coalesced around three years. 

Fresenius posited four years. Accepting Akorn’s estimate, the problems would not be fixed 

until 2021.

Akorn argues that if the breaches were curable in the abstract, then Fresenius had to 

give Akorn notice and an opportunity to cure and could not exercise its termination right 

while Akorn was engaged in good faith efforts to cure. Under Akorn’s interpretation, 

Akorn could hold Fresenius to the Merger Agreement for the four years that Fresenius 

believes it will take to remediate Akorn’s regulatory issues, as long as Akorn is engaged in 

good faith efforts to cure. But that is not what the Merger Agreement says. Section 

7.01(c)(i) only requires notice and gives Akorn an opportunity to cure if the failure of a 

condition is “capable of being cured by the Outside Date.” In this case, Akorn’s breaches 

were not capable of being cured by the Outside Date. Consequently, Fresenius did not have 

to wait to give Akorn an opportunity to cure. Fresenius could terminate immediately.

6. The Finding Regarding The Bring-Down Condition

Fresenius proved that Akorn’s breach of the Regulatory Compliance 

Representations would be reasonably be expected to result in a Regulatory MAE, causing 

the failure of the Bring-Down Condition. In making this showing, Fresenius established 

that Akorn’s regulatory difficulties have such qualitative and quantitative significance that 
204

the effect on Akorn’s business is material when viewed from the longer-term perspective 

of a reasonable acquirer, which is measured in years. Fresenius also showed that Akorn 

could not cure the failure of the Bring-Down Condition by the Outside Date. Because the 

Bring-Down Condition has not been met, Fresenius cannot be forced to close. More 

importantly, Fresenius had the right to terminate the Merger Agreement, provided that 

Fresenius was not then in material breach of its own contractual obligations.

C. The Failure Of The Covenant Compliance Condition

The next question is whether Fresenius validly terminated the Merger Agreement 

under Section 7.01(c)(i) because the Covenant Compliance Condition could not be met. 

The answer to this question turns on whether Akorn incurably breached the Ordinary 

Course Covenant. Yet again, because Fresenius sought to excuse its performance under the 

Merger Agreement, Fresenius bore the burden of proof.774

In addition to providing a termination right based on an incurable failure to comply 

with the Bring-Down Condition, Section 7.01(c)(i) gives Fresenius the right to terminate 

if Akorn incurably breached the Covenant Compliance Condition. Formatted for greater 

legibility, Section 7.01(c)(i) states:

This Agreement may be terminated and the [Merger] abandoned at any time 

prior to the Effective Time (except as otherwise expressly noted), whether 

before or after receipt of the Company Shareholder Approval: . . .

(c) by [Fresenius Kabi]: (i) if the Company shall have . . . failed to 

perform any of its covenants or agreements . . ., which failure to perform 

 

774 See Hexion, 965 A.2d at 739; Frontier Oil, 2005 WL 1039027, at *35; IBP, 789 

A.2d at 53.
205

(A) would give rise to the failure of a condition set forth in . . . 

Section 6.02(b) [the Covenant Compliance Condition] and 

(B) is incapable of being cured . . .;

provided that [Fresenius Kabi] shall not have the right to 

terminate this Agreement pursuant to this Section 7.01(c)(i) if 

[Fresenius Kabi] or Merger Sub is then in material breach of any of 

its representations, warranties, covenants or agreements hereunder . . 

. .

Whether Fresenius had a termination right under this aspect of Section 7.01(c)(i) therefore 

turns on three questions: (i) whether Akorn failed to perform any of its covenants or 

agreements in a manner that would cause the Covenant Compliance Condition to fail, (ii) 

whether the failure could be cured, and (iii) whether Fresenius was otherwise in material 

breach of its obligations under the Merger Agreement. Whether Fresenius breached its 

obligations is the same analysis under both the Covenant Compliance Condition and the 

Bring-Down Condition, so this decision addresses that issue separately.

1. The Operation Of The Covenant Compliance Condition

Formatted for greater legibility, the Covenant Compliance Condition states:

The obligations of [Fresenius Kabi] and Merger Sub to effect the Merger 

shall be subject to the satisfaction (or written waiver by [Fresenius Kabi], if 

permissible under applicable law) on or prior to the Closing Date of the 

following conditions:

* * *

(b) Compliance with Covenants. The Company shall have complied with or 

performed in all material respects its obligations required to be complied with 

or performed by it at or prior to the Effective Time . . . .
206

Notably, the Merger Agreement does not condition closing on an absolute requirement that 

Akorn have complied with or performed all of its obligations. Instead, Akorn need only 

have complied with or performed its obligations “in all material respects.” 

In this case, Fresenius asserts that Akorn failed to comply with the Ordinary Course 

Covenant. Parties include ordinary-course covenants in transaction agreements to add an 

additional level of protection for the buyer beyond the Bring-Down Condition and help 

ensure that “the business [the buyer] is paying for at closing is essentially the same as the 

one it decided to buy at signing . . . .”775 “For a variety of reasons, reliance on the target’s 

representations, as they are brought down to test the condition of closing that the 

representations remain substantially true and correct on the closing date, will not provide 

the buyer adequate assurance as to the target’s maintenance of its business.”776 “Most 

importantly, representations do not provide a remedy with respect to conduct during the 

 

775 Kling & Nugent, supra, § 13.03, at 13-19; see Model Stock Purchase Agreement, 

supra, at 202 (“Generally, a buyer has an interest in assuring that the business of the target 

will be substantially the same as closing as it was on the date the purchase agreement was 

signed.”); see also JX 1239 ¶¶ 39, 41 (Professor Subramanian explaining that an ordinarycourse covenant seeks “to mitigate or eliminate the moral hazard problem that exists for 

the target’s management between the signing and the closing of the deal,” which “involves 

the incentive for the seller to act opportunistically between signing and closing, because if 

the deal closes the cost of this opportunistic behavior will be borne by the buyer, who does 

not yet have control over the target’s assets”).

776 Model Merger Agreement, supra, at 120. 
207

interim period between signing and closing. If the target does not remain appropriately 

motivated to close, reliance on the bring-down condition would be ineffective.”777

In this case, the Ordinary Course Covenant consists of a broad affirmative covenant 

and sixteen categories of prohibited acts. Section 5.01(a) sets out the broad affirmative 

covenant. Formatted for legibility, it states: 

(a) Except as required by applicable Law, Judgment or a Governmental 

Authority, as expressly contemplated, required or permitted by this 

Agreement or as set forth in Section 5.01 of the Company Disclosure Letter, 

during the period from the date of this Agreement until the Effective Time 

(or such earlier date on which this Agreement is terminated pursuant to 

Section 7.01), unless [Fresenius Kabi] otherwise consents in writing (such 

consent not to be unreasonably withheld, delayed or conditioned), 

(i) the Company shall, and shall cause each of its Subsidiaries to, use 

its and their commercially reasonable efforts to carry on its business in all 

material respects in the ordinary course of business, and 

(ii) to the extent consistent with the foregoing, the Company shall, and 

shall cause its Subsidiaries to, use its and their commercially reasonable 

efforts to preserve its and each of its Subsidiaries’ business organizations 

(including the services of key employees) substantially intact and preserve 

existing relations with key customers, suppliers and other Persons with 

whom the Company or its Subsidiaries have significant business 

relationships substantially intact, in each case, substantially consistent with 

past practice; 

provided that no action by the Company or any of its Subsidiaries with 

respect to matters specifically addressed by Section 5.01(b) shall be deemed 

to be a breach of this Section 5.01(a) unless such action would constitute a 

breach of Section 5.01(b).778

 

777 Id. 

778 JX 1 § 5.01(a). 
208

Two aspects of the Ordinary Course Covenant jump out. First, the Ordinary Course 

Covenant contains the same type of materiality qualification found in the Covenant 

Compliance Condition: Akorn need not carry on its business in the ordinary course in every 

respect, only “in all material respects.” Second, Akorn did not promise to maintain 

compliance with the Ordinary Course Covenant. It only committed to use “commercially 

reasonable efforts” to try to maintain compliance.

a. “In All Material Respects”

For starters, both the Covenant Compliance Condition and the Ordinary Course 

Covenant require compliance “in all material respects.” The parties debate the meaning of 

this term. 

Akorn argues that this phrase adopts the common law doctrine of material breach, 

under which “[a] party is excused from performance under a contract if the other party is 

in material breach thereof.”779 As a matter of common law, “[a] breach is material if it goes 

to the root or essence of the agreement between the parties, or touches the fundamental 

purpose of the contract and defeats the object of the parties in entering into the contract.”780

Under this doctrine, whether a breach is material “is determined by weighing the 

consequences in the light of the actual custom of men in the performance of contracts 

 

779 BioLife Sols., Inc. v. Endocare, Inc., 838 A.2d 268, 278 (Del. Ch. 2003).

780 Mrs. Fields Brand, Inc. v. Interbake Foods LLC, 2017 WL 2729860, at *28 (Del. 

Ch. June 26, 2017) (internal quotation marks omitted), clarified on denial of reargument 

2017 WL 3863893 (Del. Ch. July 27, 2017). 
209

similar to the one that is involved in the specific case.”

