LITIGATION UPDATE >>>
AUGUST 27th, 2024 UPDATE
Summary Judgment decision in favor of Fortis-Iantrek
Excerpts from Ruling:
“…..Contrary to Zeiss's arguments and pursuant to Delaware's permissive pleading standard, the Court finds that Fortis's complaint raises a reasonable inference that Zeiss breached the applicable efforts clause.….. The inferences don't flow in favor of Zeiss, they flow in favor of Fortis and the complaint ….. I will deny the Motion with respect to the COGS Milestone argument. ….. Zeiss arbitrarily chose not to pursue large-scale production of the miPORT304, and; Two, Zeiss improperly prioritized its Quattera, Q-U-A-T-T-E-R-A, system …..Notwithstanding those arguments, these allegations, as stated in the Complaint, are enough at this stage. …..Fortis's allegations regarding Zeiss's treatment of Quattera also supports a breach of Section 2.12(c)(ii). ……But Zeiss's dissimilar treatment of the two products raises an inference of a breach, specifically at least at the pleading stage. Zeiss's preference for Quattera produces the same relevant yardstick with which to measure Zeiss's efforts with respect to the Iantech technology. …… A reasonable inference from those allegations is that Zeiss did not expend efforts and resources of producing the Iantech technology as would commensurate a Zeiss-like company's efforts to produce a similar product ….. Therefore, a claim that Zeiss breached Section 2.12(c)(ii) is still viable.” “
>> read the full document: Summary Judgment
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JANUARY 15th, 2024 UPDATE
Excerpts from the Complaint
“Iantech was an innovative eye care company developing breakthrough surgical devices for the treatment of cataracts. Iantech has continued that work as a subsidiary of Zeiss US (Zeiss). From its founding, Iantech focused upon the development of an easy- to-use, inexpensive, and efficient cataract fragmentation (miLoop) and extraction (miCor / miPort) system enabling small-incision cataract surgery without the use of expensive capital equipment. As described by Zeiss, Iantech’s technology is game-changing ... The miLoop and miCor micro-interventional systems are a product of breakthrough innovation of the half-a-century-old conventional “phaco-emulsification” equipment used today in 95% of cataract surgeries in the United States. The miLoop and miCor systems replace the 250-pound conventional cataract surgical console with small, micro-interventional hand-pieces that weigh less than .5 pounds and require less than 10% of the capital expenditure of the conventional consoles. The miLoop and miCor systems offer surgeons the ability to employ cost-effective, efficient, and low-footprint equipment that can greatly reduce the cost of the number one surgical procedure in the United States, thus enabling a transition to a more streamlined and patient-friendly, office-based surgical paradigm. The Iantech Technology has demonstrated the potential to produce better patient outcomes than conventional cataract surgery.
By December 31, 2022, Zeiss knew that the miPort304 COGS would be less than the target amounts set forth in the COGS Projections. As a result, Zeiss owed the Equityholders the entire COGS Milestone Payment as of year-end 2022. By the COGS Milestone Deadline, Zeiss had been manufacturing non-study, FDA-cleared commercial versions of the miPort304 device for more than a year. For more than a year after the Product COGS Deadline, Zeiss elected to conceal its COGS calculations from the Iantech Equityholders. Zeiss also breached its obligation to exert Parent Commercially Reasonable Efforts to trigger its COGS Milestone Payment obligations by year-end 2022 by prioritizing the development of the conventional cataract treatment equipment owned by Zeiss—the Quattera system—over the Iantech Technology despite the greater commercial promise of the latter treatment option.
