Court Opinion

ID: 4682895
Source: CourtListenerOpinion
Date Created: 2021-04-30 18:02:49.843405+00
Date Added: 2024-06-11T08:04:11.756527
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

SNOW PHIPPS GROUP, LLC, and                    )
DECOPAC HOLDINGS INC.,                         )
                                               )
             Plaintiffs-Counterclaim           )
             Defendants,                       )
                                               )
      v.                                       )    C.A. No. 2020-0282-KSJM
                                               )
KCAKE ACQUISITION, INC.,                       )
KOHLBERG INVESTORS VIII-B, L.P.,               )
KOHLBERG INVESTORS VIII-C, L.P.,               )
KOHLBERG TE INVESTORS VIII, L.P.,              )
KOHLBERG TE INVESTORS VIII-B, L.P.,            )
KOHLBERG INVESTORS VIII, L.P., and             )
KOHLBERG PARTNERS VIII, L.P.,                  )
                                               )
             Defendants-Counterclaim           )
             Plaintiffs.                       )

                            MEMORANDUM OPINION

                           Dated Submitted: March 22, 2021
                            Date Decided: April 30, 2021

Michael A. Barlow, Eliezer Y. Feinstein, ABRAMS & BAYLISS LLP, Wilmington,
Delaware; Andrew J. Rossman, Silpa Maruri, Sascha N. Rand, Owen F. Roberts, Jonathan
J. Feder, QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York, New York;
Counsel for Plaintiffs-Counterclaim Defendants Snow Phipps Group, LLC and DecoPac
Holdings Inc.

William M. Lafferty, Thomas W. Briggs, Jr., Daniel T. Menken, MORRIS, NICHOLS,
ARSHT & TUNNELL LLP, Wilmington, Delaware; Daniel A. Mason, PAUL, WEISS,
RIFKIND, WHARTON & GARRISON LLP, Wilmington, Delaware; Andrew G. Gordon,
Eric Alan Stone, Alexia D. Korberg, Adam J. Bernstein, Nina M. Kovalenko, PAUL,
WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, New York; Counsel for
Defendants-Counterclaim Plaintiffs KCAKE Acquisition, Inc., Kohlberg Investors VIII-B,
L.P., Kohlberg Investors VIII-C, L.P., Kohlberg TE Investors VIII, L.P., Kohlberg TE
Investors VIII-B, L.P., Kohlberg Investors VIII, L.P., and Kohlberg Partners VIII, L.P.

McCORMICK, V.C.
       Julia Child is rumored to have once said: “A party without a cake is just a meeting.”

The decorated cake stands as the defining feature of celebratory gatherings and, with the

exception of the adept in-home baker, the cultural trend is to outsource preparation of these

celebratory centerpieces to in-store supermarket bakeries.

       DecoPac Holdings Inc. (“DecoPac”) sells cake decorations and technology to

supermarkets for use in their in-store bakeries. On March 6, 2020, at the outset of the

COVID-19 pandemic, the defendant-buyers agreed to acquire DecoPac from the plaintiff-

seller. The buyers entered into a debt commitment letter and committed to use their

reasonable best efforts to work toward a definitive credit agreement on the terms set forth

in the debt commitment letter. They also agreed to seek alternative financing if the

committed funds became unavailable.

       The buyers lost their appetite for the deal shortly after signing it, as government

entities issued stay-at-home orders around the country and DecoPac’s weekly sales

declined precipitously.    Although DecoPac’s highly experienced management team

predicted that sales would recover rapidly, the buyers were less confident. Fearing that

people would no longer desire decorated cakes to celebrate life events while forced to

quarantine and social distance, the buyers began to question the business wisdom of the

transaction.

       Rather than use reasonable best efforts to work toward a definitive credit agreement,

the buyers called their litigation counsel and began evaluating ways to get out of the deal.

Without input from DecoPac management, they prepared a draconian reforecast of

DecoPac’s projected sales based on uninformed (and largely unexplained) assumptions that
were inconsistent with real-time sales data. They sent this reforecast to their lenders with

demands for more favorable debt financing terms. When the lenders refused the buyers’

demands, the buyers informed the seller that debt funding was no longer available. The

buyers then conducted a perfunctory and unsuccessful four-day search for alternative debt

financing at the seller’s insistence.

       On April 8, 2020, the buyers told the seller that they would not close because debt

financing remained unavailable. They also stated that they did not believe that DecoPac

would meet the bring-down or covenant-compliance conditions in the purchase agreement

because DecoPac was reasonably likely to experience a material adverse effect (an

“MAE”) and failed to operate in the ordinary course of business. This litigation ensued.

       Meanwhile, as DecoPac’s management predicted, DecoPac’s sales began to

recover. Perhaps there is a greater need to celebrate the milestones of life amidst the

tragedy of a pandemic. Or perhaps humans simply have an insatiable desire for decorated

cakes. Whatever the reason, DecoPac’s precipitous decline in performance proved a

momentarily blip. By the end of 2020, DecoPac’s actual total sales were down only 14%

from 2019. Even under the buyer’s draconian reforecast, quarterly EBITDA was projected

to return to 2019 levels by Q3 2021.

       At trial, the plaintiffs proved that DecoPac did not breach the MAE representation,

given the durational insignificance and corresponding immateriality of the decline in sales.

They also proved that, even if it was reasonable to expect that these sales declines would

give rise to an MAE, the seller-friendly exception for events “related to” government orders

applied, and DecoPac had not suffered disproportionately to comparable companies. The
                                             2
plaintiffs likewise demonstrated that DecoPac operated in the ordinary course of business

in all material respects. The plaintiffs further proved that the buyers breached their

obligation to use reasonable best efforts in connection with the debt financing.

       Adding another layer of complication to the analysis, the buyers claim that, despite

these holdings, it need not close. They rely on a contractual exception to the parties’

agreement conditioning the seller’s right to specific performance on fully funded debt

financing. Because there is no debt financing in place, the buyers argue that the court may

not grant specific performance. The court disagrees. Applying the prevention doctrine,

this decision deems the debt financing condition met because the buyers contributed

materially to lack of debt financing by breaching their reasonable-best-efforts obligation.

       Chalking up a victory for deal certainty, this post-trial decision resolves all issues

in favor of the seller and orders the buyers to close on the purchase agreement.

I.     FACTUAL BACKGROUND

       Trial took place over five days. The record comprises 2,059 trial exhibits, live

testimony from eight fact and seven expert witnesses, video testimony from six fact

witnesses, deposition testimony from twenty fact and seven expert witnesses, and thirty

stipulations of fact. 1 These are the facts as the court finds them after trial.

1
  The Factual Background cites to: C.A. No. 2020-0282-KSJM docket entries (by docket
“Dkt.” number); trial exhibits (by “JX” number); trial demonstratives (by “PDX” and
“DDX” number); the trial transcript (Dkts. 272–74, 283–84) (“Trial Tr.”); and stipulated
facts set forth in the Parties’ Stipulation and Pre-Trial Order (Dkt. 252) (“PTO”). The
parties called John Anderson, Yvette Austin Smith, Gregory Bedrosian, Ryan Brauns (Ares
Capital Management LLC 30(b)(6) witness), Steven J. Davis, John Alexander Forrey,
Jonathan F. Foster, Sam Frieder, John F. Gardner, William Hanage, Seth H. Hollander,

                                                3
          A.       DecoPac

          DecoPac is a Delaware corporation and the corporate parent of non-party DecoPac,

Inc., a Minnesota-based supplier and marketer of cake decorating products. 2 For ease of

reference, this decision refers to DecoPac Holdings Inc. and DecoPac, Inc. together as

“DecoPac” or the “Company.”

          DecoPac supplies cake-decorating ingredients and products to in-store bakeries in

supermarkets, such as Walmart, Sam’s Club, and The Kroger Company. 3 Its products are

used to create decorated cakes for celebrations like birthday parties and graduations. 4

DecoPac offers a variety of edible and non-edible products, including sprinkles, fondant,

pastry bags, and various inedible figurines. 5 DecoPac also provides proprietary tech-

enabled platforms like PhotoCake, which allows bakeries to print edible, customizable

images onto baked goods, and Cakes.com, which allows consumers to personalize and

order baked goods from bakeries. 6

Carol Loundon (Churchill Asset Management LLC 30(b)(6) witness), Anup Malani, Alan
H. Mantel, Julie Martinelli, Christopher McKinney, Marcus Meyer (Madison Capital
Funding 30(b)(6) witness), Tobin Opheim, Phillip P. Smith (Antares Capital LP 30(b)(6)
witness), Richard Alec Somers, Lukas Spiss (Owl Rock Capital Private Fund Advisors
30(b)(6) witness), Steven Twedell, Garry Vaynberg, Maxwell Wein, Joseph G. Welsh,
Cameron Wood, and Gordon Woodward by deposition. The transcripts of their respective
depositions are cited using the witnesses’ last names and “Dep. Tr.” or, for 30(b)(6)
witnesses, the name of the firm and “Dep. Tr.”
2
    PTO ¶¶ 3–4.
3
    JX-42 at 9–12; JX-239 at 4–8.
4
    JX-42 at 9–12; JX-239 at 4–8.
5
    JX-239 at 8.
6
    Id. at 9.
                                              4
           B.    Snow Phipps Determines to Sell DecoPac.

           Plaintiff Snow Phipps Group, LLC (“Snow Phipps,” and with DecoPac Holdings

Inc., “Plaintiffs”) is a private equity firm focused on investments in middle-market

companies. 7 Snow Phipps acquired DecoPac in 2017. 8 Snow Phipps partner Alan Mantel

became the partner in charge of the DecoPac investment in the summer of 2019. 9 After

assessing the investment, he came to the conclusion that Snow Phipps could either “exit

the investment and have an acceptable rate of return” or “embark on a multiyear strategy

to increase the growth rate . . . to further expand the business.” 10 Snow Phipps decided to

exit. 11

           In December 2019, Snow Phipps engaged Piper Sandler Companies (“Piper

Sandler”) to run a sale process for DecoPac. 12 Piper Sandler managing director Gary

Vaynberg led the team. 13

           C.    Kohlberg Offers to Acquire DecoPac.

           In January 2020, Piper Sandler approached non-party Kohlberg & Company, LLC,

a private equity firm focused on investing in middle-market companies. 14 Piper Sandler

7
    PTO ¶ 2.
8
    Id. ¶ 8.
9
    Trial Tr. at 16:23–17:9 (Mantel).
10
     Id. at 17:24–18:4 (Mantel).
11
     See id. 17:10–13 (Mantel).
12
     PTO ¶ 9.
13
     Trial Tr. at 832:18–833:18 (Vaynberg).
14
   PTO ¶ 5. This decision refers to Kohlberg & Company, LLC, together with all of its
affiliates named as defendants, as “Kohlberg.”

                                              5
initially contacted Kohlberg partner Seth Hollander. 15 Word then spread to Kohlberg vice

president Alexander Forrey, who worked at Snow Phipps on the DecoPac deal team until

he joined Kohlberg in August 2019. 16 Hollander was initially “lukewarm” on the deal, but

Forrey “pitched him reasonably hard on it.” 17 Forrey believed that there were “a lot of

value-creation opportunities” and that “it would be a really good investment for

Kohlberg.” 18

         Hollander eventually decided to move forward and led the Kohlberg deal team. 19

Forrey helped coordinate the deal and led negotiations with lenders. 20 A third Kohlberg

team member, associate Chris McKinney, handled analytical and administrative tasks. 21

         On January 31, 2020, Hollander, Forrey, and McKinney circulated an initial

investment memorandum to the firm’s investment committee. 22 The deal team believed

that Kohlberg could preempt the sale process—meaning that it could conduct due diligence

and acquire the company before a broader sale process occurred. 23             Overall, the

15
     JX-218; Trial Tr. 432:14–19 (Hollander).
16
     JX-245.
17
     Trial Tr. at 1287:24, 1288:24–1289:1 (Forrey).
18
     Id. at 1289:6–8 (Forrey).
19
     Id. at 432:22–433:15 (Hollander).
20
     Id. at 433:22–434:3 (Hollander); id. at 1289:9–15 (Forrey).
21
     Id. at 433:18–21 (Hollander); id. at 1214:16–24 (McKinney).
22
  See JX-287; JX-290; Trial Tr. at 434:8–435:7 (Hollander). Kohlberg’s investment
committee is a subset of senior professionals at the firm that approves the firm’s investment
decisions. See Trial Tr. at 442:14–18, 472:4–8 (Hollander).
23
     See JX-290 at 5; Trial Tr. at 435:11–24 (Hollander).
                                                6
memorandum pitched DecoPac as “an attractive investment opportunity” for a number of

reasons, including its “[u]nique and defensible value-added distribution business model”

and its “[c]ompelling financial profile with high degree of recession resiliency.” 24 The

memorandum also identified six investment risks; even though COVID-19 was emerging

as an issue, the memorandum did not refer to COVID-19. 25 On February 3, the investment

committee granted the deal team approval to proceed with a potential bid. 26

         On February 3, Kohlberg sent Snow Phipps a letter of intent to acquire DecoPac for

$580 million. 27 The letter highlighted Kohlberg’s familiarity with DecoPac, ability to

provide certainty of closing, and commitment to work “with DecoPac’s key incumbent

lenders” to “arrange debt financing commitments by the time of execution of definitive

documentation for this Transaction, such that the closing of the Transaction would not be

subject to a financing contingency.” 28 Snow Phipps rejected Kohlberg’s initial bid. 29

         After its initial due diligence, Kohlberg remained “highly interested in acquiring the

company,” 30 and on February 18, 2020, it increased its bid to $600 million. 31 The second

24
     JX-290 at 5; Trial Tr. at 436:1–440:4 (Hollander).
25
     See JX-290 at 11–12; Trial Tr. at 440:7–24 (Hollander).
26
     See JX-270 at 14; Trial Tr. at 472:4–8 (Hollander).
27
     PTO ¶ 10; JX-314.
28
     JX-314 at 4.
29
     See Trial Tr. at 22:18–20 (Mantel).
30
   JX-420 at 5 (“In particular, we’ve been impressed with the continued growth of the
Company through its pricing strategy and high degree of account retention.”). By
February 18, Kohlberg had “completed the vast majority of [its] commercial and market
diligence.” Id.
31
     Id.; PTO ¶ 11.
                                               7
letter of intent stated that Kohlberg had “completed substantially all of its business

diligence,” including a site visit to one of DecoPac’s facilities, and was prepared to begin

its confirmatory third party diligence “immediately.” 32 The letter cautioned that Kohlberg

had not yet received access to the Quality of Earnings (“QofE”) report from DecoPac’s

accounting advisor, PricewaterhouseCooper. 33 The purchase price was thus subject to

confirming “2019 Pro Forma Adjusted EBITDA of $49.8 million.” 34

           Snow Phipps accepted the $600 million bid and agreed to move forward with

additional diligence. 35 Other potential counterparties had expressed interest in acquiring

DecoPac, 36 and one had submitted an indication of interest, 37 but Snow Phipps placed great

weight on Kohlberg’s representation that it was “uniquely positioned to complete the

Transaction with speed and certainty.” 38 Snow Phipps determined to move forward

because a deal with Kohlberg would be “fastest,” provide “the most certainty,” and yield

“the highest price.” 39

32
     See JX-420 at 6; Trial Tr. at 843:11–844:4 (Vaynberg).
33
     JX-420 at 6.
34
     Id.
35
     See Trial Tr. at 27:2–5 (Mantel).
36
     See PTO ¶¶ 13–14.
37
     See id. ¶ 14.
38
     Trial Tr. at 25:12–26:8 (Mantel); see JX-420 at 5.
39
     See Trial Tr. at 26:18–27:4 (Mantel).
                                               8
         D.      Events Leading to the Agreements

         After agreeing to a price, the parties proceeded to complete diligence and to

negotiate a formal purchase and sale agreement. Within a few days, Kohlberg’s counsel,

Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”), and Snow Phipps’s

counsel, Dorsey & Whitney LLP (“Dorsey & Whitney”), began to communicate on these

subjects. 40 The process culminated in a March 6, 2020 signing.

         In terms of deal negotiations, the notable events between February 18 and March 6

include the following:

         •       On February 21, Forrey and McKinney held two financial diligence calls
                 with Vaynberg and DecoPac management. 41

         •       On February 27, Hollander, Forrey, McKinney, Managing Partner Sam
                 Frieder, and Chief Investment Officer Gordon Woodward conducted a
                 second site visit to one of DecoPac’s facilities. 42

         •       On March 2, Maine Pointe, Kohlberg’s global supply-chain consultant,
                 spoke with DecoPac CEO John Anderson, CFO Steven Twedell, and
                 Vaynberg on March 2. 43

         •       On March 4, Kohlberg demand a price reduction, to which Plaintiffs
                 agreed. 44

         •       Also on March 4, Plaintiffs requested that “pandemics” and “epidemics” be
                 added to the MAE definition in the purchase agreement, but Kohlberg
                 rejected that language. 45

40
     PTO ¶ 12.
41
     See JX-457.
42
     Trial Tr. at 645:10–22 (Hollander); see JX-500; Trial Tr. at 332:5–24 (Twedell).
43
     See JX-604; Trial Tr. at 905:7–20 (Vaynberg); id. at 192:10–193:11 (Anderson).
44
     See PTO ¶ 15; JX-703 at 4; Trial Tr. at 34:22–35:2 (Mantel).
45
     JX-669 at 1, 29, 109.
                                              9
         •      On March 5, at an all-partners meeting, Kohlberg’s deal team outlined the
                DecoPac transaction, its risks, and how to mitigate them, and the partners
                approved the transaction. 46

         •      On March 6, the parties signed a purchase agreement and related
                documents. 47

         In the background, the COVID-19 pandemic was escalating. On the day that

Kohlberg submitted its $600 million bid, COVID-related headlines dominated the front

page of the New York Times. One story discussed Apple’s warning “that demand for its

devices in China had been hurt by the outbreak.” 48 By February 25, the Center for Disease

Control had warned “that the new coronavirus will almost certainly spread in the United

States,” and that “cities and towns should plan for ‘social distancing measures.’” 49 On

March 4, California declared a state of emergency. 50 By March 5, global school-closings

affected 300 million students, with several closures in the U.S. and warnings of more to

come. 51

         One of the questions posed by this case is whether Kohlberg contractually agreed to

assume various COVID-19-related risks. To contextualize its legal argument on this point,

Kohlberg claims that it did not identify demand-related COVID-19 risks during due

diligence, expressly contracted for Plaintiffs to assume demand-related risks when

46
     See JX-696; JX-706; Trial Tr. at 474:2–15 (Hollander).
47
     See PTO ¶¶ 16–19.
48
     See JX-1911.
49
     JX-1912.
50
     JX-1475.
51
     See JX-688.
                                             10
negotiating the MAE provision, and did not demand a lower purchase price due to factors

related to COVID-19. Plaintiffs deny these factual contentions, claiming that Kohlberg

considered demand-related COVID-19 risks in due diligence, failed to shift those risks to

Plaintiffs during negotiations, and reduced the purchase price in view of those risks.

       These factual disputes prove largely irrelevant to the outcome of this decision,

which turns on unambiguous contractual language. Because the parties focus significant

attention on these factual disputes, however, this decision resolves them.

              1.     Kohlberg Explores COVID-19 Risks in Due Diligence.

       Plaintiffs contend that Kohlberg conducted due diligence on and agreed to assume

three risks related to COVID-19: (i) risk to DecoPac’s supply chain in China, where

COVID-19 was then prevalent; (ii) risk to equity, debt, and M&A market volatility; and

(iii) risk to demand for DecoPac’s products.

       Of these three risks, Kohlberg admits it conducted diligence on and agreed to

assume risks concerning the supply chain 52 and market volatility. 53 Kohlberg denies

assuming any demand-related risks. One Kohlberg witness went so far as to suggest that

52
  See JX-709; JX-2414 at 17–18; Trial Tr. 1302:5–1303:1 (Forrey). Kohlberg concluded
that the supply-chain risk was tolerable. Trial Tr. at 452:4–454:21, 469:7–24 (Hollander).
53
  Id. at 456:24–457:5 (Hollander). Kohlberg worried that extended volatility would mean
eventually selling DecoPac “in a less-favorable environment than when we bought the
business,” id. at 456:17–18 (Hollander), and debt markets also became less favorable to
borrowers in early March. Id. at 99:3–11 (Mantel); id. at 908:8–13 (Vaynberg). Kohlberg,
however, was “ready to sign a contract very quickly” and recognized “the value
that . . . speed brought to” Plaintiffs. Id. at 467:10–20 (Hollander). Kohlberg “ultimately
decided, with the deal that [it] signed, that [market volatility] was a risk [it] [was] willing
to absorb.” Id. at 456:24–457:5 (Hollander).

                                              11
Kohlberg never considered the impact that quarantines, stay-at-home orders, or other short-

term restrictions might have on the demand for DecoPac’s products, 54 but that was an

overstatement and contradicted by the witness’s later testimony. 55

         Although it is true that Kohlberg was focused primarily on supply-chain issues

related to COVID-19, 56 Kohlberg also investigated demand risks during due diligence.

         In fact, in response to global developments, Kohlberg proactively evaluated how the

spread of the virus in the U.S. might impact its portfolio companies. On February 26, 2020,

Woodward, Kohlberg’s self-proclaimed “chief worry officer,” warned Hollander, Frieder,

and others that “coronavirus [was] spreading across Europe and, despite our fearless

leader’s rhetoric, per the CDC [was] likely going to get meaningfully worse in the US,”

and that the firm should therefore evaluate the impact of “restrictions on public

gatherings.” 57 Those senior partners and the deal team visited DecoPac’s facilities the next

54
     See, e.g., id. at 459:16–21 (Hollander).
55
  Compare, id. at 459:16–21 (Hollander) (“We thought the risk of impact to the company’s
demand was unfathomable. We just didn’t think it was going to happen.”), with id. at
451:21–452:3 (Hollander) (“We had evaluated . . . a potential impact to the company’s
demand from COVID impacting behavior.”), and id. at 647:10–24 (Hollander) (confirming
that, during the February 27 site visit, Kohlberg representatives asked Anderson “what he
thought would happen to demand as a result of COVID”).
56
   See, e.g., supra note 43 and accompanying text; JX-604 at 3–4; JX-694 at 21–22; JX-
709; JX-2414 at 17–18; see also Trial Tr. at 452:14–20 (Hollander) (“Much of DecoPac’s
products are manufactured in China and shipped to DecoPac here in North America. So
the concern was, because COVID-19 was really prevalent in China at the time, that there
could be some disruption by the Chinese manufacturers in the manufacture and shipping
of the products to DecoPac.”).
57
     Trial Tr. at 1404:19–1407:1 (Woodward); see JX-612 at 2.
                                                12
day. 58 During that visit, Kohlberg raised the possibility of “demand being materially

impacted because there’s no parties.” 59

           During the all-partners meeting on March 5, Kohlberg’s deal team expressly

identified risks posed by COVID-19. 60        The presentation identified “key investment

risks” 61 and called out the “[p]otential demand issues if comprehensive quarantines were

instituted in [the] core U.S. market.” 62

           It is clear, therefore, that Kohlberg was concerned with the demand-related risk

arising from COVID-19. It is equally clear that Kohlberg dramatically underestimated in

early March 2020 the broad range of consequences that COVID-19 would have.

           As reflected in the March 5 presentation, Kohlberg viewed COVID-19 risk as

subject to a variety of mitigating factors, noting that “comprehensive U.S. quarantines seem

unlikely” and that any “impact would likely be temporary.” 63 Hollander testified that “at

the time, it was unthinkable that exactly what we were doing, sitting around a conference

table, eating cupcakes and talking, would be problematic, something you couldn’t do.” 64

He further testified that, pre-signing, they were “living [their] lives as [they] always had.”65

58
     See supra note 42 and accompanying text.
59
     Trial Tr. at 458:8–459:2, 461:18–462:3, 645:10–647:21 (Hollander).
60
     See JX-694 at 18; Trial Tr. at 465:16–22, 469:7–470:23 (Hollander).
61
     JX-694 at 18.
62
     Id.
63
     Id.
64
     Trial Tr. at 458:22–459:2 (Hollander).
65
     Id. at 457:13–458:7 (Hollander).
                                              13
Indeed, the team signed the deal documentation in Miami, fresh off a firmwide event

featuring “the full investment team packed in a room heatedly debating trivia.” 66

                2.      Negotiation of the MAE Provision

         On March 4, Plaintiffs sought to carve out “pandemics” and “epidemics” from the

definition of a “Material Adverse Effect” two days before signing. 67 At the time, the draft

purchase agreement contained an MAE provision that made no reference to pandemics or

epidemics but included other broad carveouts for effects related to “general economic

conditions,” “terrorism or similar calamities,” and “government orders.” 68 Snow Phipps’s

counsel sought to expressly add the terms “epidemics” and “pandemics.” 69 Kohlberg

responded on March 5, reverting to the pre-existing draft. 70

         That evening, Plaintiffs’ counsel again asked that pandemics and epidemics be

excluded from the MAE definition. 71 Kohlberg’s counsel rejected the change, stating that

Kohlberg “could not accept the epidemic/pandemic risk.” 72 Also that evening, Vaynberg

called Hollander “about the MAE point” to further pursue a pandemic carveout, and

Hollander responded that “we absolutely cannot give it.” 73

66
     Id. at 1316:21–1317:15 (Forrey).
67
     See JX-669 at 1, 29, 109.
68
     See JX-661 at 15–16.
69
     JX-669 at 29, 109.
70
     JX-711 at 1, 21.
71
     JX-741; JX-749.
72
     Trial Tr. at 944:22–945:2 (Martinelli).
73
     JX-751 at 1; see Trial Tr. at 484:1–18 (Hollander).
                                               14
         Again, Kohlberg takes a strident position, arguing that the only conclusion to be

drawn from this exchange is that the parties allocated to Plaintiffs any potential unknown

risks of the pandemic, including the risk that demand for DecoPac’s products would be

decimated as Americans radically shifted the way they celebrate occasions in response to

the pandemic. 74

         This conclusion, however, does not square with multiple aspects of the record.