781 The Restatement (Second) of 

Contracts provides five guiding factors: (i) “the extent to which the injured party will be 

deprived of the benefit which he reasonably expected,” (ii) “the extent to which the injured 

party can be adequately compensated for the part of that benefit of which he will be 

deprived,” (iii) “the extent to which the party failing to perform or to offer to perform will 

suffer forfeiture,” (iv) “the likelihood that the party failing to perform or to offer to perform 

will cure his failure, taking account of all the circumstances including any reasonable 

assurances,” and (v) “the extent to which the behavior of the party failing to perform or to 

offer to perform comports with standards of good faith and fair dealing.”

782

“[N]onperformance will attain this level of materiality . . . when the covenant not 

performed is of such importance that the contract would not have been made without it.”783

Treatises on M&A agreements suggest a different purpose for including the phrase 

“in all material respects.” Drafters use this language to eliminate the possibility that an 

immaterial issue could enable a party to claim breach or the failure of a condition.

784 The 

 

781 BioLife Sols., 838 A.2d at 278 (internal quotation marks omitted); accord 23 

Williston on Contracts § 63:3 (4th ed. 2003). 

782 Restatement (Second) of Contracts § 241 (Am. Law Inst. 1981). “Courts in 

Delaware look to Section 241 of the Restatement (Second) of Contracts for guidance 

regarding materiality of a breach.” Medicalgorithmics S.A. v. AMI Monitoring, Inc., 2016 

WL 4401038, at *24 (Del. Ch. Aug. 18, 2016).

783 14 Williston on Contracts § 43:6 (4th ed. 2003) (footnotes omitted).

784 See Kling & Nugent, supra, § 14.02[3], at 14-12 (“[T]here are clearly 

representations where a minor mistake should not give the other party a walk-right.”); id.

§ 14.02[7], at 14-17 (contrasting compliance “in all material respects” with “absolute 
210

language seeks to exclude small, de minimis, and nitpicky issues that should not derail an 

acquisition. Consistent with this interpretation, the Restatement (Second) of Contracts 

recognizes that parties can depart from the common law doctrine of material breach, under 

which only a material breach excuses performance, by including express conditions to a 

party’s performance in the agreement.785 The Covenant Compliance Condition is one of 

those conditions. As Kling and Nugent observe, “It is precisely to avoid these types of 

 

compliance”); Contract Drafting, supra, at 213 (“An important drafting tool is the adjective 

material, as in Widgetco is not a party to any material litigation. Drafters use it, and the 

adjective materially . . . to narrow an otherwise overly broad provision so it covers only 

what really matters.”).

785 See Restatement (Second) of Contracts § 241 cmt. a (Am. Law Inst. 1981) 

(discussing the “the situation where the parties have, by their agreement, made an event a 

condition”); id. § 226 (“An event may be made a condition either by the agreement of the 

parties or by a term supplied by the court.”); id. § 241 cmt. a (“A determination that a 

failure is not material means only that it does not have the effect of the non-occurrence of 

a condition under §§ 237 and 238.”); id. § 237 cmt. a (“[A] material failure of performance, 

including defective performance as well as an absence of performance, operates as the nonoccurrence of a condition.”); see, e.g., Williams Cos. v. Energy Transfer Equity, L.P., 159 

A.3d 264, 273 (Del. 2017) (analyzing whether breach of a covenant “materially 

contribute[d] to the failure of [a] closing condition”); Sarissa Capital Domestic Fund LP 

v. Innoviva, Inc., 2017 WL 6209597, at *24 n.263 (Del. Ch. Dec. 8, 2017) (“Th[e] 

distinction between ‘condition precedent’ and ‘covenant’ is significant . . . . The press 

release as a ‘condition precedent’ would allow Innoviva to walk away from the settlement 

if Sarissa failed to perform; the press release as ‘covenant’ would allow Innoviva to sue for 

breach of contract if Sarissa failed to perform. Non-performance of the ‘covenant,’

however, would not provide a basis for Innoviva to walk away from the deal (unless, of 

course, Sarissa committed a material breach of the press release term after the parties 

engaged in good faith negotiations of the press release language).”) (citation omitted). See 

generally 2 Farnsworth on Contracts § 8.2, at 415 (3d ed. 2004) (“Although a condition is 

usually an event of significance to the obligor, this need not be the case. In exercising their 

freedom of contract the parties are not fettered by any test of materiality or reasonableness. 

If they agree, they can make even an apparently insignificant event a condition.”).
211

issues [viz., arguments over the common law doctrine of material breach] that parties 

carefully draft acquisition agreements (although the condition is typically qualified by 

materiality), and provide for a ‘bring down’ condition, including as it relates to covenants 

in the acquisition agreement.”786

Based on these authorities, the plain meaning of “in all material respects” in the 

Covenant Compliance Condition and the Ordinary Course Covenant calls for a standard 

that is different and less onerous than the common law doctrine of material breach. Relying 

on Frontier Oil, Fresenius argues that the phrase “in all material respects” requires only a

“substantial likelihood that the . . . fact [of breach] would have been viewed by the 

reasonable investor as having significantly altered the ‘total mix’ of information.”

787 This 

test builds on the standard for materiality under disclosure law. Despite the oddity of 

relying on a disclosure-based standard to evaluate contractual compliance, the Frontier Oil 

test (as conceived by Fresenius) fairly captures what I believe the “in all material respects” 

 

786 Kling & Nugent, supra, § 14.01, at 14-3 n.3; see Cooper Tire & Rubber Co. v. 

Apollo (Mauritius) Hldgs. Pvt. Ltd., 2014 WL 5654305, at *13–17 (Del. Ch. Oct. 31, 2014) 

(analyzing whether party had complied “in all material respects” with a contractual 

covenant; the court did not cite the common law doctrine of material breach); Model Stock 

Purchase Agreement, supra, at 253 (discussing condition for covenant compliance and 

finding that “if Sellers breach any of their pre-closing covenants in a material respect, 

Buyer will have a ‘walk right’ in addition to its right to sue and recover damages from 

Sellers because of the breach”).

787 See Frontier Oil, 2005 WL 1039027, at *38 (quoting TSC Indus., Inc. v. 

Northway, Inc., 426 U.S. 438, 449 (1976)); see also Contract Drafting, supra, at 213 (“In 

an M&A context, and from the buyer’s perspective, this meaning of material refers to 

information that would have caused the buyer not to enter into the agreement or would 

cause the buyer not to want to close the transaction.”).
212

language seeks to achieve. It strives to limit the operation of the Covenant Compliance 

Condition and the Ordinary Course Covenant to issues that are significant in the context of 

the parties’ contract, even if the breaches are not severe enough to excuse a counterparty’s 

performance under a common law analysis.

It bears noting when analyzing the Covenant Compliance Condition that the 

presence of the “in all material respects” qualifier in both the condition and the underlying 

covenant results in two levels of materiality. To my mind, the double-materiality standard 

simply emphasizes that the breach of the Ordinary Course Covenant cannot be immaterial. 

It has to matter both as a departure from a generic pharmaceutical company’s operations 

in the ordinary course of business and as a deviation from the buyer’s reasonable 

expectations regarding what it would receive at closing.

b. “Commercially Reasonable Efforts”

The other key qualifier in the Ordinary Course Covenant—“commercially 

reasonable efforts”—is an example of an efforts clause. Clauses of this type mitigate the 

rule of strict liability for contractual non-performance that otherwise governs. Generally 

speaking, “[i]f a party agrees to do something, he must do it or be liable for resulting 

damages” (or potentially be subject to an order compelling specific performance).788 At 

times, however, a party’s ability to perform its obligations depends on others or may be 

 

788 Kling & Nugent, supra, § 13.06, at 13-44.
213

hindered by events beyond the party’s control.

789 In those situations, drafters commonly 

add an efforts clause to define the level of effort that the party must deploy to attempt to 

achieve the outcome.790 The language specifies how hard the parties have to try. “In 

acquisition transactions, the parties will generally bind themselves to achieve specified 

results with respect to activities that are within their control . . . and reserve [an efforts] 

standard for things outside of their control or those dependent upon the actions of third 

parties.”791

Deal practitioners have a general sense of a hierarchy of efforts clauses.792 The ABA 

Committee on Mergers and Acquisitions has ascribed the following meanings to 

commonly used standards:

 Best efforts: the highest standard, requiring a party to do essentially 

everything in its power to fulfill its obligation (for example, by 

expending significant amounts or management time to obtain 

consents). 

 Reasonable best efforts: somewhat lesser standard, but still may 

require substantial efforts from a party.

 

789 See Model Stock Purchase Agreement, supra, at 212 (“An absolute duty to 

perform covenants or similar obligations relating to future actions will often be 

inappropriate or otherwise not acceptable to one or more parties to the agreement, as, for 

instance, when a party’s ability to perform depends upon events or third-party acts beyond 

that party’s control. In such circumstances, parties typically insert ‘efforts’ provisions.”). 

790 See id. at 212 (“‘Efforts’ clauses are commonly used to qualify the level of effort 

required in order to satisfy an applicable covenant or obligation.”).

791 Kling & Nugent, supra, § 13.06, at 13-44.

792 See id. § 13.06, at 13-46 to -47; Model Stock Purchase Agreement, supra, at 212. 
214

 Reasonable efforts: still weaker standard, not requiring any action 

beyond what is typical under the circumstances.

