EFiled: Apr 27 2018 09:26AM EDT

Transaction ID 61965044
Case No. 2018-0300-JTL
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

Akorn, Inc.,

Plaintiff,
C.A. No. 2018-0300-JTL
v.
PUBLIC VERSION EFILED
Fresenius Kabi AG, Quercus Acquisition, APRIL 27, 2018
Inc. and Fresenius SE & Co. KGaA,

Defendants.

VERIFIED COMPLAINT

Plaintiff Akorn, Inc. (“Plaintiff” or “Akorn”), by and through its

undersigned attorneys, for its Verified Complaint against Defendants Fresenius

Kabi AG (“Fresenius Kabi”), Quercus Acquisition, Inc. (“Quercus”) and Fresenius

SE & Co. KGaA (“Fresenius” and, together with Fresenius Kabi and Quercus,

“Defendants”), alleges, upon knowledge with respect to its own acts and upon

information and belief as to all other matters, as follows:

Nature of the Action

1. This is a breach of contract action brought by Akorn, a generic

pharmaceutical company, seeking to prevent Defendants from avoiding their

obligations under an April 24, 2017 Agreement and Plan of Merger by and

2
between Akorn and the Defendants (the “Merger Agreement”)1 to close

Defendants’ agreed-upon acquisition of Akorn for $34 per share (the “Proposed

Transaction”)—a premium of 35% relative to Akorn’s unaffected stock price.

2. On April 22, 2018, Fresenius Kabi delivered to Akorn a letter

purporting to terminate the Merger Agreement on the grounds that Akorn had

allegedly (i) breached its representations and warranties in the Merger Agreement,

and that such breaches gave rise to a material adverse effect (“MAE”); and

(ii) materially breached its covenants in the Merger Agreement. As set forth

below, Akorn has breached neither its representations and warranties nor its

covenants, and there has not been an MAE. This is, rather, the culmination of

many months of Fresenius Kabi trying to escape a deal on which it has now

soured.

3. Fresenius Kabi initially lauded the Proposed Transaction to the

market. John Ducker, the President and CEO of Fresenius Kabi’s U.S. operations,

explained that, among other things, “Akorn brings to Fresenius Kabi specialized

expertise in development, manufacturing and marketing of alternate dosage forms,

as well as access to new customer segments like retail, ophthalmology and

1
A true and correct copy of the Merger Agreement is attached as Exhibit A.

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veterinary practices. Its pipeline is also impressive, with approximately

85 ANDAs filed and pending with the FDA and dozens more in development.”

4. Stephen Sturm, CEO of Fresenius, also praised the Proposed

Transaction:

“Akorn will provide us access to alternative distribution

channels, such as pharmaceutical wholesale clinics,
direct-to-physician and retail sales. . . . [W]e have been
very impressed with the leadership team and the
employees we have met during our due diligence . . .
[and we] are convinced that Akorn is the right partner for
Fresenius Kabi . . . .”

5. Sturm’s confidence in the deal appeared to stem, in part, from a

diligence process Fresenius Kabi has described as “detailed” and “comprehensive”:

“We performed a detailed due diligence, had access to a

comprehensive data room, held countless expert sessions,
and were able to address all our questions and concerns.
Have we overlooked anything material? Possible, but
unlikely. The due diligence also included plant visits, by
me and much better qualified experts as well as a detailed
review of Akorn’s product portfolio. That led to us
building a solid bottom-up business plan, which formed
then the basis of our decision to make a bid.” (Emphasis
added.)

6. But financial headwinds that pre-dated signing of the Merger

Agreement continued to impact the generic pharmaceutical industry after the

parties entered into the Merger Agreement, and Defendants began to regret

entering into the deal. A market-cap weighted index of the seven companies

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identified as peers by Akorn’s financial advisor in its fairness opinion presentation

is down over 20% since signing. In fact, nearly half of those companies have

experienced stock price declines of around 45% or more. By August 2017, some

analysts felt that “valuation for Akorn [at $34/share was] hard to justify”. Upon

information and belief, Akorn understands that by late 2017, Defendants had begun

to search for an escape route from their obligations under the Merger Agreement.

7. Despite this broad market decline, as late as last week,

Defendants’ counsel conceded that “Fresenius [Kabi] remains convinced of the

strategic rationale of its transaction with Akorn”. In other words, Akorn is still the

same company that Fresenius Kabi had agreed to purchase. Fresenius Kabi has

simply come to regret the price at which the deal was struck and now wants out of

the Proposed Transaction. Any pretense to the contrary is simply inconsistent with

Defendants’ recent actions.

8. By the end of 2017, Fresenius Kabi had drastically changed its

approach to the Proposed Transaction. Facing pressure from shareholders, buyer’s

remorse and no way to lawfully exit or renegotiate the terms of the Merger

Agreement, Fresenius Kabi launched a broad fishing expedition to try to find some

basis for escaping its contractual obligations. In furtherance of that plan, Fresenius

Kabi delayed obtaining antitrust approval for the Proposed Transaction by failing

to engage in necessary negotiations with potential divestiture buyers in a timely

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manner and ignoring, for nearly a month in early 2018, Akorn’s repeated requests

for updates on the divestiture status. However, with antitrust approval now close at

hand, Defendants’ pretextual investigation is their last hope of escaping the

Proposed Transaction.

9. On November 16, 2017—shortly after Akorn announced

disappointing third quarter results, which were, however, consistent with industry

headwinds—Fresenius Kabi informed Akorn for the first time that it had received

two anonymous letters weeks earlier (postmarked October 5 and

November 2, 2017) containing vague allegations relating to product development

at Akorn. Fresenius Kabi then invoked its right under Section 5.05 of the Merger

Agreement to obtain “reasonable access” to Akorn’s “officers, employees, agents,

properties, books, [c]ontracts and records”—initiating an escalating series of

burdensome, litigation-oriented demands in an effort to uncover any possible basis

to avoid its obligation to close.

10. Over the next several months, Defendants engaged in a

litigation-style discovery process far exceeding the “reasonable access” rights upon

which the parties had contractually agreed. Nevertheless, though Defendants’

demands do not bear even the slightest resemblance to “reasonable access”, Akorn

has gone well beyond its obligations in the Merger Agreement, and has more than

reasonably cooperated with Fresenius Kabi’s excessive demands, collecting and

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producing over 2.8 million documents from 63 custodians; facilitating 50

interviews with 48 different Akorn employees; arranging for 5 different site visits

lasting several days at 3 Akorn facilities, and even temporarily shutting down

activities at its facilities to permit Fresenius Kabi’s representatives to extract data

directly from Akorn’s servers and laboratory equipment. Akorn also retained

third-party data integrity consultants to review each of its sites and assist Akorn in

responding to dozens of questions arising out of Fresenius Kabi’s site visits. After

months of investigation, neither Fresenius Kabi nor Akorn has identified anything

that would justify failing to close the Proposed Transaction or terminating the

Merger Agreement.

11. Fresenius Kabi first acknowledged that its investigation was

driven by a desire to terminate the Merger Agreement at 4:55 p.m. on Friday,

February 23, 2018. At that time, Fresenius Kabi informed Akorn by email that on

its earnings call the following Tuesday morning, Fresenius intended to announce

publicly not only the existence of its investigation, but also to assert that the

“closing of the acquisition will now depend on the outcome of this investigation

and the assessment of such outcome by the management and supervisory boards of

Fresenius”.

12. Akorn responded by letter at 2:46 p.m. the following day that

Fresenius’ planned announcement would be materially false and misleading, and

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that “[n]othing in the Merger Agreement permits [Fresenius Kabi] to condition the

closing on ‘the outcome of [its] investigation and the assessment of such outcome

by the management and supervisory boards of Fresenius’”. Akorn demanded that

Fresenius Kabi “refrain from making public the statement contained in [the]

February 23 email [to Akorn or] any substantially similar statement”.

13. In response, Fresenius conceded that the completion of its

investigation is not a condition to closing. On February 26, 2018, after the close of

the market, it revised its proposed language and publicly announced:

“Fresenius is conducting an independent investigation,

using external experts, into alleged breaches of FDA data
integrity requirements relating to the product
development at Akorn, Inc.

“The Management and Supervisory Boards of Fresenius

will assess the findings of that investigation. The
consummation of the transaction may be affected if the
closing conditions under the merger agreement are not
met.”

14. Still, although Fresenius’ statement did not explicitly say that

the “closing of the acquisition . . . depend[ed] on the outcome of this

investigation”, as Fresenius claimed in its February 23, 2018 email to Akorn, it

clearly signaled that Fresenius would continue to pursue its investigation to search

for a pretextual basis to escape its obligation to purchase Akorn for $34 per share.

15. Akorn publicly responded the same day, explaining:

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 “Akorn and Fresenius Kabi . . . are investigating alleged
breaches of FDA data integrity requirements relating to
product development at [Akorn]. To date, [Akorn]’s
investigation has not found any facts that would result in
a material impact on Akorn’s operations and [Akorn]
does not believe this investigation should affect the
closing of the transaction with Fresenius [Kabi].”