Vaynberg testified that when he spoke to Hollander about this issue on May 5, Hollander’s

explanation for rejecting further changes to that definition was simply not “want[ing] to be

the first private equity firm that plays in the middle market space to have that language in

the MAE.” 75 Woodward denied that Kohlberg intended “some special risk transfer that

was atypical to the seller as a result of the insertion of [the MAE] clause.” 76 Mantel

testified that he would have never agreed to the transaction if he believed that by sticking

with the pre-existing MAE definition, Kohlberg was shifting COVID-19 demand risk to

Plaintiffs. 77

74
     See Trial Tr. at 464:1–7 (Hollander).
75
   Id. at 882:17–883:16 (Vaynberg); see also id. at 43:5–11 (Mantel) (“[Vaynberg]
conveyed to me that [Hollander] said that, as a matter of precedent, Kohlberg was unwilling
to include this language, that they didn’t want to be the first middle-market private equity
firm to include this language.”).
 Id. at 1437:7–1438:1 (Woodward) (testifying that the understood that the MAE provision
76

was a “typical clause”).
77
   Id. at 45:8–12 (Mantel) (testifying that Snow Phipps would “absolutely not” “have
agreed to this deal and signed the SPA at the reduced price of $550 million if [it] understood
that Snow Phipps was bearing the risk of COVID”).

                                             15
         The most illuminating evidence on this point was the testimony of the deal attorneys

who negotiated the provision. Both Kohlberg’s and Plaintiffs’ deal attorneys testified that

the proposed epidemic/pandemic language was a form of “belt and suspenders.” 78 During

her deposition, Kohlberg’s deal attorney described the March 5 conversation with

Plaintiffs’ deal attorney as follows:

                [I] tried to give him some comfort, which was that the language
                within the MAE definition, because there was a general carve-
                out for economic downturns, I thought that that provided a
                good amount of coverage on the area -- on the issue because,
                frankly, at the time, that’s what -- how I viewed the risk of
                COVID to our country. 79

Both attorneys testified that, even without express epidemic/pandemic language, if

COVID-19 caused any of the events that were carved out from the MAE definition, the

events would not qualify as an MAE. 80 For example, “if the impact of COVID has an

economic downturn, it impacted [DecoPac’s] business not disproportionately relative to

others in the industry, then I viewed that as being our [Kohlberg’s] risk.” 81 The same was

true for the carveout for governmental orders. 82

78
     See id. at 946:4–9 (Martinelli); Wood Dep. Tr. 202:10–25.
79
     Trial Tr. at 945:7–13 (Martinelli).
80
   See id. at 944:14–946:18 (Martinelli) (“I told [Wood] that we could not accept the
epidemic/pandemic risk. . . . Putting aside the disproportionate impact language, if the
impact of COVID has an economic downturn, it impacted [DecoPac’s] business not
disproportionately relative to others in the industry, then I viewed that as being
[Kohlberg’s] risk.”); Wood Dep. Tr. at 202:13–18 (testifying that the words
“epidemic/pandemic” “would cover any . . . situation that is not already covered by the
exceptions to the definition which were already very broad”).
81
     Trial Tr. at 946:14–18 (Martinelli).
82
     Id. at 947:8–948:3 (Martinelli).
                                              16
                 3.    Purchase Price Reduction

          On March 4, McKinney delivered Kohlberg’s demand for a price cut from $600

million to $550 million by email. 83 Snow Phipps was in a bind. They did not think it was

realistic to reach out to other bidders given the effect of COVID-19 on markets and their

desire to avoid a failed sales process, so they accepted the lowered offer. 84

          McKinney’s March 5 email attached a two-page PowerPoint presentation

discussing the basis for the revised valuation. 85 The proposal identified three reasons. The

first was “[h]istoric market volatility.” 86 The second was the “[r]eduction in underwritable

EBITDA” to $46.7 million, which was below the $49.2 million in “validated 2019 Pro

Forma EBITDA” that Kohlberg had used in its internal investment committee materials

the day before. 87     The third was “2020 budget expectations reduced,” which again

highlighted the impact of coronavirus by predicting “some pull back in consumer demand

in the short to medium term” and the implications of the “near term given economic

uncertainty.” 88

          Kohlberg denies that the third concern in any way related to COVID-19. 89 Kohlberg

insists that the “vast majority” of the price reduction came from the reduction in EBITDA

83
     See PTO ¶ 15; JX-703 at 1, 4.
84
     Trial Tr. at 35:9–23 (Mantel).
85
     JX-703 at 4–5.
86
     Id. at 4.
87
     Compare id. at 5, with JX-694 at 5.
88
     JX-703 at 4.
89
     See Trial Tr. at 1314:14–21 (Forrey).
                                              17
due to QofE. 90 According to Kohlberg, the $600 million bid assumed DecoPac’s 2019 pro

forma adjusted EBITDA was $49.8 million, but Kohlberg came to realize that number was

off. 91 Snow Phipps’s QofE EBITDA figures were inconsistent, fluctuating between

approximately $46 and $49 million. 92 After submitting its February 18 bid, Kohlberg

worked with its own accounting advisor, KPMG, to “dig[] in” and evaluate the data, and

concluded that process with a “different view of the timing and the complexity of achieving

those savings.” 93 Kohlberg and KPMG ultimately arrived at a pro forma EBITDA of

$49.2 million. 94

         Kohlberg also claims to have had unanswered concerns about DecoPac’s 2020

budget. Although Kohlberg initially requested a monthly budget with customer-by-

customer projections, on February 28 Kohlberg received only a quarterly budget and

annual customer breakdowns. 95 On March 2, Kohlberg conveyed to Vaynberg its concerns

with both the format and content of these budget documents. 96 Forrey explained that

90
     Id. at 478:2–4 (Hollander).
91
     Id. at 474:22–475:13 (Hollander).
92
  See JX-345 at cells O71, O73 (February 8 first draft of QofE, showing $46.699 million
pro forma adjusted and $48.430 million run-rate adjusted EBITDA); JX-362 at cells G36,
G40 (February 11 draft showing $48.547 million adjusted and $49.773 million pro forma
adjusted EBITDA); JX-403 at cell F16 (February 16 DecoPac model showing $49.614
million adjusted EBITDA); JX-470 at tab 3, cells O51, O62 (February 19 final QofE
showing $46.540 million pro forma adjusted and $48.388 million run-rate adjusted
EBITDA).
93
     Trial Tr. at 1304:12–1305:5 (Forrey).
94
     JX-650 at 6.
95
     Trial Tr. at 1308:18–1309:15 (Forrey); see JX-557.
96
     JX-2460 at 1–2.
                                             18
quarterly and annual data did not let Kohlberg “see the progression though the year.” 97 He

flagged a “confusing” progression in the budget, where Q1 was predicted to be “basically

flat” over 2019 while the rest of the year grew significantly: “[I]f you’re not growing in

Q1, why is that? Is there not consumer demand for it, or is there something else going

on?” 98 Forrey also highlighted that the budget for Sam’s Club “didn’t really jibe with what

they had been telling us.” 99

          Forrey’s testimony regarding Kohlberg’s concerns over DecoPac’s QofE and 2020

budget was credible and squares with the contemporaneous evidence. Yet, these concerns

were not Kohlberg’s actual reason for the $50 million price cut, as simple math confirms.

Kohlberg identified a $600,000 difference in pro forma EBITDA as a result of business

and QofE diligence work. 100 Applying Kohlberg’s quoted “all-in multiple of 12.4x” to that

figure amounts to approximately $7.4 million. 101 This comports with Vaynberg’s belief,

as of March 1, that Kohlberg would ask for a $10 million price reduction after QofE

97
     Trial Tr. at 1310:9–13 (Forrey).
98
     Id. at 1311:7–14 (Forrey).
99
     Id. at 1310:14–1311:6 (Forrey).
100
   See JX-650 at 6 (validating $49.2 million in pro forma EBITDA, which is $600,000 less
than the $49.8 million pro forma EBITDA on which the $600 million bid was predicated).
101
      See id.
                                            19
diligence was completed. 102 So Kohlberg’s insistence that “DecoPac’s QofE and 2020

budget drove the price cut” does not add up. 103

         Rather, Kohlberg demanded a 10% price reduction on the eve of signing because

market volatility caused by COVID-19, coupled with Kohlberg’s ability to offer speed and

deal certainty against near-term risks, gave Kohlberg the leverage to do so.

         This is clear from internal Kohlberg communications. In an email to Frieder and

Woodward, Forrey supported the price reduction by explaining “that the key value in our

bid today is our speed and certainty to signing” and predicting that the new proposal “shows

our seriousness to transact in an uncertain environment.” 104 Hollander instructed that the

revised proposal include “one slide about corona virus and market conditions . . . [and the]

impact on our debt financing cost.” 105

         The two-page presentation Kohlberg emailed to Snow Phipps when demanding the

cut also supports this finding. The first sentence of the presentation stated that Kohlberg

was “prepared to sign the attached Stock Purchase Agreement at a valuation of $550

million in cash, and have committed debt financing and Reps and Warranty (“R&W”)

102
      See JX-599 at 1.
103
   See Dkt. 285, Defs.-Countercl. Pls.’ Opening Post-Trial Br. (“Defs.’ Post-Trial Opening
Br.”) at 18. Even giving Kohlberg the benefit of the doubt and crediting the $46.7 million
pro forma EBITDA number that was included in the presentation accompanying the
revised bid, this amounts to a $3.1 million decrease relative to the figure accompanying the
February 18 bid. Applying the 12.4x all-in multiplier to that figure, that would represent
$38.4 million in value. Thus, Kohlberg cannot show that QofE and the 2020 budget were
the exclusive drivers of the $50 million price cut.
104
      JX-744 at 1.
105
      JX-719 at 1.
                                            20
insurance.” 106 The last sentence of the first page reiterated that Kohlberg was “prepared to

execute definitive documentation immediately” and further stated that it “believe[d] that

given our unique knowledge of the business we are . . . taking significant risk other parties

would be unwilling to assume.” 107 As Forrey testified, Kohlberg drafted this presentation

“in order to put maximum pressure on Snow Phipps to sign a deal quickly.” 108

            Plaintiffs’ witnesses’ testimony is consistent with this finding. Mantel understood

that Kohlberg had reduced the purchase price “because of COVID.” 109 Vaynberg testified

that, in the phone calls between Hollander and Vaynberg about the revised bid, the “first”

and “primary” justification Hollander offered to explain the price cut was “coronavirus and

the disruption that that will cause to the company’s business model.” 110

            E.    The Agreements

            The parties executed the transaction documents on March 6, 2020. 111 Kohlberg

acquisition vehicle KCAKE Acquisition, Inc. (“KCAKE”), Snow Phipps, and DecoPac

Holdings Inc. executed the Stock Purchase Agreement (the “SPA”). 112                 Kohlberg

acquisition vehicle KCAKE Merger Sub Inc. and the Lenders (defined below) executed a

106
      JX-703 at 4.
107
      Id.
108
      Trial Tr. at 1350:21–1351:1 (Forrey).
109
      Id. at 29:9–15 (Mantel).
110
      Id. at 867:1–868:2 (Vaynberg).
111
      PTO ¶¶ 16–19.
112
      JX-1 (“SPA”).
                                                21
Debt Commitment Letter (the “DCL”). 113 A group of Kohlberg entities (the “Kohlberg

Funds”), DecoPac Holdings, Inc., and KCAKE executed an Equity Commitment Letter

(the “ECL”). 114 The Kohlberg Funds and DecoPac Holdings, Inc. executed a “Limited

Guarantee.” 115

          The parties’ dispute centers on the SPA and DCL. This decision summarizes the

pertinent provisions for background purposes here and then discusses them in greater detail

in the Legal Analysis.

                  1.     The SPA

          The SPA allocated risks in a range of provisions, including the following:

          •       Plaintiffs represented in Section 3 that there had not been a change that had,
                  or “would reasonably be expected to have,” a “Material Adverse Effect” (the
                  “MAE Representation”) 116 and that none of DecoPac’s top-ten customers
                  had “stopped or materially decreased the rate of business done” with
                  DecoPac (the “Top-Customers Representation”). 117

          •       Plaintiffs agreed in Section 6.1(a) to cause the Company to “operate the
                  Business in the Ordinary Course of Business” (the “Ordinary Course
                  Covenant”). 118

          •       Kohlberg represented in Section 5.6 that it had delivered a fully executed
                  DCL, that the DCL was binding and not subject to any conditions other than

113
      JX-2 (“DCL”).
114
   JX-3 (“ECL”). The “Kohlberg Funds” are Defendants Kohlberg Investors VIII-B, L.P.,
Kohlberg Investors VIII-C, L.P., Kohlberg TE Investors VIII, L.P., Kohlberg TE Investors
VIII-B, L.P., Kohlberg Investors VIII, L.P., and Kohlberg Partners VIII, L.P.
See PTO ¶ 19; ECL ¶ 1. Teachers Insurance and Annuity Association of America was also
a party to the ECL that agreed to fund a portion of the equity commitment. ECL ¶ 1.
115
      JX-4 (“Limited Guaranty”).
116
      SPA § 3.9(a).
117
      Id. § 3.21(a).
118
      Id. § 6.1(a)(i).
                                                22
                 those reflected on the face of the document, and that “Debt Financing shall
                 not be a condition to closing.” 119

            •    Kohlberg agreed in Section 6.15 to extensive covenants in connection with
                 “Debt Financing,” including to “use its reasonable best efforts” to undertake
                 certain actions relating to Debt Financing, 120 not to modify the DCL in a way
                 that would jeopardize the availability of funding absent consent from
                 Plaintiffs, 121 and to use “reasonable best efforts” to seek alternative financing
                 in the event the DCL should “expire” or otherwise become “unavailable.” 122

            •    Kohlberg could refuse to close under Section 7.1(a) unless Plaintiffs’
                 representations and warranties were true and correct as of the closing date
                 (the “Bring Down Condition”). 123 The Bring-Down Condition was subject
                 to a materiality qualifier, providing that inaccuracies did not excuse closing
                 unless they “would not have or reasonably be expected to have, individually
                 or in the aggregate, a Material Adverse Effect.” 124

119
     Id. § 5.6 (representing that Kohlberg had “delivered to the Company a fully executed
. . . debt commitment letter . . . reflecting the Debt Financing Sources’ commitment,
subject to the terms and conditions therein, to provide Buyer at Closing with debt
financing”). Kohlberg further represented that the DCL was “not subject to any conditions
precedent other than as set forth therein and, as of the date hereof, [was] in full force and
effect and [was] the legal, valid, binding and enforceable obligations of Buyer and, to the
knowledge of Buyer, each of the other parties thereto.” Id.
120
      Id. § 6.15(a).
121
    Id. § 6.15(b) (barring Kohlberg from unilaterally consenting to any change to the DCL
that would, among other restrictions, “materially adversely impact the ability of the Buyer
to . . . consummate the transactions contemplated by this Agreement or make funding of
the commitments thereunder less likely to occur”).
122
   Id. § 6.15(d) (providing that “[i]f notwithstanding the use of reasonable best efforts by
Buyer to satisfy their respective obligations under this Section 6.15, the Debt Financing or
the Debt Commitment Letter (or any definitive financing agreement relating thereto) expire
or are terminated or become unavailable prior to the Closing, in whole or in part, for any
reason, Buyer shall . . . use its reasonable best efforts promptly to arrange for alternative
financing from reputable financing sources (which, when added with the Equity Financing,
shall be sufficient to pay the amounts required to be paid under this Agreement from other
sources)”).
123
      Id. § 7.1(a).
124
      Id.
                                                 23
            •    Kohlberg could refuse to close under Section 7.1(b) if Plaintiffs failed to
                 perform and comply with all of their respective covenants (the “Covenant
                 Compliance Condition”). 125 The Covenant Compliance Condition was
                 subject to a materiality qualifier, requiring that Plaintiffs perform “in all
                 material respects.” 126

            •    Kohlberg had the right to terminate under Section 8.1(d) if Plaintiffs
                 breached the conditions in Section 7.1. 127 This right was qualified by a
                 mandatory cure provision requiring Kohlberg to provide “a notice in
                 writing . . . specifying the breach and requesting that it be remedied” within
                 twenty days (the “Cure Provision”). 128

            •    Kohlberg agreed in Section 11.14 that Plaintiffs are entitled to specific
                 performance “if and only if” certain conditions are met, including that “the
                 full proceeds of the Debt Financing have been funded to Buyer” (the “Debt
                 Financing Condition”). 129

            •    Plaintiffs agreed in Section 8.3(a) that a termination fee of $33 million (the
                 “Termination Fee”) “shall be the sole and exclusive remedy (whether at law,
                 in equity, in contract, in tort or otherwise) . . . against Buyer . . . for any and
                 all losses, costs, damages, claims, fines, penalties, expenses (including
                 reasonable fees and expenses of outside attorneys), amounts paid in
                 settlement, court costs, and other expenses of litigation suffered as a result of
                 any breach of any covenant or agreement in this Agreement or the failure of
                 the transactions contemplated hereby to be consummated.” 130 Plaintiffs also
                 agreed, in Section 8.3(a), that “[u]nder no circumstances” will Plaintiffs “be
                 entitled . . . to receive both a grant of specific performance and the . . .
                 Termination Fee,” or “to receive monetary damages other than the
                 Termination Fee.” 131

125
      Id. § 7.1(b).
126
      Id.
127
      Id. § 8.1(d).
128
      Id.
129
      Id. § 11.14(b).
130
      Id. (emphasis added).
131
      Id.
                                                 24
         On its face, the SPA does not have an expiration date and imposes an ongoing

obligation to close. Section 8.1(c) provides a May 5, 2020 “Outside Termination Date,”

after which either party may terminate the agreement, provided that “the right to

terminate . . . shall not be available to any party hereto whose failure to fulfill any of its

obligations under this Agreement has been the cause of, or resulted in, the failure of the

Closing to occur on or before the Outside Termination Date.” 132

                2.     The Debt Commitment Letter

         Kohlberg entered into the DCL with Antares Capital LP (“Antares”), the First Lien

Administrative Agent; Ares Capital Management LLC (“Ares”), the Second Lien

Administrative Agent; Owl Rock Capital Private Fund Advisors LLC (“Owl Rock”); and

Churchill Asset Management LLC (“Churchill,” and collectively with Antares, Ares, and

Owl Rock, the “Lenders”). 133 Antares, Owl Rock, and Ares were existing lenders to

DecoPac, which is why Kohlberg viewed them as good counterparties for the DCL. 134

         The DCL established a framework that the parties would use to draft a final credit

agreement. It was heavily negotiated. 135 In the DCL, the parties agreed that “this

132
    Id. § 8.1(c).      Kohlberg does not argue that termination is appropriate under
Section 8.1(c).
133
      See DCL at 1–2; Trial Tr. 488:4–11 (Hollander).
134
    See Trial Tr. at 22:10–16, 1607:11–17 (Mantel); id. at 490:10–21 (Hollander); id.
at 800:2–3 (Antares); Owl Rock Dep. Tr. at 129:20–130:9; Ares Dep. Tr. at 16:6–18:4.
135
      See SPA § 6.15(a); Trial Tr. at 1294:14–1295:5 (Forrey).
                                             25
Commitment Letter is a binding and enforceable agreement with respect to the subject

matter contained herein.” 136

          The DCL stated that the Lenders would provide a total of $365 million in debt

financing facilities that would be used to fund the DecoPac acquisition. 137

          The DCL contained a financial maintenance covenant that permitted a maximum

leverage ratio (the “Financial Covenant”). 138 That covenant would be tested quarterly,

beginning on the last day of the second full fiscal quarter after the closing date of the

acquisition. 139 Generally, when a borrower defaults on a financial covenant, the entire loan

becomes payable, and creditors may seek appropriate remedies under law, including

foreclosing on collateral if the loan is secured. 140

136
      DCL ¶ 9.
137
      Id. at 1.
138
    Id. Ex. B, at B-38. The DCL defines “Consolidated Total Net Leverage Ratio” as “the
ratio of (i) consolidated net debt (consisting of indebtedness for borrowed money,
capitalized lease obligations and purchase money debt as reflected on the balance sheet of
the Borrower and its restricted subsidiaries, minus unrestricted cash and cash equivalents
of the Borrower and its restricted subsidiaries to (ii) Consolidated EBITDA for the most
recent four fiscal quarter period[s].” Id. Ex. B, at B-12–13.
139
      Id. Ex. B, at B-38.
140
    See, e.g., JX-125 Art. VIII (EN Engineering final credit agreement); see also Trial Tr.
at 492:17–24 (Hollander) (“[W]hen you breach the covenant, you are -- you’re in breach
of the contract, and, you know, ultimately, if they so chose, the lenders could accelerate
the loan if it wasn’t able to be repaid, and if their leverage was greater than 10.25 times, it
probably could be, they could take possession of the collateral, which would be obviously
disastrous for the . . . holders.”).

                                               26
         A critical aspect of the Financial Covenant was the definition of “Consolidated

EBITDA.” The parties heavily negotiated this point, 141 and the result was a detailed, three-

page definition of “Consolidated EBITDA.” 142

         Forrey and Kohlberg’s Director of Credit, Albert Scheer, negotiated the DCL for

Kohlberg. 143 They selected as a precedent document the agreement from Kohlberg’s

acquisition of EN Engineering, which they regarded as borrower-friendly precedent. 144 In

addition, Ares, Antares, and Churchill were parties to the EN Engineering agreement, so

Kohlberg believed that they would agree to similar terms. 145

         The DCL, under its terms, was set to expire on May 12, 2020. 146

         F.     Events Leading to Litigation

         As discussed below, immediately after signing, Kohlberg braced for a possible

decline in DecoPac sales, preparing a “shock case” to determine how far DecoPac’s

revenue could decline before Kohlberg would breach the Financial Covenant post-closing.

And shortly after signing, DecoPac’s sales began to decline precipitously. Even so, both

Kohlberg’s deal team and DecoPac’s management remained confident that the Company

would recover by year-end. Kohlberg partners, however, developed buyer’s remorse and

141
      See, e.g., Trial Tr. at 783:9–18 (Antares); id. at 827:18–24 (Owl Rock).
142
      See DCL Ex. B, at B-38–40.
143
      See Trial Tr. at 1289:18–1290:19 (Forrey).
144
      See id. at 1290:20–1291:23 (Forrey).
145
      See JX-125 at 1.
146
      See DCL ¶ 15; SPA § 8.1(c).
                                              27
set on a course of conduct predestined to derail Debt Financing and supply a basis for

terminating the agreements.

                  1.   Kohlberg’s “Shock Case”

          On the same day that Kohlberg executed the transaction documents, Kohlberg

created a COVID-19-inspired “shock case” measuring how its investment in DecoPac

would perform in the event of a revenue decline. 147

          The shock case projected that DecoPac could experience a steep decline in revenue

and remain compliant with its post-closing debt covenants reflected in the DCL. The model

showed that DecoPac could withstand between a 15% and 20% revenue decline before

violating the Financial Covenant. 148 Forrey also told Hollander that, if the shock case were

to consider the addbacks contained in the DCL’s “incredible EBITDA definition,” then the

Company could suffer up to a 25% decline in revenue and stay in compliance with the

Financial Covenant. 149

                  2.   DecoPac Veers Toward the Shock Case.

          On March 17, Anderson mentioned during a call with Forrey that DecoPac had

experienced a 50% decrease in call volume the previous day and “expect[ed] bakery to

slow down.” 150 Anderson also conveyed that one of DecoPac’s top customers, the H.E.

147
      See JX-805.
148
      Id. at cells N80–81, O80–81, P80–81.
149
      See id. at 1.
150
      JX-879 at 2.
                                             28
Butt Company (“HEB”), had put all orders on hold “for at least a week.” 151 Anderson did

not expect a persistent decline. He “expect[ed] it to catch-up” after two to three weeks. 152

The following week, DecoPac began providing Kohlberg with weekly sales reports. 153

            Kohlberg’s deal team had already reached similar conclusions. By March 16, they

came to believe that the shock case was likely but that the impact would be short lived. 154

            In the weeks that followed, DecoPac’s weekly sales reports reflected that the

Company continued to struggle. During the week of March 21, weekly “regular” sales

were down 42.4% year-over-year. 155 During each of the following four weeks, regular

sales were down 63.9%, 60.3%, 62.2% and 53.4%, respectively. 156 Total sales during those

five weeks saw a year-over-year decrease of 27.5%, 54.8%, 55.5%, 41.9%, and 15.4%,

respectively. 157

151
      Id.
152
      Id.
153
      See JX-1059; JX-1210; JX-1365.
154
    See JX-843 at 1 (Hollander stating his view on March 13, that any impact to the
Company would be short-lived and that the Company will see “a swift bounce back”); JX-
857 at 1 (McKinney stating in a March 16, internal email to Forrey that, in his view,
DecoPac was experiencing the “worst case scenario that we talked about at [the investment
committee meeting],” i.e., the shock case, and that “any pain would be limited to a quarter
or so”); id. (Forrey responding to McKinney and stating that DecoPac would not “see 100%
drop out of sales, but it is definitely going to have an impact for a few weeks”).
155
   JX-2432 at cell Q15; DDX-3.25. DecoPac’s “regular” sales are sales that exclude
preorders or “exclusions,” which are typically placed up to five months in advance.
See Trial Tr. at 238:17–21, 239:10–16, 240:4–8 (Anderson).
156
      JX-2432 at cells Q16–19; DDX-3.25.
157
      JX-2432 at cells S15–19.
                                               29
            On March 23, Anderson decided that DecoPac needed to minimize marketing

expenditures, capital expenditures, and labor costs 158 and halt spending “on all outside

consultants.” 159 He also instructed DecoPac’s vendors to halt or delay production and

shipments 160 and “pulled the plug on all IDDBA spending.” 161 DecoPac made Kohlberg

aware of these changes to DecoPac’s business. 162

            Sales to some of DecoPac’s top-ten customers were also declining. By the end of

April 2020, year-to-date sales to each of DecoPac’s top-ten customers were down between

8.1% and 30.8% compared to January–April 2019. 163 Sales to HEB realized the largest

decline, with year-to-date sales decreasing 30.8%. 164 In terms of gross profit, year-to-date

changes ranged from a 27.9% decrease to a 0.7% increase. 165 Again, HEB recorded the

158
      JX-1331 at 2.
159
      JX-982; Trial Tr. at 276:1–11 (Anderson).
160
    JX-1022 at 1–2; Trial Tr. at 276:24–277:5 (Anderson); see also JX-1022 (Twedell
stating: “I did have a conversation with [Anderson] and understand that we will not be
contacting our customers and asking them things that may cause them to re-think their
planned orders.”).
161
   JX-982. But see Trial Tr. at 276:12–18 (Anderson) (clarifying that this referred only to
“the [IDDBA] show that was going to be in June,” and “[n]ot all spending”). “IDDBA”
refers to the International Dairy-Deli-Bakery Association.
162
      See JX-1063; JX-1153.
163
      JX-1232 at 36.
164
      Id.
165
      Id.
                                               30
largest decline, with year-to-date profit decreasing 27.9%. 166 DecoPac’s total year-to-date

decrease in sales was 16.5%, and its total year-to-date decrease in profits was 14.8%. 167

            Consistent with the prognosis of Anderson and Kohlberg’s deal team, however, the

sales decline proved a blip. As discussed below, the Company began to recover by the

week of April 18. Ultimately, DecoPac’s 2020 revenue declined 14% and adjusted

EBITDA declined 25% relative to 2019. 168

                  3.     Kohlberg Develops a Case of Buyer’s Remorse.

            Before the decline in DecoPac’s performance, Kohlberg’s senior leadership began

to develop buyer’s remorse.