 Commercially reasonable efforts: not requiring a party to take any 

action that would be commercially detrimental, including the 

expenditure of material unanticipated amounts or management time. 

 Good faith efforts: the lowest standard, which requires honesty in fact 

and the observance of reasonable commercial standards of fair 

dealing. Good faith efforts are implied as a matter of law.793

Kling and Nugent “believe that most practitioners treat ‘reasonable efforts,’ ‘commercially 

reasonable efforts’ and ‘reasonable best efforts’ as all different from and as imposing less 

of an obligation than, ‘best efforts.’”794 They also observe that “‘reasonable best efforts’ 

sounds as if it imposes more of an obligation than ‘commercially reasonable efforts.’”795

Commentators who have surveyed the case law find little support for the distinctions 

that transactional lawyers draw.796 Consistent with this view, in Williams Companies v. 

 

793 Model Stock Purchase Agreement, supra, at 212 (citation omitted); see Ryan A. 

Salem, Comment, An Effort to Untangle Efforts Standards Under Delaware Law, 122 Penn 

St. L. Rev. 793, 800 (2018) (identifying five commonly used standards: good faith efforts, 

reasonable efforts, best efforts, commercially reasonable efforts, and diligent efforts). 

794 Kling & Nugent, supra, § 13.06, at 13-46 to -47 (footnote omitted); see Contract 

Drafting, supra, at 195 (“Anecdotal evidence suggests that many who work with contracts 

believe that best efforts obligations are more onerous than reasonable efforts obligations. 

The distinction is often expressed like this: reasonable efforts requires only what is 

reasonable in the context, whereas best efforts requires that you do everything you can to 

comply with the obligation, even if you bankrupt yourself.”).

795 Kling & Nugent, supra, § 13.06, at 13-47. 

796 See Kling & Nugent, supra, § 13.06, at 13-44 to -49 & nn.2–9, 11 (collecting 

cases); Contract Drafting, supra, at 193 (observing that “[t]here’s widespread confusion 

over phrases using the word efforts”; recommending that drafters use a single standard of 

“reasonable efforts”); Salem, supra, at 800–21 (surveying case law; recommending that 

Delaware resolve the ambiguity created by different efforts standards by adopting a single 

standard of “reasonable efforts”); Zachary Miller, Note, Best Efforts?: Differing Judicial 
215

Energy Transfer Equity, L.P., the Delaware Supreme Court interpreted a transaction 

agreement that used both “commercially reasonable efforts” and “reasonable best efforts.” 

Referring to both provisions, the high court stated that “covenants like the ones involved 

here impose obligations to take all reasonable steps to solve problems and consummate the 

transaction.”

797 The high court did not distinguish between the two. While serving as a 

member of this court, Chief Justice Strine similarly observed that even a “best efforts” 

obligation “is implicitly qualified by a reasonableness test—it cannot mean everything 

possible under the sun.”798 Another Court of Chancery decision—Hexion—also framed a 

buyer’s obligation to use its “reasonable best efforts” to obtain financing in terms of 

commercial reasonableness: “[T]o the extent that an act was both commercially reasonable

 

Interpretations of a Familiar Term, 48 Ariz. L. Rev. 615, 615 (2006) (“The judicial 

landscape is littered with conflicting interpretations of efforts clauses”); see also Kenneth 

A. Adams, Understanding “Best Efforts” And Its Variants (Including Drafting 

Recommendations), 50 Prac. Law., Aug. 2004, at 11, 18–20 (arguing that courts should 

only apply a single standard of “reasonable efforts”); 2 Farnsworth on Contracts § 7.17c,

at 405 n.13 (3d ed. 2004) (“The terms ‘best efforts’ and ‘reasonable efforts’ are generally 

used interchangeably, although sometimes it is suggested that ‘best’ is more demanding 

than ‘reasonable.’”).

797 159 A.3d at 272. In a dissenting opinion, Chief Justice Strine maintained a 

distinction between “best efforts” and “commercially reasonable efforts,” describing the 

former as one that “can potentially lead to the party making the promise having to take 

extreme measures to fulfill it” and the latter as “a strong, but slightly more limited, 

alternative[.]” 159 A.3d at 276 & n.45 (Strine, C.J., dissenting).

798 Alliance Data Sys., 963 A.2d at 763 n.60 (quoting Coady Corp. v. Toyota Motor 

Distribs., Inc., 361 F.3d 50, 59 (1st Cir. 2004)).
216

and advisable to enhance the likelihood of consummation of the financing, the onus was 

on Hexion to take that act.”

799

2. Akorn’s Failure To Use Commercially Reasonable Efforts To 

Operate In The Ordinary Course Of Business

Under the Merger Agreement, Akorn was obligated to use commercially reasonable 

efforts to operate in the ordinary course of business in all material respects. As interpreted 

by the Delaware Supreme Court in Williams, this standard required that Akorn “take all 

reasonable steps” to maintain its operations in the ordinary course of business.800 The 

record establishes that Akorn breached that obligation in multiple ways.

First, a generic pharmaceutical company operating in the ordinary course of 

business is obligated to conduct regular audits and to take steps to remediate deficiencies. 

As discussed at length in the Factual Background, Akorn departed from this aspect of 

ordinary course operations after the Merger Agreement was signed by cancelling regular 

audits at four sites in favor of verification audits that would not look for additional 

deficiencies. Fresenius also cancelled Cerulean’s assessment of Amityville and never 

completed Cerulean’s inspection of Somerset, even though Akorn had planned for both to 

take place before the Merger Agreement was signed. Akorn personnel stated that these 

changes were made because of the Merger. Fresenius did not consent to these changes. 

 

799 Hexion, 965 A.2d at 749. 

800 159 A.3d at 272. 
217

Second, a generic pharmaceutical company operating in the ordinary course of 

business is obligated to maintain a data integrity system that enables the company to prove 

to the FDA that the data underlying its regulatory filings and product sales is accurate and 

complete. As discussed at length in the Factual Background, Akorn did not do this. Despite 

receiving the results of its internal GQC audits and the Cerulean assessments, Akorn senior 

management instructed its IT department not to devote any resources to data integrity 

projects. Akorn did not begin to address its data integrity issues until March 2018, just one 

month before Fresenius terminated the Merger Agreement.801

Third, a generic pharmaceutical company operating in the ordinary course of 

business does not submit regulatory filings to the FDA based on fabricated data. As 

discussed at length in the Factual Background, Akorn departed from this aspect of ordinary 

course operations in August 2017 when Silverberg submitted the CRL for azithromycin 

that relied on fabricated data. The evidentiary record convinces me that Silverberg knew 

that the CRL relied on fabricated data and submitted it anyway because the only alternative 

would have been to withdraw the ANDA and start an investigation. That would have been 

a red flag for Fresenius. As Akorn’s expert recognized, one of the purposes of an ordinary-

 

801 See JX 1077 at ‘065–66; Wasserkrug Tr. 141–54.
218

course covenant is to constrain the moral hazard problem that can lead to misconduct like 

Silverberg’s.802

Akorn also failed to act in the ordinary course of business when Fresenius provided 

Akorn with the whistleblower letters. As an Akorn director with FDA expertise recognized, 

Akorn should have conducted a “responsive and credible” investigation using counsel with 

experience in regulatory matters.803 Akorn chose not to conduct an investigation of its own. 

Instead, Akorn decided to have its deal counsel, Cravath, front run the investigation that 

Fresenius intended to conduct and head off any problems that Fresenius otherwise might 

uncover. As discussed in the Factual Background, Akorn did not make this decision 

because Fresenius somehow directed Akorn not to investigate, but rather because Akorn 

feared a broad investigation of its own would uncover widespread problems.

Unfortunately for Akorn, it became clear when Cravath spoke with employees at 

the Somerset site that Sidley would quickly uncover Silverberg’s fraud. At that point, 

Cravath began investigating, but Akorn’s desire to tamp down that problem and prevent 

the issue from derailing the Merger led to non-ordinary-course efforts at damage control. 

These efforts included discounting the import of Silverberg’s efforts to coordinate his story 

with Sherwani and destroy any evidence of their coordination, which failed only because 

 

802 See generally JX 1239 ¶¶ 39–42 (Subramanian) (“[T]he ordinary course 

covenant focuses on the conduct (actions) of the seller’s managers and prohibits 

opportunistic behavior by those managers.”). 

803 JX 761.
219

Sherwani refused to go along. They also included making a misleading presentation to the 

FDA. Even Akorn’s expert witness agreed that Akorn was “not fully transparent” during 

the meeting on March 16, 2018.804

Only after Akorn decided to try to get ahead of its problems by meeting with the 

FDA about the azithromycin incident did Akorn start acting like a generic pharmaceutical 

company operating in the ordinary course of business. At that point, Akorn retained expert 

regulatory counsel (Ropes & Gray) and hired a consultant (NSF) to evaluate its data 

integrity. After the meeting with the FDA, NSF conducted data integrity audits at five of 

Akorn’s sites (excluding Somerset), reviewed ANDAs from Somerset, and reviewed a 

sampling of batch records. NSF uncovered a slew of major deficiencies and two critical 

findings involving the submission of inaccurate data to the FDA. 