Zeiss breached its Commercially Reasonable Efforts obligations by prioritizing the commercialization of the conventional Quattera technology over the Iantech Technology. Zeiss elected to focus its promotional efforts at the 2023 American Academy of Ophthalmology meeting exclusively on the Quattera system, thereby delivering the false message to the ophthalmology community that Zeiss perceived the Quattera system as superior to the Iantech Technology.That misallocation of resources has stalled the commercialization of the ground-breaking Iantech Technology. Zeiss has breached the explicit terms of the Merger Agreement and violated that contract’s implicit contractual obligation of good faith. The Merger Agreement provides that, if Zeiss breaches its agreement to make any of the Merger Agreement’s Contingent Payments, Zeiss must make all of those payments to the Equityholders. Thus, its obligation to make the full COGS Milestone Payment to the Equityholders requires Zeiss to pay the Clinical Validation Milestone Payment Amount to the Equityholders immediately. Zeiss also owes the Equityholders the present value of the future Earnout Milestone payments.“
PDF version of the original complaint >>>
LEGAL COMPLAINT
redacted
IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
FORTIS ADVISORS, LLC, in its role as Securityholders’ Agent, Plaintiff, v. CARL ZEISS MEDITEC, INC., Defendant. | C.A. No. N24C-02-191-EMD-CCLD PUBLIC VERSION FILED FEBRUARY 23, 2024 |
COMPLAINT
Plaintiff Fortis Advisors, LLC (“Fortis” or “Plaintiff”), in its role as the Securityholders’ Agent under the October 22, 2018 Agreement and Plan of Merger by and among Carl Zeiss Meditec, Inc. (“Zeiss US” or “Parent”), Project IRIS Merger Sub, Inc., Iantech, Inc. (“Iantech”), and Fortis (the “Merger Agreement”), alleges the following on information and belief based upon the investigation conducted by and through its undersigned attorneys, except as to those allegations relating to Plaintiff, which it states upon its personal knowledge.
SUMMARY OF PLAINTIFF’S CLAIMS
This is a breach of contract action arising from the Merger Agreement, which provided for Zeiss US to acquire Iantech and its cutting-edge devices for the surgical treatment of cataracts.
The Merger Agreement required Zeiss US to pay Iantech’s
equityholders (the “Equityholders”) multiple forms of consideration in exchange for their interests in Iantech, including a Product COGS Milestone Payment Amount XXXX
(the “COGS Milestone Payment”).
XXXXX
Zeiss US’s obligation to pay the maximum COGS
Milestone Payment was triggered if, by December 31, 2022 (the “COGS Milestone Deadline”), the costs of goods sold (“COGS”) for Iantech’s miPort304 single- procedure disposable product (the “miPort304”) fell below the amounts specified in the Merger Agreement for any of multiple manufacturing volumes that contract
XXX
identified, including a -unit COGS target.
More than a year before the COGS Milestone Deadline, Zeiss US obtained all approvals from the Food and Drug Administration (“FDA”) necessary to sell the miPort304 for commercial purposes in the United States. By that time, as was required to obtain FDA approval to sell the miPort304, Zeiss US had developed
a comprehensive process for manufacturing the miPort304 at prices known to the company.
XXX
By the end of 2023, non-study commercial patients had been
treated with the miPort304. In some of those cases, surgeon-customers of Zeiss US or its affiliates purchased the commercial product. In other cases, Zeiss US or its affiliates provided the commercial, FDA-registered product at no cost either for market testing or as an enhancement to their overall product offerings, which include a suite of surgical and office products for ophthalmologists. This commercial
XXX
product for was placed into the field and the hands of customers
under no clinical trial protocol, no clinical trial registration and no clinical trial funding for fully reimbursable commercial use by the surgeons.
The substantial experience Zeiss US had developed manufacturing the
XXX
miPort304 in low-volume runs of less than units has confirmed what Zeiss
US knew by the COGS Milestone Deadline—the COGS for the miPort304 fell
XXX
below the total direct COGS per unit amount specified in the Merger
Agreement that triggered Zeiss US’s obligation to pay the full COGS Milestone Payment to the Equityholders.
Fortis, on behalf of the Equityholders, had requested the COGS numbers for the miPort304 in early December 2022. Despite Zeiss US’s contractual
obligation to provide that data to the Equityholders’ representatives, Zeiss US refused Fortis’s request, citing the supposedly unconfirmed nature of the COGS calculations and Zeiss US’s uncertain commercial strategy regarding Iantech’s technology.
After a lengthy delay, Zeiss US finally provided its COGS calculations
XXX
for a -unit miPort304 production run in late 2023. Those calculations showed
XXX
that the miPort304 not only meets the numeric COGS target at the -unit
XXX
production run level,
XXX
XXX
. For the typical manufacturing process,
COGS become progressively lower as the volume and scale of manufacturing increase.