            Kohlberg’s sense of regret seems to have first emerged around March 17, when

Kohlberg convened an all-partners meeting to discuss the impact of COVID-19. 169 In

preparing for the meeting, the Kohlberg partners discussed whether Kohlberg would have

sufficient funds to support the capital needs of its portfolio companies and whether

Kohlberg would have to recycle capital in order to fund the acquisition of DecoPac. 170

Around the same time, senior leadership was considering opportunities to invest in

distressed debt, which seemed like a potentially more attractive use of capital from the

Kohlberg Funds. 171

166
      Id.
167
      Id. at 36–37.
168
      PDX-15; see JX-182; JX-1717; JX-1933.
169
      See JX-859.
170
      See id.; JX-872.
171
      Trial Tr. at 986:12–987:5 (Frieder); see id. at 1421:17–1422:9 (Woodward).
                                               31
          On the heels of the March 17 all-partner meeting and after consulting with

Woodward and Frieder, Hollander scheduled a call with Paul Weiss to discuss “closing”

on DecoPac. 172 At that point, Kohlberg had zero quantitative data regarding DecoPac’s

performance beyond learning about two days of reduced call volume, and Kohlberg had

done nothing to investigate the situation further.

          The call occurred on March 18. 173 During the call, McKinney circulated to counsel

by email a redline of the SPA reflecting edits to the MAE provision, with the cover email

stating “[a]s discussed, please see attached.” 174 The March 18 call was the first of what

would become near-daily calls among Paul Weiss litigators, Kohlberg’s deal team,

Woodward, and Frieder. 175

                  4.   Kohlberg Begins Preparing Pessimistic Forecasts.

          Immediately after the March 18 call, Hollander reported to Woodward and Frieder

on his discussion with Paul Weiss. 176 Although the participants claim not to recall what

they discussed, 177 the conversation kicked off a chain of modeling exercises, all of which

projected that the Company’s performance would decline precipitously.

172
   See JX-884. Both litigators and transactional attorneys were scheduled to be on the call.
See id.
173
      JX-883 at 1.
174
      Id. at 3.
175
      See, e.g., id.; JX-1910; Trial Tr. at 698:16–699:6 (Hollander); see also PDX-6.
176
      JX-891.
177
    See Trial Tr. at 608:8–10 (Hollander); id. at 1443:7–12 (Woodward); Frieder Dep. Tr.
at 45:13–46:12.

                                              32
            On March 19, Hollander set up a call with Forrey and McKinney “to discuss some

Deco analysis that I think we should get started.” 178 Hollander claimed not to recall the

details of this call, but he admitted the call related to his conversation with Paul Weiss. 179

            On March 22, McKinney circulated the first version of a revised financial model. 180

McKinney did not start with any input from the Company, and he acknowledged that his

model would require feedback from Anderson to test the assumptions. 181                 Rather,

McKinney started with what he described as “some pretty draconian assumptions . . . for

March–July of 2020.” 182 For example, the model slashed DecoPac’s projected 2020

adjusted EBITDA to $28.9 million. 183

            On the morning of March 23, Hollander, Frieder, and Woodward met to discuss

DecoPac. 184 By that point, Frieder and Woodward were exploring how to access capital to

invest in distressed debt. 185 But the DecoPac transaction posed an obstacle: Kohlberg’s

Fund VIII was effectively fully committed if the DecoPac sale closed, and Fund IX had

178
      See JX-954 at 1.
179
      Trial Tr. at 514:1–515:2, 702:3–703:10 (Hollander).
180
      JX-954.
181
      Id. at 1.
182
      Id.
  Id. at cell Y46. Kohlberg’s original investment memorandum projected 2020 adjusted
183

EBITDA of $51.8 million. JX-694 at 37.
184
   See JX-967 at 202. The participants claim that they either cannot recall the meeting or
cannot describe it without disclosing privileged information. See Trial Tr. at 705:23–
707:3 (Hollander); id. at 1446:20–1448:5 (Woodward); Frieder Dep. Tr. 210:4–25.
185
      Trial Tr. at 986:12–987:1 (Frieder).
                                                 33
not yet opened. 186 To free up capital, Woodward suggested “splitting Deco [between the

two funds] if we decide we have to own it.” 187 Woodward was thus already characterizing

Kohlberg’s contractual obligation as an option. At trial, Woodward maintained that he

meant that Kohlberg was “evaluating [its] rights and obligations.”188 Even with this

characterization, it is clear that Kohlberg was thinking about ways to avoid closing.

         Immediately after the March 23 call, Hollander spoke with McKinney and Forrey.

McKinney left that meeting with the impression that Hollander had made up his mind to

terminate the transaction, stating in an email sent the next day: “Given [Hollander’s] tone

this morning, it sounds like we have our mind made up . . . .” 189

         After the March 23 call, McKinney and Forrey began working on “downside cases.”

Over the next several hours, they generated “two different downside cases”: (i) the “GW

Case” or the “Gordon Case”; and (ii) a less pessimistic projection labeled the “Downside

#1 Case.” 190

         The GW Case, named after Kohlberg’s CIO Gordon Woodward, reflected what

Forrey and McKinney considered “very grim” assumptions under which DecoPac would

effectively cease operating, including:        (i) a “[c]omplete shutdown through Q3”;

186
      See JX-1000 at 1–2.
187
      Id. at 1 (emphasis added).
188
      See Trial Tr. at 1446:1–19 (Woodward).
189
      JX-995 at 1 (emphasis added).
190
      JX-998 at 1.
                                               34
(ii) “[f]acilities are closed”; and (iii) an “18 month rebound to baseline after that.” 191 These

assumptions translated to a projected $3.6 million in 2020 adjusted EBITDA, less than

10% of its 2019 total. 192

         Kohlberg’s witnesses could not agree on who provided the assumptions for the GW

Case. Multiple witnesses claimed credit, and its namesake denied involvement. 193 The

clearest testimony on the issue was from Hollander, who explained that the model rested

on the assumptions that birthday parties constitute 80% of the demand for DecoPac’s

products, that COVID-19 would lead to the cancellation of nearly all birthday parties, and

that the result would be a collapse in cake purchases for all related occasions for at least

two quarters. 194 Aside from personal hunches, the Kohlberg witnesses offered no support

for any of these assertions. 195

191
      JX-994 at 1; JX-997 at 3.
192
      See JX-998 at cells T46, Y46.
  See Trial Tr. at 515:22–516:8 (Hollander); id. at 12336:24–1237:19 (McKinney); id. at
193

1370:5–8 (Forrey); id. at 1450:8–14 (Woodward).
194
      Id. at 516:11–517:10 (Hollander); see also JX-995.
195
    See Trial Tr. at 593:15–596:2, 597:2–14 (Hollander) (testifying that he could not recall
“how [he] came up with the nonseasonal parties percentage,” “what the assumptions are
that went into the nonseasonal parties percentage,” anything “about the percentage of
birthdays canceled,” or anything “about the percentage of canceled seasonal events”); id.
at 1324:3–12 (Forrey) (“Q. So, Mr. Forrey, what assumptions drove your revisions to the
model? A. So my view was that COVID was going to hit the company really hard, just
given what we were hearing from [Anderson] and the correlation of, you know, the worst
situation with the COVID and the worst situation with company sales. But I thought
COVID would only last through May. So I thought that it would whack the company, but
COVID would go away and people would go back to having parties.”).

                                               35
         The second model, the Downside #1 Case, projected $182.8 million in revenue and

$37.8 million in 2020 adjusted EBITDA, 196 a result that Kohlberg had previously

confirmed would not breach the Financial Covenant. 197 McKinney and Forrey believed at

the time that, “[w]ithout weekly sales information from [Anderson] or clarity on whether

the operation will be shut down,” the Downside #1 Case “could be a good place to start.”198

         The Downside #1 Case, however, was abandoned shortly after it was created;

Hollander instructed McKinney not to send it to Woodward. 199 By contrast, the GW Case

became the foundation for further discussions among the deal team and further modeling—

Hollander began re-labeling the GW Case as the “base case.” 200

                5.     Kohlberg Belatedly Seeks and Then Ignores Input from DecoPac.

         Kohlberg called DecoPac’s management team for information concerning the

Company’s actual performance on March 24, after it had already independently reached

pessimistic conclusions about DecoPac’s future sales. 201

196
      JX-998 at cells Y16, Y46.
197
      See supra notes 148–149 and accompanying text.
198
      JX-998 at 1.
199
      See JX-961 at 2; JX-965 at 1.
200
      Trial Tr. at 522:8–23 (Hollander); see JX-965 at 1.
201
   See Trial Tr. at 209:14 –210:4 (Anderson) (testifying that the March 24 call was the
“next call” with Kohlberg after the March 17 call).

                                              36
         Anderson believed that the purpose of the call was to discuss an employee’s

termination, but after a few minutes discussing that employee, the Kohlberg representatives

began questioning Anderson about DecoPac’s sales between March 17 and March 24. 202

         McKinney told Anderson these questions were necessary because “the lenders were

asking a bunch of questions.” 203 That was false. 204

         Anderson relayed that “call-in orders . . . were down 30 to 40 percent.” 205

McKinney’s contemporaneous notes reflect that Anderson also told Kohlberg that “[p]re-

orders are still shipping out” and that “customers aren’t cancelling their pre-orders, but are

delaying them.” 206

         Following the call, McKinney provided a list of data requests. 207 Kohlberg again

represented that they had “been having ongoing dialogue with [their] lenders” who had

been requesting the information Kohlberg now sought from DecoPac. 208 This statement

was inaccurate. The Lenders had not requested the data.

         Anderson answered most of the requests on March 25, providing the Company’s

latest monthly financial results and weekly sales figures for regular orders, only the latest

202
      Id. at 210:2–212:2 (Anderson).
203
      Id. at 211:16–23 (Anderson) (emphasis added); accord. JX-1007 at 1.
204
      See Trial Tr. at 1272:11–1273:5 (McKinney).
205
      Id. at 525:23–526:4 (Hollander); accord. JX-319 at 12.
206
      JX-1026 at 1; see also Trial Tr. at 523:20–526:4 (Hollander).
207
      JX-1037 at 3.
208
      See id. at 2 (emphasis added).
                                              37
week of which showed any meaningful decline relative to 2019 results. 209 Based on

customer feedback, they conveyed that customers anticipated “a return to ‘normalcy’” by

the end of the summer. 210 Anderson also previewed that Twedell would provide additional

information the next day. 211

         Assembling a reforecast on such short notice was a heavy lift for DecoPac’s

management team, which viewed it as “a fairly extensive exercise” on par with the “budget

process, which takes weeks, months, to do.” 212            At trial, Twedell described the

reforecasting process and the process of preparing the Company’s annual budget

projections, both of which require involvement from the finance, management, marketing,

accounting, and executive teams across DecoPac’s businesses. 213

         DecoPac’s budgeting process employed a bottom-up approach, which Twedell

described as follows:

                It is engaging with the organization to understand not only
                what’s happened up to that point, but what the expectations are
                through the end of the year, not only from a sales standpoint,
                understanding what sales programs are in place, what
                customers are doing, what orders for events might be on the
                books already, but also then talking to the folks in the
                organization on where they stand on spending activities, are
                they still on track to do what they had said they were going to

209
      See JX-1058.
210
      Id. at 2; accord. Trial Tr. at 215:1–217:12 (Anderson).
211
      JX-1058 at 1.
212
      Trial Tr. at 342:11–16 (Twedell).
213
   Id. at 344:9–347:3, 370:20–373:15 (Twedell). DecoPac’s management team had
considerable experience with the Company, as the CEO, CFO, and Controller had worked
for DecoPac for 24, 21, and 15 years, respectively. Id. at 160:8–10, 183:17–
184:4 (Anderson).

                                              38
                 do in light of the overall plan that they had going into the year
                 so that we could map out where we think we’re going to end.214

The forecasting team then supplements those conversations with “[c]ontinued

engagement . . . where the product marketing, design development team will meet with the

sales force and let them know what’s coming up so that they can incorporate that into their

plans.” 215 Lastly, the analysis is informed by “[d]iscussions with . . . customers who have

been giving them insight as to what programs . . . they plan to do in the coming year.” 216

         All of the information described above “would roll up into a sales view that [the

Company] would then . . . look at from . . . an overall level” in a “bottoms-up/top-down”

analysis of “the business expectations.” 217 According to Twedell, Anderson had “an

uncanny awareness of the business” and was extremely adept at creating accurate

forecasts. 218

         The Company tasked senior financial analyst Karen Reckard with creating the

forecast. 219 Reckard was uniquely situated to make those projections because she “sits in

on the weekly sales call . . . so she can hear and be aware of factors relevant to the

marketplace.” 220 Reckard and the DecoPac team proceeded to assemble a reforecast for

214
      Id. at 371:12–24 (Twedell).
215
      Id. at 372:7–13 (Twedell).
216
      Id. at 372:14–16 (Twedell).
217
      Id. at 372:16–21 (Twedell).
218
      Id. at 348:2–9 (Twedell).
219
      Id. at 344:11–345:6 (Twedell).
220
      Id. at 345:13–22 (Twedell).
                                                39
March through June. 221 They followed its annual budget process to accomplish this goal,

incorporating “feedback . . . from the customers and the suppliers and the trade,” including

that customers thought “there’s going to be a huge, pent-up demand” because “government

orders were going to start to be lifted the Monday after Easter.” 222 They also believed that,

regardless of the state of government orders, Americans would find a way to celebrate life

events amidst the pandemic and in-store bakeries would find a way to satiate the

corresponding the demand for decorated cakes. 223

         Anderson simultaneously worked on a forecast reflecting “his long history with the

business, his engagement with the sales team . . . and awareness of the business.” 224

DecoPac’s management team then combined Reckard’s and Anderson’s projections “to

decide what the right numbers would be for the reforecast.” 225

         Reckard’s and Anderson’s projections were “very, very close” to one another. 226

After comparing and combining those projections, Reckard and DecoPac Controller Toby

221
      Id. at 217:17–219:20 (Anderson); see also JX-1066.
222
      Trial Tr. at 217:13–219:11 (Anderson).
223
      See JX-1153 at 1.
224
      Trial Tr. at 346:16–347:3 (Twedell).
225
      Id. at 347:1–3 (Twedell).
226
   Id. at 219:8–11 (Anderson); see id. at 348:10–13 (Twedell). Reckard’s bottom-up
analysis projected sales declines of 23%, 29%, 33%, and 10% for March, April, May, and
June, respectively. JX-1108 at cells O58, O71, O84, O97. Anderson projected sales
declines of 22%, 30%, 25%, and 15% for March, April, May, and June, respectively. JX-
1042 at cells C31–34.

                                               40
Opheim “worked on [the reforecast] the remainder of [March] 25th and virtually all day on

the 26th” to “flesh things out a little bit more.” 227

         The result reflected Reckard’s bottom-up and customer-by-customer sales forecast

based on research into marketplace activity, sales team communications with customers,

and week-by-week comparisons of major customers’ 2019 and 2020 orders. 228 It also

reflected Anderson’s knowledge of the Company’s actual performance through most of

March, demand changes that the sales team gleaned from customers, and pre-booked orders

for April and May. 229

         DecoPac sent its reforecast to Snow Phipps and Kohlberg on the evening of

March 26—less than two days after it was requested. 230 Anderson also provided the

remaining information that McKinney had requested. 231

         DecoPac’s effort was futile; Kohlberg had written off the Company’s projections

before even seeing the numbers. 232 As Hollander testified, “my reaction to actually

227
      Trial Tr. at 219:14–20 (Anderson).
228
      See id. at 219:2–7 (Anderson); id. at 344:11–348:17 (Twedell).
229
      Id. at 215:19–218:23; 294:24–295:3 (Anderson).
230
      See JX-1066; JX-1072.
231
      JX-1066; Trial Tr. at 219:14–220:10 (Anderson).
232
   See Trial Tr. at 558:2–559:11 (Hollander) (testifying that “a few days prior” to sending
the reforecast, DecoPac management informed Kohlberg that “they only reforecasted the
second quarter” and that Hollander “didn’t think the assumption that COVID would have
run its course and we would be back to normal by July was a credible or reasonable
assumption at the time”); id. at 565:21–566:3 (Hollander) (testifying that, after the
March 27 call reviewing the Company’s projections, Hollander “continued to believe that
our forecast was the most well-grounded and appropriate” (emphasis added)).

                                               41
receiving the reforecast was largely similar to the one I had when they previewed what it

would look like.” 233

         Sure enough, seventeen minutes after DecoPac’s reforecast arrived, Hollander

dismissed it as “illogically optimistic” in an email to Kohlberg’s employees and counsel. 234

Kohlberg never shared this assessment with DecoPac, never sent the Company’s reforecast

to any of the Lenders, and never incorporated DecoPac’s projections into its own model. 235

                6.      Kohlberg Sends Its Revised Forecast to the Lenders with
                        Financing Demands.

         On March 26, while the Company was still in the process of assembling

management’s reforecast, Kohlberg completed its own new set of projections (the

“March 26 Model” or the “Model”).

         In contrast to the painstaking process undertaken by DecoPac’s management, the

Model was based on the same simplistic assumptions as the GW Case: widespread

birthday party cancellations and facility closures followed by an “18 month rebound to

baseline” sales. 236 The Model’s forecast was nearly as pessimistic as the GW Case,

projecting that the Company’s adjusted EBITDA would fall from approximately $48.3

233
      Id. at 559:5–7 (Hollander).
234
      See JX-1120 at 1; JX-1183 at 8.
235
   See Trial Tr. at 358:23–359:3 (Twedell); id. at 568:2–12 (Hollander); id. at 1332:9–
1334:15 (Forrey).
236
      See id. at 515:22–517:10 (Hollander); id. at 1248:16–1251:21 (McKinney).
                                             42
million for 2019 to $10.5 million for 2020 and thus that the Financial Covenant would be

breached on the first day it was tested. 237

         The assumptions underlying the GW Case were largely unexplained and

unsupported at trial. According to McKinney, the March 26 Model reflected Hollander’s

assumptions. 238     But Hollander could not articulate “how [he] came up with the

nonseasonal parties percentage,” “what the assumptions are that went into the nonseasonal

parties percentage,” anything “about the percentage of birthdays canceled,” or anything

“about the percentage of canceled seasonal events,” all of which were key assumptions

driving the model. 239 Hollander testified that Kohlberg “did not discuss those specific

assumptions” with DecoPac’s management or “even tell them that those were assumptions

that [Kohlberg] had come up with to drive [its] model.” 240

237
      See JX-1064 at cells N26, S26, S70, S101; Trial Tr. at 492:6–11 (Hollander).
238
    Trial Tr. at 1251:8–21 (McKinney). McKinney was unable to identify the bases for
these assumptions. See id. at 1251:8–1271:15 (McKinney) (“Q. And you don’t recall
looking at any data regarding how the in-store sector, in-store bakery sector, of the
economy was going to perform when you came up with your predictions about
celebrations. Correct, sir? A. Yes. Q. And you didn’t consider the possibility of virtual
celebrations when you were constructing this modeling at all. Correct, sir? A. I’m not
sure that was something that we’d model . . . . Q. Thank you, sir. And you also didn’t
consider the possibility of at-home celebrations in constructing your modeling either.
Correct, sir? A. I’m not sure one way or another, but that sounds right. Q. And you didn’t
analyze customer trends on a customer-by-customer basis in order to build this model
either. Correct, sir? A. Yes, that’s right.”).
239
      Id. at 593:15–596:2 (Hollander).
240
      Id. at 597:2–14 (Hollander).
                                               43
         Kohlberg sent the March 26 Model to Ares and Antares, its lead Lenders, before

receiving DecoPac’s reforecast. Kohlberg described the model as its “current expectations

for performance going forward.” 241

         Kohlberg paired its model with demands for changes to the DCL. First, Kohlberg

sought to increase its revolver from $40 million to $55 million. 242 This decision refers to

that request as the “Revolver Demand.” Second, Kohlberg sought “an uncapped add-back

related to lost revenue from COVID-19.” 243

         After sending the March 26 email, Kohlberg modified its request for an uncapped

addback to a $35 million addback. 244 For simplicity, this decision refers to the demand for

an uncapped addback and the revised demand for a $35 million addback together as the

“Addback Demands.” Kohlberg also asked for a holiday from testing the Financial

Covenant, 245 which this decision refers to as the “Holiday Demand.” This decision refers

to the demands collectively as the “Financing Demands.”

241
      See JX-1062 at 1; JX-1064 at 1.
242
      JX-1062 at 1; JX-1064 at 1.
243
      JX-1062 at 1; JX-1064 at 1.
244
      Trial Tr. at 549:4–13 (Hollander); id. at 796:11–797:18 (Antares).
245
      See Ares Dep. Tr. at 117:25–118:4; Antares Dep. Tr. at 163:13–22.
                                              44
                  7.   Kohlberg Conducts a Perfunctory Call with DecoPac.

          The day after Kohlberg made the Financing Demands, Kohlberg had its second and

final post-signing call with DecoPac management. 246           During the call, DecoPac’s

management team explained the basis their reforecast. 247

          According to McKinney’s contemporaneous notes, Anderson justified why any

decline would be temporary, including that “grocery is booming” and, while sales were

then down “30% y-o-y,” the Company would rebound as consumers came “[o]ut of [the]

hoarding mentality” and as grocery stores returned labor from center-store to the bakery

aisle. 248 Anderson also relayed his belief DecoPac would remain operational even during

government shut-down orders. 249

          Anderson and Twedell felt confident about the call, 250 and Anderson testified that

Kohlberg “didn’t push back at all on our model or our assumptions.” 251 While Kohlberg

indicated “in passing” that it had created a more conservative projection to use with the

Lenders, 252 it never shared the March 26 Model with DecoPac. 253

246
      See JX-1153; Trial Tr. at 227:9–14 (Anderson); id. at 357:20–358:3 (Twedell).
247
      JX-1153; Trial Tr. at 228:3–9 (Anderson); id. at 358:16–22 (Twedell).
248
      JX-1153 at 1.
249
      See id. at 1.
250
      See Trial Tr. at 232:9:17–23 (Anderson); id. at 358:16–359:3 (Twedell).
251
      Id. at 232:9:17–23 (Anderson).
252
      Id. at 228:3–18, 295:4 –19 (Anderson); see id. at 359:4–360:2 (Twedell).
253
    See id. at 366:23–367:21 (Twedell); id. at 599:1–600:5, 725:18–726:17 (Hollander); id.
at 1275:6–1276:13 (McKinney).

                                              45
                8.     DecoPac Draws on Its Revolver.

         During the March 27 conversation, DecoPac’s management informed Kohlberg that

it had partially drawn on its $25 million revolving credit facility, as it had five times since

being acquired by Snow Phipps in 2017. 254 The $15 million revolver draw had arrived in

its account the day before. 255 DecoPac explained that it made the draw “in an abundance

of caution to hold in reserve” 256 and as part of a Snow Phipps portfolio-wide policy to

mitigate counterparty risk. 257 Kohlberg employed the same portfolio-wide policy and had

its portfolio companies “pulling down the revolvers just in case there was a credit

dislocation that prevented [it] from pulling down on the revolvers at a later date.” 258

         DecoPac never spent the $15 million. 259 DecoPac instead made a $10 million

repayment on June 25, 2020, and a $5 million repayment on August 26, 2020, fully

repaying the loan by August 26, 2020. 260 Anderson testified that had Kohlberg asked, the

entire $15 million could “have been paid back right away.” 261

254
   See PTO ¶ 20; JX-1610; Trial Tr. at 337:16–19 (Twedell); see also JX-1153 at 2 (noting
in McKinney’s notes from the March 27 phone call that DecoPac “[d]id draw on the
revolver out of an abundance of caution”); Trial Tr. at 1334:17–23 (Forrey) (testifying that,
on the March 27 call, DecoPac “mentioned that they had drawn $15 million on their
revolver”).
255
      See JX-957 at 11; JX-1610 at row 25.
256
      JX-957 at 1; see Trial Tr. at 47:22–48:8 (Mantel); id. at 230:9–231:7 (Anderson).
257
      Trial Tr. at 48:1–15 (Mantel).
258
      Id. at 995:16–997:4 (Frieder).
259
      Id. at 61:24–62:4 (Mantel); id. at 232:1–5 (Anderson).
260
      JX-1610 at rows 26–27; see Trial Tr. at 61:21–23 (Mantel); id. at 232:6–8 (Anderson).
261
      Trial Tr. at 232:9–12 (Anderson).
                                              46
                9.     The Lenders Reject Kohlberg’s Financing Demands.

         Ares and Antares did not react well to the Financing Demands. They deemed them

to be “outside of the scope of what was permitted in the [DCL],” 262 such that they would

require “opening up the commitment papers” and a “renegotiation of the terms of the final

commitment letter.” 263 Ares and Antares concluded on March 31, 2020, that while they

“were willing to close on the papers as they had been drafted,” 264 they would not

accommodate Kohlberg’s requests without “opening up the other terms.” 265 The only

modification that Kohlberg offered was to cap its new addback at $35 million, which was

insufficient to “change the view for” Antares. 266

         Both Owl Rock and Churchill had requested an update from Forrey before

Kohlberg’s outreach to Ares and Antares. 267 Forrey did not respond to either request until

after Ares and Antares refused Kohlberg’s demands. 268 On March 31, Kohlberg sent Owl

Rock and Churchill the March 26 Model despite the rapidly evolving situation and the

availability of additional information, including the Company’s reforecast, that

contradicted the Model. 269

262
      Id. at 974:10–15 (Ares).
263
      Id. at 791:10–792:1 (Antares).
264
      Id. at 965:17–21 (Ares); accord. id. at 792:2–8 (Antares).
265
      JX-1195 at 1; accord. JX-1184 at 1.
266
      JX-1184 at 1.
267
      See JX-1192 at 2–3; JX-1224 at 2.
268
      See JX-1192 at 1–2; JX-1224 at 1–2.
269
      See JX-1192 at 1, 5; JX-1224 at 1, 4.
                                               47
          Both Owl Rock and Churchill immediately recognized that Kohlberg wanted “add-

backs that would be different from what was laid out in the DCL.” 270

          In internal communications, an Owl Rock employee stated that “[t]he deal team’s

initial view is that this model may be draconian” and that “this forecast may be punitive.”271

          In internal communications, Churchill employees reacted to the request as follows:

          •         “[K]ohlberg hadn't spoken to snow phipps at the time i talked to them . . . but
                    they were likely going to blame the lenders and say ‘the financing fell
                    apart.’” 272

          •         “[T]hey changed the ask and risk profile of the deal and were not willing to
                    adjust the economics, so they were really looking for a way out.” 273

          •         “[T]hey came back and asked for increased revolver capacity, uncapped
                    addbacks to EBITDA for Covid, and no testing of covenants for a 12 month
                    period.” 274

          •         “[W]hoa. [I] did not know the covenant relief part. [T]hat is a bold ask . . .
                    highway robbery.” 275

          Notwithstanding the Financing Demands, each of the Lenders remained committed

to funding the transaction under the terms of the DCL. Although the Lenders had their

270
   Trial Tr. at 819:7–18 (Owl Rock); accord. Churchill Dep. Tr. 70:8–16 (testifying that
the requests were for “different terms from those that existed in the DCL”).
271
      JX-1383 at 1; accord. Trial Tr. at 821:1–822:11 (Owl Rock).
272
      JX-1267 at 1.
273
      Id. at 1 (emphasis added).
274
      Id. at 1–2.
275
      Id. at 2 (emphasis added).
                                                   48
own right to declare an MAE, none of them did so. 276 To the contrary, each confirmed its

willingness to proceed under the DCL. 277

                10.    Kohlberg Declares Debt Financing No Longer Available.

         On April 1, Hollander told Mantel that Debt Financing was no longer available.