When making decisions about not remediating deficiencies, not continuing its audit 

program, not maintaining its data integrity system, and not conducting investigations, 

Akorn chose consciously to depart from the ordinary course of business that a generic 

pharmaceutical company would follow.805 As a result, Akorn did not use commercially 

reasonable efforts to operate in the ordinary course. By contrast, the record does not permit 

a similar finding with respect to the destruction of Akorn’s database for a high accuracy 

 

804 Kaufman Tr. 377–78.

805 See Rai Tr. 525 (‘Q. Okay. And one of the things you knew that Akorn had to 

do, and in the ordinary course of business on that stand-alone basis after the acquisition 

agreement was signed, was to both investigate and remediate data integrity problems; 

correct? A. Correct.”); accord Kaufman Tr. 371. 
220

liquid particle counter along with the local backup file and the associated electronic 

security logs. That was not an ordinary course of business event, but it is one where the 

“commercially reasonable efforts” modifier prevents a finding of breach. The destruction 

of these files was an unexpected event outside of Akorn’s control, which is the 

paradigmatic situation where an efforts clause comes into play. It is possible that by failing 

to maintain its data integrity systems, Akorn created the conditions under which the 

destruction of the files could occur, but the evidence in this case is not sufficient to support 

a finding to that effect.

3. Akorn’s Failure To Use Commercially Reasonable Efforts Was

Material.

Using the standard of materiality discussed above, Akorn’s breaches of the Ordinary 

Course Covenant were material. In the context of the Merger Agreement, the breaches of 

the Ordinary Course Covenant departed from what Fresenius could reasonably expect and 

changed the calculus of the acquisition for purposes of closing.

Akorn’s ordinary course violations after signing cost Akorn a year of what could 

have been meaningful remediation efforts. After receiving reports about data integrity 

issues from the GQC team during 2016, followed by Cerulean’s damning assessment of 

Decatur in December 2016, Akorn should have prioritized the remediation of its data 

integrity systems. Accepting for purposes of analysis that Akorn’s contractual obligation 

to Fresenius only began in April 2017, Akorn’s failure to remediate from that point on cost 

Akorn a full year. Based on Akorn’s own estimates that remediation would take three years, 

Akorn could have completed one-third of its efforts. If Akorn had embarked on the steps 
221

that Fresenius contends are necessary, then Akorn would have verified its IT and testing 

systems, retrained existing employees, hired new R&D employees, taken major steps 

towards introducing a culture of compliance, and begun validating the data for its principal 

products.

Instead, Akorn made its regulatory situation immeasurably worse when its head of 

quality submitted fraudulent data to the FDA in August 2017. Akorn then complicated 

matters further by failing to be fully transparent with the FDA in March 2018 and instead 

providing a misleading presentation to the agency.

As shown by the inclusion of the Regulatory Compliance Representations in the 

Merger Agreement, whether Akorn complied with its obligations to the FDA was an 

important issue for the parties. While the combination of the Regulatory Compliance 

Representations and the Bring-Down Condition gave Fresenius some protection on this 

issue, the Merger Agreement also required that Akorn use commercially reasonable efforts 

to continue to engage in regulatory compliance activities between signing and closing. By 

using the phrase “in all material respects” in the Ordinary Course Covenant and the 

Covenant Compliance Condition, the parties adopted a lower standard for those provisions 

than the Regulatory MAE standard built into the Bring-Down Condition. As a result, 

Fresenius could refuse to close if Akorn did not continue to operate in the ordinary course 

of business with respect to regulatory compliance and the deviation from ordinary course 

practice was significant. That was the case here, resulting in a breach of the Ordinary 

Course Covenant.
222

Akorn’s breach of the Ordinary Course Covenant was also sufficiently significant 

to implicate the Covenant Compliance Condition. The record convinces me that Fresenius 

would not have agreed to buy Akorn if Fresenius understood that Akorn would not be 

continuing to conduct full audits at all of its facilities, would not be addressing any of its 

data integrity issues, and would be providing fabricated data to the FDA. Akorn is a generic 

pharmaceutical company, so compliance with FDA regulations is essential. The parties 

knew that closing the Merger could take an extended period of time, which is why the 

Outside Date was originally set for a year after signing and would extend automatically for 

another three months if the only impediment remaining was antitrust clearance. No 

reasonable acquirer would have agreed that during this lengthy period, Akorn could stop 

engaging in ordinary-course activities relating to quality compliance and data integrity, 

much less that Akorn could trigger a major incident with the FDA by making a submission 

that relied on fabricated data.

4. Whether The Covenant Breach Was Curable

As previously discussed, Section 7.01(c)(i) permits Fresenius to terminate if the 

failure of a condition is incapable of being cured by the Outside Date. As this decision has 

already held, the Outside Date remained April 24, 2018; it did not automatically extend to 

July 24.

As of April 24, 2018, Akorn had finally started trying to remediate its data integrity 

problems, but it was in the early stages of this effort and trying to get a handle on the many 

data integrity deficiencies that dated back years. Akorn had not become transparent with 
223

the FDA. NSF was in the early stages of its investigation. Akorn could not have cured its 

covenant breach by April 24. 

Once again, even if the Outside Date had extended, Akorn could not have cured its 

regulatory problems in time. Akorn estimated it would take three years, well beyond what 

the Merger Agreement contemplated.

5. The Finding Regarding The Covenant Compliance Condition

Fresenius proved that Akorn failed to use commercially reasonable efforts to operate 

in the ordinary course of business in all material respects, resulting in a breach of the 

Ordinary Course Covenant. This breach was material and could not be cured by the Outside 

Date, causing the Covenant Compliance Condition to fail. Because the Covenant 

Compliance Condition has not been met, Fresenius cannot be forced to close. More 

importantly, Fresenius had the right to terminate the Merger Agreement, provided that 

Fresenius was not then in material breach of its own contractual obligations.

D. Has Fresenius Breached?

The final issue is whether Fresenius was barred from exercising its termination right 

because of its own material breaches of the Merger Agreement. Section 7.01(c)(i) contains 

a proviso which states that Fresenius cannot exercise its right to terminate “if [Fresenius] 

is then in material breach of any of its representations, warranties, covenants or agreements 

hereunder.” Akorn contends that Fresenius could not terminate the Merger Agreement 

because it breached both the Reasonable Best Efforts Covenant and the Hell-or-HighWater Covenant. Akorn bore the burden of proof on these issues because Akorn sought to 
224

invoke an exception to Fresenius’s termination right.806 The evidence shows that Fresenius 

did not breach the Reasonable Best Efforts Covenant. The evidence shows that Fresenius 

breached the Hell-or-High-Water Covenant, but that the breach was not material.

1. The Reasonable Best Efforts Covenant 

In the Reasonable Best Efforts Covenant, each party to the Merger Agreement 

agreed to “cooperate with the other parties and use . . . their respective reasonable best 

efforts to promptly . . . take . . . all actions . . . necessary, proper or advisable to cause the 

conditions to Closing to be satisfied as promptly as reasonably practicable and to 

consummate and make effective, in the most expeditious manner reasonably practicable, 

the [Merger].”807 Under the Delaware Supreme Court’s decision in Williams, the 

“reasonable best efforts” standard in this provision imposed an obligation on Fresenius “to 

take all reasonable steps to solve problems and consummate the transaction.”

808

Importantly from my perspective, the parties agreed in the Reasonable Best Efforts 

Covenant to seek “to consummate and make effective” the transaction that they had agreed 

to in the Merger Agreement on the terms set forth in that contract. They were not 

committing themselves to merge at all costs and on any terms. Instead, they were 

 

806 See 29 Am. Jur. 2d Evidence § 176 (“A party seeking to take advantage of an 

exception to a contract is charged with the burden of proving facts necessary to come within 

the exception.”); Hollinger, 844 A.2d at 1070 (“Black bears the burden to establish that 

this contractual exception applies.”). 

807 JX 1 § 5.03(a).

808 159 A.3d at 272. 
225

committing themselves to fulfill the contract they had signed, which contained 

representations that formed the basis for the transaction, established conditions to the 

parties’ performance, and gave both sides rights to terminate under specified 

circumstances. As I see it, the Reasonable Best Efforts Covenant did not require either side 

of the deal to sacrifice its own contractual rights for the benefit of its counterparty. The 

concept of acting for the benefit of another is a fiduciary standard, not a contractual one.