16. The market immediately realized that Fresenius was signaling

an effort to exit the Merger Agreement. After closing at $30.28 per share on

February 26, 2018, Akorn’s stock dropped the following day by $11.63 on heavy

trading volume and closed at $18.65 on February 27, 2018, the day of Fresenius’s

announcement. Akorn’s share price has remained below $20 ever since.

17. Analysts, too, recognized Fresenius’ announcement for what it

was—an acknowledgment that it would attempt to exit a deal on which it had

soured:

“[W]e see this ‘investigation’ as something of a graceful

pivot. Fresenius now has cover to openly mine [Akorn]
for evidence of fraud while claiming they are only trying
to amicably resolve the situation.”

18. Since that time, Fresenius has continued to reveal its true

intentions, repeatedly asserting (falsely) to investors that its investigation is a

condition to closing. For example, on March 13, 2018, at a Barclays healthcare

conference in Miami, analysts reported that Fresenius “said there are now

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essentially TWO conditions to close . . . . They have to get FTC approval AND

complete the investigation”.

19. Fresenius revealed its true intentions in another manner in early

March 2018. Akorn had initiated what is currently an ongoing dialogue with the

U.S. Food & Drug Administration (the “FDA”), Akorn’s primary regulator, in late

February 2018, in order to keep the FDA updated on the status of its investigation.

On the eve of Akorn’s first meeting with the FDA, after having previously

communicated that Fresenius Kabi did not object to Akorn’s outside FDA counsel

at Hyman, Phelps & McNamara P.C. (“Hyman Phelps”) (which has at times also

represented Fresenius Kabi) representing Akorn before the FDA, Fresenius Kabi

surprised Akorn by taking the position that Hyman Phelps should be disqualified

from meeting with the FDA on Akorn’s behalf. Fresenius Kabi acknowledged that

it had previously agreed to waive conflicts with respect to Hyman Phelps’s advice

on Akorn’s investigation; but Fresenius Kabi asserted for the first time that to

permit Hyman Phelps, on Akorn’s behalf, to “present[] to FDA on the

investigation” would create a “substantial risk” that Fresenius Kabi’s interests

“would be materially and adversely affected”. Until that time, the parties had been

operating under a common interest agreement; and this was the first express

statement by Fresenius Kabi that it did not share Akorn’s interest in a constructive

outcome with the FDA.

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 20. But it was not the last. Since Fresenius Kabi declared that its

interests were opposed to Akorn’s with respect to contacts with the FDA, it has

repeatedly sought to sabotage Akorn’s dialogue with the FDA by sending Akorn

letters falsely alleging that Akorn intentionally misled the FDA and demanding

that Akorn permit Fresenius Kabi to contact the FDA directly in order to

communicate that erroneous position. Dismayed that Akorn has been engaged in a

productive, transparent dialogue with the FDA, Fresenius Kabi has tried to provoke

the FDA to take adverse action against Akorn to give Fresenius Kabi grounds for

declaring a breach of Akorn’s regulatory compliance representation and warranty

and/or an MAE. In each instance, Akorn has voluntarily provided Fresenius

Kabi’s inflammatory correspondence to the FDA.

21. Akorn has informed the FDA of all key aspects of the

investigation being conducted by Akorn and its consultants to date (as well as

Fresenius Kabi’s inflammatory and inaccurate characterizations). Akorn believes

that it will be able to work with the FDA to productively resolve any issues that are

identified in a manner that will not have a material impact on Akorn's business.

22. On April 18, 2018, Defendants again signaled their goal of

exiting the Proposed Transaction—while attempting to buy more time to develop

arguments supporting an MAE. On that date, Fresenius Kabi’s counsel, Paul,

Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”), sent Akorn’s counsel a
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letter proposing, “[i]n light of the ongoing investigations”, that Akorn agree to

extend until the end of August the date by which the Proposed Transaction must be

completed. The letter signaled that Defendants’ investigation had not yet

identified any basis to terminate the Merger Agreement. It held out the possibility

that Fresenius Kabi might be willing to proceed to closing following the

investigations’ completion: “If Akorn believes Fresenius is mistaken in its

assessment of the facts and that Akorn’s own investigation, when complete, would

support its position, then extending the Outside Date could be advantageous to

both parties.”

23. Of course, if Defendants were confident that they had already

identified breaches giving rise to an MAE, there would be little reason to make

such a proposal or to push forward with a months-long investigation. Whether

intentional or not, Defendants’ letter exposed their true position: unwilling to

proceed to close but unable to present a valid justification for termination.

24. The Merger Agreement does not permit Fresenius Kabi to delay

closing the Proposed Transaction pending the outcome of its investigation, or to

terminate based on the purported findings of its investigation. In connection with

their investigation, Defendants have received, in response to their own cartoonishly

bloated requests, a massive volume of information. The parties’ investigations

have revealed nothing but isolated missteps by a company working hard to live up
12
to the FDA’s rigorous standards—hardly a surprise to anyone familiar with the

regulatory issues that are commonplace throughout the entire industry, including at

Fresenius itself. Defendants have received extraordinary access but have found

nothing.

25. On April 22, 2018, only four days after Fresenius Kabi

suggested that this might all be cleared up in a matter of months, it formally

notified Akorn that it was purportedly terminating the Merger Agreement

“pursuant to Section 7.01(c)(i)”. Fresenius Kabi stated that its purported

termination stemmed from “multiple [alleged] breaches by [Akorn] of its

representations and warranties”, including representations and warranties related to

SEC documents and undisclosed liabilities, absence of certain changes, compliance

with laws and permits, and regulatory compliance, and covenants related to the

conduct of business and reasonable access to information. Fresenius Kabi

purported to terminate immediately due to such purported breaches; and if such

termination should be found invalid, it purported to terminate effective on the

April 24, 2018 Outside Date due to a purported failure of closing conditions.

26. As noted, all closing conditions have been satisfied except for

antitrust clearance, which is expected to be obtained in the near future. As a result,

the Merger Agreement’s Outside Date extends automatically to July 24, 2018—by

which time antitrust clearance will have been received, provided that Fresenius
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Kabi does not take any action to interfere with that process. Despite this,

Defendants have purported to terminate the Proposed Transaction, a clear

repudiation of Section 1.02 of the Merger Agreement, which requires closing on

the second business day following receipt of antitrust clearance. As a result, they

have condemned Akorn, its stockholders and its employees to an uncertain deal

purgatory. The time has come for Defendants to fulfill their contractual

obligations to consummate the Proposed Transaction.

27. For these reasons and those set forth below, Akorn respectfully

requests an order enjoining Defendants from terminating the Merger Agreement

and taking, causing or permitting any action to prevent or impede antitrust

approval; specific performance requiring Defendants to take all actions necessary

to close the Proposed Transaction; and declaratory judgment that Defendants’

purported termination of the Merger Agreement is invalid.

Parties

28. Plaintiff Akorn is a specialty generic pharmaceuticals company

organized under the laws of Louisiana and headquartered in Lake Forest, Illinois.

Akorn is engaged in the development, manufacture and marketing of multisource

and branded pharmaceuticals. Akorn has manufacturing facilities located in

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

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Switzerland and Paonta Sahib, India that manufacture ophthalmic, injectable and

specialty sterile and non-sterile pharmaceuticals. Numerous products in Akorn’s

portfolio are widely recognized as critical to patient health. Akorn’s stock is

publicly traded on the NASDAQ stock exchange under the trading symbol

“AKRX”. Akorn is the seller under the Merger Agreement.

29. Defendant Fresenius Kabi is a pharmaceutical company

organized under the laws of Germany, with its principal executive offices in

Germany and its U.S. operations headquartered in Lake Zurich, Illinois. It

specializes in medicines and technologies for infusion, transfusion and clinical

nutrition. Fresenius Kabi is a wholly-owned subsidiary of Fresenius. Fresenius

Kabi is the buyer under the Merger Agreement.

30. Defendant Quercus is a Louisiana corporation and a wholly

owned subsidiary of Fresenius Kabi. Quercus was formed by Fresenius Kabi for

the purpose of completing the Proposed Transaction.

31. Defendant Fresenius is a German partnership limited by shares

with its principal executive offices in Germany. Fresenius is a global health care

group providing products and services for dialysis, hospitals, and outpatient

medical care. The ordinary shares of Fresenius are listed on the Börse Frankfurt

under the trading symbol “FRE”. Fresenius is a party to the Merger Agreement for

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purposes of agreeing to cause Fresenius Kabi to comply with its obligations under

the Merger Agreement.