Hollander and Mantel spoke twice that day. 278 On the first call, Hollander advised Mantel

that “that the debt was not going to be there to fund the transaction,” which Mantel

understood “to mean that the debt commitment parties were not going to meet their

obligations.” 279 This “surprised” Mantel, prompting him to “go refamiliarize [himself]

with the relevant sections in the contract and think about that a bit and talk to [his]

partners.” 280 On the second call later that afternoon, Mantel sought to “confirm [his]

understanding” of the situation, considering Snow Phipps’s “perception was that the

lenders were being very supportive of what was going on.” 281 Hollander responded that

the Lenders were “going to meet their commitments under the [DCL]” but that “Kohlberg

was requesting additional addbacks in the debt in their credit facility due to the effects of

276
    See DCL Ex. D ¶ 12; Trial Tr. at 800:10–19 (Antares); id. at 816:12–15 (Owl Rock);
id. at 962:2 –14 (Ares); Churchill Dep. Tr. at 64:15–22.
277
   See Trial Tr. at 792:2–8 (Antares); id. at 824:5–8 (Owl Rock); id. at 965:17–21 (Ares);
Churchill Dep. Tr. 44:3–8, 75:21–76:13; see also JX-1418 at 1 (confirming Antares’s
willingness to close); JX-1424 at 1 (confirming Owl Rock’s willingness to close).
278
      Trial Tr. at 51:4–53:6 (Mantel); id. at 574:19–575:5 (Hollander).
279
      Id. at 51:11–19 (Mantel); see JX-1242 at 1; Trial Tr. at 575:24–576:2 (Hollander).
280
      Trial Tr. at 51:11–24 (Mantel).
281
      Id. at 52:6–24 (Mantel).
                                              49
COVID and that the lenders were unwilling to do that without reopening the debt

commitment papers.” 282

         As far as Mantel knew at the time, the Lenders were still prepared to fund. 283 He

nevertheless told Hollander to “go ahead if you want to seek alternative financing, but then

you need to meet all of your obligations under this contract.” 284

         Kohlberg took the position then and in this litigation that, because the “financing

markets had been crushed,” “there was no way to finance DecoPac on terms no less

favorable than the DCL” in early April. 285 Kohlberg maintained this position despite all

four Lenders expressing their willingness to close on the DCL’s terms. 286

                11.    Kohlberg Spends Four Days Searching for Alternative Financing.

         On April 1, after Mantel told Hollander to seek alternative financing, Hollander

contacted Houlihan Lokey to conduct a market check and assess the availability of

alternative debt financing. 287 Hollander treated this outreach as a canvassing of the market;

he felt that “there would be no better place to get the benefit of not just one or two individual

282
      Id. at 52:21–53:6 (Mantel); accord. JX-1242.
283
      Trial Tr. at 55:4–10 (Mantel).
284
      Id. at 55:11–23 (Mantel); see id. at 575:8–15, 771:23–772:10 (Hollander).
  Defs.’ Opening Post-Trial Br. at 57 (quoting Trial Tr. at 579:24–580:9, 581:24–582:14
285

(Hollander)).
286
    See supra note 277 and accompanying text; see also Trial Tr. at 52:21–53:6 (Mantel)
(“I approached Seth. I said, so these lenders are telling you that they’re not going to meet
their commitments under the debt commitment papers? And his response to that was, no,
they actually are, but that Kohlberg was requesting additional addbacks in the debt in their
credit facility due to the effects of COVID and that the lenders were unwilling to do that
without reopening the debt commitment papers.”).
287
      JX-1265 at 3; Trial Tr. at 576:10–577:3 (Hollander).
                                               50
lenders, but to get a benefit of what the market was for this type of financing at that time”

because “Houlihan Lokey has a group entirely dedicated to raising this type of

financing.” 288 Kohlberg told Houlihan Lokey that it was “looking for advice . . . on how

[it] could finance DecoPac” and sent Houlihan Lokey the March 26 Model—“the same

model that [it] had sent to the other lenders.” 289

         On April 2, Hollander contacted Madison Capital Funding (“Madison Capital”), an

existing lender to DecoPac that had previously “express[ed] interest in participating in the

financing.” 290 Hollander “called to gauge [Madison Capital’s] interest in the DecoPac first

lien financing.” 291 Madison Capital responded that “financing on terms” Kohlberg sought

“were not attractive to Madison Capital,” and that the firm had, as of that date, “hit the

pause button on new deals” in response to COVID-19. 292

         Madison Capital’s corporate representative testified that, as of early April, there was

“severe dislocation” and “major pullback” in the credit markets, as well as a “shortage of

transactions” and “increased pricing,” which was “very, very disruptive.” 293 According to

288
   Trial Tr. at 577:4–12 (Hollander); see also id. at 1589:22–1590:10 (Foster) (testifying
that “Houlihan Lokey is probably the most well-known investment banking firm in the
middle market,” making Kohlberg’s outreach “a very efficient and effective way to see if
there was alternative financing available” because “by going to Houlihan Lokey, you are
essentially going to tens, if not hundreds, of lenders”).
289
      Id. at 577:13–579:3 (Hollander).
290
      Id. at 580:10–581:12 (Hollander); see id. at 979:22–980:4 (Madison Capital).
291
   Id. at 980:8–11 (Madison Capital); see also id. at 581:10–12 (Hollander) (“I reached
back out to [Madison Capital] as part of our ongoing evaluation for alternative financing.”).
292
      See id. at 984:8–16 (Madison Capital).
293
      Id. at 982:22–983:4 (Madison Capital).
                                               51
Madison Capital, no lender would have offered financing on the DCL’s terms because

credit markets at the time were “largely” frozen and the DCL’s pricing and leverage profile

“was not attractive on April 2.” 294

          On April 3, Houlihan Lokey provided Kohlberg with a market assessment in which

it concluded that “there is a high degree of execution uncertainty” in obtaining financing

for the deal. 295 To secure financing, Houlihan Lokey indicated that Kohlberg would need

to boost its equity stake, increase the interest rate on the loan to LIBOR plus 9–11%,

amortize between 3% and 5% of the principal amount of its debt each year, and place four

quarters of interest and amortization expense in escrow. 296 Those terms were “materially

less favorable” than those in the DCL. 297

          On April 5, Hollander again called Mantel, this time to report that Kohlberg had

been “unable to obtain alternative financing” and that Kohlberg “believed that an MAE

had occurred,” such that Snow Phipps “would be unable to bring down [its] reps and

warranties at closing.” 298 Kohlberg also “indicated that Paul Weiss was looking into an

ordinary course violation.” 299 Kohlberg had not provided Snow Phipps a forecast or model

294
      Id. at 983:5–15, 984:17–24 (Madison Capital).
295
      JX-1282 at 6.
296
      Id. at 7.
297
   Trial Tr. at 579:14–23 (Hollander); see also id. at 1590:11–17 (Foster) (“Houlihan
Lokey came back with a report and said any alternative financing would be on substantially
worse terms than those in the DCL. Among other things, the interest rate would go up; and
more equity would be required from Kohlberg.”).
298
      Id. at 56:21–57:8 (Mantel).
299
      Id. at 57:9–13 (Mantel).
                                             52
to support the existence of an MAE and did not explain what actions “they believed

constituted a breach of the ordinary course covenant.” 300

         On April 7, Mantel called Hollander to report that, after speaking further with

DecoPac’s management, he remained confident in the Company’s ability to meet all of its

closing conditions. 301 Mantel further expressed Snow Phipps’s expectation that “they were

going to be moving forward towards a closing; and that [they] expected [Kohlberg] to be

there to meet their obligations.” 302 Mantel confirmed that “the debt parties were there” and

even “offered to work with Kohlberg potentially to take back some seller paper to assist

with any leverage issue” in the amount of “approximately $25 million of seller paper.” 303

Hollander replied that “[t]here was not going to be a closing” and that Kohlberg wouldn’t

“entertain any discussion of how to facilitate financing for the transaction.” 304

                12.    Kohlberg Determines Not to Proceed to Closing.

         On April 8, Kohlberg’s counsel told Plaintiffs that Kohlberg would not proceed to

closing because Kohlberg did not believe that the Company would meet its conditions to

closing and Debt Financing remained unavailable. 305

300
      Id. at 59:10–60:5 (Mantel).
301
      Id. at 62:5–17 (Mantel).
302
      Id. at 62:11–17 (Mantel).
303
      Id. 62:18–63:3 (Mantel).
304
      Id. at 63:4–10 (Mantel).
305
   Wood Dep. Tr. at 271:21–273:16; see JX-1339; JX-1340; see also Dkt. 97, Defs.’ and
Countercl. Pls.’ Answer, Defenses, and Verified Countercls. (“Defs.’ Answer” and
“Countercl. Pls.’ Countercls.”) ¶ 81 (admitting that Kohlberg’s “counsel reiterated that
financing was not available . . . , that there had been a Material Adverse Effect . . . , and
that the Company had breached its Ordinary Course of Business covenant”).

                                              53
         On April 9, Plaintiffs’ litigation counsel sent a letter to Paul Weiss stating, in part,

that “[t]he Seller Parties have fully met or expect to meet all conditions to closing and are

ready, willing, and able to Close.” 306

                  13.   Kohlberg Receives Updated Sales Data.

         After the March 27 call, Kohlberg communicated with DecoPac infrequently and

only by email to request weekly sales data. 307 McKinney asked for weekly sales data for

three consecutive weeks, and the Company responded within a few days each time. 308

Kohlberg received near real-time data concerning the last fiscal week of March and the

first two fiscal weeks of April. 309

         McKinney received the sales data from the second fiscal week of April on

April 13. 310 The data showed that one of DecoPac’s facilities had generated $3.4 million

in revenue during the first two fiscal weeks of April. 311 Kohlberg’s March 26 Model had

projected $2.9 million in revenue for that facility for the entire month of April. 312

Kohlberg’s projections were dead wrong, yet Kohlberg did not update the Model nor

contact the Lenders with updates in response to this information. 313

306
      PTO ¶ 22.
307
      See Trial Tr. at 366:23–367:3 (Twedell).
308
   See JX-1210 at 1 (McKinney’s March 30 request); JX-1365 at 3–4 (Forrey’s April 3
and April 10 requests).
309
      See JX-1210; JX-1365.
310
      JX-1365.
311
      See id. at 10; Trial Tr. at 1263:9–22 (McKinney).
312
      DDX-1.9; Trial Tr. at 1265:14–20 (McKinney).
313
      See Trial Tr. at 1391:12–1392:4 (Forrey).
                                                 54
          G.      Plaintiffs File This Litigation.

          On April 14, 2020, Plaintiffs filed this action seeking specific performance of the

SPA. 314 They initially sought a trial on the merits of their claim on or before May 2,

2020. 315 The May 2 date was selected to allow time for the Court to resolve Plaintiffs’

claim in advance of the May 12 expiration of the DCL. 316 Dubious that a case of this nature

could be litigated to trial over two weeks on a clear day, let alone amid the on-going

pandemic, the court initially denied expedition. 317

          H.      Kohlberg Terminates the SPA.

          On April 20, 2020, Kohlberg sent a letter to Plaintiffs purporting to terminate the

SPA pursuant to Section 8.1(d). 318 Kohlberg cited two broad grounds for termination.

          First, Kohlberg stated that “notwithstanding our efforts to arrange for alternative

financing, the full proceeds of the Debt Financing have not been and will not be funded on

the terms set forth in the [DCL].” 319

          Second, Kohlberg stated that the Company “breached representations, warranties

and covenants,” including the MAE Representation, the Top-Customer Representation,

314
   Dkt. 1, Verified Compl. for Specific Performance of, and Declaratory Relief in
Connection with, Stock Purchase Agreement and Equity Commitment Letter.
315
   Dkt. 32, Tr. of Apr. 17, 2020 Telephonic Oral Arg. and Rulings of the Ct. on Pl.’s Mot.
to Expedite at 51 (The Court).
316
      Id. at 20–21 (Plaintiffs’ Counsel); id. at 50–51 (The Court).
317
      See id. at 55–56 (The Court).
318
      JX-1396.
319
      Id. at 1.
                                                55
and the Ordinary Course Covenant. 320 Kohlberg took the position that those alleged

breaches could not be cured. 321

            Termination of the SPA had a domino effect under the parties’ contractual scheme.

The DCL provided that the valid termination of the SPA would result in the immediate,

automatic termination of the DCL and the Lenders’ commitments and undertakings

thereunder. 322 The ECL and Limited Guarantee also provided that the valid termination of

the SPA would result in the immediate, automatic termination of the ECL and Limited

Guarantee. 323 Thus, Kohlberg maintains that all of its contractual obligations terminated

as of April 20.

            On April 22, Plaintiffs identified numerous deficiencies in Kohlberg’s purported

termination notice and offered to repay the revolver draw. 324 Kohlberg did not respond.

On April 29, Snow Phipps sent another letter irrevocably confirming its readiness and

ability to close. 325 Kohlberg refused to close.

            I.    Plaintiffs Amend Their Complaint.

            Plaintiffs amended their complaint on May 5, 2020, 326 asserting four Counts:

320
      Id.
321
      Id.
322
      DCL ¶ 15.
323
      See ECL ¶ 3; Limited Guarantee ¶ 8.
324
      JX-1406.
325
      JX-1444 at 2–3.
326
      Dkt. 34, Verified Am. Compl. (“Am. Compl.”).
                                                56
         In Count I, Plaintiffs claim that KCAKE breached its obligations under Section 6.15

to use commercially reasonable efforts in connection with the Debt Financing, by making

the Financing Demands, failing to secure alternative financing, and not promptly notifying

Plaintiffs regarding the Debt Financing issues. Plaintiffs seek specific performance of

Section 6.15 under Section 11.14 of the SPA. Plaintiffs also seek monetary damages in the

alternative. 327

         In Count II, Plaintiffs claim that KCAKE breached the implied covenant of good

faith and fair dealing in the SPA by failing to “actively preserve the terms of the [DCL]

and the availability of financing.” 328

         In Count III, Plaintiffs claim that the Kohlberg Funds breached their obligations

under the ECL and seek specific performance under the ECL and Section 11.14(b) of the

SPA. 329

         In Count IV, Plaintiffs seek declaratory judgments that (a) KCAKE’s failure to

consummate the transaction by May 4, 2020, breached its obligations under Section 6.15

of the SPA and (b) KCAKE’s “obligations under the SPA require it to proceed to

Closing.” 330

327
      Id. ¶¶ 112–24.
328
      Id. ¶¶ 125–33.
329
      Id. ¶¶ 134–41.
330
      Id. ¶¶ 142–48.
                                             57
         In addition to the declaratory relief requested in Count IV, Plaintiffs seek two

remedies: specific performance of the SPA and damages, with damages being contingent

on specific performance being unavailable. 331

         On May 12, 2020, the DCL expired by its own terms. In anticipation of this,

Plaintiffs renewed their motion to expedite on May 11, 2020. 332 On May 21, 2020, the

Court ordered expedited proceedings toward a January 2021 trial. 333

         Kohlberg answered the Amended Complaint on June 18, 2020. 334 With the Answer,

Kohlberg asserted three counterclaims:

         In Counterclaim I, Kohlberg seeks a declaration that it rightfully terminated the SPA

on the basis of an MAE, that Kohlberg validly terminated the SPA, and that Plaintiffs “are

entitled to receive no relief other than, at a maximum, the Termination Fee and Other Costs

(as defined in the SPA).” 335

331
    Id. at Prayer for Relief ¶¶ 1–2, 4–5. Plaintiffs also sought “[a]n Order granting
Plaintiffs’ request for expedited proceedings.” Id. ¶ 3. As discussed below, the court
addressed that request separately, and this matter has since proceeded on a highly expedited
basis.
332
      Dkt. 40, Pls.’ Mot. for Expedited Proceedings.
333
   See Dkt. 92, May 21, 2020 Tr. of the Telephonic Bench Ruling on Pls.’ Mot. to Expedite
at 8–9; Dkt. 93, The Parties’ Stipulation and Scheduling Order. The court set an August 3,
2020 date for a hearing on Kohlberg’s partial motion to dismiss. See Dkt. 77, Stipulation
and Order Governing Briefing on Defs.’ Partial Mot. to Dismiss ¶ 4.
334
      See Defs.’ Answer.
335
   Countercl. Pls.’ Countercls. ¶¶ 90–91. Defendants’ and Counterclaim-Plaintiffs’
Answer, Defenses, and Verified Counterclaims referred to each of the counterclaims as
“Counts.” This decision refers to them as “Counterclaims” for ease of reference.

                                              58
          In Counterclaim II, Kohlberg claims that Plaintiffs breached the representations and

warranties under the SPA and seeks damages. 336

          In Counterclaim III, the Kohlberg Funds seek declaratory relief that they have no

funding obligations and that Plaintiffs are not entitled to specific performance under the

ECL. 337

          Kohlberg filed a partial motion to dismiss the Amended Complaint on June 18,

2020, seeking dismissal of all claims asserted in the Amended Complaint except those that

mirror Defendants’ Counterclaims for declaratory relief. 338 The court largely denied that

motion on October 16, 2020 (the “Motion to Dismiss Bench Ruling”). 339 The court granted

the motion as to Count II because Plaintiffs’ implied covenant claim was duplicative of

their breach of contract claim. 340 The court also held that Plaintiffs cannot recover damages

in excess of the Termination Fee and that Plaintiff may obtain specific performance of the

SPA under the prevention doctrine if it is determined that Kohlberg’s actions caused the

unavailability of Debt Financing. 341

336
      Countercl. Pls.’ Countercls. ¶¶ 92–100.
337
      Id. ¶¶ 101–02.
338
   Dkt. 98, Defs.’ Mot. to Dismiss Pls.’ Verified Am. Compl.; see also Dkt. 99, Defs.’
Opening Br. in Supp. of Their Mot. to Dismiss Pls.’ Verified Am. Compl. (“Defs.’ Mot. to
Dismiss Opening Br.”).
339
   Dkt. 221, October 16, 2020 Telephonic Bench Ruling on Defs,’ Mot. to Dismiss (“Mot.
to Dismiss Bench Ruling”).
340
      Id. at 28.
341
      Id. at 36–37, 50.
                                                59
          J.     DecoPac and the Debt Markets Recover.

          As DecoPac’s management predicted, the Company’s outlook began improving in

mid-April. In other words, the Company’s March reforecast proved accurate. 342 The

Company had projected year-over-year Q2 revenue and adjusted EBITDA declines of

29.5% and 51.9%, respectively, and it achieved results of 28.9% and 46.7%,

respectively. 343 DecoPacs’s 2020 year-end results paint a similar picture. DecoPac

“exceeded the [$]44.3 million estimate on the reforecast” and anticipated a “Q4 EBITDA

of [$]9.6 [million].” 344 A month-by-month comparison shows the gap narrowing between

2019 and 2020 sales; the Company’s sales were down from 2019 levels by 12.8% in June

and only by 2.9% in November. 345 December 2020 sales exceeded December 2019 sales

by 3.7%. 346 By year end, DecoPac sales were down only 14% year-over-year, safely within

the covenant compliance window of Kohlberg’s shock case. 347

          The Company’s outlook remains positive. DecoPac’s “customers are back to work

in the bakery, placing their orders, meeting consumer demand.” 348 At trial, Twedell

342
      See JX-2432.
343
      Compare JX-1120 at 8, and JX-182, with JX-1933, and JX-1717, and JX-182.
344
      Trial Tr. at 376:1–5 (Twedell).
345
      JX-1942 at column S.
346
      Id. at cell S69.
347
      PDX-5; see JX-182; JX-805; JX-1717.
348
      Trial Tr. at 376:22–24 (Twedell).
                                            60
previewed a “first-look” of the 2020 actual results and the 2021 projected budget, which

the Company generated through its regular annual budget process described above. 349

         The budget “account[s] for the role that coronavirus might play going forward” by

incorporating trends from the fourth quarter of 2020, anticipating no “dramatic shift[s]

from what’s been happing” and “improvements later in the year.” 350 The Company expects

to return to growth in 2021, with revenue projected at “18 percent above [the] 2020

forecast” and “achieving . . . the 2019 actual revenue levels.” 351 The Company further

expects adjusted EBITDA of $44.2 million, representing a 24.1% increase from 2020

projections and only a 5.9% decrease from 2019 actual EBITDA. 352

         Debt markets also recovered. 353 Compared to when the DCL was signed, “both the

number of loans and dollar volume of loans in the month of December actually far

outstrip[ped] the activity on a monthly basis during Q1” and the “cost of capital, the interest

rate for middle market loans [is] equal to and in some cases lower . . . and, similarly, with

leverage ratios and other key lending variables.” 354 Indeed, “the market is open and

349
      Id. at 378:20–380:21 (Twedell).
350
      Id. at 381:20–302:4 (Twedell).
351
      Id. at 380:24–381:3 (Twedell).
352
   See JX-1940 at 1; see also Trial Tr. at 381:6–10 (Twedell) (comparing 2021 projections
to 2020 forecasted results and 2019 actual results).
353
      Trial Tr. at 1450:21–23 (Woodward).
354
      Id. at 1161:1–17 (Bedrosian).
                                              61
offering loans to middle market companies like DecoPac on terms . . . economically equal

to where they were back in Q1” of 2020. 355

         In December 2020, Snow Phipps obtained an indication of interest from Benefit

Street Partners LLC (“Benefit Street”) to serve as a lender, which it shared with

Kohlberg. 356    Although the Benefit Street term sheet is only a “starting point of a

negotiation,” it “provides at the senior level and the revolver level of financing ample debt

capital to finance the transaction and leaves open the ability for the overall deal to get

done.” 357 In the same letter, Snow Phipps formally documented its interest in providing

Kohlberg with market-rate financing to help create a package “sufficient to pay the

amounts required to be paid under the SPA, to be used for the purpose of facilitating

KCAKE’s acquisition of DecoPac.” 358

II.      LEGAL ANALYSIS

         Plaintiffs assert claims for breach of the SPA, and Kohlberg’s counterclaims present

issues raised by Plaintiffs’ claims. 359 The court’s task is to interpret the SPA in a way that

effectuates the parties’ intent. 360 Absent ambiguity, the court “will give priority to the

parties’ intentions as reflected in the four corners of the agreement, construing the

355
      Id. at 1161:18–1162:1 (Bedrosian).
356
      JX-1921.
357
      Trial Tr. at 1163:12–1164:7 (Bedrosian).
358
      JX-1921 at 3.
359
      Compare Am. Compl., with Countercl. Pls.’ Countercls.
360
      E.g., Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006).
                                              62
agreement as a whole and giving effect to all its provisions.” 361 The contract terms will be

given “plain, ordinary meaning.” 362 “[T]he meaning which arises from a particular portion

of an agreement cannot control the meaning of the entire agreement where such inference

runs counter to the agreement’s overall scheme or plan.” 363 The court must “reconcile all

the provisions of the instrument” if possible. 364

         Applying these principles, this analysis first addresses Plaintiffs’ claim that

Kohlberg improperly terminated the SPA under Section 8.1. It turns next to Plaintiffs’

claim that Kohlberg breached its obligation under the SPA to use reasonable best efforts to

obtain Debt Financing or obtain alternative financing under Section 6.15. It last addresses

whether Plaintiffs are entitled to specific performance under Section 11.14.

         A.     Improper Termination

         Kohlberg justifies its termination on three grounds.

         First, Kohlberg argues that the Bring-Down Condition failed due to the inaccuracy

of the MAE Representation, where the Company represented and warranted that “since

December 28, 2019, there has not been any event, change, circumstance, occurrence, effect,

  In re Viking Pump, Inc., 148 A.3d 633, 648 (Del. 2016) (quoting Salamone v. Gorman,
361

106 A.3d 354, 368 (Del. 2014)).
  Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385 (Del. 2012) (citing City Inv.
362

Co. Liquid. Tr. v. Cont’l Cas. Co., 624 A.2d 1191, 1198 (Del. 1993)).
363
   E.I. du Pont de Nemours & Co. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985);
accord. HUMC Holdco, LLC v. MPT of Hoboken TRS, LLC, 2020 WL 3620220, at *6
& n.40 (Del. Ch. July 2, 2020); Great Hill Equity P’rs IV, LP v. SIG Growth Equity Fund I,
LLLP, 2018 WL 6311829, at *50 & n.648 (Del. Ch. Dec. 3, 2018).
364
      Elliott Assocs. v. Avatex Corp., 715 A.2d 843, 854 (Del. 1998).
                                              63
state of facts, development or condition that has had, or would reasonably be expected to

have, individually or in the aggregate, a Material Adverse Effect.” 365

          Second, Kohlberg argues that the Bring-Down Condition failed due to the

inaccuracy of the Top-Customers Representation, where the Company represented and

warranted that none of DecoPac’s top-ten customers had stopped or materially decreased

its rate of business with DecoPac since December 31, 2019. For an inaccuracy in the Top-

Customers Representation to justify termination, it must “have or reasonably be expected

to have, individually or in the aggregate, a Material Adverse Effect.” 366

          Third, Kohlberg argues that the Covenant Compliance Condition failed due to the

Company’s failure to comply with the Ordinary Course Covenant. 367 For breach of the

Ordinary Course Covenant to justify termination, the deviation from ordinary course must

have been “in all material respects.” 368

                 1.       MAE Representation

          Kohlberg argues that the MAE Representation became inaccurate because

DecoPac’s “performance fell off a cliff” as a result of the escalating COVID-19

365
   SPA § 3.9(a). Kohlberg argues that, at the time Kohlberg purportedly terminated the
SPA, DecoPac “would reasonably be expected to have” suffered an MAE, as opposed to
arguing that it had actually suffered an MAE. Defs.’ Post-Trial Opening Br. at 86. Either
are sufficient to cause the MAE representation to fail.
366
      See SPA § 7.1(a).
367
      Id. § 6.1(a).
368
      See id. § 7.1(b).
                                               64
pandemic. 369 Kohlberg maintains that the resulting change had or would reasonably be

expected to have a material adverse effect, rendering the MAE Representation false.

