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In re Oxbow Carbon LLC Unitholder Litigation

Court of Chancery of Delaware

February 12, 2018

IN RE OXBOW CARBON LLC UNITHOLDER LITIGATION

          Date Submitted: November 20, 2017

          Kenneth J. Nachbar, Thomas W. Briggs, Jr., Richard Li, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; R. Robert Popeo, Michael S. Gardener, Breton Leone-Quick, MINTZ, LEVIN, COHN, FERRIS, GLOVSKY & POPEO, P.C., Boston, Massachusetts; Attorneys for Oxbow Carbon LLC.

          Stephen C. Norman, Jaclyn C. Levy, Daniyal M. Iqbal, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; David B. Hennes, C. Thomas Brown, Daniel V. McCaughey, Adam M. Harris, Elizabeth D. Johnston, ROPES & GRAY LLP, New York, New York; Attorneys for Oxbow Carbon & Minerals Holdings, Inc., Ingraham Investments LLC, Oxbow Carbon Investment Company LLC, and William I. Koch.

          Kevin G. Abrams, Michael A. Barlow, April M. Ferraro, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Michael B. Carlinsky, Chad Johnson, Jennifer Barrett, David Elsberg, Silpa Maruri, QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York, New York; Attorneys for Crestview-Oxbow Acquisition, LLC, Crestview-Oxbow (ERISA) Acquisition, LLC, Crestview Partners, L.P., Crestview Partners GP, L.P., Crestview Advisors, L.L.C., Robert J. Hurst, and Barry S. Volpert.

          Brock E. Czeschin, Matthew D. Perri, Sarah A. Galetta, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Attorneys for Crestview-Oxbow Acquisition, LLC, Crestview-Oxbow (ERISA) Acquisition, LLC, Crestview Partners, L.P., Crestview Partners GP, L.P., Crestview Advisors, L.L.C., Robert J. Hurst, and Barry S. Volpert.

          J. Clayton Athey, John G. Day, PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware; Dale C. Christensen, Jr., Michael B. Weitman, SEWARD & KISSEL LLP, New York, New York; Attorneys for Load Line Capital LLC.

          MEMORANDUM OPINION

          LASTER, V.C.

         This post-trial decision addresses whether Oxbow Carbon LLC ("Oxbow" or the "Company") must be sold. Two minority members, who together own approximately one-third of Oxbow's equity, contend that they have a contractual right under Oxbow's limited liability company agreement[1] to force the Company to engage in an "Exit Sale."[2] The LLC Agreement defines an "Exit Sale" as "a Transfer of all, but not less than all, of the then-outstanding Equity Securities of the Company and/or all of the assets of the Company."[3]The principal contractual dispute concerns language in the Exit Sale Right which states that the exercising party "may not require any other Member to engage in such Exit Sale unless the resulting proceeds to such Member (when combined with all prior distributions to such Member) equal at least 1.5 times such Member's aggregate Capital Contributions through such date."[4]

         One reading of the 1.5x Clause is that if an Exit Sale does not satisfy its terms for a particular member, then that member can choose to participate in the Exit Sale, but cannot be forced to sell. If the member does not choose to participate, then the member gets left behind when the other members sell. This interpretation relies on the fact that the 1.5x Clause speaks in terms of whether the exercising party can "require any other Member to engage in such Exit Sale."[5]

         Another reading of the 1.5x Clause interprets the provision in light of the All Securities Requirement. Under this reading, if the Exit Sale does not satisfy the 1.5x Clause for any member, and that member chooses not to participate, then the Exit Sale cannot go forward because it no longer would involve "all, but not less than all, of the then-outstanding Equity Securities of the Company." Under this reading, failing to satisfy the 1.5x Clause for a particular member enables the member to block the Exit Sale.[6]

         A response to the Blocking Theory posits that if an Exit Sale does not satisfy the 1.5x Clause for certain members, then the Exit Sale should be able to go forward if those members are topped off with additional funds sufficient to satisfy the 1.5x Clause.[7] The Top Off Theory comes in two variants. One is the "Waterfall Top Off, " in which the transaction proceeds are used first to satisfy the 1.5x Clause, then the remaining proceeds are distributed pro rata among all holders. The other is the "Seller Top Off, " in which the minority members who exercised the Exit Sale Right can provide additional consideration to any members who need it to satisfy the 1.5x Clause.