Jurisdiction and Venue

32. This Court has subject matter jurisdiction pursuant to

10 Del. C. § 341 because this is a suit in equity.

33. Under Section 8.07(b) of the Merger Agreement, Akorn and

Defendants expressly agreed that all actions “arising out of or relating to” the

Merger Agreement “shall be heard and determined in the Court of Chancery of the

State of Delaware”, and that the parties “irrevocably (i) submit to the exclusive

jurisdiction and venue of the Delaware [c]ourts . . . (ii) waive the defense of an

inconvenient forum or lack of jurisdiction . . . (iii) agree to not contest the

jurisdiction of the Delaware [c]ourts . . . and (iv) agree to not bring any [a]ction

arising out of or relating to this [Merger] Agreement or the [related] [t]ransactions

in any court other than the Delaware [c]ourts”.

34. Under Section 8.07(a), the Merger Agreement is governed by,

and must be construed in accordance with, the laws of the State of Delaware.

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 Relevant Facts

The Merger Agreement Is Signed After a Thorough Diligence Process.

35. On August 23, 2016, Akorn’s financial advisor approached

Fresenius to gauge its interest in acquiring Akorn. Over the next several months,

the companies met numerous times to discuss the Proposed Transaction and

exchange information and projections.

36. Fresenius Kabi commenced its diligence process on

February 3, 2017, and was provided access to a virtual data room beginning on

February 13, 2017. During the course of the diligence process, 75 different users

from Fresenius and 69 users from Fresenius’ advisors accessed the data room,

viewing over 18,000 documents. Fresenius retained eleven different independent

advisors to provide strategic, legal, commercial, financial and insurance-related

advice. It submitted over 500 questions for response, conducted six site visits and

participated in 25 different calls.

37. Fresenius touted this process as having identified everything

that it considered to be material:

“We performed a detailed due diligence, had access to a

comprehensive data room, held countless expert sessions,
and were able to address all our questions and concerns.
Have we overlooked anything material? Possible, but
unlikely. The due diligence also included plant visits, by
me and much better qualified experts as well as a detailed
review of Akorn’s product portfolio. That led to us
building a solid bottom-up business plan, which formed
17
 then the basis of our decision to make a bid.” (Emphasis
added.)

38. Fresenius’ CEO even described the diligence process as “the

most intensive and comprehensive that [he has] experienced during [his] time at

Fresenius”.

39. Nevertheless, after publicly announcing its investigation in late

February 2018, Fresenius began to backpedal on its due diligence process,

asserting that:

“when you wish to acquire a competitor, there are

restrictions [diligence], especially if it’s a stock-listed
company. There are areas where you simply are not
allowed to look, including product development and drug
approval processes. So how do you protect yourself in
those areas? You ask the seller for assurances,
representations [and] warranties . . . . The task now is to
verify whether these assurances provided by [Akorn]
actually hold true.”

40. The suggestion that Defendants were “not allowed to look” is a

pretext designed to distract Fresenius shareholders from the fact that Fresenius

Kabi simply did not seek extensive pre-signing diligence concerning Akorn’s data

integrity or internal controls. Akorn did not place limitations on diligence into data

integrity or internal controls issues. Fresenius Kabi simply never asked.

41. To Akorn’s knowledge, not one of Fresenius Kabi’s eleven

external advisors was retained to assist with product development, data integrity or

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internal controls advice. Nor did Fresenius Kabi ask to see a single Abbreviated

New Drug Application (“ANDA”) filed by Akorn prior to signing. It was only

after the generics industry took a turn for the worse and after Defendants soured on

the deal that Defendants suddenly became “very concerned” about data integrity

and internal controls issues.

The Merger Agreement Is Iron-Clad.

42. Unsurprisingly, after conducting a thorough due diligence

process into the issues material to their interests, Defendants were comfortable

agreeing to the iron-clad Merger Agreement. Under the Merger Agreement,

Quercus is to merge with and into Akorn, with Akorn surviving as a wholly owned

subsidiary of Fresenius Kabi, and Akorn’s shareholders are to receive $34 per

share.

43. The Merger Agreement clearly specifies the parties’ obligations

to close. Under Section 1.02, “[t]he closing of the [m]erger (the ‘Closing’) shall

take place at 10:00 a.m. (New York City time) on the second business day (the

‘Closing Date’) following the satisfaction or waiver (to the extent such waiver is

permitted by applicable [l]aw) of the conditions set forth in Article VI”.

(Ex. A § 1.02.)

44. Importantly, the parties did not agree to condition

consummation of the Merger Agreement upon Fresenius Kabi’s unilateral

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“assessment” of the “outcome” of any investigation, much less an investigation

directed or controlled by Fresenius Kabi into anonymous allegations. The Merger

Agreement contains no such condition.

45. The Merger Agreement contains various representations and

warranties by Akorn concerning matters such as SEC filings and undisclosed

liabilities, the absence of certain changes, compliance with laws and regulatory

compliance. It is a condition to closing that each of these representations “be true

and correct . . . as of [signing] and as of the Closing Date . . . except . . . where the

failure to be true and correct would not . . . reasonably be expected to have a

Material Adverse Effect.” (Ex. A § 6.02(a).)

46. In other words, having conducted extensive pre-signing due

diligence and satisfied itself that it was “unlikely” it had “overlooked anything

material”, Defendants agreed to assume the risk of any breaches of these

representations and warranties that did not amount to an MAE.

47. They further agreed to a definition of an MAE that sets a high

bar. As relevant here, that term requires “a material adverse effect on the business,

results of operations or financial condition of [Akorn] and its [s]ubsidiaries, taken

as a whole”. (Id. § 8.12(a) (emphasis added).) The parties also agreed that certain

factors should not “be taken into account in determining whether a Material

Adverse Effect has occurred”, including, but not limited to, “any effect . . .
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generally affecting (1) the industry in which [Akorn] and its [s]ubsidiaries operate

or (2) the economy, credit or financial or capital markets . . .”, except “to the extent

such effect . . . has a disproportionate adverse [e]ffect on [Akorn] and its

[s]ubsidiaries, taken as a whole, as compared to other participants in the industry in

which [Akorn] and its [s]ubsidiaries operate”, as well as (3) any effects attributable

to “the negotiation, execution, announcement or performance of [the Merger]

Agreement or the consummation of the [Proposed] Transaction[]”. (Emphasis

added.) The parties also excluded from the definition of MAE “any failure to meet

any internal or public projections, forecasts, guidance, estimates, milestones,

budgets or internal or published financial or operating predictions of revenue,

earnings, cash flow or cash position”. (Id.)

48. Additionally, the Merger Agreement contains a number of

obligations that are operative prior to closing. Among those obligations is the

requirement in Section 5.01(a) that Akorn continue to operate its business in the

ordinary course:

“(i) [Akorn] shall, and shall cause each of its

[s]ubsidiaries to, use its and their commercially
reasonable efforts to carry on its business in all material
respects in the ordinary course of business, and (ii) to the
extent consistent with the foregoing, [Akorn] shall, and
shall cause its [s]ubsidiaries to, use its and their
commercially reasonable efforts to preserve its and each
of its [s]ubsidiaries’ business organizations (including the
service of key employees) substantially intact and
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 preserve existing relations with key customers, suppliers
and other [p]ersons with whom [Akorn] or its
[s]ubsidiaries have significant business relationships
substantially intact, in each case, substantially consistent
with past practice . . . .”

49. In addition, the parties agreed, under Section 5.05, that Akorn:

“shall afford to [Fresenius Kabi] and [Fresenius Kabi’s]

Representatives reasonable access during normal
business hours to [Akorn’s] officers, employees, agents,
properties, books, Contracts and records . . . and [Akorn]
shall furnish promptly to [Fresenius Kabi] and [Fresenius
Kabi’s] Representatives such information concerning its
business, personnel, assets, liabilities and properties as
[Fresenius Kabi] may reasonably request . . .” (emphases
added).

50. Section 5.05 is qualified in important respects. It provides that

“[Fresenius Kabi] and its [r]epresentatives shall conduct any such activities in such

a manner as not to interfere unreasonably with the business or operations of

[Akorn].” Section 5.05 also establishes that Akorn is not obligated to provide

information that (i) “relate[s] to the negotiation and execution of th[e Merger]

Agreement, . . . or any other transactions potentially competing with or alternative

to the [Proposed] Transaction[]” , or (ii) “in [Akorn’s] reasonable judgment, . . . is

reasonably likely to . . . jeopardize the protection of an attorney-client privilege,

attorney work product protection or other legal privilege”.

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 51. Section 6.02(b) requires that Akorn “shall have complied with

or performed in all material respects its obligations required to be complied with or

performed by it at or prior to the [e]ffective [t]ime . . . .”

52. Akorn also bargained for important covenants by Fresenius

Kabi. This included a promise to use:

“reasonable best efforts (unless, with respect to any

action, another standard of performance is expressly
provided for herein) to promptly . . . take, or cause to be
taken, all actions, and do, or cause to be done, and assist
and cooperate with the other parties hereto in doing, all
things necessary, proper or advisable to cause the
conditions to Closing to be satisfied as promptly as
reasonably practicable and to consummate and make
effective, in the most expeditious manner reasonably
practicable, the [Proposed] Transaction.” (Id. § 5.03
(emphases added).)