         The SPA defines an MAE in relevant part as “any event, change, development,

effect, condition, circumstance, matter, occurrence or state of facts that, individually or in

the aggregate, . . . has had or would reasonably be expected to have a material adverse

effect upon the financial condition, business, properties or results of operations of the

Group Companies, taken as a whole.” 370

369
      Defs.’ Post-Trial Opening Br. at 86.
370
      SPA § 1.1. A few aspects of this definition warrant clarification.
        First, the nesting of the defined term “Material Adverse Effect” within the MAE
Representation results in two levels of expectancy. The MAE Representation asks whether
an event has occurred which had, or would reasonably be expected to have, individually or
in the aggregate, an MAE. The SPA then defines an MAE in relevant part as “any event,
change, development, effect, condition, circumstance, matter, occurrence or state of facts
that, individually or in the aggregate, . . . has had or would reasonably be expected to have
a material adverse effect upon the financial condition, business, properties or results of
operations of the Group Companies, taken as a whole.” Id. Read literally, the MAE
Representation becomes false if an event has had or would reasonably be expected to have
an effect that has had or would reasonably be expected to have a material adverse effect.
Following the parties’ lead, this decision construes the double-expectancy language as
requiring a singular inquiry, which asks whether an event occurred that has had or would
reasonably be expected to have a material adverse effect upon the financial condition,
business, properties, or results of operations of DecoPac.
       Second, while recognizing that the prepositional phrase “upon the financial
condition, business, properties, or results of operations” may be a carefully crafted one,
see generally Lou R. Kling & Eileen T. Nugent, Negotiated Acquisitions of Companies,
Subsidiaries and Divisions § 11.04[9] (2020 ed.), it does not play a meaningful part in this
analysis. This decision thus at times omits the phrase for simplicity or shortens it to
“DecoPac” given the breadth of the term “business.”
      Third, as is typical with MAE clauses, the defined term “Material Adverse Effect”
incorporates the undefined term “material adverse effect.” See generally Akorn, Inc. v.
Fresnius Kabi AG, 2018 WL 4719347, at *48–50 (Del. Ch. Oct. 1, 2018), aff’d,

                                               65
            As is typical, the SPA’s definition of an MAE enumerates a series of exceptions,

one of which is relevant to this case: an MAE “shall not include any . . . change . . . arising

from or related to . . . (v) changes in any Laws, rules, regulations, orders, enforcement

policies or other binding directives issued by any Governmental Entity, after the date

hereof.” 371

            As is also typical, the MAE exceptions are subject to an exclusion. The exceptions

do not apply “to the extent that such matter has a materially disproportionate effect on the

Group Companies, taken as a whole, relative to other comparable entities operating in the

industry in which the Group Companies operate.” 372

            This complicated contractual scheme calls for a three-part burden allocation.

Kohlberg bore the initial, heavy burden of proving that an event had occurred that had or

would reasonably be expected to have a material adverse effect on DecoPac. 373 If Kohlberg

met that burden, then Plaintiffs bear the burden of proving that the relevant event fell within

the exception because it arose from or was “related to” any “changes in any Laws, rules,

regulations, orders, enforcement policies or other binding directives issued by any

198 A.3d 724 (Del. 2018) (TABLE). This decision interprets the use of the undefined term
as calling for a predominantly fact-driven inquiry to be undertaken by the presiding
judge. See id.
371
      SPA § 1.1.
372
      Id.
373
   See, e.g., AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929,
at *55 (Del. Ch. Nov. 30, 2020); Akorn, 2018 WL 4719347, at *48–49; Channel
Medsystems, Inc. v. Bos. Sci. Corp., 2019 WL 6896462, at *16, *25, *28 (Del. Ch. Dec. 18,
2019).

                                                66
Governmental Entity, after the date hereof.” 374 If Plaintiffs proved that the event fell within

the exception, then Kohlberg bore the burden of demonstrating the exclusion to the

exception applied because the change affected DecoPac disproportionately relative to other

comparable entities operating in the industry. 375

                      a.     Was there an event that had or would reasonably be
                             expected to have a material adverse effect on DecoPac?

         Merger agreements typically include MAE clauses because “a significant

deterioration in the selling company’s business between signing and closing may threaten

the fundamentals of the deal.” 376 “The typical MAE clause allocates general market or

industry risk to the buyer, and company-specific risks to the seller.” 377

374
    See SPA § 1.1; AB Stable, 2020 WL 7024929, at *51 (holding that, if an effect was
proved by buyer to be material and adverse, “Seller had the burden to prove that the source
of the effect fell within an exception”); Akorn, 2018 WL 4719347, at *59 n.619 (collecting
authorities and holding that, if a buyer proves that an effect is material and adverse, the
seller then bears “the burden of proving that the cause of the decline fell into one of the
exceptions in the MAE definition”).
375
   See Akorn, 2018 WL 4719347, at *59 n.619 (collecting authorities and holding that, if
a seller proves that a cause falls within an MAE exception, the buyer then bears the burden
of showing that the seller’s “performance was disproportionate to its peers, bringing the
case within an exclusion from the exception”).
376
      Akorn, 2018 WL 4719347, at *47.
377
    Id. at *49; see also id. at *3 (“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. 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.”).

                                              67
         There is no “bright-line test” for evaluating whether an event has caused a material

adverse effect. 378 To assess whether a financial decline has had or would reasonably be

expected to have a sufficiently material effect, this court will look to “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.” 379 The target’s historical

performance often plays an important role in determining whether the effect is sufficiently

material by supplying a baseline comparison. 380

         What constitutes durational significance is also context specific. 381 “A short-term

hiccup in earnings should not suffice” to constitute a material adverse effect. 382 The effect

“should be material when viewed from the longer-term perspective of a reasonable

acquiror.” 383 Generally, it is expected that the “commercially reasonable period” will be

“measured in years rather than months.” 384

378
      See Channel Medsystems, 2019 WL 6896462, at *34.
379
      Hexion Specialty Chems., Inc. v. Huntsman Corp., 965 A.2d 715, 738 (Del. Ch. 2008).
380
      See, e.g., In re IBP, Inc. S’holders Litig., 789 A.2d 14, 66–70 (Del. Ch. June 18, 2001).
381
      See Channel Medsystems, 2019 WL 6896462, at *34; Hexion, 965 A.2d at 738.
382
      IBP, 789 A.2d at 68.
383
   Id.; see Mrs. Fields Brand, Inc. v. Interbake Foods LLC, 2017 WL 2729860, at *23
(Del. Ch. June 26, 2017).
384
   Hexion, 965 A.2d at 738 (holding that, for a decline in earnings to constitute a material
adverse effect, “poor earnings results must be expected to persist significantly into the
future”); see also id. at 745 (“[A]n MAE is to be determined based on an examination of
[the company] taken as a whole.”).

                                               68
         Where, as here, an MAE clause allows a buyer to terminate the agreement if an

event can “reasonably be expected to have a material adverse effect,” the defendant is not

required to prove that the event in fact had a material adverse effect. 385

               The “reasonably be expected to” standard is an objective one.
               When this phrase is used, “[f]uture occurrences qualify as
               material adverse effects.” As a result, an MAE “can have
               occurred without the effect on the target’s business being felt
               yet.” 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.” When evaluating
               whether a particular issue would reasonably be expected to
               result in an MAE, the court must consider “quantitative and
               qualitative aspects.” “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.” 386

         In this case, Kohlberg did not attempt to prove that the event “had . . . a material

adverse effect,” and for good reason. Generally, scholars have commented that “most

courts which have considered decreases in profits in the 40% or higher range” have found

a material adverse effect. 387 This court has speculated that “a decline in earnings of 50%

over two consecutive quarters would likely be an MAE,” and “[c]ourts in other

385
      Channel Medsystems, 2019 WL 6896462, at *15; Akorn, 2018 WL 4719347, at *63–
65.
386
      Akorn, 2018 WL 4719347, at *65.
  Akorn, 2018 WL 4719347, at *53 (citing Lou R. Kling & Eileen T. Nugent, Negotiated
387

Acquisitions of Companies, Subsidiaries and Divisions § 11.04[9], at 11-66 (2018 ed.)).

                                              69
jurisdictions have reached similar conclusions.” 388 DecoPac’s performance over the two

quarters preceding termination were nowhere near that range.           DecoPac’s Q4 2019

EBITDA increased 15% year-over-year, and its Q1 2020 EBITDA decreased 16% year-

over-year. 389

         Kohlberg instead argues that, at the time of termination, DecoPac’s decline in sales

would reasonably be expected to have a material adverse effect. 390 Kohlberg relies on

DecoPac’s sales data during the five weeks preceding termination. During that time,

DecoPac’s regular sales (as opposed to preorder exclusions placed months in advance)

suffered year-over-year declines of 42.4%, 63.9%, 60.3%, 62.2%, and 53.4%. 391 These

declines are dramatic when viewed against the baseline of DecoPac’s historical stability

and resilience in negative markets. 392 Kohlberg contends that it was reasonable to expect

that these declines would continue and ultimately threaten the overall earnings potential of

DecoPac.

  Id. (citing Raskin v. Birmingham Steel Corp., 1990 WL 193326, at *5 (Del. Ch. Dec. 4,
388

1990)) (collecting cases).
389
      See JX-69 at 4; JX-182 at 4; JX-1933 at 4.
390
      See SPA § 1.1.
391
      JX-2432 at Q15–19; DDX-3.25.
392
    Trial Tr. at 1337:15–21 (Forrey); see also id. at 137:5–8 (Mantel) (testifying that during
“[t]he last couple of recessions, [the business] actually grew”); id. at 179:13–20 (Anderson)
(“Q. Did you work at DecoPac during 9/11 and the 2008 financial crisis? A. Yes, I did.
Q. And did you experience DecoPac sales decreasing during those events of dislocation?
A. There was a short downturn after 9/11. But during the 2008 recession, we actually
grew sales slightly over the period 2008 to 2009, ’10.”); Austin Smith Dep. Tr. at 284:8–
10 (testifying that, going back to 2015, she was “not aware of double-digit monthly
declines” at DecoPac). But see Austin Smith Dep. Tr. at 265:21–266:3 (testifying that
there was no “historical precedent for” the volatility that DecoPac experienced in 2020).

                                              70
         Kohlberg relies on its grocery expert, Joseph Welsh, who testified that widespread

industry changes occurring prior to termination made it reasonable to expect as of April 20

that DecoPac would experience a material adverse effect. 393 Welsh testified that in-store

bakeries were transitioning from custom cakes, which require on-site preparation and may

incorporate DecoPac’s products, to competing thaw-and-sell cakes, which do not. 394

According to Welsh, the thaw-and-sell industry “just exploded” during the pandemic, with

continued, “astonishing” growth to date. 395 Given that thaw-and-sell products do not

require skilled bakery labor and that customers are able to buy them without engaging with

store personnel, selling more thaw-and-sell cakes has allowed grocery stores to cut labor

costs during the pandemic and has coincided with customers’ new preferences. 396

         Welsh’s thaw-and-sell theory is flawed because it fails to account for the in-roads

that DecoPac is already making into the thaw-and-sell business. Although DecoPac does

not produce thaw-and-sell cakes that arrive at stores pre-finished and ready for sale, it does

supply ingredients and products to companies that produce thaw-and-sell cakes. 397 By

2019, DecoPac had begun allocating more resources to this area of its business, with plans

393
      Trial Tr. at 1507:15–1508:6, 1514:17–1515:3 (Welsh).
394
      Id. at 1487:22–1490:3, 1497:10–16 (Welsh).
395
      Id. at 1497:20–24 (Welsh).
396
      Id. at 1489:16–1490:3, 1497:10–16, 1498:1–8 (Welsh).
397
      Gardner Dep. Tr. at 55:11–60:19.
                                             71
to kick off additional programs with vendors in Q1 or Q2 of 2021. 398 Welsh did not account

for this aspect of DecoPac’s business.

         Welsh further testified that the pandemic caused significant changes in the ways that

consumers shop for groceries, including online ordering and curbside pick-up, which

reduces traffic inside the store and thereby reduces opportunities for customers to buy cakes

decorated with DecoPac products. 399            In Welsh’s view, these industry changes are

“sticky”—i.e., having implemented operational changes, stores are unlikely to reverse their

decisions. 400   Welsh’s report concludes that, as of April 2020, it would have been

reasonable to expect a 30.6% decline in DecoPac’s sales through 2020, “with this decrease

likely to persist through at least 2021.” 401

         Welsh’s conclusion that DecoPac’s sales would remain completely flat for the

months of April 2020 through December 2020 was not reasonable in light of the upward

trend reflected in DecoPac’s weekly sales prior to termination. As acknowledged in

Welsh’s report, declines in DecoPac’s weekly sales in the U.S. over the weeks of April 4,

April 11, and April 18 were 55.5%, 41.9%, and 15.4% year-over-year, respectively. 402

398
      Id. at 56:20–60:15.
399
      Trial Tr. at 1498:21–1499:23 (Welsh); DDX-3.24.
400
      JX-2408 ¶ 56; see Trial Tr. at 1498:9–20.
401
   JX-2408 ¶¶ 113–14 (“It is my expert opinion that as of March/April 2020, it would have
been expected that DecoPac would lose a substantial amount of sales and profitability and
that this would continue, in all probability, for a sustained period given the new retail
shopping environment created by the pandemic.”); see Trial Tr. at 1508:20–
1511:16 (Welsh); DDX-3.29.
402
      JX-2408 Am. Ex. 8.
                                                 72
       Welsh’s report also runs contrary to projections prepared prior to termination.

Although the “would reasonably be expected to have” standard is indifferent to the

subjective beliefs of the parties as of April 20, 403 the parties’ contemporaneous forecasts

inform the analysis of what was objectively reasonable to expect at the time of

termination. 404 Generally, “contemporaneous management projections prepared in the

ordinary course of business” are the best source for “reliable projections of future expected

cash flows.” 405 Although DecoPac management’s reforecast was not prepared in the

ordinary course of business, management followed the same reliable process, using inputs

and assumptions derived from real-time data concerning DecoPac’s financial performance.

Management’s reforecast projected that 2020 revenue would be down 11% compared to

403
    At times in briefing, Kohlberg phrased the inquiry as what “Kohlberg reasonably
expected,” see, e.g., Defs.’ Opening Post-Trial Br. at 86, 88, 92 (emphasis added), but this
is not the standard. See, e.g., Akorn, 2018 WL 4719347, at *65 (“The ‘reasonably be
expected to’ standard is an objective one.”).
404
    See id. at *55 (considering, in assessing whether an MAE was reasonably expected,
contemporaneous management discussions of the potential long-term impact of the
effects); Hexion, 965 A.2d at 743 (considering projections included in buyer’s pre-signing
financial models in assessing whether an MAE was reasonably expected); cf. Channel
Medsystems, 2019 WL 6896462, at *32 (describing qualitative MAE theories as
“consist[ing] of seemingly after-the-fact rationalizations” and “highly speculative” where
“[t]here [was] not a single scrap of paper that [the defendant] actually analyzed any of these
risks when [it] made the termination decision”); IBP, 789 A.2d 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.”).
405
   ACP Master, Ltd. v. Sprint Corp., 2017 WL 3421142, at *31 (Del. Ch. July 21, 2017)
(quoting In re PetSmart, Inc., 2017 WL 2303599, at *32 (Del. Ch. May 26, 2017)).

                                             73
the original 2020 budget (an adjustment from $215.9 million to $191.9 million), and

EBITDA would be down 22% (an adjustment from $51.9 million to $40.4 million). 406

         Kohlberg’s Downside #1 Case, which McKinney and Forrey viewed as “a good

place to start,” 407 bore a close resemblance to management’s reforecast. It projected that,

compared to the original 2020 budget, revenue would be down 15% (to $182.8 million)

and EBITDA would be down 27% (to $37.8 million). 408 It further projected that year-end

2021 revenue and adjusted EBITDA would be 2% and 5% higher, respectively, than they

were in 2019. 409

         The parties’ more reliable contemporaneous projections, therefore, show that it was

not reasonably expected that DecoPac’s sales decline would ripen into a material adverse

effect. 410

406
   Compare JX-1120 at 5–9, with JX-465 at cells AD21, AD55. Management’s reforecast
did not project financial results past December 2020. See JX-1120 at 5–9.
407
      JX-998 at 1.
408
      Compare id. at cells Y16, Y46, with JX-465 at cells AD21, AD55.
409
      JX-998 at cells T16, T46, AD16, AD46.
410
   The March 26 Model is not a reliable forecast under an objectively reasonable standard
given the circumstances under which it was prepared, as discussed supra Sections I.F.4–6.
Even crediting the March 26 Model, it does not provide clear support for Kohlberg’s
argument because it projects a gradual rebound, with Q3 2021 adjusted EBITDA
surpassing Q3 2019 adjusted EBITDA, 2022 adjusted EBITDA exceeding 2019 adjusted
EBITDA, and continued growth in the years thereafter. See JX-1064; see also Trial Tr. at
1298:23–1299:3 (Forrey) (testifying that the March 26 Model “showed the company with
ample liquidity and access to cash to operate its business,” which “in a practical sense [is]
what really matters”); id. at 1300:14–19 (Forrey) (testifying that “[t]he company is, like,
going to be okay through this period” (emphasis added)).
      The March 26 Model better supports the finding that DecoPac’s sales decline would
reasonably be expected to have a material adverse effect if the effect is measured in months

                                              74
            This court’s decisions in IBP and Akorn provide helpful benchmarks confirming

that it was not reasonable to expect that DecoPac’s decline in sales would mature into a

material adverse effect.

            In IBP, the seller experienced a 64% decrease in year-over-year first quarter

earnings due to severe winter weather that adversely affected livestock supplies. 411 By the

termination date, however, the seller “had two weeks of strong earnings that signaled a

strong quarter ahead.” 412 Further, “the analyst community was predicting that IBP would

return to historically healthy earnings” the following year. 413 The court concluded that

“the business appears to be in sound enough shape to deliver results of operations in line

with the company’s recent historical performance.” 414 The court thus held that a material

adverse effect was not reasonably expected. 415

rather than years. Such a short-term measurement, however, is contrary to this court’s
general directive. See, e.g., Mrs. Fields, 2017 WL 2729860, at *23 (holding that “[i]n an
acquisition, where the buyer acquires the assets of a business outright and the cash flows
they generate in perpetuity, one would think that a commercially reasonable period would
be measured in years rather than months” (cleaned up)).
       For this reason, Kohlberg argues that, in a debt-financed acquisition, the timeframe
for evaluating durational significance should align with the timing of post-closing covenant
compliance testing. Kohlberg’s argument effectively invites the court to view private
equity transactions dissimilarly from strategic acquisitions when interpreting an MAE, an
idea that is the subject of a wealth of scholarly commentary that the parties neither cited
nor discussed. This decision flags the issue without engaging in it given the irrelevance of
the March 26 Model to this part of the analysis.
411
      IBP, 789 A.2d at 22.
412
      Id. at 70.
413
      Id.
414
      Id. at 71.
415
      Id. at 68–72.
                                              75
          In Akorn, the only case in which this court found a material adverse effect to be

reasonably expected, the seller’s EBITDA had grown each year from 2012 through 2016,

but it fell by 55% after the merger agreement was signed in 2017. 416 The buyer sent the

seller a notice of termination in early 2018. 417 According to the seller’s management, the

downturn had “already persisted for a year and show[ed] no sign of abating.” 418 Analyst

estimates for the seller’s 2018, 2019, and 2020 EBITDA were lower than those at the time

of signing by 62.6%, 63.9%, and 66.9%, respectively. 419         The court found that the

company’s poor performance was the result of unexpected new market entrants, which lead

to price erosion. 420 The court held that this “sudden and sustained drop in Akorn’s business

performance” was reasonably expected to constitute a material adverse effect. 421

          The Akorn court also addressed whether the seller’s regulatory issues, which were

not disclosed to the buyer when the merger agreement was signed, constituted a material

adverse effect. 422 After weighing the credibility of the experts and conducting its own

cross-check, the court concluded that the regulatory issues represented a 21% decrease in

416
      Akorn, 2018 WL 4719347, at *55.
417
      Id. at *2.
418
      See id. at *55 & nn.577–78.
419
   Id. at *56. Analyst estimates for Akorn’s peers were only projected to decline those
years by 11%, 15.3%, and 15%, respectively. Id.
420
      Id. at *55.
421
   Id. at *47, *57, *74 (emphasis added); see also id. at *60 (“The problem is what
happened to the business that [the buyer] agreed to buy.”).
422
      Id. at *2, *71–76.
                                             76
the equity value of the seller. 423 The court held that this decrease was reasonably expected

to constitute a material adverse effect. 424

          Comparing DecoPac’s performance against that of the sellers in IBP and Akorn

confirms that DecoPac was not reasonably likely to experience a material adverse effect.

As in IBP, DecoPac experienced a precipitous drop but then rebounded in the two weeks

immediately prior to termination and was projected to continue recovering through the

following year. 425 And unlike in Akorn, DecoPac was not projected to face a “sustained

drop” in business performance. 426

423
      Id. at *72–74.
424
      Id. at *76.
425
    Whereas IBP’s earnings declined 64% year-over-year during the quarter preceding
termination, IBP, 789 A.2d at 22, 50–51, DecoPac’s EBITDA decreased only 16% year-
over-year during the quarter immediately prior to termination. See JX-182 at 4; JX-1933
at 4. Whereas IBP’s earnings in the year following termination were projected to be
approximately 31% lower than they were the year prior to the signing of the merger
agreement, IBP, 789 A.2d at 66, 70–71, the Downside #1 Case projected DecoPac’s
adjusted EBITDA to be 5% higher in 2021 than in 2019. See JX-1064 at cells T46, AD46.
426
   In Akorn, analyst projections for the seller’s EBITDA in the year of termination and
subsequent two years were 62.6%, 63.9%, and 66.9% lower than they were at the time of
signing. Akorn, 2018 WL 4719347, at *55. Comparing the Downside #1 Case to
Kohlberg’s projections contained in its original investment memorandum, DecoPac’s
adjusted EBITDA projections for 2020, 2021, and 2022 were 27%, 9%, and 8% lower,
respectively, than they were at the time of signing. Compare JX-998 at cells Y46, AD46,
AI46, with JX-694 at 37.
        Hexion does not require a different outcome, although the seller there experienced
a less significant initial decline in sales than DecoPac. In Hexion, after the parties signed
the merger agreement, the seller’s second-half 2007 EBITDA suffered a 22% year-over-
year decrease, and its first-half 2008 EBITDA suffered a 19.9% year-over-year decrease.
965 A.2d at 740. Management believed that the decrease was caused by various
macroeconomic trends, such as a sharp increase in the prices of crude oil and natural gas
and unfavorable foreign exchange rates. Id. at 743. In answering the question of whether

                                               77
         Kohlberg has therefore failed to carry its burden of proving that an event had or was

reasonably expected to have an effect sufficiently material and adverse to qualify as an

MAE. Because Kohlberg failed to demonstrate an MAE, the analysis could end here. For

completeness, this decision addresses the remaining elements of the contractual analysis.

                       b.     Is the exception for effects arising from or related to
                              changes in laws or orders by government entities
                              applicable?

         The MAE exception covers effects “arising from or related to . . . changes in any

Laws, rules, regulations, orders, enforcement policies or other binding directives issued by

any Governmental Entity.” 427

a material adverse effect occurred, the court focused on future projections, stressing that
2008 EBITDA was projected to be only 7–11% lower than 2007 EBITDA and that 2009
projected EBITDA would be “essentially flat” as compared to 2007. Id. at 742–43. The
court also noted that management had begun to recognize a “recent reversal” in the
macroeconomic trends that harmed the seller’s business in the second half of 2007 and first
half of 2008. Id. at 743. Based on those considerations, the court held that the seller did
not suffer a material adverse effect. Id.
        Here, under the Downside #1 Case, DecoPac was projected to face a deeper initial
slump than the seller in Hexion, but it was also projected to experience a swifter and more
pronounced rebound. The Downside #1 Case projected, relative to 2019: a 49% decrease
in first-half 2020 adjusted EBITDA; an 8% increase in second-half 2020 adjusted
EBITDA; a 5% increase in 2021 adjusted EBITDA; and a 15% increase in 2022 adjusted
EBITDA. JX-998 at row 46. As in Hexion, the rebound and the predicted “reversal” of
macroeconomic trends negatively impacting DecoPac indicate that it was not reasonable
to expect that DecoPac would suffer a material adverse effect. See Hexion, 965 A.2d
at 743.
427
      SPA § 1.1.
                                              78
         The language “arising from or related to” is broad in scope under Delaware law. 428

A particular effect is excluded if it relates to an excluded cause, even if it also relates to

non-excluded causes; any other interpretation impermissibly “reads the broad term ‘related

to’ out of the contract.” 429 Thus, revenue declines arising from or related to changes in law

fall outside of the definition of an MAE, regardless of whether COVID-19 prompted those

changes in the law. 430

         To establish the relation to the exception, Plaintiffs rely on the expert report and

testimony of Professor Steven Davis. Davis ran a regression analysis of county-level

DecoPac sales at a weekly frequency, which included controls for recurring fluctuations

and local conditions that affect those sales. 431 He considered the impact of school closures,

shelter-in-place orders, non-essential business closure orders, and restaurant closure

orders. 432 The analysis established that the vast majority of the decline in DecoPac sales

arose from, or at the very least related to, those government orders, and it showed that sales

first fell at the precise moment that such orders were first issued. 433

428
   Lillis v. AT&T Corp., 904 A.2d 325, 331 (Del. Ch. 2006) (“[U]nder Delaware law, the
phrases . . . ‘relating to,’ and ‘arising out of,’ . . . are paradigmatically broad terms.”).
429
      See Douzinas v. Am. Bureau of Shipping, Inc., 888 A.2d 1146, 1150 (Del. Ch. 2006).
430
   See AB Stable, 2020 WL 7024929, at *55–56, *65 (holding that an MAE definition
“does not require a determination of the root cause of the effect” in order for a carveout to
apply and that that the COVID-19 pandemic fell “within an exception to the MAE
Definition for effects resulting from ‘calamities’”).
431
      JX-1776 ¶¶ 25–27.
432
      Id. ¶¶ 22–24.
  See id. ¶ 24 (“These government orders jointly explain 88.4 percent of the shortfall in
433

DecoPac sales in the period from 8 March to 30 May 2020 relative to the same period in

                                              79
         Plaintiffs therefore showed that the effects fell within one of the SPA’s enumerated

carveouts.

                       c.     Does the exclusion for materially disproportionate effects
                              relative to other comparable entities apply?