Zeiss US achieved those profit-enhancing COGS for the miPort304 despite significant post-COVID inflation in the 2022-2023 period, including above- average price pressures on manufacturing component and labor costs for the medical device industry.
The miPort304 therefore long ago achieved the COGS figure that triggered Zeiss US’s obligation to pay the Equityholders the full COGS Milestone Payment.
To date, and despite the Equityholders’ patient 14-month wait for Zeiss US to deliver confirmation of the miPort304 COGS, Zeiss US has refused to pay the COGS Milestone Payment.
Plaintiff, the appointed representative of the Equityholders under the Merger Agreement, therefore brings this action to collect the consideration payable to the Equityholders under the Merger Agreement’s terms.
THE PARTIES AND OTHER RELEVANT ENTITIES
Plaintiff Fortis Advisors, LLC is a limited liability company with its principal place of business located in San Diego, California. Fortis’s sole member is a resident of the State of Pennsylvania.
Pursuant to Section 9.7 of the Merger Agreement, Plaintiff has the power and right to represent the interests of all of Iantech’s Equityholders in connection with this litigation. Plaintiff therefore has standing to pursue the claim it alleges in this Complaint.
Prior to the Merger, Iantech was an innovative eye care company that was then developing breakthrough surgical devices for the treatment of cataracts. Iantech has continued that work post-merger as a subsidiary of Zeiss US.
Zeiss US is a New York corporation with its principal place of business located in Dublin, California.
Zeiss US is an American subsidiary of Carl Zeiss Meditec AG (“Zeiss AG”), a German company engaged in the development and sale of medical devices.
In its public statements, Zeiss AG describes itself as one of the world’s leading innovators in the design and development of medical devices, and as a creator and supplier of cutting-edge technologies and application-oriented solutions for ophthalmology and microsurgery.
JURISDICTION AND VENUE
This Court has subject matter jurisdiction as the state trial court of general jurisdiction in suits seeking money damages in excess of $15,000. The amount in controversy in this action is in excess of $1,000,000, bringing this case within the ambit of the Complex Commercial Litigation Division of this Court.
Zeiss US is subject to personal jurisdiction under 10 Del. Code
§ 3104(c)(1) because it transacted extensive business within this state by entering into and breaching the Merger Agreement with Iantech, a company Zeiss US knew to be organized under the laws of the State of Delaware.
Zeiss US is also subject to personal jurisdiction in this Court pursuant to 6 Del. Code § 2708 because, in Section 10.6 of the Merger Agreement, Zeiss US consented to jurisdiction in the Delaware state and federal courts and stipulated that
the rights and responsibilities of the parties under the Merger Agreement shall be governed by Delaware law, without regard for conflict of laws principles.
Venue is proper before this Court because Section 10.6 of the Merger Agreement provides for venue in any Delaware state or federal court.
THE FACTUAL BASES FOR PLAINTIFF’S CLAIMS
Cataracts and Their Global Impact
Cataracts, one of the most common age-related eye diseases, lead to decreased vision as the natural lens in the eye starts to deteriorate and becomes cloudy.
The only treatment for cataracts is surgery. During cataract surgery, the diseased lens is fragmented into smaller pieces, extracted from the eye, and replaced by an optically equivalent artificial lens implant that enhances the patient’s focusing power.
Worldwide, cataracts cause 51% of all cases of blindness and 33% of visual impairment.
As a result, cataract surgery is one of the most common surgical procedures in the US, with more than 4 million surgeries per year in people over 50.
The market potential for a medical device that will improve the treatment of cataracts is therefore vast.
According to Allied Market Research, the global cataract surgery device market totaled $8.3 billion in 2020. Allied Market Research also projected that market to reach $12.2 billion by 2030 as expanded life spans and improved access to medical care augment the treatable patient population.
Iantech and Its Ground-Breaking Approach to Cataract Treatment
In 2014, Dr. Tsontcho (“Sean”) Ianchulev, an inventor and surgeon, founded Iantech for the purpose of developing a cost-effective, cutting-edge medical device for combating cataract-induced blindness.
Dr. Ianchulev is a serial innovator who has developed commercial products in the ophthalmic space that are used in the treatment of hundreds of thousands of patients every year. Companies that Dr. Ianchulev founded have produced a combined exit enterprise value exceeding $1.2 billion.