When evaluating whether a merger partner has used reasonable best efforts, this 

court has looked to whether the party subject to the clause (i) had reasonable grounds to 

take the action it did and (ii) sought to address problems with its counterparty. In Hexion 

and IBP, this court criticized parties who did not raise their concerns before filing suit, did 

not work with their counterparties, and appeared to have manufactured issues solely for 

purposes of litigation.809 Kling and Nugent offer the following insightful commentary on 

IBP:

 

809 See Hexion, 965 A.2d at 725 (“[P]erhaps realizing that the MAE argument was 

not strong, Apollo and its counsel began focusing on insolvency.”); id. at 726 (criticizing 

reliance on solvency opinion generated by consultants who “knew that their client had 

litigation on its mind and still based their opinion their opinion on the same biased numbers 

as the consulting team”); id. at 730 (criticizing solvency expert for not talking to seller’s 

executives); id. (criticizing buyer for making “the deliberate decision not to consult with 

[the seller] regarding the [solvency] analysis prior to filing the lawsuit”); IBP, 789 A.2d at 

49 (“In an internal e-mail, Gottsponer explained Tyson’s renegotiation strategy: . . . ‘To 

keep the pressure on their stock price. Based on the voice mails that have been left for me 

(those seven) the street views these restatements as insignificant. We know these 

accounting issues aren’t the biggest reason to renegotiate (i.e. beef margins). Lets remind 

people of that (softly). To set the stage for other points that may help us to renegotiate.’”); 

id. at 49 (“Don Tyson returned to the meeting and announced that Tyson should find a way 

to withdraw. The problems at DFG apparently played no part in his decision, nor did the 

comments from the SEC. Indeed, DFG was so unimportant that neither John nor Don 
226

One gets the impression that Vice Chancellor Strine thought that Tyson itself 

did not believe there had been a material adverse effect, but, was, instead, 

suffering “buyer’s remorse.” Among the facts that supported this result were 

that Tyson’s bankers still thought the deal was fair to it with “tremendous 

strategic sense” and represented “great long term value.” In addition, Tyson 

did not even raise the material adverse effect claims in its correspondence 

with IBP, its announced reasons for terminating the merger agreement or, 

indeed, until the litigation started.810

The Hexion court similarly noted that the buyer “made the deliberate decision not to consult 

with [the seller] . . . prior to filing [its] lawsuit.”811

 

Tyson knew about Schedule 5.11 of the Agreement until this litigation was underway.”) 

(footnote omitted); id. at 51 (“Notably, the [termination] letter does not indicate that IBP 

had suffered a Material Adverse Effect as a result of its first-quarter performance.”); id. at 

65 (“[I]t is useful to be mindful that Tyson’s publicly expressed reasons for terminating the 

Merger did not include an assertion that IBP had suffered a Material Adverse Effect. The 

post-hoc nature of Tyson’s arguments bear on what it felt the contract meant when 

contracting, and suggests that a short-term drop in IBP’s performance would not be 

sufficient to cause a MAE.”); id. at 70 (“Even after Hankins generated extremely 

pessimistic projections for IBP in order to justify a lower deal price, Merrill Lynch still 

concluded that a purchase of IBP at $30 per share was still within the range of fairness and 

a great long-term value for Tyson. The Merrill Lynch analysis casts great doubt on Tyson’s 

assertion that IBP has suffered a Material Adverse Effect.”); id. at 71 (“[T]he analyst views 

support the conclusion that IBP remains what the baseline evidence suggests it was—a 

consistently but erratically profitable company struggling to implement a strategy that will 

reduce the cyclicality of its earnings. Although IBP may not be performing as well as it 

and Tyson had hoped, IBP’s business appears to be in sound enough shape to deliver results 

of operations in line with the company’s recent historical performance. Tyson’s own 

investment banker still believes IBP is fairly priced at $30 per share.”).

810 Kling & Nugent, supra, § 11.04[9], at 11-68 n.133 (citations omitted); accord 

Schwartz, supra, at 827 n.220 (arguing that the absence of Delaware decisions finding an 

MAE “may be partially due to the Delaware courts’ suspicion that acquirers use the MAC 

clause as a pretext to avoid closing a suddenly unappealing acquisition”) (citing IBP, 789 

A.2d at 65).

811 965 A.2d at 730.
227

In this case, Akorn’s dismal post-signing performance gave Fresenius good cause 

to evaluate its rights and obligations under the Merger Agreement. The General MAE 

Condition gave Fresenius the right to refuse to close if Akorn suffered a Material Adverse 

Effect, and Fresenius was entitled to evaluate whether that condition was met. Fresenius 

also was entitled to consult with Paul Weiss. As this court observed in Hexion, it is 

“undoubtedly true” that a company can “seek[] expert advice to rely upon” when evaluating 

its contractual alternatives.812 Importantly, Fresenius communicated directly with Akorn 

about its performance. Sturm and Henriksson flew to Lake Forest, Illinois to meet in person 

with Ducker and the Akorn executives.813 Fresenius also analyzed and remained committed 

to fulfilling its obligations under the Merger Agreement if it was not entitled to terminate. 

Sturm testified credibly that he was “in an exploratory phase.” 814 Consistent with his 

testimony, the contemporaneous evidence shows that at the same time Fresenius was 

consulting with Paul Weiss, Fresenius was also working hard to figure out how the deal 

could still work.815

The whistleblower letters subsequently gave Fresenius good cause to evaluate 

whether Akorn’s representations were accurate and whether Fresenius might have 

 

812 Id. at 754.

813 Sturm Tr. 1178.

814 Id. at 1189; see id. at 1206 (“Q. Okay. And you started looking for a way to get 

out of the transaction, did you not? A. No. I did not.”).

815 See JX 605; JX 619; JX 620; JX 624; JX 627 at ‘498; JX 657; JX 658; JX 661; 

JX 664; JX 670 at 20; JX 684 at ‘911.
228

contractual grounds to terminate. It was reasonable for Fresenius to use the informational 

right it possessed under the Merger Agreement to evaluate these issues. A reasonable 

access covenant “provides Buyer with the opportunity to confirm the accuracy of Sellers’ 

representations and verify the satisfaction of the other condition to Buyer’s obligation to 

complete the acquisition, such as the absence of a Material Adverse Change with respect 

to each Acquired Company.”816 The covenant exists “in order for the Buyer to continue the 

‘due diligence’ process.”817 Fresenius used its reasonable access rights for that purpose. 

Moreover, as when responding to Akorn’s poor business performance, Fresenius 

communicated directly with Akorn about these issues. 

As discussed in the Factual Background, I believe that by November 12, 2017, the 

senior executives at Fresenius had concluded that they did not want to proceed with the 

Merger as negotiated. Akorn had performed too badly, and the regulatory problems raised 

by the whistleblower letters were another blow. Even recognizing that the Fresenius 

executives had a motive to get out of the deal, I do not believe that Fresenius breached the 

Reasonable Best Efforts Covenant. In addition to having an obligation to work towards 

 

816 See Model Stock Purchase Agreement, supra, at 198; see also, e.g., id. at 199 

(“During its due diligence investigation, Buyer is likely to have access to extensive 

information concerning the Acquired Companies. If, during the period between signing 

and Closing, the information reveals a material inaccuracy in any of Sellers’ 

representations as of the date of the Model Agreement, Buyer has several options. If the 

inaccuracy results in the inability of Sellers to satisfy the applicable closing condition . . . 

Buyer can decide to terminate [the merger agreement].”). 

817 Kling & Nugent, supra, § 13.02[1], at 13-6. 
229

closing, Fresenius also had the right to terminate the Merger Agreement if Akorn’s 

Regulatory Compliance Representations were inaccurate and the deviation would 

reasonably and incurably be expected to result in a Material Adverse Effect. Fresenius also 

had the right to terminate the Merger Agreement if Akorn incurably failed to comply in all 

material respects with the Ordinary Course Covenant. Fresenius was entitled to investigate 

these issues and assert good faith positions based on its contractual rights.

Akorn views Fresenius’s investigation cynically as an effort by Fresenius to 

manufacture grounds for termination. There is some evidence to support that view. 

Nevertheless, having considered the record and evaluated the credibility of the witnesses, 

I believe that Fresenius acted legitimately and uncovered real problems. I believe that 

Akorn knew about both the existence and magnitude of these problems and hoped that 

Fresenius would not get the full story until after the deal closed. Instead, the investigation 

caused Fresenius to learn about the pervasive nature of Akorn’s compliance and data 

integrity issues before closing. In my view, as its investigation unfolded, Fresenius acted 

reasonably, culminating ultimately in its decision to terminate the Merger Agreement. 

Before doing so, Fresenius offered to extend the Outside Date for the Merger Agreement 

so that Akorn could continue its investigation and remediation efforts and, if Akorn thought 

it was possible, cure its breaches. Akorn declined.

Akorn understandably has tried to cast Fresenius in the mold of the buyers in IBP 

and Hexion by accusing Fresenius of having “buyer’s remorse.” In my view, the difference 

between this case and its forebearers is that the remorse was justified. In both IBP and 

Hexion, the buyers had second thoughts because of problems with their own businesses 
230

spurred by broader economic factors. In this case, by contrast, Fresenius responded after 

Akorn suffered a General MAE and after a legitimate investigation uncovered pervasive 

regulatory compliance failures.

On a more granular level, this decision has already rejected many of the inferences 

that Akorn draws when portraying Fresenius as a bad faith actor. The principal components 

of Akorn’s tale run as follows: 

 Akorn claims that Sturm instructed management in September 2017 to build a legal 

case to terminate the Merger Agreement. This decision has found that Sturm was 

not seeking to manufacture a case. He was focused on understanding Fresenius’s 

rights under the Merger Agreement so that Fresenius could exercise its rights if 

warranted. Otherwise, Fresenius would live up to its obligations. 

 Akorn claims that Fresenius retained Paul Weiss to navigate a path towards 

termination. In my view, retaining expert counsel was prudent.

 Akorn asserts that Fresenius’s advisors tried to manufacture a record that would 

justify termination. There is some evidence to support this view, and the advisors 

undoubtedly understood that Fresenius was unhappy with the deal. On balance, 

however, I believe the advisors acted consistently with Fresenius’s rights under the 

Merger Agreement. In particular, I find that Sidley, Lachman, and E&Y conducted 

a professional investigation into the whistleblower letters that Fresenius had good 

cause to pursue.