         The MAE exception excludes events “to the extent that such matter has a materially

disproportionate effect on the Group Companies, taken as a whole, relative to other

comparable entities operating in the industry in which the Group Companies operate.” 434

         To establish a group of comparable companies for this analysis, DecoPac again

relies on the testimony of its grocery expert, Welsh. He defines DecoPac’s industry as “the

supermarket industry” in general. 435 Kohlberg argues that, because the supermarket

industry in general thrived during the pandemic, DecoPac was disproportionately affected.

         Kohlberg’s definition of DecoPac’s industry, however, is overbroad and directly

contradicted by the record.       For example, Kohlberg’s internal deal documents, 436

2019.”); id. ¶ 77 (“Whether the effects are direct or indirect, however, the total effects on
DecoPac sales that I estimate can be described collectively as changes in DecoPac sales
that arise from or relate to government orders.”); see also Trial Tr. at 1093:21–
1095:18 (Davis) (“[A]bout 88 percent of the shortfall, of that 35 percent shortfall in
DecoPac sales, was caused by the combined effect of the four kinds of government orders
that I’ve captured in my regression analysis.”).
434
      SPA § 1.1.
435
    Trial Tr. at 1517:11–14 (Welsh). In its brief, Kohlberg described DecoPac’s industry
as “suppliers of ingredients and products to grocery stores and bakeries.” Dkt. 291, Defs.-
Countercl. Pls.’ Post Trial Reply Br. (“Defs.’ Post-Trial Reply Br.”) at 44. The court sees
no material distinction between this definition and Welsh’s definition.
436
   JX-396 at 6 (describing DecoPac as “market[ing] and suppl[ying] a variety of cake-
decorating products for bakeries, professional cake decorators and cake-decorating
enthusiasts” and stating that DecoPac “is a leading distributor of decoration accessory
products for the In-Store Bakery (‘ISB’) channel”); JX-650 at 4 (same).

                                              80
DecoPac’s own description, 437 and trial testimony from both parties’ witnesses 438 suggest

a narrower industry definition. Kohlberg’s sworn interrogatory response also describes

DecoPac’s industry as “suppliers of ingredients and products used by grocery stores and

bakeries to create high-end decorated cakes for celebratory events,” which is far narrower

than Welsh’s definition. 439     Because Welsh’s description of DecoPac’s industry is

overbroad, his conclusions are unpersuasive.

         Plaintiffs’ expert, Austin Smith, presented a narrower and more realistic description

of DecoPac’s industry: “[S]uppliers of products used by in-store bakeries and other cake

retailers to decorate cakes and cupcakes for celebratory events and other occasions.” 440

This description more closely comports with the evidence and trial testimony of both

parties than Welsh’s does. Austin Smith further established that DecoPac’s sales closely

tracked two different proxies for the performance of comparable entities—IDDBA sales

data for in-store bakeries and Nielsen data on decorated cake sales. 441 She determined that

it was necessary to use broader industry proxies, as opposed to comparable companies,

437
   JX-1421 at 10 (describing the “Nature of [DecoPac’s] Business” as “distribut[ing] cake
decorating products”).
438
   See, e.g., Trial Tr. at 431:18–23 (Hollander) (“I would describe DecoPac as a distributor
of cake decorating accessories.”); id. at 161:4–12 (Anderson) (“Q. And what industry do
you understand, as you’ve been performing your functions at DecoPac, DecoPac to be in?
A. We sell cake decorations and supplies for cakes and cupcakes.”).
439
      See JX-1554 at 55.
440
      JX-1777 ¶ 7(d).
441
   See Trial Tr. at 1030:24–1036:9 (Austin Smith); JX-1777 ¶¶ 7(d), 64–102; JX-
1804 ¶¶ 3(e)–(g), 56–68.

                                              81
because most of DecoPac’s competitors are privately held and therefore their financials are

not publicly available. 442

          Using these proxies, Austin Smith found that, at the time of termination, DecoPac’s

total year-over-year weekly revenue had decreased by approximately 15% and regular sales

by approximately 53%, whereas IDDBA sales data for those same weeks showed

approximately a 32% decrease for in-store bakeries and 42% for cakes. 443 The Nielsen

data, which Welsh also utilized, showed an approximate 39% decrease for decorated cakes

during that period. 444 As Austin Smith correctly concludes in her reports, these data sets

do not show that DecoPac faced a disproportionate impact relative to its industry peers. 445

          Kohlberg therefore did not show that DecoPac experienced a disproportionate effect

relative to comparable entities operating in the same industry. Kohlberg thus fails at every

step of the three-part MAE analysis.

                 2.       Top-Customers Representation

          Kohlberg also argues that Plaintiffs breached the Bring-Down Condition due to

inaccuracies in the Top-Customers Representation. 446 Under the SPA, the Top-Customers

Representation only excuses Kohlberg from closing if it is untrue to such a degree that it

442
      JX-1777 ¶¶ 7(d), 68–73.
443
      Id. ¶ 85 Fig. 10.
444
      JX-1804 ¶ 28 Fig. 1.
445
      See JX-1777 ¶ 7(e); JX-1804 ¶ 3(f)–(g).
446
      See SPA §§ 3.21(a), 7.1(a).
                                                82
had or would reasonably be expected to have material adverse effect. 447 For this reason,

the Top-Customers Representation analysis is largely subsumed within the MAE

Representation analysis. This decision nevertheless briefly addresses the parties’ unique

arguments raised in connection with this issue.

            Kohlberg argues that by the end of April 2020, an MAE was reasonably expected.

Kohlberg contends that by the end of April 2020, year-to-date sales to each of these

customers were down compared to the same period of 2019, between 8.1% and 30.8%,

with sales to HEB realizing the largest decrease (30.8%). 448 In terms of gross profit, year-

to-date changes ranged from a 27.9% decrease to a 0.7% increase, with HEB again

realizing the largest decline (27.9%). 449 Overall, DecoPac’s top ten customers represented

approximately 50% of the Company’s revenue in 2019. 450

            The same fatal defects affecting Kohlberg’s general MAE Representation argument

pervade this more specific one. Based on the limited forward-looking projections for

Kohlberg’s top customers in the record, it appears that sales to top customers would see a

near-full rebound by 2021. 451 Kohlberg provides no additional evidence that would

suggest that the decrease in sales to top customers was reasonably expected to be

durationally significant and material to a reasonable acquirer. Instead, Kohlberg relies on

447
   See Defs.’ Post-Trial Opening Br. at 95 (citing SPA § 7.1(a)); Defs.’ Post-Trial Reply
Br. at 45.
448
      JX-1232 at 36, 42.
449
      Id.
450
      Trial Tr. at 245:18–247:7 (Anderson).
451
      See JX-2438 at 8.
                                               83
Welsh’s thesis that broader industry changes were bound to doom DecoPac. As the court

held above, this theory is unpersuasive and therefore insufficient to support a finding that

Kohlberg reasonably expected an MAE.

          Plaintiffs therefore did not breach the Bring-Down Condition due to inaccuracies in

the Top-Customers Representation.

                 3.      Ordinary Course Covenant

          Kohlberg argues that Plaintiffs breached the Ordinary Course Covenant in two

material respects: by drawing down $15 million on its $25 million revolver and by

implementing cost-cutting measures inconsistent with past DecoPac practice. 452

          The Ordinary Course Covenant provides that, “except . . . as consented to in writing

by [Kohlberg],” Plaintiffs must operate DecoPac “in a manner consistent with the past

custom and practice of the Group Companies (including with respect to quantity and

frequency).” 453 Unlike the Bring-Down Condition, where the degree of non-compliance

had to be sufficient to constitute an MAE, the Covenant Compliance Condition requires

compliance with the Ordinary Course Covenant “in all material respects.” 454 Kohlberg

bears the burden of proving that DecoPac did not comply with the Ordinary Course

Covenant in all material respects. 455

452
      See SPA § 7.1(b).
453
      Id. §§ 1.1, 6.1.
454
      Id. § 7.1(b).
455
   See AB Stable, 2020 WL 7024929, at *51 (“Buyer contends that Seller failed to fulfill
the Ordinary Course Covenant. Consistent with prior precedent, Buyer bore the burden of

                                               84
            Generally, ordinary course covenants exist to “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.” 456 One way that they serve this purpose is by mitigating the incentive for the

seller to act opportunistically between signing and closing, an incentive sometimes referred

to as the “moral hazard problem.” 457

            This court has interpreted “the contractual term ordinary course to mean the normal

and ordinary routine of conducting business.” 458 “Generally speaking, there are two

principal sources of evidence that the court can examine to establish what constitutes the

ordinary course of business.” 459 The court can look to (i) how similar companies have

operated or (ii) how the specific seller company has operated. 460 In each category, the

court may look to how the benchmark operated “both generally and under similar

proving that Seller breached this covenant and caused the Covenant Compliance Condition
to fail.”).
456
    Akorn, 2018 WL 4719347, at *83 (cleaned up); see also Kling & Nugent, supra note 370
§ 13.03, at 13-19–20 (“The parties’ motivations are clear: the Buyer wants to make sure
the business it is paying for at closing is essentially the same as the one it decided to buy
at signing (which presumably has been represented at signing to be the same as the one the
Buyer reviewed during the due diligence process) and the Seller wants to operate as free
of constraints as possible. The Authors believe that the Seller’s concerns here when taken
in the context of a business it has agreed to sell generally are just not as important as the
Buyer’s. Thus, the equities of the situation generally weigh in on the side of the Buyer.”).
457
      Akorn, 2018 WL 4719347, at *83 n.775, *88.
458
    See AB Stable, 2020 WL 7024929, at *68 (cleaned up); Cooper Tire & Rubber Co. v.
Apollo (Mauritius) Hldgs. Pvt. Ltd., 2014 WL 5654305, at *17 (Del. Ch. Oct. 31, 2014)
(quoting Ivize of Milwaukee, LLC v. Complex Litig. Support, LLC, 2009 WL 1111179,
at *9 (Del. Ch. Apr. 27, 2009)).
459
      AB Stable, 2020 WL 7024929, at *70.
460
      Id.
                                                85
circumstances.” 461 Where an ordinary course provision includes the phrase “consistent

with past practice” or a similar phrase, however, the court evaluates the second category

only. 462

            The AB Stable decision provides context for the meaning of the phrase “in all

material respects.” There, the seller owned fifteen limited liability companies, each of

which owned a luxury hotel. 463 Post-signing, the seller closed two of the hotels and

severely limited the operations of the other thirteen, citing both very low demand and

government orders as the basis. 464 The seller also slashed employee headcount, reduced

employee hours, and minimized spending on marketing and capital expenditures, among

other changes. 465 The court ultimately found that the seller breached its obligations under

the ordinary course covenant because the seller made extensive changes to its business due

to the COVID-19 pandemic. 466

            In reaching this conclusion, the court explained that the “in all material respects”

standard “does not require a showing equivalent to a Material Adverse Effect, nor a

showing equivalent to the common law doctrine of material breach.” 467 Rather, it seeks to

461
      Id.
462
      See id. at *71.
463
      See id. at *11.
464
      Id. at *75.
465
      Id. at *75–77.
466
      Id. at *77–78.
467
      Id. at *73.
                                                 86
“exclude small, de minimis, and nitpicky issues that should not derail an acquisition.”468

Under this standard, “[t]o qualify as a breach, the deviation must significantly alter the total

mix of information available to the buyer when viewed in the context of the parties’

contract.” 469 Put differently, the materiality standard at issue asks whether the business

deviation significantly alters the buyer’s belief as to the business attributes of the company

it is purchasing.

         Kohlberg’s first argument based on the revolver draw fails under this standard.

Kohlberg argues that the size of and reason for the $15 million revolver draw on March 26

render it inconsistent with past practices and therefore material. It is true that the $15

million draw was DecoPac’s largest revolver draw since Snow Phipps acquired the

company in 2017 470 and that DecoPac began considering the revolver draw around the

same time at which it prepared a liquidity forecast. 471

         The record reflects, however, that DecoPac had drawn on this facility five time since

late 2017. 472 At trial, Mantel credibly testified that the draw was driven solely by a Snow

Phipps policy implemented broadly among its portfolio companies to address counterparty

468
    Id. (quoting Akorn, 2018 WL 4719347, at *85); cf. Cooper Tire, 2014 WL 5654305,
at *17 (finding a breach of an ordinary course covenant where the seller’s actions
“evince[d] a conscious effort to disrupt the operations of the facility”).
469
      AB Stable, 2020 WL 7024929, at *73.
470
      See JX-985; Trial Tr. at 281:22–282:6 (Anderson).
471
      See JX-909; JX-932 at 4; JX-986 at 5; Trial Tr. at 403:14–404:7 (Twedell).
472
   JX-1612 (reflecting draws on 9/29/17, 12/21/17, 12/27/17, 4/23/18, and 5/28/18, in the
respective amounts of $5 million, $1 million, $2 million, $750 thousand, and $5 million).

                                              87
risks and was not in response to liquidity issues at DecoPac. 473 Moreover, DecoPac

disclosed the draw request to Kohlberg within one day of making it, offered to repay it

within two days of Kohlberg raising issue with it, and never used any of the funds. 474 This

evidence establishes that the revolver draw was not inconsistent with past practices and did

not reflect a material departure from the ordinary course of business. The partial revolver

draw that DecoPac held dormant in its bank account, immediately disclosed, and offered

to repay within days of Kohlberg’s notice does not “significantly alter the total mix of

information available to the buyer when viewed in the context of the parties’ contract.” 475

         Kohlberg’s challenge to the revolver draw fails for the additional reason that the

supposed breach could be cured easily. Section 8.1(d) requires notice of breach and an

opportunity to cure. 476     Delaware law requires compliance with notice and cure

473
    Trial Tr. at 47:10–49:3 (Mantel). Anderson indicated, however, that he and Twedell
ultimately determined the exact size of the revolver draw. See id. at 231:12–24 (Anderson)
(“Q. Did you arrive at – how much was drawn down on the revolver? A. We ended up
drawing down 15 million. Q. And how is it that you arrived at that number? A. [Twedell]
and I had conversation [sic]. . . . [Mantel] had kind of indicated 10 million. And I went
back to [Twedell] and I said, ‘What do you think?’ And he said, ‘Let’s do 15. John, it’s
not a big deal, and, you know, we can do 15.’ So him and I kind of came to the conclusion
that 15 made the most sense.”).
474
   JX-1027; JX-1153 at 2; JX-1406 at 2; Trial Tr. at 1334:17–23 (Forrey); id. at 60:11–
62:4 (Mantel); id. at 232:1–12 (Anderson).
475
      See AB Stable, 2020 WL 7024929, at *73.
476
      SPA § 8.1(d).
                                             88
provisions 477 unless compliance would be futile. 478 Kohlberg never provided notice that

the revolver draw constituted a breach of the Ordinary Course Covenant. Plaintiffs’

witnesses testified that the revolver could have been easily and immediately repaid. 479 This

testimony is corroborated by the fact that DecoPac never used the funds and paid them

back by August 2020. 480 Having failed to honor the notice and cure provision as to the

revolver draw, Kohlberg lacked the authority to terminate on April 20 on that basis.

         Kohlberg’s second argument based on cost-cutting measures is likewise unavailing.

Kohlberg claims that DecoPac breached the Ordinary Course Covenant by implementing

“severe cost-cutting measures and radical shifts in the ways in which it dealt with

customers and suppliers.” 481 Kohlberg argues that DecoPac minimized marketing, capital

477
   See, e.g., Feeley v. NHAOCG, LLC, 2012 WL 4859132, at *8 (Del. Ch. Oct. 12, 2012)
(holding that a party “lacked authority” to terminate a contract because it never sent a
required notice that would trigger a cure period); Velocity Express, Inc. v. Off. Depot, Inc.,
2009 WL 406807, at *1 (Del. Super. Feb. 4, 2009) (ruling that a termination notice that
“failed to give the appropriate 30-day opportunity to cure” was ineffective); see also AB
Stable, 2020 WL 7024929, at *82 (“Compliance with a notice requirement is not an empty
formality.”).
478
    See Preferred Invs., Inc. v. T & H Bail Bonds, 2013 WL 6123176, at *6 (Del. Ch.
Nov. 21, 2013) (holding that a failure to adhere to the formal requirements of a cure
provision does not mitigate a finding of breach of the agreement where “any attempt to
satisfy [the cure] requirement more formally would have been futile”); Cornell Glasgow,
LLC v. LaGrange Props., LLC, 2012 WL 6840625, at *13 (Del. Super. Dec. 7, 2012) (“The
contractual obligation to provide pre-suit notice and opportunity to cure may be excused
where such notice would be futile in achieving its intended purpose” (citing Rsrvs. Dev.,
LLC v. R.T. Props., LLC, 2011 WL 4639817, at *7 (Del. Super. Sept. 22, 2011))).
479
   See Trial Tr. at 232:9–12 (Anderson) (agreeing that the revolver could “have been paid
back right away”); id. at 335:23–337:2 (Twedell) (testifying that DecoPac’s decision to
draw down on its revolver was not influenced by cash-flow needs).
480
      See JX-1612; Trial Tr. at 337:3–8 (Twedell).
481
      Defs.’ Post-Trial Opening Br. at 99.
                                             89
expenditures, and labor costs; 482 halted spending “on all outside consultants”; 483 and

instructed its vendors to halt or delay production and shipments. 484

          Plaintiffs proved at trial that decreasing labor costs in line with decreased production

was in fact a historical practice of DecoPac. 485 As to the other cost-cutting measures,

Plaintiffs contend that management told Kohlberg before termination that DecoPac would

reduce costs in tandem with the sales decline, “[a]s has been our practice for years.” 486

Since then, it has done just that, operating as usual, as DecoPac’s witnesses testified. 487

Spending varied only in expected and de minimis ways from prior years with higher

sales. 488 Kohlberg bore the burden of proof but neglected to meaningfully engage in these

points, and Kohlberg’s argument thus fails.

          Kohlberg’s cost-cutting argument fails for the additional reason that Kohlberg

waived the argument by failing to assert it timely in litigation. Kohlberg did not raise cost-

cutting measures as a basis for termination in its answer, counterclaims, or interrogatory

responses. 489 It did not identify this issue as a basis for termination in the termination

482
      JX-1331 at 2.
483
      JX-982; Trial Tr. at 276:8–11 (Anderson).
484
    JX-1022 at 1–2; Trial Tr. at 276:24–277:5 (Anderson). But see JX-1022 (Twedell
stating: “I did have a conversation with [Anderson] and understand that we will not be
contacting our customers and asking them things that may cause them to re-think their
planned orders.”).
485
      JX-1063 at 3.
486
      Id. at 1, 3.
487
      See, e.g., Trial Tr. at 232:13–19 (Anderson); id. at 378:9–15 (Twedell).
488
      JX-2438 at 1.
489
      See Defs.’ Answer; Countercl. Pls.’ Countercls.; JX-1554 at 44–45.
                                                 90
letter. 490 It did not raise this issue in briefing its motion to dismiss. 491 It was not until its

December 2020 pre-trial brief, submitted after the AB Stable decision found that (more

extreme) cost-cutting measures constituted a breach of the ordinary course covenant, that

Kohlberg asserted this argument. 492 Kohlberg prejudiced Plaintiffs by failing to surface its

cost-cutting argument until pre-trial briefing, and the argument is thus deemed waived.

         Accordingly, Kohlberg has not carried its burden of proving that Plaintiffs breached

their obligations under the Ordinary Course Covenant.

         B.     Breach of Financing Obligations

         Plaintiffs claim that Kohlberg breached its obligations under the SPA by failing to

use its reasonable best efforts to obtain the committed Debt Financing and then failing to

obtain alternative financing.

                1.     Committed Debt Financing

         Relying on Sections 6.15(a) and 6.15(b), Plaintiffs claim that Kohlberg breached

the SPA by failing to use reasonable best efforts to enter into definitive agreements with

respect to the Debt Financing on terms and conditions no less favorable to Kohlberg than

the DCL.

         Section 6.15(a) obligated Kohlberg to

                use its reasonable best efforts to arrange and obtain the Debt
                Financing on terms and conditions acceptable to the Buyer,
                including commercially reasonable efforts to (i) maintain in

490
      See JX-1396.
  See Defs.’ Mot. to Dismiss Opening Br.; Dkt. 133, Defs.’ Reply Br. in Further Supp. of
491

Their Mot. to Dismiss Pls.’ Verified Am. Compl.
492
      See Dkt. 255, Defs.-Countercl Pls.’ Pre-Trial Br. (“Defs.’ Pre-Trial Br.”) at 49–50.
                                                91
                effect the Debt Financing and the [DCL], (ii) satisfy all
                conditions applicable to the Buyer obtaining the Debt
                Financing, including the payment of any commitment,
                engagement, or placement fee required to be paid as a
                condition to the Debt Financing, (iii) enter into definitive
                agreements with respect to the Debt Financing that are on terms
                and conditions no less favorable to Buyer than those contained
                in the [DCL], so that such agreements are in effect as promptly
                as practicable but in any event no later than the Closing Date,
                (iv) consummate the Debt Financing at or prior to the date that
                the Closing is required . . . and (v) comply with its obligations
                under the [DCL]. 493

         Efforts clauses like Section 6.15(a) generally recognize that a party’s ability to

perform some contractual obligations (e.g., obtaining Debt Financing) may depend on the

actions of third parties (e.g., the Lenders). Efforts clauses generally replace “the rule of

strict liability for contractual non-performance that otherwise governs” 494 with “obligations

to take all reasonable steps to solve problems and consummate the” obligation. 495 When

assessing whether a party has breached an efforts clause in a transaction agreement, “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.” 496 This

493
      SPA § 6.15(a).
494
    Akorn, 2018 WL 4719347, at *86 (holding that “reasonable best efforts” and
“commercially reasonable efforts” obligations recognize that “a party’s ability to perform
its obligations depends on others or may be hindered by events beyond the party’s
control”).
495
    Williams Cos., Inc. v. Energy Transfer Equity, L.P., 159 A.3d 264, 272 (Del. 2017)
(citing Hexion, 965 A.2d at 755–56).
496
      See Akorn, 2018 WL 4719347, at *91–92.
                                               92
standard applies with equal force to “reasonable best efforts” and “commercially

reasonable efforts” language. 497

          Section 6.15(b) prohibited Kohlberg from consenting to “any amendment or

modification” of the DCL “[w]ithout the prior written consent of Sellers.” 498

Section 6.15(b) went on to list a series of exceptions to the general prohibition, providing

that Kohlberg may alter the DCL if doing so does not

                 (v) reduce the aggregate amount of the Debt Financing below
                 an amount sufficient (together with the Equity Financing and
                 cash on hand or other sources of immediately available funds)
                 for Buyer to pay and satisfy in full Buyer’s payment
                 obligations pursuant to Article II at Closing, and to pay all
                 related fees and expenses of Buyer,

                 (w) impose new or additional conditions precedent or modify
                 any existing conditions precedent set forth therein in a manner
                 adverse to the interests of the Company,

                 (x) materially delay the timing of the funding of the
                 commitments thereunder or

                 (y) materially adversely impact the ability of the Buyer to
                 enforce its rights under the Debt Commitment Letter or to
                 consummate the transactions contemplated by this Agreement
                 or make funding of the commitments thereunder less likely to
                 occur. 499

          Read together, Section 6.15(a) and Section 6.15(b) require Kohlberg to use its

reasonable best efforts to execute Debt Financing on the terms of the DCL or on better

  See AB Stable, 2020 WL 7024929, at *91–92 (citing Williams, 159 A.3d at 271–73;
497

Hexion, 965 A.2d at 749).
498
      SPA § 6.15(b).
499
      Id. (formatting altered).
                                               93
terms and prohibit Kohlberg from modifying the terms of the DCL if doing so would

jeopardize Debt Financing or the Closing. The provisions thus protect Kohlberg by making

the terms of the DCL a floor and protect Plaintiffs by requiring Kohlberg to maintain that

floor.

         Plaintiffs claim that Kohlberg breached this obligation by demanding more

favorable terms and refusing to close on the DCL when the Lenders refused the Financing

Demands. Plaintiffs proved at trial that, even as the debt markets tightened, each of the

Lenders remained willing to lend on the terms of the DCL. 500 Plaintiffs also proved that,

rather than take any effort to finalize a credit agreement based on the terms of the DCL,

Kohlberg made the Financing Demands and then refused to close when the Lenders

rejected those demands. 501 Plaintiffs contend that the Financing Demands were more

favorable to Kohlberg, such that Kohlberg could not refuse to proceed if the demands were

rejected.

         Kohlberg parses the analysis more finely, advancing a set of intertwined theories

that can be reduced in essence to the following two arguments.

500
    See supra note 277 and accompanying text; see also Trial Tr. at 64:19–65:7 (Mantel)
(“Q. Now, Mr. Mantel, after you learned from Mr. Hollander that Kohlberg did not intend
to close the transaction, did you yourself make any inquiry of the lenders to ascertain their
intent? A. I did, yes. Q. What did you do? A. I spoke to them and also sent them emails
to assess their intent regarding the DCL. Q. . . . [W]hat was the response that you got from
all the lenders? A. All the lenders said that they were prepared to meet their
commitments.”).
501
      See JX-1242; JX-1267; JX-1396; Trial Tr. at 50:23–57:13 (Mantel).
                                             94
       First, Kohlberg contends that the DCL entitled Kohlberg to the Financing Demands

as terms of Debt Financing, such that Kohlberg could not have breached its obligations

under Section 6.15 by demanding them (the “entitlement argument”).