53. Akorn also bargained for a “hell or high water” antitrust

commitment from Fresenius Kabi, pursuant to which it promised to “promptly take

all actions necessary to secure the expiration or termination of any applicable

waiting period under the HSR Act or any other Antitrust Law and resolve any

objections asserted with respect to the Transactions under the Federal Trade

Commission Act or any other applicable Law raised by any Governmental

Authority”. (Id. § 5.03(c).) Fresenius Kabi agreed that these efforts would “be

unconditional and shall not be qualified in any manner”. (Id.) Fresenius Kabi also

agreed to use its “reasonable best efforts” to consummate the Proposed

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Transaction, and achieve such antitrust clearance, “as promptly as reasonably

practicable”. (Id.)

54. Fresenius, pursuant to Section 8.16, promised that it “will cause

[Fresenius Kabi] to comply with its obligations under this [Merger] Agreement”.

55. Finally, Section 7.01 provides that either Fresenius Kabi or

Akorn may terminate the Merger Agreement if the closing conditions set forth in

Article VI have not been satisfied or waived by an “Outside Date”. The Outside

Date is initially defined as April 24, 2018. However, Section 7.01 further provides

that where, as here, Federal Trade Commission (“FTC”) approval remains the only

outstanding closing condition as of April 24, 2018, the “Outside Date”

automatically extends to July 24, 2018.

Fresenius Kabi Regrets Entering the Merger Agreement, But Has No Lawful
Way to Exit or Renegotiate It.
56. A market-cap weighted index of the seven companies identified

as peers by Akorn’s financial advisor in its fairness analysis is down over 20%

since signing. Between April 24, 2017, and April 20, 2018, generics firm Lannett

Company, Inc., lost 30% of its market capitalization; Teva Pharmaceutical

Industries, another generics firm, lost 44%; and Endo International Plc, another

generics firm, lost 49%. Akorn has not been immune from these headwinds.

24
 57. When the Merger Agreement was signed on April 24, 2017,

there was consensus in the market that Fresenius Kabi had struck a good deal at

$34 per share. RBC Capital, LLC (“RBC”) released a report the day after the deal

was announced stating that “a take-out close to $33 would be compelling”.

Fresenius Kabi’s Ducker praised the strategic rationale for the Merger:

“Akorn brings to Fresenius Kabi specialized expertise in

development, manufacturing and marketing of alternate
dosage forms, as well as access to new customer
segments like retail, ophthalmology and veterinary
practices. Its pipeline is also impressive, with
approximately 85 ANDAs filed and pending with the
FDA and dozens more in development.”

58. Fresenius CEO Sturm also voiced his enthusiasm for the

Proposed Transaction:

“Akorn will provide us access to alternative distribution

channels, such as pharmaceutical wholesale clinics,
direct-to-physician and retail sales. . . . [W]e have been
very impressed with the leadership team and the
employees we have met during our due diligence . . .
[and we] are convinced that Akorn is the right partner for
Fresenius Kabi . . . .”

59. But financial headwinds in the generic pharmaceuticals market

continued to affect the industry, Akorn included. Key factors that contributed to an

industry-wide performance decline in 2017 included increased competition, lower

name brand pricing, and customer consolidation.

25
 60. Understandably, like that of its industry peers, Akorn’s

financial performance began to decline. On July 31, 2017, Akorn missed analysts’

estimates for the second quarter of 2017. Akorn’s performance was attributed to

the previously predicted loss of exclusivity on a large revenue driving product (a

fact known before signing of the Merger Agreement), increased competition,

declines in pricing and volume of its products, and supply disruptions.

61. Fresenius CEO Sturm recognized that these effects were

temporary:

“[T]his is a volatile industry. Swings like this happen, in

particular, at smaller players [like Akorn]. . . . [R]evenue
erosion in existing products is a well-known fact in the
generics business, not a real surprise for us . . . . [W]ith
regard to the supply disruptions . . . . We also expect
these will lessen . . . .”

62. On November 1, 2017, Akorn announced that it had missed

analysts’ estimates for the third quarter of 2017, which again was attributable to

competitive pressures on several products and continued supply disruptions.

63. On Fresenius’ November 2, 2017 earnings call, Sturm

acknowledged disappointment with these results:

“Akorn’s Q3 results, which were filed last night, for sure

not what we had hoped for, but at least a sequential
stabilization. And year-to-date cash flow has more than
doubled year-over-year. But yes, we had hoped for
more. And the reasons for the disappointing financial

26
 performance are broadly unchanged from the second
quarter.”

64. At the same time, Sturm stated that Fresenius still believed in

the deal, notwithstanding Akorn’s failure to meet industry projections:

“[T]his is a highly volatile business, with limited

visibility, notoriously hard to predict, and where you just
cannot extrapolate from a quarterly run rate . . . . [T]he
strategic rationale for the transaction remains as valid as
ever. Akorn will further diversify our product portfolio. .
. . Akorn will also enhance our market reach and thus
strengthen our strategic position.”

65. Sturm even claimed that the downturn in Akorn’s performance

was “a confirmation of our strategic rationale of our strategic hypothesis of what is

going to happen to smaller players in that part of the business . . . [a]nd

therefore . . . us joining forces will mitigate some of the headwinds that Akorn is

facing right now”.

66. Indeed, as late as four days before Defendants’ purported

termination, Defendants’ counsel conceded that “Fresenius [Kabi] remains

convinced of the strategic rationale of its transaction with Akorn”. In other words,

although Akorn remains, from a strategic perspective, the same company that

Fresenius Kabi wanted to buy, Fresenius Kabi has concluded that it no longer likes

the terms of the deal it committed to a year ago.

27
 67. Analysts similarly noted that although the strategic rationale for

the Proposed Transaction remained unchanged, it appeared in hindsight that

Defendants may have overpaid. Deutsche Bank noted that while the Proposed

Transaction was still “strategically sensible” for Fresenius Kabi, given Akorn’s

recent “sluggish performance”, it was taking a “much more cautious view on near-

term earnings development”, and that, despite strong overall prospects, the

Proposed Transaction was likely to depress near term sentiment for Fresenius.

According to RBC, the “price offered by Fresenius . . . implied a ~13x

EV/EBITDA multiple when announced”; however, that “multiple is currently

22.6x our revised EBITDA estimate”.

68. Fresenius’ shareholders were similarly pessimistic. After

Sturm reaffirmed support for the Proposed Transaction on November 2, 2017,

Fresenius’ stock price fell by as much as 3.2%.

69. Nevertheless, analysts have consistently reiterated that the

Merger Agreement does not give Fresenius Kabi an out simply because Akorn has

performed below expectations. As RBC stated, “given the contract language, our

base case view is that the deal will ultimately close”.

70. Facing pressure from its shareholders, buyer’s remorse and no

way to lawfully exit or renegotiate the terms of the Merger Agreement, Fresenius

28
Kabi has resorted to violating its contractual obligations in an attempt to get out of

the deal.

Fresenius Designs a Pretextual Investigation to Escape its Obligations Under

the Merger Agreement and Comes Up Empty-Handed.
71. On November 16, 2017, shortly after Akorn announced its

disappointing third quarter results, Fresenius Kabi first disclosed to Akorn that

weeks earlier it had received two undated anonymous letters (the “Anonymous

Letters”) addressed to Ducker. The Anonymous Letters alleged favoritism among

research and development (“R&D”) executive and management-level employees,

as well as vague allegations of data integrity issues related to R&D work with

respect to several named products at Akorn facilities in Vernon Hills, Somerset,

Decatur and India.2

72. On November 16, 2017, after Akorn’s second quarterly

earnings call in which Akorn disclosed it had underperformed expectations, but six

weeks after receiving the first Anonymous Letter, Fresenius Kabi first informed

Akorn that it intended to exercise its rights under Section 5.05 of the Merger

Agreement to “reasonable access” to Akorn information in order to investigate

2
Fresenius Kabi received a third anonymous letter on January 9, 2018, again
addressed to Ducker. This letter alleged that the Akorn R&D team in Vernon Hills
was instructed not to cooperate with Fresenius Kabi during their investigation into
the issues raised in the first two letters.

29
certain allegations made in the Anonymous Letters. This timing implies that

Fresenius Kabi was not concerned with the contents of the Anonymous Letters

until after Akorn announced that its second quarter earnings had underperformed

expectations.