From its founding, Iantech focused upon the development of an easy- to-use, inexpensive, and efficient cataract fragmentation (miLoop) and extraction (miCor and miPort) system that enables small-incision cataract surgery without the use of expensive capital equipment (collectively, the “Iantech Technology”).
As described by Zeiss in its public statements, “The miLOOP® from ZEISS is a game-changing microinterventional lens fragmentation device which is
designed to remove the challenges of hard cataracts. Using micro-thin super-elastic, self-expanding nitinol filament technology, the ZEISS miLOOP allows cataract surgeons to achieve zero-energy lens fragmentation for any grade cataract.”
The miLoop and miCor micro-interventional systems are a product of breakthrough innovation that costs a small fraction of the half-a-century-old conventional “phacoemulsification” equipment used today in 95% of cataract surgeries in the United States.
The miLoop and miCor systems replace the 250-pound conventional cataract surgical console with a couple of small, micro-interventional hand-pieces that weigh less than .5 pounds and require less than 10% of the capital expenditure of conventional consoles.
The miLoop and miCor systems thus offer surgeons the ability to employ cost-effective, efficient, and low-footprint equipment that can greatly reduce the cost of the number one surgical procedure in the United States and enable a transition to a more streamlined and patient-friendly, office-based surgical paradigm. The Iantech Technology has also demonstrated the potential to produce better patient outcomes than conventional cataract surgery.
The cost-savings associated with the Iantech Technology will enable surgeons to address the vast need for cataract treatment in the developing world,
where standard phacoemulsification equipment is prohibitively expensive to acquire and maintain.
Based upon this high-impact innovative technology, Iantech succeeded in obtaining initial funding from top-tier venture capitalists as well as more than 80 leading ophthalmologists, doctors, and surgeons who understood the enormous need for Iantech’s products.
Iantech’s ability to attract funding from leading health care professionals and venture capital firms evidenced the clinical and commercial significance of the Iantech Technology,
Between 2014 and 2019, Iantech and its management worked diligently to develop the Iantech Technology.
During that timeframe, Iantech demonstrated the great promise of the Iantech Technology, and prestigious peer-reviewed journals published analyses of the capabilities of Iantech’s products.
The Merger and Merger Agreement
Large medical device companies, including Zeiss AG, closely followed Iantech’s success in developing the Iantech Technology because of the promise it exhibited for treating cataracts effectively and efficiently at a reduced cost.
As a result, beginning in the first quarter of 2018, Iantech received multiple inquiries from prominent medical device companies regarding the possibility of acquiring Iantech and its disruptive micro-interventional cataract surgical technologies.
Eventually, Iantech’s board of directors and management decided to pursue a transaction with Zeiss AG and Zeiss US.
In making that decision, Iantech relied upon the commitments the Zeiss entities made to continue developing the Iantech Technology for commercial purposes and the financial rewards the Zeiss transaction offered if Iantech’s devices proved successful in treating cataracts effectively at a reduced cost.
On October 22, 2018, Zeiss US, Project Iris Merger Sub, Inc. (a vehicle created by Zeiss US to facilitate the Merger), Iantech, and Fortis entered into the Merger Agreement.
The Merger Agreement provided for the Equityholders to receive multiple forms of consideration in exchange for their interests in the company,
XXX
including: (a) an “Up-Front Payment” of (subject to certain
adjustments); (b) a “Clinical Validation Milestone Payment Amount” of up to XXX
XXX
XXX
XXX
XXX
; (c) a “Regulatory Approval Milestone Payment Amount” of up to
XXX
XXX
XXX
; (d) the COGS Milestone Payment at issue here; and (e)
annual “Earnout Milestones” based upon the revenue generated by XXX
XXX
XXX
XXX
.
The contingent nature of much of the consideration payable to the Equityholders in connection with the Merger reflected the confidence that Iantech’s management and board of directors had that the Iantech Technology would treat cataracts effectively and efficiently and achieve significant commercial success.
Due to the strong performance of the Iantech Technology in clinical trials, the Equityholders received the full Regulatory Approval Milestone Payment Amount.