 Akorn claims that Fresenius instructed Akorn not to investigate the anonymous 

letters. In the Factual Background, I rejected this interpretation of the evidence, 

finding instead that Fresenius told Akorn that it could not rely on Akorn’s 

investigation and would have to also conduct one of its own. Akorn then chose not 

to conduct an independent investigation and instead have Cravath front run Sidley’s 

investigation in an attempt to head off any problems.

 Akorn claims Fresenius secretly strategized with Paul Weiss and Sidley about 

manufacturing “fraud on the FDA” allegations818 and “placing collateral pressure 

 

818 JX 719 at ‘238.
231

on Akorn by communicating concerns to the regulatory agency,”

819 then did just 

that in letters aimed at “stimulating the [FDA] to require a searching audit of Akorn 

and perhaps an FDA investigation” and “piqu[ing] the FDA’s interest.”

820 Akorn 

accurately quotes from documents when making this argument. In my view, 

however, Fresenius had good cause to investigate the whistleblower letters. Once 

that investigation uncovered serious problems, Fresenius had good reason to be 

concerned that Akorn would present a misleading picture of its situation to the FDA 

in an effort to get to closing and stick Fresenius with the regulatory problems. 

Fresenius acted reasonably in response to Akorn’s conduct.

 Akorn claims that Fresenius drafted intentionally onerous information requests 

designed to induce Akorn to refuse access and supply an alternative basis for 

termination. I do not agree with this assessment. While Fresenius and its advisors 

drafted broad requests, the requests were reasonable in light of the seriousness of 

the charges in the whistleblower letters. After negotiations between counsel for the 

companies, Akorn largely complied.

 Akorn asserts that Sidley accessed confidential Akorn materials in the virtual data 

room, without Akorn’s knowledge or permission and in breach of the confidentiality 

agreement. In my view, Sidley carefully evaluated whether it could access the 

virtual data room and properly concluded that it could use the information in the 

data room for purposes of “executing” the Merger Agreement, in the sense of 

carrying out the parties’ contractual obligations. Those obligations did not require a 

single-minded drive to closing. They also contemplated the possibility of failed 

conditions and termination. Sidley properly used the information in the data room 

to evaluate Fresenius’s rights under the Merger Agreement.

 Akorn contends that Fresenius executed a fraudulent common interest agreement. 

The two sides negotiated a common interest agreement which reflected that they 

had a “mutual interest” in “join[ing] in an investigation,” and that “[t]his mutual 

interest arises from and under the Merger Agreement.”

821 Fresenius was properly 

seeking to evaluate its rights under the Merger Agreement to determine whether the 

conditions to closing were met.

 

819 JX 738 at ‘297.

820 JX 1488 at ‘820. 

821 JX 804 at ‘988; see Sturm Tr. 1220–21; Ducker Dep. 241–44; see also JX 798; 

Sheers Tr. 1088.
232

 Akorn contends that Fresenius lied to Akorn by falsely assuring Bonaccorsi that 

“the goal here was to investigate. . . . [T]his was not a litigation exercise.”

822 In my 

view, Fresenius’s goal was to investigate. Fresenius did not want to litigate unless 

it had to and would not litigate unless it had valid claims. If the investigation into 

the whistleblower letters had not suggested grounds for termination, or if events had 

unfolded along any number of other paths, then litigation would not have ensued.

 Akorn observes that Fresenius disqualified Akorn’s FDA counsel because it did not 

want the FDA to get the impression of a “joint investigation,” notwithstanding 

representations in the common interest agreement.823 It is true that Fresenius refused 

to waive a conflict that Hyman Phelps faced, but Fresenius had good cause for doing 

so. At that point, Fresenius was justifiably concerned that Akorn would make a 

misleading presentation to the FDA, and Fresenius did not want its long-time 

regulatory counsel associated with a misleading presentation. That was a reasonable 

concern and borne out by events. The misleading nature of the presentation stemmed 

in part from Akorn’s claims that the investigation had been conducted jointly, when 

in fact Cravath simply had been front running Sidley until Cravath discovered the 

azithromycin fraud. Fresenius’s obligation to use its reasonable best efforts to fulfill 

its obligations under the Merger Agreement did not extend to assisting Akorn in 

misleading the FDA.

I give Akorn’s top-flight attorneys credit for assembling a credible account. I am not 

suggesting that there is no evidence to support their position. Particularly after Akorn began 

exhibiting performance that ultimately led this decision to find that the Company had 

suffered a Material Adverse Effect, Fresenius did not want to go the extra mile. Fresenius 

wanted to live by the Merger Agreement and do what it was obligated to do, while at the 

same time protecting its own contractual rights and terminating the transaction if it had a 

valid basis for doing so. In my judgment, Fresenius succeeded in doing what it was 

 

822 Bonaccorsi Tr. 891–92. 

823 Sturm Tr. 1224–26.
233

obligated to do. Akorn has not shown by a preponderance of the evidence that Akorn 

breached the Reasonable Best Efforts Covenant. 

2. The Hell-Or-High-Water Covenant 

Section 5.03(c) of the Merger Agreement sets out a series of affirmative and 

negative covenants relating to antitrust approval. The language that this decision refers to 

as the Hell-Or-High-Water Covenant states:

[Fresenius Kabi] shall promptly take all actions necessary to secure the 

expiration or termination of any applicable waiting period under the HSR 

Act or any other Antitrust Law and resolve any objections asserted with 

respect to the [Merger] under the Federal Trade Commission Act or any other 

applicable Law raised by any Governmental Authority, in order to prevent 

the entry of, or to have vacated, lifted, reversed or overturned, any Restraint 

that would prevent, prohibit, restrict or delay the consummation of the 

[Merger], including 

(i) (A) executing settlements, undertakings, consent decrees, 

stipulations or other agreements with any Governmental Authority or with 

any other Person, (B) selling, divesting or otherwise conveying or holding 

separate particular assets or categories of assets or businesses of [Fresenius 

Kabi] and its Subsidiaries, (C) agreeing to sell, divest or otherwise convey or 

hold separate any particular assets or categories of assets or businesses of the 

Company and its Subsidiaries contemporaneously with or subsequent to the 

Effective Time, (D) permitting the Company to sell, divest or otherwise 

convey or hold separate any of the particular assets or categories of assets or 

businesses of the Company or any of its Subsidiaries prior to the Effective 

Time, (E) terminating existing relationships, contractual rights or obligations 

of the Company or [Fresenius Kabi] or their respective Subsidiaries, (F) 

terminating any joint venture or other arrangement, (G) creating any 

relationship, contractual right or obligation of the Company or [Fresenius 

Kabi] or their respective Subsidiaries or (H) effectuating any other change or 

restructuring of the Company or [Fresenius Kabi] or their respective 

Subsidiaries (and, in each case, entering into agreements or stipulating to the 

entry of any Judgment by, or filing appropriate applications with, the Federal 

Trade Commission (the “FTC”), the Antitrust Division of the Department of 

Justice (the “DOJ”) or any other Governmental Authority in connection with 

any of the foregoing and, in the case of actions by or with respect to the 

Company, by consenting to such action by the Company (including any 
234

consents required under this Agreement with respect to such action); 

provided that any such action may, at the discretion of the Company, be 

conditioned upon the Closing) and 

(ii) defending through litigation any claim asserted in court or 

administrative or other tribunal by any Person (including any Governmental 

Authority) in order to avoid entry of, or to have vacated or terminated, any 

Restraint that would prevent the Closing prior to the Outside Date.

All such efforts shall be unconditional and shall not be qualified in any 

manner and no actions taken pursuant to this Section 5.03 shall be considered 

for purposes of determining whether a Material Adverse Effect has occurred 

or would reasonably be expected to occur. . . . 

The Company, [Fresenius Kabi] and Merger Sub and any of their respective 

Affiliates shall not take any action with the intention to, or that could 

reasonably be expected to, hinder or delay the expiration or termination of 

any waiting period under the HSR Act or the obtaining of approval of the

DOJ or FTC as necessary (including, in the case of [Fresenius Kabi] and 

Merger Sub, acquiring or merging with any business, Person or division 

thereof, or entering into a definitive agreement with respect thereto, if doing 

so could reasonably be expected to have such effect). . . .824 

In other words, Fresenius agreed to take “all actions necessary” to secure antitrust approval, 

without any mitigating efforts obligation.825

Somewhat in tension with the flat obligation to take “all actions necessary” to secure

antitrust approval, the Merger Agreement gave Fresenius sole control over the strategy for 

securing antitrust approval (the “Strategy Provision”). Formatted for legibility, this aspect 

of Section 5.03(c) states:

 

824 JX 1 § 5.03(c). 

825 See Alliance Data Sys., 963 A.2d at 763 n.60 (describing a Hell-Or-High-Water 

Covenant as “a much stronger and broader commitment” than a reasonable best efforts 

obligation “with respect to a discrete regulatory subject: antitrust approval”).
235

[Fresenius Kabi] shall (x) control the strategy for obtaining any approvals, 

consents, registrations, waivers, permits, authorizations, orders and other 

confirmations from any Governmental Authority in connection with the 

[Merger] and 

(y) control the overall development of the positions to be taken and the 

regulatory actions to be requested in any filing or submission with a 

Governmental Authority in connection with the [Merger] and in connection 

with any investigation or other inquiry or litigation by or before, or any 

negotiations with, a Governmental Authority relating to the [Merger] and of 

all other regulatory matters incidental thereto; 

provided that [Fresenius Kabi] shall consult and cooperate with the Company 

with respect to such strategy, positions and requested regulatory action and 

consider the Company’s views in good faith. . . .826 

The Strategy Provision inherently recognizes that there is no single and obvious answer as 

to how to pursue antitrust approval and that Fresenius had the power to make those 

decisions after consulting and cooperating with the Company.