73. Akorn has cooperated with Fresenius Kabi’s reasonable

requests, which began in early December 2017, and Akorn has gone well beyond

what would be considered “reasonable access” under the Merger Agreement,

including:

 five on-site multi-day inspections at three different Akorn facilities by

Fresenius Kabi’s data integrity consultants at Lachman Consulting

Services, Inc., outside counsel at Sidley Austin LLP (“Sidley”) and,

for three of the five site visits, a forensic data extraction team at Ernst

& Young;

 on-site productions of thousands of pages of FDA submissions,

laboratory operating procedures, internal audits, third-party consultant

reports, laboratory testing and analytical test methods;

 access to all relevant laboratory computers, servers and test

equipment, and permission to copy all data for all drug products

available;

30
  numerous hours of direct, in-person support from Akorn laboratory

analysts and IT personnel;

 50 interviews of 48 Akorn employees, including 7 past or present

members of Akorn’s senior management team;

 production of approximately 2.8 million documents (from a total

universe of 9.4 million documents collected) from 63 custodians; and

 answers to dozens of follow-up questions—many of which concern

numerous individual test sequences—sent by Fresenius Kabi to Akorn

requesting detailed responses.

74. During this time, Akorn also conducted its own investigation.

75. Throughout these investigations, Fresenius Kabi has repeatedly

and falsely characterized purported “findings” of regulatory noncompliance as

indications of systemic data integrity problems at Akorn. For instance, Fresenius

Kabi has alleged “intentional destruction of more than 200,000 raw data files”,

insufficient IT staffing, the “loss of an entire year’s [Certificates of Analysis] and

[Certificates of Conformance]”, data located in computer recycling bins, printed

data sheets that are no longer legible, and insufficient security controls on

laboratory systems.

31
 76. On January 26, 2018, Joseph Bonaccorsi, Akorn’s General

Counsel, explained to Fresenius Kabi why Fresenius Kabi was misguided in its

observations.

77. For instance, the “intentional destruction of more than 200,000

raw data files” refers to digital photos of packaging caps taken on a product

assembly line. The relevant caps are subject to an independent human inspection

prior to leaving the Akorn facility and the digital photos are deleted automatically

due only to memory constraints in the camera.

78. Similarly, there were no lost Certificates of Analysis or

Certificates of Conformance. The observations Fresenius Kabi identified were

only the scanned copies of the Certificates. The originals were all stored and

accounted for in a paper-based system.

79. And the data found in a computer recycle bin referred to a

spreadsheet documenting how rooms in the relevant facility were being utilized.

The spreadsheet did not contain any source data and instead contained only pieces

of information compiled by the individual and copied or entered into the

spreadsheet for their personal use. The file that had been deleted was an extra

copy—with the original having been saved to the custodian’s desktop.

80. In the instances where Fresenius Kabi and/or Akorn have

identified legitimate data integrity concerns, Akorn has acknowledged those issues
32
and has dealt with them, or is dealing with them, promptly and appropriately.

Those issues do not, however, constitute an MAE. To the contrary, they are

indicative of precisely the sort of challenges that companies across the generics

industry, Fresenius Kabi included, contend with on a day-to-day basis. Critically,

and despite Defendants’ inflammatory accusations, there is no widespread

evidence of data falsification at Akorn.

81. The most significant instance of a data integrity issue involves

an ANDA for the drug product azithromycin that was pending with the FDA,

which Akorn had submitted on December 21, 2012. On December 18, 2017, while

on site at Akorn’s Somerset facility, Akorn’s outside counsel at Cravath, Swaine &

Moore LLP (“Cravath”) and Akorn’s in-house counsel learned that a former

employee likely falsified a data point in another chemist’s lab notebooks during the

development process of azithromycin. Akorn immediately investigated the issue,

engaged its internal audit function, Global Quality Compliance, and disclosed the

issue to Fresenius Kabi within two days of learning about it. Cravath thereafter

worked through the Christmas and New Year’s holidays to obtain emails and

interview employees, providing Sidley a preliminary hour-long overview by

telephone on January 12, 2018, and conducting a three-hour in-person meeting on

January 22, 2018 at Sidley’s offices, where Cravath provided Sidley with all of its

detailed findings to date.

33
 82. Cravath’s investigation determined that the employee

responsible for the potential data falsification had left Akorn three years earlier.

While he was at Akorn, the same employee may have also made entries in the lab

notebooks of another chemist for five other drug products, although it is not known

whether such entries were in fact fabricated. Moreover, two of the departed

chemist’s own notebooks could not be located. Upon discovering these issues,

Akorn promptly terminated the executive whose failure of oversight led to the

possible submission of falsified data; alerted the FDA; and withdrew the

azithromycin ANDA.

83. Critically, azithromycin and the five other drug products in

question either have never been marketed or are not currently being marketed and

were never forecasted to form a material portion of Akorn’s future earnings.

84. The parties’ investigations have also identified certain instances

of trial injections being conducted at Akorn’s Vernon Hills, Somerset and Decatur

facilities.

85. In certain forms of laboratory testing conducted as part of drug

product R&D and quality activities, a trial injection refers to the injection and

testing of a substance as a “trial” run, i.e., for a purpose other than officially testing

a drug product to generate data in support of a drug product application submitted

to the FDA or to justify the release of product manufactured for commercial

34
distribution. The FDA has objected to the practice of conducting trial injections

with actual samples of the drug product or drug substance to be tested in tests that

are intended to support product applications submitted to the FDA or that will be

used to justify the release of products manufactured for commercial distribution,

because in those circumstances the trial injections may be used to achieve a

specific result or to overcome an unacceptable result (a practice referred to as

“testing into compliance”). Testing into compliance is inconsistent with the FDA’s

manufacturing standards.

86. Importantly, not all trial injections are considered per se

impermissible by the FDA. For example, trial injections using materials other than

samples of the drug product or drug substance to be tested may be entirely

acceptable. In addition, whether trial injections are permissible depends in part on

the stage of development of the laboratory test involved. Trial injections using

samples of the actual drug product or drug substance to be tested are generally

prohibited in the stage of testing known as method validation. During method

validation, chemists intend to confirm that the analytical procedure employed for a

specific test is suitable for its intended use. In other words, the chemist is testing

the test. Trial injections with samples are generally not permitted during method

validation because chemists could, for instance, “game” the process by running

multiple tests, and submit only the passing results while discarding the unofficial
35
“trial” results. In contrast, trial injections are permissible as part of method

development, which occurs prior to method validation and involves earlier stage

testing to evaluate the capabilities and performance of a potential testing method.

87. The parties’ investigations uncovered numerous test sequences

labeled “trial” on certain servers and equipment at Akorn’s Vernon Hills, Somerset

and Decatur facilities. Although still ongoing, Akorn’s review of these “trial”

sequences has to date conclusively identified only a few instances of improper trial

injections.

88. Trial injections are a concern throughout the generic industry.

In fact, as recently as March 2017, Fresenius Kabi’s facility in Austria received an

FDA Form 4833 citing the use of trial injections during final quality control testing.

89. Akorn takes these issues seriously and is working with the FDA

to address them appropriately, however, they are not at all exceptional in the

generic pharmaceuticals industry. The FDA issued over 50 warning letters related

to data integrity last year alone. And within the past three years, 60-80% of all

FDA warning letters issued to manufacturing and development sites identified

failures in data integrity. Defendants themselves have contributed to this trend.

3
An FDA Form 483 is a notice of inspectional observations issued by the FDA
after an inspection. It identifies observations that may constitute violations of the
Food, Drug and Cosmetic Act and related acts.

36
Over the last five years, Fresenius and its subsidiaries have received at least nine

FDA Forms 483 and warning letters related to data integrity issues.

90. In sum, the investigations have uncovered several discrete

occurrences at Akorn of problematic data integrity challenges that are

commonplace in the generic pharmaceuticals industry and that Akorn has already

begun to remediate. While Akorn has treated these issues seriously, none, either

alone or in aggregate, materially impacts Akorn or its business as a whole.

In Public Statements, Fresenius Attempts To Frame Completion of its

Investigation as a Closing Condition—in Direct Contradiction to the Merger
Agreement’s Plain Language.
91. In an email to Mr. Bonaccorsi, on February 23, 2018, Jack

Silhavy, the U.S. General Counsel of Fresenius Kabi, informed Akorn of Fresenius

Kabi’s intention to announce publicly that:

“Fresenius is conducting an independent investigation,

using external experts, into alleged breaches of FDA data
integrity requirements relating to the product
development at Akorn, Inc.

In addition to FTC clearance, closing of the acquisition

will now depend on the outcome of this investigation and
the assessment of such outcome by the management and
supervisory boards of Fresenius.” (Emphasis added.)

92. By falsely asserting that consummation of the Proposed

Transaction is contingent upon the “outcome” of its investigation and its

37
“assessment of such outcome”, Fresenius Kabi revealed its intention to signal to

the market its desire to exit the Proposed Transaction.

93. In a letter dated February 24, 2018, Akorn demanded that

Fresenius Kabi:

“refrain from making public the statement contained in

Mr. Silhavy’s February 23 email to Mr. Bonaccorsi, any
substantially similar statement or any other statement
regarding the pending investigation referred to therein,
unless Akorn agrees in advance in writing that such
statement is not materially false or misleading, or
indicating that [Fresenius Kabi] is not committed to
effecting the Merger Agreement according to its terms.”