         A response to the Top Off Theory points out that under the LLC Agreement, an Exit Sale must treat members equally by offering "the same terms and conditions" to each member and allocating the proceeds "by assuming that the aggregate purchase price was distributed" pro rata to all unitholders.[8] Using the Top Off Theory violates the Equal Treatment Requirements by providing different consideration to different members and distributing proceeds contrary to a pro rata allocation. Incorporating the Equal Treatment Requirements into the analysis means that all members must receive the same per unit consideration in an Exit Sale. If the members need different amounts to satisfy the 1.5x Clause, then the Equal Treatment Requirements mean that all members must receive the highest amount necessary to satisfy the 1.5x Clause for any member.[9]

         The Exit Sale Right specifies that the consideration generated by the Exit Sale must exceed "Fair Market Value."[10] The LLC Agreement defines this concept as a valuation determined "on a going concern basis, without any discount for lack of liquidity . . . or minority interest." The LLC Agreement establishes a contractual valuation process in which investment bankers determine Fair Market Value. In this case, the contractual valuation process generated a Fair Market Value for Oxbow of $2.65 billion, which equated to $169 per unit.[11]

         The minority members in this case exercised the Exit Sale Right and secured a buyer who made an offer that satisfied the FMV Clause. But if the consideration contemplated by the offer was distributed pro rata, then the Exit Sale would not satisfy the 1.5x Clause for two members who own 1.4% of the Company's equity.[12] The Small Holders invested in the Company in 2011 and 2012 at a price of $300 per unit. Taking into account distributions they have received to date, the Exit Sale would have to provide them with $414 per unit to satisfy the 1.5x Clause. The other members already have received sufficient distributions from Oxbow to satisfy the 1.5x Clause. The Company's majority member controls both of the Small Holders.

         The majority member filed this lawsuit, invoking the Highest Amount Theory and claiming that the minority members could not enforce the Exit Sale Right because the proposed transaction did not generate proceeds of $414 per unit. The minority members responded with the Leave Behind Theory, contending that they could force everyone else to engage in the Exit Sale.

         The parties filed cross-motions for summary judgment. I held that the plain language of the LLC Agreement foreclosed the Leave Behind Interpretation and supported the Highest Amount Interpretation. I recognized, however, that this reading produced a harsh result by effectively blocking an Exit Sale, and I observed that the implied covenant of good faith and fair dealing might have a role to play.

         After the summary judgment ruling, the minority members amended their pleadings to contend that the implied covenant warranted reading a Top Off Option into the LLC Agreement. They appeared to prefer a Waterfall Top Off, which is economically superior for them, but they seemed satisfied with a Seller Top Off. The minority members also contended for the first time that the Small Holders had never been admitted as members. The parties litigated the case through trial.

         The record at trial demonstrated that the minority members knew about the admission of the Small Holders in 2011 and 2012, but failed to challenge their admission until 2016. Laches bars the minority members' attempt to claim belatedly that the Small Holders are not members.

         The record at trial demonstrated that during the negotiations over the LLC Agreement, the majority member revised the 1.5x Clause to implement a Blocking Option. When read together with the Equal Treatment Requirements, the 1.5x Clause calls for reading the LLC Agreement to implement the Highest Amount Interpretation.

         The record at trial demonstrated that the original LLC Agreement intentionally left open the terms on which Oxbow would admit new members, thereby leaving a gap. The LLC Agreement empowers the board of directors (the "Board") to fill that gap by determining the terms and conditions on which the Company will admit new members. In 2011 and 2012, when the Company admitted the Small Holders, the Board did not fill the gap. Oxbow largely failed to follow proper formalities, and Oxbow did not obtain approvals that the LLC Agreement required. Consequently, a gap exists as to whether the 1.5x Clause covers the Small Holders.

         The record at trial demonstrated that if the parties had addressed the issue in 2011 or 2012, when the Small Holders became members, then the majority member would not have insisted on a Highest Amount Option, nor would the minority members have insisted on a Leave Behind Option. It is possible that they would have agreed on using a Waterfall Top Off to satisfy the 1.5x Clause for the Small Holders. The most likely result is that they would have agreed to a Seller Top Off.

         Issues of compelling fairness call for deploying the implied covenant to fill the gap created when the Company admitted the Small Holders. Without it, the fortuitous admission of the Small Holders guts the Exit Sale Right and enables the majority member to defeat a commitment he made in 2007 and otherwise would have to fulfill. Until March 2016, the majority member and his counsel believed that the minority members could use a Top Off to satisfy the 1.5x Clause for the Small Holders. Only at that point did the majority member and his counsel stumble across the combination of provisions that leads to the Highest Amount Interpretation. Although the Highest Amount Interpretation is the only reading that gives effect to the LLC Agreement as a whole, it produces an extreme and unforeseen result in this case because of the failure to address the Small Holders' rights when the Company admitted them as members in 2011 and 2012. It would be inequitable for the majority member to benefit now from Oxbow's failure to follow proper formalities then. Under the circumstances, the implied covenant of good faith and fair dealing calls for interpreting the Exit Sale Right to incorporate a Seller Top Off for the Small Holders.