The Merger Agreement's COGS Milestone Payment Terms
The Merger Agreement entitled the Equityholders to the COGS Milestone Payment of up to if, by December 31, 2022 (i.e., the COGS Milestone Deadline), the COGS for Iantech's "miPort304 single-procedure disposables Product (including the device, sterilization, packaging, I/A tip, and sterile sheath) [was] set forth as Exhibit B to the Merger Agreement ("Exhibit B").
The Merger Agreement also provides for the Equityholders to receive
payments less thanXXX, if the miPort304 achieves the targeted COGS at later dates the agreement specifies.
The parties chose the COGS for the miPort304 device as the basis for determining the Equityholders' entitlement to the COGS Milestone Payment because Iantech was still developing that device at the time of the Merger, and the cost of producing it plays an important role in the profitability of the Iantech Technology for Zeiss US.
The Merger Agreement includes the following definition of the term
COGS:
XXXX
XXXX
See Merger Agreement, Section 1.1 at page 5.
The Merger Agreement further defines the "Applicable Products" as the "miLoop, biLoop, miPort302, miPort303, miPort304, and miPole401." Merger Agreement, Section 1.1 at page 2.
The COGS Projections in Exhibit B show target COGS at specified production volume ranges for the miPort304 device.
Exhibit B incorporates standard manufacturing assumptions showing increasing efficiencies, and thus lower COGS, with higher-volume manufacturing runs.
XXX
At a low-volume manufacturing run (of up to units), the parties
XXX
agreed to set the COGS target for the miPort304 device at With a mid-
XXX
volume manufacturing run (up to units), the parties set the COGS target at
XXX
XXX
XXX
. With higher-volume manufacturing runs of up to or
XXX
units, the parties set the COGS targets at respectively.
Zeiss US’s Breach of Its Obligation to Make the COGS Milestone Payment
By December 31, 2022, Zeiss US knew that the miPort304 COGS at each of the manufacturing run levels the Merger Agreement specified would be less than the target amounts set forth in the COGS Projections.
As a result, Zeiss US owed the Equityholders the entire COGS Milestone Payment as of year-end 2022, i.e., the Product COGS Deadline.
Zeiss US, however, has claimed that its obligation to make the COGS Milestone Payment has not been triggered because its unsubstantiated concerns regarding the commercial viability of the Iantech Technology has caused it to refrain
XXX
from manufacturing units of the miPort304 device.
Those pretextual concerns do not excuse Zeiss US from making the COGS Milestone Payment.
By the COGS Milestone Deadline, Zeiss US had been manufacturing non-study, FDA-cleared commercial versions of the miPort304 device for more than a year.
As a result, Zeiss US was well aware of the cost of producing that device and that the COGS fell below the target figures the Merger Agreement specified despite significant unanticipated inflationary pressure resulting from the
XXX
Covid pandemic and Zeiss US’s decision to manufacture fewer than unit runs
of the device, which eliminated the cost efficiencies associated with larger manufacturing runs.
For more than a year after the Product COGS Deadline, Zeiss US elected to conceal its COGS calculations from the Equityholders despite their contractual entitlement to that information and Fortis’s specific requests for that data.
The intention of Zeiss US and Iantech when they entered into the Merger Agreement was to utilize the experience that Zeiss US had derived by December 31, 2022 through its efforts to manufacture the miPort304 device to determine the product’s COGS and, thus, whether the Equityholders were entitled to the COGS Milestone Payment.
The Equityholders’ right to the COGS Milestone Payment was not contingent upon the miPort304 device selling a particular number of units or Zeiss US’s easily manipulated, unilateral decision whether to manufacture a certain number of units to corroborate its determinations regarding the COGS for the miPort304 product.
Rather, those contingencies are relevant to the Merger Agreement’s Earnout Milestone terms, which provide for payments to the Equityholders based upon the volume of sales generated by the Iantech Technology.
In contrast, the parties designed the COGS Milestone Payment terms to compensate the Equityholders if—as Iantech’s management and board of directors believed at the time they authorized the Merger Agreement—Zeiss US would succeed in building upon Iantech’s efforts to engineer a manufacturing process for the miPort304 that would allow Zeiss US to produce that device at profitable prices.