94. Fresenius Kabi acknowledged to Akorn that its position that the

consummation of the Proposed Transaction was conditioned upon the outcome of

its investigation was incorrect. However, on February 26, 2018, Fresenius made a

public announcement of its investigation, stating:

“Fresenius is conducting an independent investigation,

using external experts, into alleged breaches of FDA data
integrity requirements relating to the product
development at Akorn, Inc.

The Management and Supervisory Boards of Fresenius

will assess the findings of that investigation. The
consummation of the transaction may be affected if the
closing conditions under the merger agreement are not
met.”

95. While Fresenius’ announcement was altered in response to

Akorn’s February 24, 2018 letter so as to remove the explicit statement that the

38
investigation was now a closing condition to the Proposed Transaction, Fresenius’

statements made unmistakably clear that it views its investigation as its vehicle to

escape the Merger Agreement.

96. The market immediately realized that Fresenius was signaling

an effort to exit the Merger Agreement. After closing at $30.28 per share on

February 26, 2018, Akorn’s stock dropped by $11.63 on massive trading volume

and closed at $18.65 on the day of Fresenius’s announcement. Akorn’s price has

remained below $20 ever since.

97. Since that time, Fresenius has continued to publicly state that it

views the investigation, and Fresenius’s assessment of it, as a closing condition.

On March 13, 2018, at a Barclays healthcare conference in Miami, analysts

reported that Fresenius “said there are now essentially TWO conditions to

close . . . . They have to get FTC approval AND complete the investigation”.

98. Fresenius has no lawful basis for making this assertion and its

continued insistence on trying to mislead stockholders by falsely framing the

investigation as a closing condition reveals that the investigation was never a

neutral, good-faith effort to determine whether there were legitimate issues of

concern at Akorn. Rather, it is a tool Defendants are attempting to use to escape

from a deal they have come to regret.

39
Fresenius Kabi Discloses That Akorn’s Interest in a Constructive Dialogue
with the FDA Conflicts with Fresenius Kabi’s Own Interests.
99. Upon the discovery of the azithromycin issue, Akorn engaged

Hyman Phelps to serve as outside FDA counsel and to advise on appropriate next

steps with respect to Akorn’s pending ANDA. Hyman Phelps has previously

represented Fresenius Kabi in connection with other, unrelated matters; however,

Fresenius Kabi explicitly waived any possible conflict.

100. On the morning of February 26, 2018, Hyman Phelps contacted

the FDA and requested to schedule a meeting so that Akorn could self-report the

ongoing data integrity investigation to the FDA and provide a broad overview of

the data integrity issues that had so far been identified. Self-reporting of this type

is uncommon in FDA practice; Akorn’s willingness to take such a step is indicative

of its transparent approach towards its investigation and with the FDA.

101. Nevertheless, only five days before the scheduled FDA

meeting, Fresenius Kabi suddenly reversed course and withdrew its conflict

waiver. Fresenius Kabi informed Akorn, for the first time, that it now believed that

for Hyman Phelps to “present[] to FDA on the investigation” would create a

“substantial risk” that Fresenius Kabi’s interests “would be materially and

adversely affected”.

40
 102. Akorn was thus forced to reschedule its meeting with the FDA

and retain new FDA counsel.

103. Despite claiming that a conflict of interest existed, Fresenius

Kabi demanded that Akorn allow it to attend the FDA meeting and present

alongside Akorn. Akorn declined, given Fresenius Kabi’s declaration that its

interests were adverse to those of Akorn with respect to contacts with the FDA,

and informed Fresenius Kabi that Akorn would not invite Fresenius Kabi to attend

the FDA meeting, or to speak with the FDA regarding the investigation.

Akorn Self-Reports to the FDA That It Is Investigating Data Integrity Issues.

104. Following this delay, Akorn met with the FDA on

March 16, 2018, to provide a broad overview of the investigation and describe the

circumstances of why Akorn withdrew an ANDA for azithromycin. Akorn also

discussed the other drug products that were the subject of improper entries in lab

notebooks. This meeting was held before Akorn identified any confirmed

instances of improper trial injections. (See ¶ 87.) At the meeting, Akorn presented

information related to the investigation’s findings—including the fact that the

ANDA for azithromycin was withdrawn due to concerns of an isolated instance of

data falsification—and described some of the remedial steps that Akorn had taken

to enhance data integrity protection. These steps included hiring staff and outside

41
consultants to review laboratory notebooks and data audit trails, and requiring lab

notebooks to be signed out.

105. Although the meeting was time-limited by the FDA, Akorn

notified the FDA at the outset of the meeting that Akorn would address other data

integrity issues in further communications. Akorn also offered to provide the FDA

with any additional information that the FDA believed would be useful to its

regulatory oversight. Akorn further agreed to update the FDA on the execution of

a new data integrity assessment plan by April 30, 2018. The FDA, expressed its

appreciation for Akorn’s transparency and commitment to an ongoing dialogue

with the agency.

106. On March 29, 2018, Akorn’s counsel spoke with the FDA to

state that Akorn would share the parties’ correspondence relating to the alleged

data integrity violations with the FDA going forward—including letters in which

Defendants had accused Akorn of lying to the FDA. The FDA again expressed his

appreciation for Akorn’s sharing information with the FDA, and asked that Akorn

continue its investigation.

107. Since March 29, 2018, Akorn, through its counsel, has

continued to share correspondence with the FDA and update the agency regarding

its investigation. On April 4, 2018, Akorn’s counsel shared with the FDA the audit

plans that Akorn’s third-party data integrity consultant intended to use to conduct
42
audits of certain Akorn sites. On April 9, 2018, Akorn’s counsel spoke with the

FDA about additional correspondence between the parties relating to the alleged

data integrity violations and the completion of the first site audit by Akorn’s third

party consultant. The additional correspondence was subsequently shared with the

FDA on April 10 and April 11, 2018. On April 13, 2018, Akorn’s counsel shared

with the FDA the completed report from Akorn’s third party consultant for the first

site audit.

Having Acknowledged that its Interests with Respect to the FDA Dialogue
Conflicted with Akorn’s, Fresenius Kabi Attempts to Sabotage That Process.
108. Notwithstanding Fresenius Kabi’s stated conflicting interests

with respect to Akorn’s communications with the FDA, Akorn provided Fresenius

Kabi with a copy of the presentation materials provided to the FDA, on

March 17, 2018—the very next day—as well as an oral summary of the FDA

meeting on March 19, 2018.

109. On March 22, 2018, Sidley sent Cravath a formal letter,

accusing Cravath and Akorn’s FDA counsel at Ropes & Gray LLP (“Ropes &

Gray”) of making misrepresentations to the FDA in their March 16, 2018 meeting.

Neither Sidley nor Fresenius Kabi attended the meeting; but they nevertheless

accused Akorn and its outside counsel of a “willful failure to disclose important

information to its key regulator” and making “false, incomplete and misleading

43
statements to a government agency charged with protecting public health”. Sidley

demanded permission to speak directly with the FDA concerning the ongoing

investigation. In response, Akorn rejected Sidley’s request to speak directly with

the FDA because of Fresenius Kabi’s own admission that its interests are not

aligned with Akorn’s. Nevertheless, to ensure that the FDA knew Sidley’s views,

Akorn sent Sidley’s letter to the FDA.

110. Since March 22, 2018, Sidley has sent Cravath two formal

letters alleging that Cravath and Akorn have misled the FDA. Each of these letters

demanded that Akorn permit Fresenius Kabi to speak to the FDA about the

ongoing investigation and that Akorn provide Fresenius Kabi’s correspondence

directly to the FDA.

111. Akorn has sent these letters from Fresenius Kabi’s counsel, plus

several earlier ones, to the FDA. Akorn has not, however, authorized Fresenius

Kabi to speak directly to the FDA in light of Defendants’ admitted conflict of

interests.

112. Fresenius Kabi’s intention in sending these scurrilous letters is

not to correct a supposed misrepresentation—something that Akorn categorically

denies—but to sabotage Akorn’s dialogue with the FDA with inflammatory and

provocative allegations in the hopes that it might influence the FDA to take

44
sufficiently adverse action against Akorn that Fresenius Kabi could argue is an

MAE.

113. In so doing, Fresenius Kabi materially breached Section 5.03 of

the Merger Agreement, which expressly requires it to do all things necessary,

proper or advisable to cause the closing conditions to be satisfied—not to

intentionally sabotage discussions with Akorn’s primary regulator in an effort to

trigger an MAE.