         Separately, the minority members proved at trial that the majority member breached a requirement in the LLC Agreement to use reasonable efforts to support an Exit Sale. Rather than using reasonable efforts, the majority member set out, in his own words, to "obstruct, " "derail, " and "delay" an Exit Sale. He acted in accordance with these purposes, ultimately firing a key executive and filing this lawsuit to scare off the buyer that the minority members had found.

         The transaction that the minority members had secured met the requirements for an Exit Sale. Contrary to the majority member's allegations, the minority members are not guilty of unclean hands such that they should be deprived of their right to an Exit Sale.

         The parties' briefing focused predominantly on liability and only minimally on remedies. This decision adjudicates the issues that the parties briefed but does not take the next step of crafting a remedy. The parties shall provide supplemental briefing on an appropriate remedy in accordance with this decision.

         I. FACTUAL BACKGROUND

         Trial took place over six days. The record encompasses 4, 379 exhibits, live testimony from four fact witnesses, testimony by video deposition from ten fact witnesses, testimony by lodged deposition from thirty-nine fact witnesses, and reports from eight different experts.[13] The parties reached agreement on eighty-three stipulations of fact. They submitted strident pre- and post-trial briefs spanning 629 pages.

         On many issues, the evidence conflicts, or the parties seek divergent inferences. The witness testimony frequently complicates matters. The four trial witnesses were intelligent, sophisticated, and savvy. They were thoroughly prepared, and they knew the documentary record inside and out. Each was any effective advocate for his position, but it often seemed that the position was shaping the testimony, rather than the testimony reflecting an unvarnished recollection of events. The same was true, albeit to varying degrees, for many witnesses who testified by deposition.

         This problem is endemic to litigation. Human perception is fallible, and human memory provides an imperfect channel for transmitting a noisy signal. The exigencies of litigation create a high-pressure environment that affects recollection and presentation. Although true to some degree in every case, the scope of the problem varies. In this bet-the-company dispute involving a negotiation in 2007, the issuance of units in 2011 and 2012, and an exit process that began in 2013, the litigation environment had a profound effect. This decision attempts to harmonize the evidence to the extent possible. Generally speaking, contemporaneous documents have received the most weight.

         A. Oxbow

         Oxbow is a Delaware limited liability company with its principal place of business in Florida.[14] Oxbow was formed on January 18, 2005, and for a time was known as Oxbow Mining Holdings, LLC. The LLC Agreement governs its internal affairs.

         Oxbow's primary business is the sourcing, production, marketing, and distribution of refinery byproducts and solid carbon fuel, including fuel grade petroleum coke, calcined petcoke, sulfur, and coal. Today, Oxbow is the leading third-party provider of marketing and logistics services to the global petcoke market.[15]

         William I. Koch controls Oxbow. In 1983, after receiving an undergraduate degree, master's degree, and Doctorate in Chemical Engineering from the Massachusetts Institute of Technology, Koch founded what became the Oxbow group of companies.[16] He currently serves as Oxbow's CEO and Chairman of its Board.[17]

         Koch controls Oxbow through Oxbow Carbon & Minerals Holdings, Inc., which owns a majority of Oxbow's units.[18] The documents often refer to this entity as OCMH. Because it serves as a holding company, this decision calls it "Oxbow Holdings." Koch owns the majority of Oxbow Holdings and serves as its CEO and President.[19]

         B. The 2007 Investment

         The current dispute traces its roots to a transaction that occurred in May 2007. In 2006, Oxbow Holdings was considering two acquisitions.[20] To finance them, Oxbow Holdings explored a variety of alternatives.[21] Oxbow Holdings had sufficient resources to fund the acquisitions on its own, but business considerations made a private equity financing attractive.[22] Interest was high, with a number of private equity firms competing to make a minority investment.[23]

         Crestview Partners, L.P. was one of the private equity firms, [24] but it was a relatively new player. A group of ex-partners from Goldman, Sachs & Co. founded Crestview in 2004, and the fund made its first investment in 2005.[25] Crestview had no positions in energy companies and was hoping an investment in Oxbow could diversify its portfolio.[26]