Akorn’s post-trial briefs placed great emphasis on antitrust issues, yet the trial 

record on this point was comparatively sparse. During trial, only two witnesses made more 

than a passing reference to FTC clearance.827 Bauersmith, who oversaw Fresenius’s 

divestiture efforts, testified at trial that he was not asked to delay the process.828 As noted 

 

826 JX 1 § 5.03(c). Cravath’s initial draft of the Merger Agreement provided that 

Fresenius and Akorn “shall jointly, and on an equal basis,” control the strategy for antitrust 

clearance. JX 420 at ‘686. Fresenius requested sole control over strategy, and Akorn 

accepted the change. Silhavy Dep. 24–25. 

827 See Bauersmith Tr. 604–08; Bonaccorsi Tr. 912–21, 932. 

828 Bauersmith Tr. 604; Bauersmith Dep. 128, 218; see also id. at 217 (describing 

the FTC approval process as “a rigorous pace insofar as identifying the appropriate buyers, 

striking the right value deal, and creating a set of agreements that we believed would be 

acceptable to the FTC”). 
236

in the Factual Background, Bauersmith was a credible witness. At trial, Akorn’s counsel 

never asked Bauersmith about the FTC or Fresenius’s divestment partner Alvogen. In its 

briefing, Akorn relies heavily on the deposition of its corporate strategy official Jennifer 

Bowles, who largely testified to her “perception” that Fresenius intentionally delayed FTC 

approval for self-interested reasons.829 Bowles did not testify at trial.830

There is no serious dispute that during the first six months after the Merger 

Agreement was signed, Fresenius diligently pursued antitrust approval. Fresenius started 

by assessing the degree to which its ANDAs overlapped with Akorn’s,831 then analyzed 

the likelihood the FTC would require divestment.832 Working through these issues required 

Fresenius to evaluate the number of competitors and relative market share for each 

product.833 Once Fresenius had a sense of what it thought the FTC would want sold, 

Fresenius worked with Moelis to structure a bidding process for potential buyers that 

 

829 See Bowles Dep. 134–35; id. at 128–29 (discussing “opinions” Bowles formed 

when FTC-related activities “should not have taken as long as they did”); see also Rai Dep. 

247 (“I think the whole process of getting the FTC approval was slow and should have 

been done sooner, based on my personal experience, because I’ve been through one before, 

or a couple of times.”). 

830 Because Bowles did not appear at trial and also lacked first-hand knowledge of 

Fresenius’s negotiations with Alvogen, her deposition testimony receives limited weight. 

See Bowles Dep. 130.

831 Bauersmith Dep. 149. 

832 Id.

833 Id.
237

included access to a data room.834 Alvogen was the winning bidder, and Fresenius began 

working on a transaction agreement with Alvogen.

In October 2017, Fresenius submitted a proposed divestiture agreement to the FTC, 

consistent with the plan to submit by mid-November.835 In early November, the FTC threw 

a wrench into the process by asking Fresenius to divest its versions of the overlapping 

products rather than selling Akorn’s.836 The FTC also raised other objections to the 

divesture package that the parties had not anticipated and which seemed to depart from 

past agency practice.837

The parties had not expected to receive FTC clearance until early 2018,838 so 

Fresenius made the reasonable decision to ask the FTC to reconsider having Fresenius 

 

834 Id. at 150. 

835 Ducker Dep. 274; see Bauersmith Dep. 218 (“[A]lvogen and Fresenius . . . 

submitted what we thought in October was an agreement and a proposal that the FTC 

should accept.”); JX 524 at ‘416 (timeline calling for “[c]ontract finalization & supply and 

tech transfer agreements, and final submission to FTC” between the third week of 

September and the second week of November); see also Silhavy Dep. 47–48. 

836 See JX 698 at ‘866–67; see also Bauersmith Dep. 154. 

837 See Bauersmith Dep. 153–55; Bauersmith Tr. 605; accord Silhavy Dep. 165–67; 

see also Ducker Dep. 274 (discussing Allen & Overy’s view that the switch on Fresenius’s 

overlapping products “was a very unusual step for the FTC to take”); Empey Dep. 184–85.

838 See Silhavy Dep. 48–49; Sturm Tr. 1175 (noting that the Merger could close 

“towards the end of 2017, at the earliest”); JX 524 at ‘416 (divestment timeline from June 

2017 contemplating “FTC review of submission and final negotiations with FTC” between 

the third week of November 2017 and the second week of January 2018). 
238

divest its version of the overlapping products rather than Akorn’s.839 Fresenius also began 

considering whether it should sell the Decatur site as part of the divestiture package, 

believing that if the FTC learned that Fresenius was considering selling Decatur, it would 

want the plant included in the package of divestitures.840 Based on feedback from the FTC, 

Fresenius came to believe that a sale of Decatur standing alone would enable the Merger 

to obtain FTC clearance, without the need to divest other products.841 Under the Strategy 

Provision, it was Fresenius’s job to consider these issues.

The Fresenius team evaluated whether pursuing a sale of Decatur would create 

problems by delaying FTC approval and concluded that although there was a risk of delay, 

the benefits outweighed the risk.842 As of early January 2018, the Fresenius executives 

believed that pursuing a divestiture strategy involving Decatur would result in FTC 

approval in mid-April, within the timeframe contemplated by the Merger Agreement, as 

opposed to potential approval in February without Decatur.843 Fresenius therefore decided 

to pursue “parallel strategies” on divestiture: Option 1, which involved selling various 

 

839 See Bowles Dep. 131–34. 

840 See JX 816 at ‘971–72; Henriksson Dep. 67 (“We didn’t want to bring it to the 

FTC, because we thought that that would then delay the clearance, but . . . I wanted to sell 

that plant to Alvogen.”). 

841 See Silhavy Dep. 169–70; JX 1456 at 2 (“Sale of Decatur facility would solve 

virtually all FTC concerns”); Henriksson Dep. 314–15. 

842 See Schulte-Noelle Dep. 185–89; Ducker Dep. 274–75; JX 816 at ‘971–72.

843 See JX 844 at ‘410–11; Silhavy Dep. 168–69. 
239

Fresenius ANDAs, and Option 2, which involved selling Decatur.844 In my view, this was 

a reasonable approach that fell within the ambit of the Strategy Provision.

The first documentary evidence of Akorn registering complaints about Fresenius’s 

pursuit of regulatory approval emerges in minutes of a board meeting on January 5, 2018, 

where Rai and Bowles “provided their opinions that FK is dragging its feet with respect to 

the FTC clearance activities highlighting their unwillingness to accept FTC’s stated 

positions with respect to divestitures.”845 The Akorn executives notably raised these issues 

after multiple quarters of terrible business performance by Akorn, after the investigation 

into the whistleblower letters had uncovered Silverberg’s submission of false data to the 

FDA, and during a meeting where the board, management, and Cravath attorneys “engaged 

in a robust and lengthy discussion regarding the status of investigation, MAE standard, 

conditions of closing and whether Akorn can insist on FK taking accelerating [sic] its 

efforts to obtain FTC clearance.”846 Akorn’s desire to raise these issues at this point seems 

as much a defensive response to the pressure that Akorn was under as it was the product of 

actual problems with Fresenius’s compliance. Internal Fresenius emails indicate that 

 

844 See Silhavy Dep. 173; id. at 185 (“We knew that it would solve a number of the 

issues outstanding with the FTC, but have the effect of perhaps taking longer than going 

with the straight option of divesting the products without a . . . corresponding divestiture 

of . . . Decatur.”); JX 959 at ‘498 (discussing Option 1 and Option 2).

845 JX 1337 at ‘403; see also Bonaccorsi Tr. 915 (testifying that by late 2017, he and 

Bowles “felt [Fresenius was] beginning to slow-walk the FTC process”). 

846 JX 1337 at ‘403.
240

during January, Bauersmith was pressing forward to obtain FTC approval promptly for a 

divestiture option that involved Decatur,847 and Fresenius’s attorneys were likewise 

working with the FTC on aspects of the ANDA divestiture package.848

For approximately a week in February 2018, Fresenius contemplated a path that 

could have constituted a material breach of the Hell-or-High-Water Covenant had 

Fresenius continued to pursue it. The Hell-or-High-Water Covenant forbids Fresenius from 

taking any action that could be reasonably expected to delay FTC approval, and Fresenius 

nearly adopted an FTC strategy that it knew would delay approval by two months or more. 