Zeiss US’s Breach of Its Obligation to Exert Commercially Reasonable Efforts to Trigger the COGS Milestone Payment in a Timely Manner
Furthermore, to protect the Equityholders’ right to receive the milestone and earnout payments (the “Contingent Payments”), Iantech’s management and board of directors successfully negotiated to require Zeiss US to engage in “Parent
Commercially Reasonable Efforts" to achieve the requirements for triggering each of the Contingent Payments in a timely manner.
In that regard, Section 2.12(c)(ii) of the Merger Agreement provides:
XXX
The Merger Agreement defines also defines Parent Commercially Reasonable Efforts as follows:
XXX
XXX
See Merger Agreement, § 1.1 at page 14.
Even if the COGS Milestone Payment could beseen as contingent upon Zeiss US's unilateral decision to authorize the production of- or more units of the miPort304 device in a single run, any decision by Zeiss US to refrain from producing that number of devices violated Zeiss US's obligation to employ Parent Commercially Reasonable Efforts to trigger its obligation to make the full COGS Milestone Payment by the Product COGS Deadline.
No valid reason existed as of year-end 2022 for Zeiss US to refrain from producing- units of the miPort304 product.
By that time, the cost and patient outcomes produced by the Iantech Technology positioned the miPort304 to generate large market demand. Zeiss US's clinical testing and the feedback that it had received from the ophthalmology community-including leading ophthalmologists who had used the miPort304 to treat cataract patients-demonstrated that the miPort304 would sell- units if Zeiss US made the product widely available for commercial distribution and marketed the device appropriately.
Moreover, in 2021, a year ahead of the COGS Milestone Deadline, Zeiss US cleared all regulatory hurdles for selling the miPort304 device in the United States. As a result, as of the COGS Milestone Deadline, no limitations existed on Zeiss US’s ability to manufacture, market and sell the miPort304 device.
In violation of its obligation to exert Parent Commercially Reasonable Efforts to trigger the payment of the full COGS Milestone Payment by year-end 2022, however, Zeiss US intentionally refrained from conducting a production run
XXX
of units of the miPort304 device in order to create a pretext for refusing to
make that Contingent Payment.
Zeiss US also breached its obligation to exert Parent Commercially Reasonable Efforts to trigger its COGS Milestone Payment obligations by year-end 2022 by prioritizing the development of the conventional cataract treatment equipment owned by Zeiss—the Quattera system—over the Iantech Technology despite the greater commercial promise of the latter treatment option.
XXX
Before the Merger, Iantech’s management and board of directors contemplated the possibility that Zeiss US would seek to develop products that would compete with the Iantech Technology. As a result, Iantech secured Zeiss US’s agreement that, when assessing whether Zeiss US satisfied its Parent Commercially Reasonable Efforts obligations, no consideration can be given to:
XXX
XXX
14.
See Merger Agreement, § 1.1 at page
Zeiss US therefore breached its Parent Commercially Reasonable Efforts obligations by prioritizing the commercialization of the conventional Quattera technology over the Iantech Technology. That misallocation of resources has stalled the commercialization of the ground-breaking Iantech Technology and provided Zeiss US with a pretext for failing to make the COGS Milestone Payment.
Zeiss US misallocated its development resources in that manner because: (a) it failed to appreciate the market demand for the Iantech Technology;
(b) it prioritized the higher up-front profit from the sale of the expensive Quattera equipment over the long-term profitability of the Iantech Technology; (c) it wished to avoid making the COGS Milestone Payment; (d) it impermissibly weighed the profits it expected to derive from the Quattera system against those it projected for the Iantech Technology; and (e) it gave no consideration to patient care issues, particularly in the developing world, where the high cost of conventional cataract surgery with equipment similar to the Quattera system prevents many patients from obtaining treatment necessary to prevent vision loss and blindness.
Zeiss US’s conduct in connection with the highly influential annual meeting of the American Academy of Ophthalmology in 2023 illustrates its lackluster support for the commercialization of the Iantech Technology. At that meeting, Zeiss US made no effort to market or promote the Iantech Technology, which by then was generating commercial sales for Zeiss US despite the company’s lack of support for the miLoop and miCor products.