         Robert J. Hurst and Barry S. Volpert were and remain principals of Crestview.[27]Hurst received his undergraduate degree from Clark University and an MBA from The Wharton School of the University of Pennsylvania.[28] Before co-founding Crestview, he worked at Goldman for thirty years, including as co-head of investment banking and as Vice Chairman.[29] Volpert received his undergraduate degree from Amherst College and a JD/MBA from Harvard University.[30] Before co-founding Crestview, he worked at Goldman for almost two decades, including as co-Chief Operating Officer of its private equity business.[31]

         Koch considered Crestview as a potential investor because of his social relationship with Hurst.[32] Koch also sent information about the potential investment to his friend John Coumantaros, a wealthy shipping magnate.[33]

         1. The ArcLight Term Sheet

         After discussions with various investors, Oxbow Holdings determined that a private equity firm named ArcLight Capital Partners LLC had provided the most attractive term sheet.[34] Negotiations moved forward on a transaction with ArcLight as the lead investor and potentially one other, secondary investor.[35] After exchanging multiple drafts, Oxbow Holdings and ArcLight agreed on a non-binding term sheet.[36]

         The term sheet addressed many points, but for purposes of this litigation, the sections addressing exit rights loom largest. In general terms, the parties agreed on scenarios in which each side could seek liquidity unilaterally. For Oxbow Holdings, that right ripened after two years and gave Oxbow Holdings the ability to sell its units and drag along the minority members. The term sheet framed the Drag-Along Right as follows:

Following the earlier of the second anniversary of the Closing Date or upon the death of William I. Koch, in the event [Oxbow Holdings] proposes to sell all of its Membership Interests in a transaction or series of related transactions, [Oxbow Holdings] shall have the right to require all other Members (including Arclight and Other Strategic/Financial Investor) to sell their Membership Interests alongside [Oxbow Holdings] (provided, ArcLight or Other Strategic/Financial Investor, as the case may be, shall only be required to participate if the proceeds to such party from such sale (when combined with prior distributions to such party) equal or exceed 2.5 times the amount of its Equity Investment.[37]

         By stating that "ArcLight or Other Strategic/Financial Investor, as the case may be, shall only be required to participate" in a deal satisfying its return hurdle, the term sheet incorporated a Leave Behind Option into the Drag-Along Right for the named investors.

         ArcLight gained the right to offer its units to Oxbow after seven years. The term sheet contemplated a "soft put, " meaning that Oxbow was not required to buy the units.[38]If Oxbow failed to purchase them, however, then ArcLight could effectuate a whole-company sale. The term sheet framed the Put as follows:

At the earlier of (i) the 7th anniversary of the Closing Date and (ii) the resignation, retirement, death or other failure of William I. Koch to spend substantially all of his for-profit professional time on the Company or Gunnison Energy, ArcLight and Other Strategic/Financial Investor shall each have the right to offer the Company the ability to purchase its Membership Interests at fair market value. The Company shall have up to 180 days to consummate such purchase.[39]

         The term sheet backed up the Put with the Exit Sale Right: "If the Company declines to purchase the offered Membership Interests at fair market value, ArcLight shall have a drag-along right to enable the sale of 100% of the Company at a price greater than the fair market value [of the Company]."[40] This version of the Exit Sale Right did not contain any limitations based on return hurdles, and it contemplated a sale involving all members.

         2. Oxbow Holdings' First Draft Of The LLC Agreement

         On March 30, 2007, Oxbow Holdings sent ArcLight an initial draft of the transaction documents, including a draft LLC Agreement. Article XIII, Section 9(a) of the draft LLC Agreement framed the Drag-Along Right as follows:

Subject to the terms and conditions of this Section 9, following the earlier of (i) the second anniversary of the Closing Date or (ii) the death of William I. Koch, [Oxbow Holdings] may require all of the members to participate in a Transfer of all, but not less than all, of the then-outstanding Equity Securities of the Company and/or all of the assets of the Company to any Person(s) in a bona fide arms'-length transaction or series of related transactions (including by way of a purchase agreement, tender offer, merger or other business combination transaction or otherwise) (an "Exit Sale"); provided, that such Exit Sale must result in proceeds to ArcLight (when combined with all prior distributions to ArcLight) equal to at least 2.5 times its aggregate Capital Contributions as of such date.[41]

         This provision defined the term "Exit Sale" as requiring a sale of "all, but not less than all, of the then-outstanding Equity Securities of the Company and/or all of the assets of the Company." This was the source of the All Securities Clause. The Drag-Along Right picked up ArcLight's return hurdle of 2.5 times invested capital, but reframed it as a requirement for an Exit Sale, rather than as an option for ArcLight to remain behind. The Leave Behind Option had flipped into a Blocking Option.