During a meeting on February 9, 2018, the Fresenius steering committee discussed 

the two options for obtaining FTC clearance.849 Option 1 continued the ANDA divestiture 

strategy.850 Under this option, the Merger could close in April.851 Option 2 involved a sale 

of Decatur and obviated the need to resolve multiple longstanding disputes with the FTC 

 

847 See JX 889 at ‘591.

848 See JX 886. 

849 JX 959. 

850 See id. at ‘498 (“Option 1: Negotiate a ‘reverse’ swap of FK Acetylcysteine 

ANDAs to Alvogen.”); id. at ‘497 (“FTC is requesting FK to divest its acetylcysteine assets 

instead of the original plan to invest Akorn’s assets.”). 

851 Id. at ‘498.
241

about Option 1.852 Option 2 would result in the Merger closing in June or July.853 The 

February 9 minutes indicated that “[p]ost-close integration teams are preparing for an 

imminent closing including putting key support contracts in place.”854 In an email sent to 

the group of Fresenius executives who were overseeing the antitrust clearance process, 

Ducker wrote:

The key topic is how to proceed with Alvogen and FTC. If Stephan [Sturm] 

is likely to go nuclear on the closing we should instruct the team to follow 

Option 2. This avoids us having a potential closing event before we have a 

more developed legal position on the investigation. But if the Supervisory 

Board does not support the refusal to close we want the quickest option which 

is #1. I suggest we ask Jamie [Bauersmith] to explore both options with 

Alvogen. This will test their appetite for both and leaves both options open 

for potential negotiations of terms. It will buy us a couple of weeks to the 

Feb 22 or 23 decision point.855

 

852 See id. at ‘497–98; Ducker Dep. 275 (explaining that Option 2 “simplifies matters 

significantly with the FTC and removes the need for escrow accounts, and we could remove 

the requirement for us to divest our on-market acetylcysteine product”); Schoenhofen Dep. 

196. 

853 JX 959 at ‘498; see also Bauersmith Dep. 161–62 (explaining that the Option 2 

schedule built in time for Alvogen to diligence Decatur); cf. JX 889 at ‘591 (January 19, 

2018 email referencing Alvogen’s request for due diligence at Decatur).

854 JX 959 at ‘500. 

855 JX 976 at ‘067. 
242

The executives picked Option 2,856 but Fresenius “quickly abandoned” it once Alvogen 

made an unattractive offer for Decatur.857 After barely one week, Fresenius reverted to 

Option 1, and the Merger stayed on track for an April closing.

By choosing Option 2, which would delay antitrust clearance by two months, 

Fresenius technically breached the Hell-or-High-Water Covenant. But because Fresenius 

changed course in approximately a week and returned to Option 1, the breach was not 

material. As of that point, Fresenius had positioned the parties to close the Merger in 

conjunction with the original Outside Date of April 24, 2018, and months before the 

extended Outside Date of July 24, which would have applied automatically if receipt of 

antitrust approval was the only condition to closing that had not been met. 

Akorn makes much of Bonaccorsi’s testimony about his interactions with 

Fresenius’s lead antitrust counsel, Elaine Johnston of Allen & Overy. Bonaccorsi testified 

that Johnston told him that she was not in regular contact with Fresenius and could not 

 

856 JX 959 at ‘498.

857 See Silhavy Dep. 173; Bauersmith Tr. 607–08 (testifying that Fresenius spent 

“[a]bout a week or so” pursuing Option 2 before Alvogen “came in with an incredibly low 

offer for the Decatur facility”); Ducker Dep. 275–76; Schulte-Noelle Dep. 189–90 (“[I] 

think it was only a few days later we realized that there was no attractive offer and, hence, 

the only option that would be left would be [Option 1].”). The steering committee’s 

February 9 minutes reflect that it directed Bauersmith “to approach Alvogen . . . to gauge 

their interest level” in Option 2. JX 959 at ‘498. Bauersmith explained that he “reached out 

to Alvogen pretty much right away” to assess their interest but that they “offered something 

that was not palatable, so we just pursued option 1.” Bauersmith Dep. 220–21. 
243

explain the delays in the FTC process.858 These communications appear to have taken place 

during the brief period in February when Fresenius was deciding between the two options, 

initially chose Option 2, then reverted to Option 1. It makes sense to me that Johnston and 

Fresenius were not on same page during the brief period when Fresenius was making a 

major decision about strategy. Akorn does not point to any evidence of miscommunications 

between Fresenius and Johnston, or for that matter between Fresenius and Akorn, after 

February 2018. 

During a meeting on March 23, 2018, Bowles advised the Akorn directors about the 

timeline for receiving FTC approval and did not identify any problems.859 On April 20, 

the FTC sent Akorn and Fresenius a draft Decision and Order, which is one of the final 

steps in the FTC review process before approval.860 When Akorn filed its complaint on 

April 23, it alleged that FTC approval was expected in May 2018.861 It appears that the 

FTC is now reserving judgment until this litigation is resolved,862 but Fresenius cannot be 

faulted for that.

 

858 Bonaccorsi Dep. 218–19; Bonaccorsi Tr. 918–19; see also JX 972 (Bonaccorsi 

discussing February 13 call with Johnston); JX 1337 at ‘403 (Akorn February 23 board 

minutes discussing dialogue with Johnston). 

859 JX 1337 at ‘405; see also id. at ‘404–05 (March 2 and 9 board minutes 

referencing “FTC related activities,” but no problems).

860 Dkt. 1 ¶ 118; see Bowles Dep. 146–47 (“Q. And so is it your understanding that, 

as of April 23, antitrust approval was now close at hand? A. Yes.”). 

861 Dkt. 1 ¶ 119. 

862 See Dkt. 220 at 109–10. 
244

The facts of this case differ markedly from Hexion, which Akorn cites for the settled 

proposition that a party can breach a hell-or-high-water covenant by dragging its feet on 

obtaining antitrust clearance.863 In Hexion, at the time of trial, the buyer still had not 

“signed agreements with the proposed buyer of the assets to be divested” and still “had not 

responded to certain interrogatories from the FTC” or “put itself in a position to do so . . . 

.”864 The buyer in that case consciously delayed obtaining approval as a strategy to avoid 

the transaction.865 Fresenius did not do that. Fresenius took steps to obtain timely antitrust 

approval, but other conditions in the Merger Agreement failed before approval could be 

received.

There is also contemporaneous evidence indicating that Akorn recognized that 

Fresenius could cure any breach of the Hell-or-High-Water Covenant by moving forward 

on Option 1. In a letter dated February 24, 2018, Cravath accused Fresenius of breaching 

its obligation to secure antitrust clearance and posited that Fresenius “cure its breach 

immediately” by committing to “promptly agree to whatever terms are necessary to 

complete the negotiations with Alvogen” over Option 1.866 By the time Fresenius received 

the letter, Fresenius had abandoned its flirtation with Option 2 and was pursuing Option 1, 

thereby curing its breach. 

 

863 See Hexion, 965 A.2d at 756. 

864 Id. at 735, 756. 

865 Id. at 756. 

866 JX 986 at ‘188.
245

I find that Fresenius breached the Hell-or-High-Water Covenant by briefly pursuing 

Option 1, but Akorn failed to prove by a preponderance of the evidence that Fresenius 

materially breached the Hell-or-High-Water Covenant. Under the Strategy Provision, 

Fresenius had the exclusive right to “control the strategy” and “the overall development of 

the positions to be taken” to obtain FTC clearance.867 Fresenius chose a strategy that 

ultimately would have resulted in FTC approval well within the timeframe permitted by 

the Merger Agreement. There also is ample evidence indicating that Fresenius could have 

secured FTC clearance by the original Outside Date if the FTC had not wavered on aspects 

of the original divestiture package. Under these circumstances, Akorn did not establish that 

Fresenius materially breached the Hell-or-High-Water Covenant such that it should be 

barred from exercising an otherwise valid termination right. 

III. CONCLUSION

Akorn brought this action seeking a decree of specific performance that would 

compel Fresenius to close. Akorn cannot obtain specific performance because three 

conditions to closing failed: the General MAE Condition, the Bring-Down Condition, and 

the Covenant Compliance Condition. 

Fresenius sought a declaration that it had validly terminated the Merger Agreement 

on April 22, 2018. As of that date, Fresenius had not materially breached its obligations 

under the Merger Agreement and therefore could exercise its termination rights. 

 

867 JX 1 § 5.03(c).
246

Fresenius validly terminated the Merger Agreement because Akorn’s Regulatory 

Compliance Representations were untrue, the deviation from the representations could not 

be cured by the Outside Date, and the degree of deviation would reasonably be expected 

to result in a Regulatory MAE. This scenario caused the Bring-Down Condition to fail in 

an incurable manner and entitled Fresenius to terminate.

Fresenius also validly terminated the Merger Agreement because Akorn had 

materially breached the Ordinary Course Covenant and the breach could not be cured by 

the Outside Date. This scenario caused the Covenant Compliance Condition to fail in an 

incurable manner and entitled Fresenius to terminate.

Within ten days, the parties shall submit a joint letter identifying any other matters 

that need to be addressed to bring this matter to a conclusion at the trial level. If possible, 

the parties shall submit a final order implementing this decision that has been agreed as to 

form. If there are further issues to be resolved at the trial level, the parties shall propose a 

schedule for addressing them.