       Alternatively, Kohlberg argues that the DCL left certain terms open to be negotiated

post-signing, that the Financing Demands spoke to open terms, and that it complied with

its obligations when negotiating the open terms (the “open-terms argument”).             The

alternative argument requires the court to first revisit the meaning of the phrase “acceptable

to the Buyer” in relevant contractual language (the “acceptable-to-buyer argument”) before

addressing Kohlberg’s argument that it had reasonable grounds for making the Financing

Demands and thus complied with its efforts obligations when negotiating the DCL (the

“reasonable-grounds argument”).

                     a.     The Entitlement Argument

       Kohlberg contends that it was entitled to make the Financing Demands. Kohlberg

reasons that if the DCL establishes a floor that protects Kohlberg, then Kohlberg could not

have breached its contractual obligations to Plaintiffs by demanding terms that it was

entitled to receive. Kohlberg does not advance its entitlement argument as to the Revolver

Demand or the Holiday Demand, thus limiting the argument’s force.

       Kohlberg bases its claim of entitlement to the Addback Demands on two clauses in

the DCL’s definition of “Consolidated EBITDA.” The first, “Clause (a),” permitted

EBITDA addbacks for “extraordinary, unusual or non-recurring losses, gains or expenses

                                             95
and transaction expenses” of up to $15 million. 502 The second, “Clause (o),” permitted

“other adjustments, exclusions and add-backs as shall be mutually agreed or as otherwise

consistent with the First Lien Documentation Principles.” 503

         Kohlberg did not rely on these clauses at the outset of this litigation and instead took

the inconsistent position that the credit agreement could only contain terms to which the

Lenders “mutually agreed.” For example, when opposing Plaintiffs’ motion to expedite,

in its answer and counterclaims, in its motion to dismiss, and in its interrogatory responses,

Kohlberg described Clause (o) as a “catch-all” that Kohlberg and the Lenders must

“mutually agree[] upon.” 504 During his deposition, Kohlberg’s financing expert testified

that Kohlberg cannot insist on addbacks under Clause (o) to which the Lenders did not

agree, a point that Foster was forced to concede through impeachment at trial. 505

         Kohlberg advanced the starkest articulation of this argument, which spoke to

Clause (a) as well as Clause (o), during the April 17, 2020 hearing on Plaintiffs’ initial

motion to expedite, when defense counsel stated:

                [A]s is always the case with these types of financing
                commitment letters, EBITDA can mean different things to

502
   DCL Ex. B, at B-38. Clause (a) provides for a cap of $15 million or 30% of
Consolidated EBITDA, see DCL Ex. B, at B-38, but Kohlberg only refers to the
$15 million cap, presumably because, under the March 26 Model, 30% of Consolidated
EBITDA would be less than $15 million through 2022. See JX-1064 at row 26.
503
      DCL Ex. B, at B-40.
  See Dkt. 18, Defs.’ Opp’n to Pls.’ Mot. for Expedited Proceedings at 6; Countercl. Pls.’
504

Countercls. ¶ 35; Defs.’ Mot. to Dismiss Opening Br. at 9; JX-1530 at 16.
505
    See Trial Tr. 1598:8–1599:3 (Foster); see also id. at 1187:1–1189:20 (Bedrosian)
(testifying that any changes between the DCL and the final agreement under Clause (o)
“need[] to be discussed and to be mutually agreed” upon).

                                                96
               different people.      And therefore, the definition of
               “EBITDA” . . . in important respects, is left open for the
               purposes of testing compliance. And that is an item that is to
               be negotiated between the lenders and the borrower. . . .

               [The lenders] agreed to the general categories of add-backs and
               adjustments to exclusions. But they left open, for purposes of
               testing compliance . . . whether or not there could be certain
               new add-backs or adjustments and what the scope and nature
               of the list of add-backs would be. . . .

               [F]or instance, [Clause A] is an add-back for “extraordinary,
               unusual, or non-recurring losses.” Another add-back -- and
               this is [Clause] (o) -- [is] for “other adjustments, exclusions and
               add-backs as shall be mutually agreed or as otherwise
               consistent with the First Lien Documentation Principles.” . . .
               So . . . add-backs were potentially going to be a point of
               negotiation when it came time to do definitive documentation.

               And, . . . in March, . . . [w]e approached the lenders, as we’re
               entitled to do. I mean, [Clause] (o) clearly says “mutually
               agreed upon.” So we were allowed to ask for add-backs. And
               the lenders, as is their right, said no. 506

At the time Kohlberg made this argument, the DCL and SPA were indisputably still in

effect and could be enforced. Thus, it behooved Kohlberg to take the position that the

Lenders could reject Kohlberg’s demands by declining to agree. By tacitly denying that

they were entitled to the Addback Demands (and that the Lenders were correspondingly

obligated to provide them), Kohlberg avoided any claim that might have compelled them

to obtain the addbacks and close the deal.

506
      JX-1387 at 26–28 (emphasis added).
                                               97
         It was not until pre-trial briefing that Kohlberg pivoted to present its entitlement

argument. 507 Even then, Kohlberg stopped short of arguing that the DCL entitled Kohlberg

to the precise Addback Demands made by Kohlberg. 508

         The doctrine of waiver likely supplies an adequate basis to hold Kohlberg to its

previous representation that the Lenders could say no to the Addback Demands. Generally

speaking, “[w]hen an argument is first raised in a pretrial brief after the parties already

have shaped their trial plans, it is simply too late and deemed waived.” 509 In this case,

because Kohlberg did not clearly articulate its entitlement theory until pre-trial briefing,

long after the parties could have shaped discovery and their trial plans, Kohlberg waived

the argument.

         In the interest of completeness, this decision considers Kohlberg’s entitlement

argument on its merits, turning first to the question of whether Clause (a) entitled Kohlberg

to the Addback Demands. It does not. Language like Clause (a) is generally not intended

507
    See Defs.’ Pre-Trial Br. at 3 (“Among other addback categories, the DCL expressly
allowed . . . uncapped addbacks consistent with certain guiding principles, including to
reflect the operational and strategic requirements of KCAKE and DecoPac.” (internal
quotation marks omitted)). In response to Plaintiffs’ waiver argument, Kohlberg states in
its post-trial reply brief that it “argued throughout this litigation its entitlement to addbacks
consistent with the First Lien Documentation Principles” and cites to its Counterclaims,
interrogatory responses, expert reports, and depositions. Defs.’ Post-Trial Reply Br. at 20–
21. The majority of the documents cited by Kohlberg do not articulate the argument that
the DCL entitled Kohlberg to the Addback Demands. See JX-1530; JX-1554; JX-1797;
Bedrosian Dep. Tr.; Foster Dep. Tr. Only one of the documents, which was dated
September 20, 2020, even suggested that Kohlberg was entitled to the addbacks. See JX-
1633 at 20.
508
      See Defs.’ Pre-Trial Br. at 3, 34–36, 39–44.
509
   ABC Woodlands L.L.C. v. Schreppler, 2012 WL 3711085, at *3 (Del. Ch. Aug. 15,
2012).

                                               98
to supply addbacks like those demanded by Kohlberg. As Plaintiffs’ financing expert

testified, similar clauses are understood in the industry to capture nonrecurring events that

are easy to quantify—not lost revenue. 510 The Lenders testified to the same effect. 511

         Even if Clause (a) covered COVID-19-related revenue losses, it does not follow that

Kohlberg was entitled to demand a $35 million addback, let alone an uncapped addback.

Rather, Clause (a) capped Kohlberg’s entitlement to $15 million in EBITDA addbacks.

The fact that Kohlberg demanded more than $15 million in EBITDA addbacks suggests

that Kohlberg did not intend this addback to fall entirely within the scope of Clause (a).

         Nor does Clause (o) independently entitle Kohlberg to the Addback Demands.

Again, Clause (o) provides that addbacks shall be “mutually agreed” upon or “otherwise

consistent with the First Lien Documentation Principles.” 512 Because the addbacks were

not “mutually agreed,” Kohlberg argues that it was entitled to the Addback Demands under

the First Lien Documentation Principles (the “Principles”).

         The Principles, however, are merely amorphous guidelines and do not supply a clear

source of entitlement. The Principles generally state that the terms of the final credit

510
   Trial Tr. at 1150:6–1153:20 (Bedrosian); see also The Impact of COVID-19 on Adjusted
EBITDA, Proskauer (May 4, 2020), https://www.proskauer.com/alert/the-impact-of-covid-
19-on-adjusted-ebitda (“[B]orrowers may attempt to classify lost revenue as a loss for
purposes of the (i) extraordinary, non-recurring or unusual or (ii) discontinued operations
addbacks. This should not be permitted.”).
511
   See Trial Tr. at 794:23–795:5 (Antares); id. at 824:23–825:2 (Owl Rock); id. at 969:14–
19 (Ares); Churchill Dep. Tr. at 104:14–24.
512
      DCL Ex. B, at B-40.
                                             99
agreement would be no less favorable than a precedent agreement. 513 They do not contain

mandatory language saying that the parties “shall” or “must” enter into any terms. To the

contrary, they provide that the final credit agreement shall “reflect the operational and

strategic requirements” of DecoPac and “be negotiated in good faith.” 514 The requirement

that terms be negotiated in good faith contradicts the argument that the Principles supply a

vested right to any specific term. Corroborating this conclusion, when asked this question

directly, each of the Lenders’ witnesses credibly denied that they viewed Clause (o) as a

source of entitlement. 515

          Kohlberg’s own conduct reveals that it did not view the Principles or any aspect of

the DCL as a source of entitlement to the Addback Demands. If Kohlberg believed that

Clause (a) and Clause (o) individually or collectively covered lost revenue due to COVID-

19, it could have simply signed a credit agreement with those terms and applied the

addbacks when measuring EBITDA. 516 Alternatively, Kohlberg could have expressed this

513
    See, e.g., id. Ex. B, at B-26–27 (stating that the final credit agreement between Kohlberg
and the Lenders shall “be consistent with [the DCL] . . . and shall be based on, and
otherwise substantially similar to and not less favorable to [Kohlberg] . . . than . . . the
Precedent Credit Agreement . . . and the related ancillary agreements” (emphasis omitted));
id. Ex. B, at B-27 (calling for the parties to use a precedent credit agreement as the basis
for their credit agreement but allowing for modifications to the precedent agreement to
“reflect the operational and strategic requirements” of DecoPac as compared to the
precedent target company).
514
      See id.
515
   See Trial Tr. at 784:8–788:1 (Antares); id. at 815:14–816:5 (Owl Rock); id. at 969:20–
970:16 (Ares); Churchill Dep Tr. 38:11–18.
516
    Kohlberg disputes this point, arguing that it “ignores that it takes more than one party
to sign a credit agreement” and that “Kohlberg and the Lenders needed to agree on what,

                                              100
position when negotiating the Financing Demands with the Lenders.                In those

communications, however, Kohlberg did not once claim that it was entitled to the demands,

nor did it reference Clause (a) or Clause (o). As yet another alternative, Kohlberg could

have sued the Lenders to compel them to include the Addback Demands in a credit

agreement. 517   Kohlberg did none of these things, thereby suggesting that not even

Kohlberg believed that it was entitled to the Addback Demands when it was negotiating

with the Lenders.

       In sum, Kohlberg’s newly minted entitlement argument fails. Neither Clause (a)

nor Clause (o) independently or together entitle Kohlberg to the Addback Demands, and

neither the Lenders nor Kohlberg believed that they did when they were negotiating the

Financing Demands. The analysis thus turns to whether Kohlberg’s Financing Demands

spoke to open terms of the DCL.

                     b.     The Open-Terms Argument

       It is difficult to conclude that the Financing Demands spoke to truly open terms. Of

the three categories of demands within the defined term “Financing Demands,” Kohlberg

offers argument in briefing as to the Addback Demands only. Kohlberg does not argue

exactly, constituted ‘extraordinary, unusual or non-recurring losses, gains or expenses’ in
the definitive credit agreement.” Defs.’ Post-Trial Reply Br. at 18. Kohlberg cites to the
precedent EN Engineering deal, where the commitment letter’s “Clause (a)” counterpart
contained language nearly identical to the DCL’s Clause (a), but the final agreement
contained a more detailed definition. Id. (citing JX-125 § 1.01, at 17–20; JX-416 Ex. B,
at B-41–43). But this merely indicates that a more detailed definition can be agreed
upon—not necessarily that a more detailed definition must be agreed upon.
  Kohlberg acknowledged this alternative in its post-trial reply brief. Defs.’ Post-Trial
517

Reply Br. at 55.

                                           101
that either the Holiday Demand or the Revolver Demand speak to open terms, nor can they.

The Holiday Demand sought to blue pencil Kohlberg’s previous agreement that covenant

compliance would be tested as of “the last day of the second full fiscal quarter ended after

the Closing Date.” 518 The Revolver Demand sought to blue pencil the most critical term

concerning the revolver—its dollar amount—which too was expressly negotiated by the

parties. 519 Kohlberg’s own expert admitted that both demands were outside of the scope

of open terms. 520

          Because Kohlberg was obligated to use its reasonable best efforts to enter into a

final credit agreement on the terms of the DCL, its insistence on the better terms of the

Holiday Demand and the Revolver Demand constituted a breach of Section 6.15(a). 521

          The question becomes whether the Addback Demands spoke to open terms, an

analysis that rehashes aspects of Kohlberg’s entitlement argument concerning Clause (a)

and Clause (o).

          Again, if Clause (a) entitled Kohlberg to addbacks for COVID-19-related revenue

losses, as Kohlberg argues, then those losses were expressly capped at $15 million. By

seeking uncapped addbacks and then a $35 million cap, Kohlberg sought to blue-pencil the

518
      See DCL Ex. B, at B-38.
519
      See id. at 1.
520
   See Trial Tr. at 1600:21–1601:10 (Foster) (admitting that “upsizing of the revolver” was
“outside the DCL”); Foster Dep Tr. at 112:2–9 (same as to the covenant holiday).
521
   See In re Anthem-Cigna Merger Litig., 2020 WL 5106556, at *112–13 (Del. Ch.
Aug. 31, 2020) (holding that insisting on additional rights and imposing additional
conditions breached an efforts provision).

                                             102
previously negotiated $15 million cap of Clause (a) to achieve better terms, which would

constitute breach of Section 6.15(a).

       Thus, the Addback Demands only speak to open terms if they fall wholly within the

catchall reference to First Lien Documentation Principles of Clause (o).

       Although Kohlberg makes no compelling argument to this effect, this decision

assumes, for the sake of argument, that the Principles provided a basis for Kohlberg to seek

addbacks for COVID-19-related revenue losses.

                     c.     The Acceptable-to-Buyer Argument

       Before turning to Kohlberg’s argument that it had reasonable grounds for the

Addback Demands, this decision must first revisit an argument raised by Kohlberg on its

motion to dismiss concerning the meaning of Section 6.15(a)’s reference to Debt Financing

being “acceptable to the Buyer.”

       The acceptable-to-buyer argument first featured in Kohlberg’s motion to dismiss,

where Kohlberg argued that this phrase allowed it to renegotiate terms of Debt Financing

in between signing and closing and to walk away from the DCL in the event it did not

secure “terms and conditions acceptable to the Buyer.” 522          Effectively, Kohlberg

interpreted Section 6.15(a)’s requirement that Kohlberg to use reasonable best efforts as a

source of continuing discretion to unilaterally object to unacceptable terms of Debt

Financing.

522
    Defs.’ Mot. to Dismiss Opening Br. at 7, 41–42 (quoting SPA § 6.15(a) (emphasis
added)). Kohlberg coupled this language with provisions of the DCL like “Clause (o)”
(discussed in the next section) to suggest that certain terms remained open to negotiation.
Id. at 9–10; see also Defs.’ Post-Trial Opening Br. at 27–29.

                                            103
         The court rejected this strident interpretation in the Motion to Dismiss Bench

Ruling, concluding that such an interpretation could not be reconciled with multiple other

aspects of the contractual scheme including Section 6.15(a) or Section 6.15(b). 523 The

court reasoned that “[t]he contractual scheme cannot provide both that [Kohlberg], on the

one hand, may unilaterally block the Debt Financing and, on the other hand, must use best

efforts to obtain the Debt Financing.” 524

         The court left open the possibility that perhaps there was a way to harmonize a

version of Kohlberg’s acceptable-to-buyer argument with the contractual scheme. In a

passage of the bench ruling, the court suggested that if the scheme permitted Kohlberg to

renegotiate EBITDA addbacks—a conclusion the court expressly declined to reach—then

perhaps Section 6.15(a) would operate as a check on Kohlberg’s ability to negotiate

financing by foreclosing Kohlberg from demanding unreasonable terms. 525 As is often the

case with bench rulings, the reasoning was under-developed. It expressly left open the

possibility that other interpretations might help harmonize the provisions of the contractual

scheme.

         Plaintiffs seized on this opening, offering in their post-trial brief an interpretation of

Section 6.15(a) that reconciles the acceptable-to-buyer language with the other obligations

523
      Mot. to Dismiss Bench Ruling at 13–21.
524
   Id. at 19–20 (emphasis added) (reasoning that “[r]eading the acceptable-to and catch-all
provisions to permit [Kohlberg] to unilaterally block the debt financing by demanding any
terms subjectively acceptable to it would render the reasonable best efforts provision mere
surplusage and run contrary to the contractual scheme”).
525
      Id. at 20–21.
                                                104
and restrictions of Section 6.15. As Plaintiffs observe, Section 6.15(a) provides that the

general obligation to “use its reasonable best efforts to arrange and obtain the Debt

Financing on terms and conditions acceptable to the Buyer, includ[es]” a series of more

specific obligations. 526 Pointing to a discussion of a similarly nested provision in AB

Stable, Plaintiffs argue that “[t]he ‘including’ clause confirms that [the] general obligation

‘includ[es]’ an obligation to use commercially reasonable efforts to accomplish the . . .

enumerated items.” 527 Applying this reasoning to Section 6.15(a), Plaintiffs argue that

Kohlberg must, at a minimum, use commercially reasonable efforts to satisfy the specific

enumerated items.

         Read together with the acceptable-to-buyer language, the specific obligations that

follow the more general efforts obligation must therefore be viewed as definitionally

“acceptable.” Among those specific obligations is Kohlberg’s obligation to “enter into

definitive agreements with respect to the Debt Financing that are on terms and conditions

no less favorable to Buyer than those contained in the [DCL].” 528 Thus, it must follow that

the terms of the DCL are “acceptable” to Kohlberg. 529

526
      See SPA § 6.15(a) (emphasis added).
527
      AB Stable, 2020 WL 7024929, at *90 (third alteration in original).
528
      SPA § 6.15(a).
529
   See Trial Tr. at 1603:21–1604:7 (Foster) (agreeing that Kohlberg could not “sign a DCL
that was acceptable on the date that the [SPA] was signed, March 6, and later say ‘[t]hat
DCL is no longer acceptable to us’”); see also id. at 1596:14–19 (Foster) (agreeing that the
SPA did not “empower Kohlberg to negotiate for a credit agreement that was outside the
terms and conditions of the DCL”).

                                             105
            In view of the court’s ruling on the motion to dismiss, Kohlberg does not

meaningfully dispute Plaintiffs’ interpretation, but instead argues that “[t]o have any

independent meaning, the ‘acceptable to the Buyer’ clause must, at the least, require that

open terms in the DCL be resolved in a manner acceptable to Kohlberg.” 530

            This decision adopts Kohlberg’s newest articulation of the acceptable-to-buyer

language, concluding that Kohlberg had the right to insist on acceptable provisions as to

open terms, limited by its efforts obligations, including the obligation to use “commercially

reasonable efforts to . . . enter into definitive agreements with respect to the Debt

Financing.” 531

                         d.     The Reasonable-Grounds Argument

            Kohlberg contends that it complied with its efforts obligations when negotiating

open terms of the DCL because it had reasonable grounds for the Financing Demands given

its concern that the Company would breach the Financial Covenant at its first testing.

            The obligations to use “reasonable best efforts” and “commercially reasonable

efforts” each required Kohlberg to “take all reasonable steps to solve problems and

consummate the” enumerated obligations. 532         In this context, the analysis considers

whether Kohlberg “(i) had reasonable grounds to take the action it did and (ii) sought to

530
      Defs.’ Post-Trial Reply Br. at 13.
531
      Id.
532
      See supra notes 494–497 and accompanying text.
                                              106
address problems with its counterparty.” 533 Moreover, this court has been hesitant to find

that a party took reasonable best efforts to solve a problem where the party “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.” 534

          Even assuming that the Addback Demands spoke to open terms to be negotiated in

accordance with the Principles, it is difficult to conclude that Kohlberg complied with its

obligations when negotiating them.

          To show that it complied with its obligations under Section 6.15(a) when making

the Addback Demands, Kohlberg relies on the March 26 Model, which projected that

Kohlberg would violate the Financial Covenant when first tested. To Kohlberg, it was

reasonable to demand addbacks to avoid closing into a potential covenant breach. When

the Lenders refused both the initial uncapped demand and the later $35 million capped

addback, it became apparent to Hollander that the Lenders were not willing to give any

EBITDA addbacks for COVID-19-related revenue loss in the final credit agreement.535

Each of the Lenders confirmed this, testifying that, as a blanket policy, they were not

granting borrowers addbacks for COVID-19-related revenue losses. 536 Kohlberg cites

533
   Akorn, 2018 WL 4719347, at *91. In Akorn, Vice Chancellor Laster articulated the
holding of Williams as a non-exclusive test, observing that “this court has looked” at the
two identified factors while stopping short of saying that this court must look to those two
factors. Id.
534
      See id.
535
      Trial Tr. at 548:21–549:21 (Hollander).
536
   See id. at 794:23–795:5 (Antares); id. at 824:23–825:2 (Owl Rock); id. at 969:14–
19 (Ares); Churchill Dep. Tr. at 104:14–24.

                                                107
these facts, contending that its efforts were reasonable and that Section 6.15(a) did not

require Kohlberg to close into a covenant breach.

          Kohlberg’s theory rests on a faulty premise—that the March 26 Model was created

for the purpose of forecasting the Company’s actual performance and that it was reasonable

to rely on the Model for that purpose. The events that led to the March 26 Model reveal

the problem with that premise:

          •     Kohlberg’s remodeling efforts began less than one day after a March 18 call
                with Kohlberg’s outside litigation counsel. 537

          •     Kohlberg had near-daily calls with its outside litigation counsel after
                March 18. 538

          •     By March 23, Woodward was discussing the acquisition using conditional
                language (“if we decide we have to own it”), 539 and Hollander had given
                McKinney and Forrey the impression that Kohlberg had its “mind made
                up.” 540

          •     After McKinney and Forrey developed the impression that Kohlberg was
                seeking to terminate the deal, they prepared two “downside” models. 541

          •     Of the two downside cases, McKinney and Forrey thought the Downside #1
                Case—the model that did not project a covenant breach—was a “good place
                to start.” 542

537
      See JX-883; JX-891; JX-995 at 5; Trial Tr. at 698:16–699:6 (Hollander).
538
      JX-1910; PDX-6.
539
      JX-1000 at 1 (emphasis added).
540
      JX-996 at 1.
541
      See JX-998 at 1.
542
      See id.
                                             108
         •       Only the second model—the GW Case—projected a covenant breach. 543

         •       By March 23, Kohlberg still had not sought input from the Company about
                 performance for its remodeling efforts. 544

         •       On March 23, Hollander and Forrey spoke on the phone for sixteen minutes;
                 immediately after the call ended, Forrey sent McKinney a copy of the
                 updated model, which used the GW Case as the base case. 545

         •       On March 24, after Kohlberg already had its “mind made up,” Kohlberg
                 requested information from Anderson, based on the false premise that the
                 Lenders had requested additional information. 546

         •       On March 25, the Company responded to Kohlberg’s data requests. 547

         •       On March 26, the Company finalized its new model based on the GW Case.
                 Nearly as pessimistic as the GW Case, the new model projected that the
                 Company’s adjusted EBITDA would fall from $48.3 million for 2019 to
                 $10.5 million for 2020 and thus that the Company would be in breach of the
                 Financial Covenant when first tested. 548

         •       Kohlberg’s witnesses failed to explain the basis for the assumptions
                 underlying the March 26 Model. 549

543
   See JX-996 at 1–2 (referring to the GW Case as “obviously support[ing] their case given
how severe the downside is”); Trial Tr. at 1278:9–18 (McKinney) (agreeing that the GW
Case “was a bad case that supported requesting an add-back from the lenders to avoid a
covenant breach”).
544
      See Trial Tr. at 208:9–211:15 (Anderson); id. at 523:16–527:4 (Hollander).
545
      See JX-967 at 202; JX-994 at 1.
546
      See JX-996 at 1; Trial Tr. at 208:9–212:2 (Anderson); id. at 523:16–527:4 (Hollander).
547
      JX-1058.
548
   See JX-1064 at cells at N26, S26. The model predicted April, May, and June year-over-
year sales decreases of 78.0%, 80.9%, and 64.2%, respectively, despite DecoPac never
having recorded a year-over-year weekly decrease of more than 63.9%. Compare DDX-
1.9 (projecting monthly declines of 78.0%, 80.9%, and 64.2% in April, May, and June,
respectively), with DDX-3.25 (even omitting auto sales, showing no week worse than
63.9% decline), and JX-2432 (same).
549
      See supra notes 195, 238–240 and accompanying text.
                                             109
         •      Kohlberg did not wait for the Company’s reforecast before sending the
                March 26 Model to the Lenders. 550

         •      On March 26, the Company sent Kohlberg its reforecast based on actual sales
                data, communications with customers, and decades of experience; this
                reforecast was similar to McKinney’s first downside case. 551

         •      Seventeen minutes after receiving the Company’s reforecast, Kohlberg
                rejected it as “illogically optimistic.” 552

         •      Kohlberg did not use the Company’s reforecast to tweak its Model and never
                shared the Company’s reforecast with the Lenders. 553

         •      Kohlberg did not update the Lenders after sales data from the first two weeks
                of April proved that its projections were inaccurate or for any other reason
                during the nearly seven weeks until the DCL expired. 554

         This contemporaneous evidence leads to the conclusion that the March 26 Model

was predestined to reflect a covenant breach as a platform for Kohlberg to make the

Financing Demands rather than any genuine effort to forecast DecoPac’s performance.

550
   See PTO ¶ 21; JX-1062; JX-1064. According to Hollander, Kohlberg did not wait for
DecoPac’s reforecast because, based on a thirty-minute conversation on March 24, he
“didn’t think [the reforecast] would be credible.” See Trial Tr. at 728:14–730:6
(Hollander).
551
   Compare JX-1066, with JX-998. Although Hollander explained to the Kohlberg team
that DecoPac’s management had discussed with him the assumptions underlying their
reforecast, Hollander dismissed them simply because he “continue[d] to believe that their
forecast [was] extremely overly optimistic and out-of-touch with the current reality.” JX-
1183 at 4. Kohlberg’s ready dismissal of DecoPac management projections, which “would
seem highly relevant,” cuts against the legitimacy of the March 26 Model. See Channel
Medsystems, 2019 WL 6896462, at *30 (faulting buyer that failed to raise concerns with
management, make any effort to understand management’s response, or hire an outside
consultant to examine the purported issue).
552
      See JX-1066 at 1; JX-1074 at 1.
553
    See JX-1062; JX-1064; JX-1074; Trial Tr. at 743:6–750:3–13 (Hollander); id.
at 1390:8–1392:8 (Forrey).
554
      Trial Tr. at 1263:4–1266:1 (McKinney); see id. at 1390:8–1392:8 (Forrey).
                                             110
Kohlberg’s witnesses denied this at trial, 555 but their statements are less credible than the

contemporaneous evidence.