The Only Outstanding Closing Condition is Antitrust Approval, Which Is

Expected To Be Obtained Shortly.
114. For months after the Merger Agreement was signed, Fresenius

Kabi and Akorn worked cooperatively in an effort to obtain FTC approval,

engaging with the FTC to identify product overlaps between the parties and to limit

the number of products that the FTC would require Fresenius Kabi to divest as a

condition to clearing the Proposed Transaction.

115. But that all changed in November 2017 after Fresenius Kabi

became determined to exit the Proposed Transaction. In order to buy time for its

investigation, Fresenius Kabi intentionally slowed its efforts to comply with the

divestiture requirements imposed by the FTC—failing to engage in necessary

negotiations with potential divestiture buyers and ignoring, for nearly a month,

Akorn’s repeated requests for updates on the divestiture status.

45
 116. In so doing, Fresenius Kabi materially breached its “hell or high

water” obligation to obtain antitrust approval, and its obligation to ensure closing

occurs “as promptly as reasonably practicable”. (See Ex. A §§ 5.03(a), (c).)

117. It was not until after Akorn warned Fresenius Kabi in

February 2018 that “ongoing delays in response to our inquiries and in keeping us

informed are contrary to your express obligations under the Merger Agreement”—

that Fresenius Kabi finally broke its silence and returned to the negotiating table.

118. Having dragged its feet as long as it could, on March 22, 2018,

Fresenius Kabi finally executed a divestiture agreement with Alvogen Group

Holdings 4 LLC (“Alvogen”) and submitted a revised divestiture package to the

FTC. On April 20, 2018, the FTC sent the parties a draft Decision and Order. The

sending of the draft Decision and Order is one of the last steps in the FTC review

process before ultimate approval by the FTC Commissioners.

119. Once Fresenius Kabi receives approval by the FTC

Commissioners, which is expected in May 2018, all outstanding closing conditions

to the merger will be satisfied and Fresenius Kabi will be obligated to close the

transaction within two business days.

120. The divestiture agreement with Alvogen is essential to

obtaining final FTC approval of the Proposed Transaction. The divestiture

46
agreement with Alvogen may be terminated by a subsidiary of Fresenius Kabi

upon termination of the Merger Agreement.

121. Fresenius Kabi should be enjoined from terminating the Merger

Agreement and from taking, causing or permitting any action to prevent or impede

the receipt of final FTC antitrust approval of the Proposed Transaction, including,

but not limited to, terminating its divestiture agreement with Alvogen.

122. To the extent Fresenius Kabi’s purported termination of the

Merger Agreement results in the FTC failing to promptly approve the Proposed

Transaction, Fresenius Kabi will have further materially breached the Merger

Agreement.

Fresenius Kabi Purports to Terminate the Merger Agreement

123. On April 18, 2018, Fresenius Kabi’s counsel, Paul Weiss, sent a

letter to Cravath asking Akorn to agree to extend the Outside Date until the end of

August 2018 so that the parties could continue to investigate Akorn’s data integrity

practices for another four months before closing. Paul Weiss conceded that

Fresenius Kabi “remains convinced of the strategic rationale of its transaction with

Akorn”; but it threatened that a failure to agree to extend the Outside Date would

“confirm Fresenius[ Kabi’s] understanding of the seriousness and gravity of

Akorn’s misconduct”.

47
 124. By letter on April 20, 2018, Akorn refused Defendants’

demand, noting that it would further harm Akorn’s shareholders by continuing to

erode much-needed deal certainty. Akorn further explained that Defendants’

“proposal would impose further delay; add new conditions to [c]losing; entail

further disruption of Akorn’s operations; and facilitate additional interference with

[Akorn’s] regulatory affairs—all without any assurance that Fresenius Kabi intends

actually to proceed with the [c]losing.”

125. Akorn’s refusal of Fresenius Kabi’s demand in no way

confirmed the existence of any alleged misconduct. Indeed, if Fresenius Kabi

genuinely believed that Akorn’s alleged conduct was so “serious[] and grav[e]” as

to amount to an MAE, it begs the question as to why Fresenius Kabi sought an

extension at all.

126. The reality is that Fresenius Kabi is unwilling to comply with

its obligation to close the Proposed Transaction but is unable validly to terminate

it. Paul Weiss’s letter effectively concedes that Fresenius Kabi’s efforts to unearth

evidence of a potential MAE have failed—despite months of intrusive and

disruptive investigation that goes far beyond the “reasonable access” authorized by

the Merger Agreement.

127. Nevertheless, on April 22, 2018, Defendants purported to

terminate the Merger Agreement by asserting (falsely) that breaches of Akorn’s

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SEC documents and undisclosed liabilities representation in Section 3.05, absence

of certain changes representation in Section 3.06, compliance with laws and

permits in Section 3.08 and regulatory compliance representation in Section 3.18

had resulted in an MAE, and alleged (falsely) that Akorn had breached its ordinary

course operating covenant in Section 5.01 and reasonable access obligation in

Section 5.05. Fresenius Kabi maintained falsely that the purported breaches either

had given rise or would give rise to failures of the Merger Agreement’s closing

conditions; and that even if its immediate termination were later found invalid, it

was terminating effective on the Outside Date due to failures of such conditions.

128. Fresenius Kabi did not point to any change in circumstances

between its April 18 proposal to extend the Outside Date for an additional four

months and its April 22, 2018 termination. The same findings that Fresenius Kabi

felt warranted four months of additional investigation on April 18, 2018, are today

put forward as an alleged MAE to provide a pretextual basis for termination.

Defendants’ Breaches of the Merger Agreement

Fresenius Kabi Breached the Merger Agreement by Dragging its Feet on

Antitrust Approval, Sabotaging Akorn’s FDA Dialogue and Repudiating its
Obligation to Close.
129. As set forth above, Fresenius Kabi breached its “hell or high

water” obligation under Section 5.03(c) of the merger agreement by delaying the

antitrust approval process for nearly a year after signing.

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 130. Fresenius Kabi further breached its reasonable best efforts

obligation under Section 5.03(a) by intentionally seeking to sabotage Akorn’s

productive dialogue with the FDA in an effort to trigger an MAE.

131. Finally, Fresenius Kabi has anticipatorily breached Section 1.02

of the Merger Agreement by repudiating its obligation to close the Proposed

Transaction regardless of the outcome of the FTC approval process—even though

all other closing conditions have been satisfied.

132. Fresenius Kabi’s may not terminate the Merger Agreement

because Akorn has not breached its representations and warranties and covenants

so as to cause the closing conditions to not be satisfied, and all conditions to

closing other than antitrust approval have been satisfied.

133. Fresenius Kabi may not terminate the Merger Agreement

pursuant to Section 7.01(c)(i) because that provision states that Fresenius Kabi

“shall not have the right to terminate this Agreement pursuant to this Section

7.01(c)(i) if Parent or Merger Sub is then in material breach of any of its

representations, warranties, covenants or agreements hereunder”. As set forth

herein, Fresenius Kabi has breached its “hell or high water” and reasonable best

efforts obligations set forth in Section 5.03.

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Fresenius Has Breached the Merger Agreement by Failing to Cause Fresenius
Kabi to Comply with its Obligations Thereunder.
134. Pursuant to Section 8.16 of the Merger Agreement, Fresenius

promised that it “will cause [Fresenius Kabi] to comply with its obligations under

this [Merger] Agreement”.

135. Notwithstanding this obligation, Fresenius has permitted

Fresenius Kabi to breach its obligations thereunder, as described above.

Availability of Injunctive Relief and Specific Performance

136. Defendants’ breaches threaten Akorn and its stockholders with

imminent, irreparable harm. Indeed, the parties stipulated that irreparable harm

would occur if Defendants breached the Merger Agreement, and that specific

performance is available to remedy any such breach:

“The parties hereto agree that irreparable damage for

which monetary relief, even if available, would not be an
adequate remedy, would occur in the event that any
provision of this [Merger] Agreement is not performed in
accordance with its specific terms or is otherwise
breached, including if the parties hereto fail to take any
action required of them hereunder to consummate this
[Merger] Agreement and the Transactions. Subject to the
following sentence, the parties acknowledge and agree
that (a) the parties shall be entitled to an injunction or
injunctions, specific performance or other equitable relief
to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in the courts
described in Section 8.07(b) without proof of damages or
otherwise, this being in addition to any other remedy to
which they are entitled under this Agreement and (b) the
51
 right of specific enforcement is an integral part of the
Transactions and without that right neither [Akorn] nor
[Fresenius Kabi] would have entered into this [Merger]
Agreement. The parties hereto agree not to assert that a
remedy of specific enforcement is unenforceable, invalid,
contrary to Law or inequitable for any reason, and not to
assert that a remedy of monetary damages would provide
an adequate remedy or that the parties otherwise have an
adequate remedy at law.” (Ex. A § 8.08.)

137. These provisions are binding and fully enforceable. Thus,

Akorn has established irreparable harm and the right to specific performance of

Defendants’ obligations pursuant to the Merger Agreement.

