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Caspian Select Credit Master Fund Ltd. v. Key Plastics Corp.

Court of Chancery of Delaware

February 24, 2014

Caspian Select Credit Master Fund Ltd.
Key Plastics Corporation

Date Submitted: December 18, 2013

Jon E. Abramczyk, Esquire Christopher P. Quinn, Esquire Morris, Nichols, Arsht & Tunnell LLP

Richard M. Beck, Jr., Esquire Sean M. Brennecke, Esquire Klehr Harrison Harvey Branzburg LLP

Dear Counsel:

This case involves two investors in a closely-held portfolio company and the plaintiff minority investor's efforts to obtain certain books and records pursuant to 8 Del. C. § 220. This post-trial letter opinion concludes that the plaintiff has demonstrated proper purposes and that the defendant portfolio company has not overcome that showing and demonstrated that those purposes are false. Thus, plaintiff is entitled to inspect those books and records that are tailored to meet its asserted purposes. Because plaintiff has indicated its willingness to work with the defendant to determine the proper scope of the records requested and to execute an appropriate confidentiality agreement, the Court need only decide the limited issue of proper purpose.


Plaintiff, Caspian Select Credit Master Fund Ltd., a Cayman Islands limited liability company (with its affiliates, "Caspian"), is the sole minority investor in Key Plastics Corporation, a Delaware corporation ("Key Plastics" or the "Company"). Caspian owns approximately 8.5% of the Company's outstanding shares. The remaining 91.5% of the Company is owned by two related funds, the Wayzata Opportunities Fund II, L.P. (the "Wayzata Opportunities Fund") and Wayzata Opportunities Fund Offshore II, L.P. (collectively the "Wayzata Funds" or the "Controlling Stockholders"), managed by Wayzata Investment Partners LLC ("Wayzata").

Key Plastics, along with its affiliate Key Plastics, L.L.C. ("KP LLC"), is a global supplier of automotive components based in Northville, Michigan. Before the Company's bankruptcy, Caspian, along with other investors and certain Wayzata funds, purchased senior secured notes offered by the Company.

Key Plastics, after becoming insolvent, filed a prepackaged bankruptcy plan under Chapter 11 on December 15, 2008.[1] The senior note holders obtained an option to receive a pro rata share of 65% of the fully diluted equity in the reorganized Company or cash equal to 16% of the face value of their notes. Under the bankruptcy plan, the senior notes of Caspian and Wayzata were converted into equity of the reorganized Key Plastics.[2]

The Company and its shareholders also executed the Stockholders Agreement[3] describing the rights and obligations of the Company and its shareholders after Key Plastics emerged from bankruptcy. The Stockholders Agreement requires the Company to provide its shareholders with annual audited financial statements and certain quarterly financial reports. The agreement also defines the board structure of the Company, which grants Wayzata at least three of the five seats as long as it holds 50% or more of the outstanding shares.[4]

Wayzata agreed to provide additional financing and the Company entered into a term loan facility on February 13, 2009 with Wayzata Opportunities Fund, one of the Controlling Stockholders (the "Wayzata Term Loan").[5] Wayzata serves as the administrative agent to the loan. The original terms of the loan provided for borrowings of up to $25 million with an annual interest rate equal to 11% plus the higher of LIBOR or 4%, which was due to expire in January 2011.

On December 2, 2010, the signatories to the Wayzata Term Loan amended the loan to extend its maturity date to January 31, 2012 and to increase the borrowing amount to $50 million. On January 19, 2012, they again amended the Wayzata Term Loan to extend its expiration to January 31, 2014. The January 2012 amendment increased the borrowing amount from $55 million to $75 million and increased the rate of interest to an annual rate of 16% plus the higher of LIBOR or 4%.[6] On April 4, 2012, Key Plastics and/or KP LLC entered into a Loan and Security Agreement with CapitalSource Bank which provided for borrowings up to $10 million with an interest rate calculated monthly based on one-month LIBOR plus 7% (the "CapitalSource Loan").[7]

Caspian periodically contacted Key Plastics to obtain financial reports until communications ceased in March 2012. Caspian apparently had written off its initial investment in Key Plastics, but it tasked a recently hired analyst, Joshua Lynn, with recovering some value from the investment. Lynn reached out to the Company's chief financial officer ("CFO") for a period of time to gather what information he could. Based on these informal communications and information provided pursuant to the Stockholders Agreement, Caspian set a value for its equity stake and proposed a price at which it could be bought out. The Company countered with a price for the minority position that was low enough to end negotiations.

On April 26, 2013, Caspian served a demand letter upon Key Plastics identifying 18 categories of books and records it wished to inspect.[8] The letter explained Caspian's ...

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