         Kohlberg argues that the Lenders’ refusal to grant addbacks for COVID-19-related

revenue losses amounts to a “failure to engage in a meaningful back-and-forth.” 556 But the

fact that every Lender has a blanket policy against granting the Addback Demands cuts

against the reasonableness of these demands, not the opposite. Ultimately, the Lenders’

policy does not inform whether Kohlberg complied with its obligations when making the

demands. That determination hinges on the reasonableness of Kohlberg’s efforts.

         In the end, the conclusion is unavoidable: Kohlberg did not use reasonable best

efforts to obtain Debt Financing based on the terms of the DCL. Kohlberg did not “work

with [its] counterparties” in such a way that was likely to solve the problems it faced, and

its arguments appear to have been “manufactured . . . solely for purposes of litigation.”557

Because Kohlberg’s only post-signing efforts to obtain Debt Financing under

Section 6.15(a) relied on the March 26 Model, Kohlberg failed to use its reasonable best

efforts. Kohlberg thus breached its obligations under Section 6.15(a).

                2.     Alternative Financing

         Section 6.15(d) of the SPA provides:

                If, notwithstanding the use of reasonable best efforts by Buyer
                to satisfy their respective obligations under this Section 6.15,
                the Debt Financing or the Debt Commitment Letter (or any

555
    See, e.g., id. at 571:16–574:18 (Hollander); id. at 1229:23–1230:24 (McKinney); id.
at 1340:9–1341:16 (Forrey); id. at 1423:1–5 (Woodward).
556
      Defs.’ Post-Trial Opening Br. at 79.
557
      See Akorn, 2018 WL 4719347, at *91.
                                              111
                definitive financing agreement relating thereto) expire or are
                terminated or become unavailable prior to the Closing, in
                whole or in part, for any reason, Buyer shall . . . use its
                reasonable best efforts promptly to arrange for alternative
                financing from reputable financing sources (which, when
                added with the Equity Financing, shall be sufficient to pay the
                amounts required to be paid under this Agreement from other
                sources) . . . . 558

         Because Section 6.15(d) only applies if Kohlberg has first used reasonable best

efforts to satisfy its obligations under Section 6.15(a), this decision need not reach the

question of whether Kohlberg satisfied its obligation to seek alternative financing under

Section 6.15(d).

         It bears noting, however, that Kohlberg’s efforts to seek alternative Debt Financing

were unreasonable for similar reasons to those that underpinned Kohlberg’s breach of its

obligations under Section 6.15(a). On the day that Mantel informed Hollander that he

expected Kohlberg to seek alternative financing, Kohlberg contacted Houlihan Lokey to

conduct a market check for alternative financing options. 559 Given the number of lenders

with which Houlihan Lokey regularly interacts, Kohlberg was effectively gauging the

financing market as a whole. 560 By April 3, Houlihan Lokey had reported to Kohlberg that

any debt potentially available would be on terms significantly less favorable than those in

the DCL. 561 Kohlberg also reached out to Madison Capital, who was an existing lender to

558
      SPA § 6.15(d) (emphasis omitted).
559
      Trial Tr. at 576:10–577:16 (Hollander).
560
      Id. at 576:20–577:12 (Hollander); id. 1589:22–1590:20 (Foster).
561
      Id. at 579:4–23 (Hollander); see JX-1282.
                                                112
DecoPac, but Madison Capital was not interested in lending on the terms that Kohlberg

was seeking. 562

         Although Kohlberg’s initial efforts to investigate potential alternative financing

options were facially reasonable, Kohlberg too easily and conveniently accepted defeat.

And although it is true that Kohlberg’s obligation to seek alternative financing did not

extend in perpetuity, it is equally true that best efforts likely required more than just four

days of inquiries. Yet, from April 5 forward, during the five weeks before the DCL expired,

Kohlberg never endeavored to find alternative financing. 563 After the DCL expired,

Kohlberg made no efforts whatsoever to find alternative financing. Regardless, Kohlberg’s

failure to satisfy its obligation under Section 6.15(a) renders this point moot.

         C.     Remedies

         Plaintiffs ask the court to order specific performance and force Kohlberg to close

on the SPA. Alternatively, they ask the court to order Kohlberg to use reasonable best

efforts to obtain alternative debt financing.

         “A party seeking specific performance must establish that (1) a valid contract exists,

(2) he is ready, willing, and able to perform, and (3) that the balance of equities tips in

favor of the party seeking performance.” 564 This court has not hesitated to order specific

562
      Trial Tr. at 580:10–581:23 (Hollander).
563
      See id. at 581:24–582:14, 776:3–13 (Hollander); id. at 1435:14–22 (Woodward).
564
   Osborn v. Kemp, 991 A.2d 1153, 1158, 1161 (Del. 2010) (“When balancing the equities
we must be convinced that the specific enforcement of a validly formed contract would not
cause even greater harm than it would prevent.” (cleaned up)).

                                                113
performance in cases of this nature, 565 particularly where sophisticated parties represented

by sophisticated counsel stipulate that specific performance would be an appropriate

remedy in the event of breach. 566

       Here, the parties stipulated to the remedy of specific performance, 567 but that

stipulation applies “if and only if . . . the full proceeds of the Debt Financing have been

funded to Buyer on the terms set forth in the [DCL] to fund the payment of the Estimated

565
    See, e.g., Channel Medsystems, Inc. v. Boston Sci. Corp., 2019 WL 7293896, at ¶ 4
(Del. Ch. Dec. 26, 2019) (Order & Final Judgment) (ordering specific performance of
merger agreement); Hexion, 965 A.2d at 763 (ordering specific performance of merger
agreement, including obligation to use reasonable best efforts to consummate the
financing); IBP, 789 A.2d at 84 (ordering specific performance of merger agreement).
566
    See, e.g., Channel Medsystems, 2019 WL 6896462, at *39 (“Although this [specific
performance] provision does not tie the court’s hands in fashioning appropriate equitable
relief, it reflects the parties’ understanding that specific performance would be available in
this circumstance, which is entirely consistent with past Delaware cases granting specific
performance for failure to perform under a merger agreement.”); Hexion, 965 A.2d at 759–
63 (finding specific performance appropriate where a provision in a merger agreement
provided for specific performance in certain circumstances); Gildor v. Optical Sols., Inc.,
2006 WL 4782348, at *11 (Del. Ch. June 5, 2006) (“If the Stockholder Agreement was
silent as to the availability of specific performance, Gildor would bear the burden of
showing that a legal remedy would be inadequate. . . . But, given Delaware’s public policy
of favoring freedom of contract, there is no need to make that inquiry. . . . Delaware courts
do not lightly trump the freedom to contract and, in the absence of some countervailing
public policy interest, courts should respect the parties’ bargain.”).
567
   See SPA § 11.14(a) (providing that “the other parties would be damaged irreparably in
the event any of the provisions of the Agreement are not performed in accordance with
their specific terms or otherwise are breached,” that “the remedies at law would not be
adequate to compensate such other parties not in default or breach,” and that “each of the
parties agrees that the other parties will be entitled to seek an injunction or injunctions to
prevent breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions of this Agreement in addition to any other remedy
to which they may be entitled, at law or in equity”). The SPA does not automatically expire
and was not validly terminated; it thus remains in effect. See id. § 8.1.

                                             114
Closing Payment at Closing (or would be funded at the Closing if the equity Financing is

substantially contemporaneously funded at the Closing)” (the “debt-funding condition”).568

         Kohlberg moved to dismiss Plaintiffs’ claim for specific performance on the basis

of the debt-funding condition, arguing that Plaintiffs’ claim for specific performance is

barred because it is undisputed that the full proceeds of the Debt Financing were not

funded. The court denied this motion in the Motion to Dismiss Bench Ruling, holding that

Kohlberg may not rely on the absence of Debt Financing to avoid specific performance if

Plaintiffs prove facts to support the application of the prevention doctrine. 569

         Plaintiffs’ post-trial entitlement to specific performance therefore depends on

whether the prevention doctrine applies.

         The prevention doctrine provides that “where a party’s breach by nonperformance

contributes materially to the non-occurrence of a condition of one of his duties, the non-

occurrence is excused.” 570

                To establish that a party’s breach contributed materially to the
                non-occurrence of a condition, it is not necessary to show that
                the condition would have occurred but for the lack of
                cooperation. It is only required that the breach have
                contributed materially to the non-occurrence. A breach
                “contributed materially” to the non-occurrence of a condition
                if the conduct made satisfaction of the condition less likely.
                But if it can be shown that the condition would not have
                occurred regardless of the lack of cooperation, the failure of
                performance did not contribute materially to its non-

568
      Id. § 11.14(b) (emphasis added).
569
      Mot. to Dismiss Bench Ruling at 39–42.
570
      Id. at 31 (quoting Restatement (Second) of Contracts § 245 (1981)).
                                              115
                occurrence and the rule does not apply. The burden of showing
                this is properly thrown on the party in breach. 571

         At trial, Plaintiffs demonstrated that Kohlberg’s breach of Section 6.15(a)

contributed materially to Kohlberg’s failure to obtain Debt Funding. Plaintiffs proved that

each of the Lenders were willing to execute Debt Financing on the terms of the DCL and

that Kohlberg refused to move forward. In the words of one of the Lenders, when Kohlberg

made the Financing Demands, “they changed the ask and risk profile of the deal and were

not willing to adjust the economics, so they were really looking for a way out.” 572 The

non-occurrence of Debt Financing, therefore, was due materially to Kohlberg’s failure to

move forward toward a final credit agreement on the terms of the DCL.

         Kohlberg asserts three arguments for why the court should not reach this conclusion.

Kohlberg first argues that it did not prevent Debt Financing from being funded because the

DCL expired by its own terms on May 12, 2020. This argument is overly simplistic and

ignores that the DCL expired because Kohlberg refused to move forward on its terms. By

doing so, Kohlberg effectively ran out the clock while the Lenders were standing by willing

to close. Kohlberg thus cannot argue that timing prevented the debt-funding condition.

571
   Anthem-Cigna, 2020 WL 5106556, at *91 (cleaned up); see also WaveDivision Hldgs.,
LLC v. Millennium Digit. Media Sys., LLC, 2010 WL 3706624, at *14 (Del. Ch. Sept. 17,
2010) (providing that a party “cannot rely on the failure of a condition to excuse its
performance when its own conduct materially caused the condition’s failure”).
572
      JX-1267 at 1.
                                             116
         Kohlberg next argues that it was justified in refusing to negotiate definitive

financing agreements under the terms of the DCL. This point essentially repackages the

defenses to Plaintiffs’ claim under Section 6.15, but those arguments fare no better.

         Kohlberg finally argues that the prevention doctrine requires Plaintiffs to prove that

Kohlberg acted in bad faith, which Delaware law defines in this context as conscious

disregard of a relevant contractual duty. 573 To Kohlberg, it is not sufficient to demonstrate

that Kohlberg breached its obligations and that such breach materially contributed to the

absence of a condition; Plaintiffs must prove that Kohlberg acted in bad faith when

breaching its obligations.

         Kohlberg’s position is contrary to black-letter law, as set forth in the Restatement

(Second) of Contracts, which supplies the basis for Delaware’s formulation of the

prevention doctrine. 574 Under the Restatement, the relevant question is limited to whether

a party’s breach “contribute[d] materially to the non-occurrence of a condition.” 575 The

Restatement does not call for the court to analyze the subjective intent of the breaching

573
    See Allen v. Encore Energy P’rs, L.P., 72 A.3d 93, 104–06 (Del. 2013); see also ev3,
Inc. v. Lesh, 114 A.3d 527, 540–41 (Del. 2014) (holding that, where a buyer had an
obligation to exercise its good faith discretion regarding certain milestone payments to
seller’s former stockholders after consummation of a merger, dereliction of that contractual
duty “could be bad faith if the expected profits to [buyer] were commercially reasonable
and [buyer] nonetheless acted to delay accomplishment of the milestones so as to shift
additional profits its way at the expense of the former [seller] shareholders”).
574
   See Anthem-Cigna, 2020 WL 5106556, at *90 (“Delaware has adopted the framework
set forth in the Restatement (Second) of Contracts.” (citing Williams, 159 A.3d at 273;
WaveDivision, 2010 WL 3706624, at *14–15)).
575
      Restatement (Second) of Contracts § 245.
                                              117
party when conducting this inquiry. 576 Nor have cases applying this doctrine required the

court to undertake such an analysis.

            Kohlberg cites three sources for its interpretation: this court’s decision in Mobile

Communications, a passage from Williston on Contracts, and the court’s Motion to Dismiss

Bench Ruling. 577 A careful reading of these authorities reveals that they do not support

Kohlberg’s interpretation.

            Mobile Communications involved a letter agreement under which the defendant-

seller agreed to sell certain assets to the plaintiff-purchaser. 578 The agreement conditioned

the sale on the approval of the seller’s board. 579 After the parties executed the agreement,

two members of the seller’s management team expressed concerns about the transaction. 580

576
    See id. (limiting the inquiry only to the materiality of a party’s breach on the non-
occurrence of a condition). The Restatement notes that the “additional duty of good faith
and fair dealing” requires “some cooperation . . . either by refraining from conduct that will
prevent or hinder the occurrence of that condition or by taking affirmative steps to cause
its occurrence,” but it does not necessitate an inquiry into a party’s bad faith. Id. cmt. a.
Instead, the prevention doctrine “only applies . . . where the lack of cooperation constitutes
a breach . . . of a duty imposed by the terms of the agreement itself or of a duty imposed
by a term supplied by the court.” Id. In other words, the analysis focuses on the materiality
of a breach in connection with the non-occurrence of a condition—it places no emphasis
on bad faith in connection with the breach. See id. cmt. b (“It is only required that the
breach have contributed materially to the non-occurrence . . . .”).
  Defs.’ Post-Trial Opening Br. at 103–04 (citing Mobile Commc’ns Corp. of Am. v. Mci
577

Commc’ns Corp., 1985 WL 11574, at *3–4 (Del. Ch. Aug. 27, 1985); 13 Williston on
Contracts § 39:10 (4th ed. 2020)); Defs.’ Post-Trial Reply Br. at 54 (citing Mobile
Commc’ns, 1985 WL 11574, at *3–4; 13 Williston on Contracts § 39:10; Mot. to Dismiss
Bench Ruling at 36).
578
      Mobile Commc’ns, 1985 WL 11574, at *1.
579
      Id. at *2.
580
      Id.
                                                118
During the board meeting at which the transaction was considered, they advised the board

that the buyer had misled the seller “and could not be trusted to consummate the transaction

in a satisfactory manner,” and the board unanimously voted to reject the sale. 581 The

purchaser filed litigation to specifically enforce the letter agreement, arguing in part that

the condition requiring board approval must be deemed waived under the prevention

doctrine because the seller’s management wrongfully interfered with the process of

obtaining board approval. 582

            On the purchaser’s motion to preliminary enjoin the seller from transferring the

same assets to another buyer, the court concluded that the purchaser was unlikely to

prevail. 583 In reaching this conclusion, the court articulated the prevention doctrine as

requiring some wrongful conduct preventing the condition. 584 In fashioning its theory of

what constituted “wrongful” conduct, the purchaser drew upon the California decision

Jacobs v. Freeman. 585 Jacobs, like Mobile Communications, involved a condition—board

approval—wholly within the power of the selling party to accomplish. 586 The Jacobs court

581
      Id. at *3.
582
      Id.
583
      Id. at *3–5.
584
   Id. at *4 (describing the “prevention doctrine” as “provid[ing] that a party may not
escape contractual liability by reliance upon the failure of a condition precedent where the
party wrongfully prevented performance of that condition” (emphasis added) (citing Gulf
Oil Corp. v. Am. La. Pipeline Co., 282 F.2d 401 (6th Cir. 1960); 3A Corbin on Contracts
§ 767 (1961))).
585
      See id. *4 (citing Jacobs v. Freeman, 104 Cal. App. 3d 177 (Cal. Ct. App. 1980)).
586
      See Jacobs, 104 Cal. App. 3d 177, 177–78.
                                              119
observed that “there is an implied obligation on the part of the seller’s officers to carry out

the objectives of the contract in good faith by submitting the proposal to the board.”587

Adopting this reasoning in Mobile Communications, the court analyzed whether the seller’s

board acting wrongfully by failing to consider the agreement in good faith. 588 Because the

court concluded that the board had acted in good faith, the court found that the seller had

not acted wrongfully and rejected application of the prevention doctrine. 589

          In this case, unlike in Mobile Communications and Jacobs, the analysis of whether

Kohlberg acted wrongfully does not require the court to resort to the implied covenant of

good faith. Rather, the express terms of SPA speak to Kohlberg’s obligations in connection

with the relevant condition of obtaining Debt Financing. The parties expressly contracted

in Section 6.15 that Kohlberg would use its reasonable best efforts to accomplish that goal.

This decision has already found that Kohlberg acted wrongfully by breaching this

obligation. The only remaining inquiry relevant to the prevention doctrine is whether that

wrongful conduct materially contributed to the non-occurrence of the condition. As

discussed above, it did.

          Kohlberg’s reliance on Williston is also misplaced. Kohlberg quotes the following

passage from that treatise: “[T]he weight of authority holds that in order for prevention to

constitute an excuse for nonperformance of a condition . . . , the preventing party must have

deliberately taken steps to impede performance or have arbitrarily impaired the other

587
      Id. at 190 (emphasis added).
588
      Mobile Commc’ns, 1985 WL 11574, at *4.
589
      Id. at *4–5.
                                             120
party’s ability to perform.” 590 This passage, however, does not predicate application of the

prevention doctrine on a finding of bad faith, but rather, on some form of deliberate action.

Moreover, Kohlberg omits language surrounding the quoted passage. The omitted clause

immediately preceding the quoted passage states that “it is not necessary that there be a

specific malevolent intent.” 591

         Kohlberg’s reliance on an excerpt from the Motion to Dismiss Bench Ruling is

equally unpersuasive. As an initial matter, the lengthy ruling cited to several authorities

when analyzing the prevention doctrine, including Williston. 592        From this extended

discussion, Kohlberg chose to excise the single statement that comes closest to supporting

Kohlberg’s theory: that the “prevention doctrine would only nullify the funding condition”

590
      Defs.’ Post-Trial Opening Br. at 103–04 (quoting 13 Williston on Contracts § 39:10).
591
    13 Williston on Contracts § 39:10 (emphasis added). The footnotes clarifying this
passage of Williston include cases where the failure to achieve a condition was due to some
external factor indirectly attributable to the party in breach. See Omaha Pub. Power Dist. v.
Emps.’ Fire Ins. Co., 327 F.2d 912, 916–17 (8th Cir. 1964) (holding that a contractor’s
failure to maintain insurance due to financial hardship was not a “deliberate[]” step
constituting prevention); Keystone Bus Lines, Inc. v. ARA Servs., Inc., 336 N.W.2d 555,
557 (Neb. 1983) (rejecting applicability of the prevention doctrine and excusing a
purchaser’s post-acquisition contractual payouts where “[g]ood faith governed the business
decisions” resulting in non-occurrence of the conditions to those payouts and the purchaser
made those business decisions “after the parties entered into their agreement”). At best,
those cases highlight a “good faith” defense to application of the prevention doctrine, rather
than imposing an affirmative “bad faith” requirement on the doctrine’s applicability as
Kohlberg suggests. Kohlberg, however, has failed to show that such a defense is applicable
here. As discussed above and further discussed below, the court is unpersuaded that
Kohlberg acted in good faith with respect to the March 26 Model and the Financing
Demands.
592
   See Mot. to Dismiss at 30–33 (discussing analyses of the prevention doctrine in the
Restatement (Second) of Contracts, Williston on Contracts, Farnsworth on Contrasts,
Anthem-Cigna, and WaveDivision).

                                             121
if Kohlberg “actively scuttle[d] the debt financing,” a phrase that evokes the concept of the

deliberate sinking of a ship. 593 In context, this passage is best read as standing for the

proposition that the deliberate scuttling would suffice to warrant application of the

prevention doctrine. It does not, however, stand for the proposition that “scuttling” was

necessary to warrant application of the prevention doctrine. Nor does it stand for the

proposition that “scuttling” requires a finding of bad faith as opposed to some other

deliberate action.

         Although the court need not reach this issue, it bears noting that Kohlberg’s

protestations of good faith are suspect. Kohlberg’s position would be more persuasive if

its representative had not made multiple calls to litigation counsel beginning on March 18

but none to DecoPac management in the days before he told his team to make new

models. 594 In the end, under the facts of this case, there is no requirement that Plaintiffs

demonstrate bad faith to meet its burden under the prevention doctrine.             Because

Kohlberg’s subjective good faith when breaching the SPA is irrelevant, the court need not

undertake the unhappy task of determining whether Kohlberg was as well-intentioned as it

portrays in briefing.

         In sum, under the prevention doctrine, Kohlberg is barred from asserting the absence

of Debt Financing as a basis to avoid specific performance under Section 11.14(b). At

593
      Defs.’ Post-Trial Reply Br. at 54 (quoting Mot. to Dismiss at 36).
594
      See JX-1910; PDX-6; Trial Tr. at 605:4–609:7, 693:8–694:22 (Hollander).
                                              122
bottom, Plaintiffs have provided clear and convincing evidence that the balance of equities

tips in their favor. Kohlberg is therefore obligated to close on the SPA.

         Plaintiffs suggest that Kohlberg should be ordered to close within fifteen days of

this decision, but they do not provide any context-specific support for that proposition.595

Within five business days, the parties shall provide supplemental submissions on what

deadline the court should impose for complying with this decision.

         Plaintiffs have also demonstrated that they are entitled to specific performance of

Kohlberg’s obligation to use reasonable best efforts to obtain alternative financing,

although this conclusion is likely eclipsed by the holding that Kohlberg must close on the

SPA.       Kohlberg breached its obligation, which precedent and Section 11.14 deem

specifically enforceable, so Plaintiffs are entitled to an order of specific performance. 596

         “An order of specific performance . . . will be so drawn as best to effectuate the

purposes for which the contract was made and on such terms as justice so requires.” 597 As

is the case here, an order of specific performance “seldom results in performance within

the time the contract requires.” 598 To that end, “damages for the delay will usually be

595
    See Pls.’ Post-Trial Opening Br. at 99–100 (citing Channel Medsystems, 2019 WL
7293896, at ¶ 4 (ordering closing to occur no later than fifteen calendar days after the entry
of the Final Order and Judgment)).
596
    See, e.g., Hexion Specialty Chems., Inc. v. Huntsman Corp., 2008 WL 4409466, at ¶ 3
(Del. Ch. Sept. 29, 2008) (Order & Final Partial Judgment) (ordering specific performance
of reasonable best efforts with lenders).
597
      Restatement (Second) of Contracts § 358(1).
598
      Id. § 358 cmt. c.
                                             123
appropriate.” 599 Plaintiffs therefore seek prejudgment interest on the deal price at the legal

rate from the outside closing date of May 4, 2020.

         Plaintiffs’ request finds support in decisions of this court granting prejudgment

interest on the purchase price when ordering specific performance. 600 In Osborn, for

example, the court awarded specific performance of a land sale contract in 2009 that

otherwise would have afforded the buyer “the right to acquire the Property . . . on April 16,

2005.” 601 Recognizing that timely consummation of the transaction also meant that the

seller “would have had [the purchase price] as of that time,” the court held that the buyer

“also must pay to [the seller] interest on the outstanding purchase price of $50,000 at the

legal rate as of April 16, 2005, compounded quarterly, from that date until the date of

settlement of the contract.” 602

         Kohlberg argues that Section 8.3(a) of the SPA forecloses prejudgment interest by

providing that the Termination Fee

599
    Id.; accord. 3 Zachary Wolfe, Farnsworth on Contracts § 12.05, at 12-32 & n.17
(4th ed. 2019).
600
   See, e.g., Osborn v. Kemp, 2009 WL 2586783, at *12 (Del. Ch. Aug. 20, 2009) aff’d
991 A.2d 1153 (Del. 2010); Tri State Mall Assocs. V. A.A.R. Realty Corp., 298 A.2d, 368,
371 (Del. Ch. 1972) (“[T]he Court in decreeing specific performance will adjust the
equities of the parties in such a manner as to put them as nearly as possbiile in the same
position as if the contract had been performed [a]ccording to its terms.”).
601
      Osborn, 2009 WL 2586783, at *12.
602
   Id.; see also IBP, 789 A.2d at 83 n.203 (directing the parties to address “how any delay
in payment of the Merger Consideration plays into an award of specific performance”);
In re Oxbow Carbon LLC Unitholder Litig., 2018 WL 3655257, at *17–18 (Del. Ch. Aug.
1, 2018) (awarding prejudgment interest after ordering specific performance of the sale of
an LLC), rev’d on other grounds, 202 A.3d 482 (Del. 2019).

                                             124
                   shall be the sole and exclusive remedy (whether at law, in
                   equity, in contract, in tort or otherwise) . . . against Buyer . . .
                   for any and all losses, costs, damages, claims, fines, penalties,
                   expenses (including reasonable fees and expenses of outside
                   attorneys), amounts paid in settlement, court costs, and other
                   expenses of litigation suffered as a result of any breach of any
                   covenant or agreement in this Agreement or the failure of the
                   transactions contemplated hereby to be consummated. 603

            Section 8.3(a) further provides that “[u]nder no circumstances” will Plaintiffs “be

entitled . . . to receive both a grant of specific performance and the . . . Termination Fee”

or “to receive monetary damages other than the Termination Fee.” 604

            The parties did not meaningfully brief this issue in post-trial briefing. Within five

business days, the parties shall provide supplemental submissions as to Plaintiffs’

entitlement to prejudgment interest.

III.        CONCLUSION

            For the foregoing reasons, judgment is entered in favor of Plaintiffs on their claim

of specific performance of the SPA. In addition to the supplemental submissions requested

by this decision, within five business days, the parties shall meet and confer to identify any

other matters that the court needs to address to bring this action to a conclusion at the trial

level. The parties shall identify those issues in a joint letter submitted to the court.

603
      SPA § 8.3(a) (emphasis added).
604
      Id.
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