138. In addition, Akorn would suffer irreparable harm as a factual

matter because Akorn’s damages would be difficult to calculate with certainty. In

theory, some portion of Akorn’s damages could be measured by the lost value of

the Proposed Transaction; that is, by awarding Akorn the difference between the

merger consideration and the standalone value of Akorn. But Akorn’s standalone

value cannot be easily determined based on market prices, as Akorn’s share price

has been and remains affected by the Proposed Transaction.

139. Continued delay in closing the Proposed Transaction would

further irreparably harm Akorn and its shareholders.

140. Continued delay irreparably harms Akorn’s employee retention

and hiring efforts. Retention and hiring of talent is particularly challenging in this

environment because Defendants have placed a cloud over Akorn’s future.

52
Current and prospective employees are understandably concerned about what the

Proposed Transaction will mean for Akorn and the people that work there. In fact,

the rate of full-year voluntary turnover of salaried employees in 2017 was 45%

higher than in 2016.

141. Continued delay irreparably harms Akorn by constraining its

management. Akorn also must labor under the interim operating covenants of the

Merger Agreement until the Proposed Transaction is closed. (See Ex. A § 5.01.)

Akorn’s management has less flexibility in making significant, long-term decisions

and investments while under these constraints.

This harms Akorn’s ability

to compete in the current challenging environment, and threatens harm in the

future from lost opportunities.

142. Continued delay further harms Akorn’s customer relationships.

Customers are less likely to enter into long-term relationships with Akorn when its

future is so uncertain. In particular, customers have been nervous about the

Proposed Transaction because Fresenius Kabi does not have a significant retail

presence, and so it is an unknown entity to many of Akorn’s customers. Akorn has

53
already endured over a year of these disruptions, and will suffer significant harm if

this process continues to drag out.

143. Finally, the balance of the hardships favors Akorn because the

harm of market uncertainty to Akorn’s stockholders, employees and customers,

along with losing the benefits of the Proposed Transaction, far outweigh any

hardship caused by Defendants being required to honor their contractual

commitments under the Merger Agreement.

COUNT I

For Breach of Contract

144. Plaintiff repeats and realleges the allegations of paragraphs 1

through 143 as if fully set forth herein.

145. The Merger Agreement is a valid and binding contract.

146. Section 1.02 is a material term of the Merger Agreement that

obligates the parties to close the Proposed Transaction “following the satisfaction

or waiver (to the extent such waiver is permitted by applicable Law) of the

conditions set forth in Article VI”.

147. Defendants anticipatorily breached this obligation under the

Merger Agreement knowingly and intentionally when Fresenius Kabi terminated

the Merger Agreement, and therefore repudiated their obligation to close the

Proposed Transaction, despite the fact that Fresenius Kabi is in the process of

54
finalizing antitrust approval and all other closing conditions have been satisfied or

will be waived.

148. Section 5.03 is a material term of the Merger Agreement that

obligates Defendants to use their “reasonable best efforts” to take all actions

“necessary, proper or advisable to cause the conditions to Closing to be satisfied as

promptly as reasonably practicable” and to consummate the Proposed Transaction

“in the most expeditious manner reasonably practicable”.

149. Defendants knowingly and intentionally breached this

obligation under the Merger Agreement by working to slow the antitrust approval

process, and by engaging in a series of actions, such as falsely accusing Akorn of

making material misrepresentations to the FDA and purporting to terminate the

Merger Agreement, designed to hamper and ultimately block the Proposed

Transaction.

150. The divestiture agreement with Alvogen is essential to

obtaining final FTC approval of the Proposed Transaction. The divestiture

agreement with Alvogen may be terminated by a subsidiary of Fresenius Kabi

upon termination of the Merger Agreement.

151. Akorn cannot consummate the Proposed Transaction unless

Fresenius Kabi complies with its obligations under the Merger Agreement because

Akorn cannot obtain final antitrust clearance without Defendants’ involvement and
55
cooperation. The Court should enjoin Fresenius Kabi from terminating the Merger

Agreement and from taking, causing or permitting any action to prevent or impede

final antitrust approval and consummation of the Proposed Transaction, including,

but not limited to, causing or permitting termination of the divestiture agreement

with Alvogen.

152. Section 8.16 is a material term of the Merger Agreement that

obligates Fresenius to “cause [Fresenius Kabi] to comply with its obligations under

th[e Merger] Agreement”.

153. Fresenius has knowingly and intentionally breached this

obligation by failing to prevent Fresenius Kabi from committing the breaches set

forth in paragraphs 134 to 135 above.

154. Defendants expressly agreed in Section 8.08 of the Merger

Agreement to the remedy of specific performance in the event of any breach of the

Merger Agreement.

155. Defendants’ numerous material breaches threaten to prevent

Akorn and its stockholders from receiving the benefit of the parties’ bargain, which

would result in irreparable harm to Akorn and its stockholders.

156. Akorn has performed its obligations under the Merger

Agreement, and is ready, willing and able to close the Proposed Transaction.

157. Akorn has no adequate remedy at law.

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 158. Consequently, Akorn is entitled to an Order requiring

Defendants to perform their obligations under the Merger Agreement.

COUNT II

Declaratory Judgment
159. Plaintiff repeats and realleges the allegations of paragraphs 1

through 158 as if fully set forth herein.

160. The Merger Agreement is a valid and binding contract.

161. Akorn has performed its obligations under the Merger

Agreement, and is ready, willing and able to close the Proposed Transaction

immediately upon receipt of antitrust approval.

162. On April 22, 2018, Fresenius Kabi purported to terminate the

Merger Agreement immediately under Section 7.01(c)(i) by alleging that purported

breaches of Akorn’s representations and warranties and covenants have caused the

closing conditions in Sections 6.02(a) and 6.02(b) not to be satisfied, and effective

April 24, 2018 under Section 7.01(b)(i) because those conditions and the closing

conditions in Section 6.02(c) would allegedly continue not to be satisfied on the

initial Outside Date of April 24, 2018.

163. Defendants are not permitted to terminate the Merger

Agreement because Akorn has not breached its representations and warranties and

covenants so as to cause the closing conditions to not be satisfied, and all

57
conditions to closing other than antitrust approval have been satisfied or will be

waived.

164. A real and adverse controversy exists between the parties which

is ripe for adjudication. Under Delaware’s declaratory judgment statute, 10 Del.

C. § 6501, Akorn is entitled to a judicial determination of Akorn’s rights under the

Merger Agreement, and Defendants’ obligations under the Merger Agreement.

165. Specifically, Akorn is entitled to a declaration that Fresenius

Kabi’s purported termination of the Merger Agreement is invalid and that

Defendants have knowingly and intentionally breached Sections 1.02, 5.03

and 8.16 of the Merger Agreement.

Prayer for Relief

WHEREFORE, Plaintiff demands judgment and relief against

Defendants as follows:

a. an Order enjoining Defendants from terminating the

Merger Agreement or taking, causing or permitting any action to

prevent or impede regulatory approval and consummation of the

Proposed Transaction, including by causing or permitting termination

or failure to comply with the divestiture agreement with Alvogen;

58
 b. an Order compelling Defendants to specifically perform

their obligations under Sections 5.03 and 1.02 of the Merger

Agreement to use reasonable best efforts to consummate and make

effective the Proposed Transaction as promptly as reasonably

practicable, to promptly take all actions necessary to secure antitrust

approval and to close the Proposed Transaction;

c. an Order compelling Fresenius to specifically perform its

obligations under Section 8.16 of the Merger Agreement to cause

Fresenius Kabi to comply with its obligations under the Merger

Agreement;

d. a declaratory judgment that Fresenius Kabi’s purported

termination of the Merger Agreement is invalid and that Defendants

have breached Sections 1.02, 5.03 and 8.16 of the Merger Agreement;

and

e. Granting Plaintiff such other and further relief as the

Court deems just and proper.

59
Dated: April 23, 2018

MORRIS NICHOLS ARSHT &

TUNNELL LLP

/s/ William M. Lafferty

Of Counsel:
Robert H. Baron William M. Lafferty (#2755)
Daniel Slifkin Thomas W. Briggs, Jr. (#4076)
Michael A. Paskin Richard Li (#6051)
CRAVATH, SWAINE 1201 North Market Street
& MOORE LLP Wilmington, Delaware, 19801
Worldwide Plaza (302) 659-9200
825 Eighth Avenue Attorneys for Plaintiff
New York, NY 10019
(212) 474-1000

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 CERTIFICATE OF SERVICE

I hereby certify that on April 27, 2018, the foregoing was caused to be

served upon the following counsel of record via File and ServeXpress:

Stephen P. Lamb, Esquire

Daniel A. Mason, Esquire
Brendan W. Sullivan, Esquire
Paul, Weiss, Rifkind, Wharton & Garrison LLP
500 Delaware Avenue, Suite 200
Post Office Box 32
Wilmington, Delaware 19899-0032

/s/ Richard Li
Richard Li (#6051)