Instead, Zeiss US elected to focus its promotional efforts at the 2023 American Academy of Ophthalmology meeting exclusively on the Quattera system, thereby delivering the false message to the ophthalmology community that Zeiss US perceived the Quattera system as superior to the Iantech Technology.
The Enhanced Liquidated Damages Available as a Result of Zeiss US’s Breach of Its Obligation to Make the COGS Milestone Payment to the Equityholders
Section 2.12(c)(iii) of the Merger Agreement provides that, if Zeiss US breaches its agreement to make any of the Merger Agreement’s Contingent Payments, Zeiss US must make all of those payments to the Equityholders.
Thus, Zeiss US’s breach of its obligation to make the full COGS Milestone Payment (or any portion thereof) to the Equityholders requires Zeiss US to pay the Clinical Validation Milestone Payment Amount to the Equityholders immediately.
Under Section 2.12(c)(iii), a breach of Zeiss US’s obligation to make the COGS Milestone Payment also requires Zeiss US to make the Earnout Milestone payments to the Equityholders immediately, to the extent the amount of those payments “can then be reasonably determined and calculated.”
An expert can easily calculate the amount of the Earnout Milestone payments the Applicable Products will generate for the Equityholders.
As a result, Zeiss US also owes the Equityholders the present value of the future Earnout Milestone payments.
PLAINTIFF’S CAUSE OF ACTION
(Breach of Contract and the Implied Covenant of Good Faith)
Plaintiff hereby incorporates by reference, as if set forth herein, each of the foregoing paragraphs.
As set forth in greater detail above, Zeiss US has breached the explicit terms of the Merger Agreement and violated that contract’s implicit contractual obligation of good faith by failing to make the full COGS Milestone Payment to the Equityholders.
Zeiss US’s failure to make that payment has resulted from its erroneous interpretation of the Merger Agreement terms regarding the COGS Milestone Payment.
Alternatively, Zeiss US has failed to exert the required Parent Commercially Reasonable Efforts to trigger its obligation to make the full COGS Milestone Payment.
By breaching its explicit contractual obligations and the implied duty of good faith, Zeiss US has caused the Equityholders substantial damages, including
XXX
the loss of the COGS Milestone Payment.
Absent Zeiss US’s violation of Merger Agreement’s terms regarding the COGS Milestone Payment, Zeiss US’s Parent Commercially Reasonable Efforts obligation, and the implied covenant of good faith, the Equityholders would have received the full COGS Milestone Payment.
Plaintiff, on behalf of the Equityholders, is therefore entitled to an
XXX
award of damages equal to the sum of the COGS Milestone Payment,
XXX
the Clinical Validation Milestone Payment Amount, and the present
value of the Earnout Milestones payable under the Merger Agreement, plus interest at the highest rate permissible by law, and the costs, expenses and attorneys’ fees incurred by Plaintiff in pursuing this action.
WHEREFORE, Plaintiff demands judgment as follows:
damages in an amount to be proven at trial;
pre- and post-judgment interest at the highest rate permitted by law;
the costs, expenses and attorneys’ fees incurred by Plaintiff in this action; and
such other and further relief as the Court deems just and proper.
Of Counsel: James P. Bonner Patrick L. Rocco Susan M. Davies FLEISCHMAN BONNER & ROCCO LLP 317 George Street, Suite 320 New Brunswick, NJ 08901 (908) 516-2045 February 19, 2024 | /s/ Thomas A. UeblerThomas A. Uebler (#5074) Adam J. Waskie (#6217) Terisa A. Shoremount (#7113) MCCOLLOM D’EMILIO SMITH UEBLER LLC 2751 Centerville Road, Suite 401 Wilmington, DE 19808 (302) 468-5960 Attorneys for Plaintiff Fortis Advisors LLC |
CERTIFICATE OF SERVICE
I certify that on February 23, 2024, a true and correct copy of the Public Version of Plaintiff’s Complaint, was served by File & ServeXpress on the following:
Mackenzie M. Wrobel, Esquire Tracey E. Timlin, Esquire DUANE MORRIS LLP
1201 North Market Street, Suite 501 Wilmington, DE 19801
/s/ Thomas A. Uebler
Thomas A. Uebler (#5074)
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