         Just as the initial version of Article XIII, Section 9(a) contained the progenitor of the All Securities Clause, Article XIII, Section 9(b) included a predecessor to one of the Equal Treatment Requirements. It stated, "Allocation of the aggregate purchase price payable in an Exit Sale will be determined by assuming that the aggregate purchase price was distributed to [Oxbow Holdings] and the remaining Members in accordance with Article XI, Section 1 hereof."[42] This mechanism persisted into the final LLC Agreement and calls for a pro rata distribution of the proceeds from an Exit Sale to all members.

         Article XIII, Section 8 of the initial draft addressed the Put. Section 8(e) gave ArcLight an Exit Sale Right if the Company did not buy its units. It stated:

If the Company rejects the Put Notice in writing or fails to respond to the Put Notice within 180 calendar days of its receipt, ArcLight may require all of the Members to engage in an Exit Sale, on the terms set forth in Section 9(b) below, in which the aggregate consideration to be received by such Members at the closing of such Exit Sale equal or exceed Fair Market Value.[43]

         This initial version thus deployed the concept of an Exit Sale, required that "all of the Members" engage in the Exit Sale, and only included the FMV Clause. It did not include the 1.5x Clause.

         3. Koch Expands The Capital Raise.

         Meanwhile, Koch decided to expand the size of the capital raise so that Crestview, Coumantaros, and members of Koch's family could participate alongside ArcLight.[44]Oxbow Holdings introduced ArcLight to Crestview, and they had discussions between themselves about how to proceed.[45]

         As its financial advisor, Oxbow Holdings was using Jim Freney, the managing partner of Callisto Partners LLC, a boutique investment bank.[46] On April 23, 2007, Freney met with Crestview and Arclight. He described their proposal on exit rights as follows:

Both ArcLight and Crestview would have the ability to exercise their respective put rights as currently contemplated, but Crestview would not have the right to drag along ArcLight unless the proceeds from the sale (when combined with prior distributions) equal or exceed 1.5 times the amount of its initial investment.[47]

         The private equity firms thus proposed that if Crestview initiated an Exit Sale, but ArcLight would not receive 1.5 times its invested capital, then ArcLight could decline to participate and remain behind. This was the first appearance of what became the 1.5x Clause. In speaking with Oxbow's attorneys, Freney described the overall response from the private equity firms as "quite favorable" but noted that "Bill [Koch] has not opined on the matter."[48]

         At the summary judgment stage, I was dubious that a minority member would want to be left behind in an Exit Sale, because the minority member would be agreeing to remain in an entity with an unknown future controller who might use its powers aggressively. The record at trial, however, showed that ArcLight was bargaining for strong governance rights, including a range of minority veto rights, and those rights would remain in place after an Exit Sale. Those rights would enable ArcLight to protect itself against a new controller, mitigating the risk of being left behind.

         At the summary judgment stage, I was equally dubious that the other members would want anyone to be left behind. It seemed to me that leaving investors behind would depress the price that the other investors would receive for their interests, because a buyer would have to deal with the remaining minority. Looking forward and reasoning back, the other members would realize that they could receive more for their units if they could force a sale of 100% of the Company and not leave anyone behind. The record at trial indicated that Koch in fact viewed the matter this way. As the majority member, he either wanted an Exit Sale involving 100% of the members, giving Oxbow Holdings and its affiliates their best chance of the highest possible price, or no Exit Sale at all. Crestview had a different preference. It wanted a path to liquidity. In an ideal world, Crestview would have preferred to drag along all of the members, but having the ability to exit was more important.[49] Crestview's preference ultimately was for an Exit Sale to happen, even if it had to happen without ArcLight and hence potentially at a lower price.

         On April 24, 2007, Oxbow Holdings circulated a revised version of the LLC Agreement that addressed ArcLight and Crestview's proposals.[50] This version revised Article XIII, Section 8 to give both ArcLight and Crestview an Exit Sale Right if Oxbow did not satisfy the Put. The new language stated:

If (x) the Company rejects the Put Notice in writing or fails to respond to the Put Notice within 180 calendar days of its receipt and (y) the Company has no publicly traded equity, ArcLight or Crestview, as applicable, may require all of the Members to engage in an Exit Sale, on the terms set forth in Section 9(b) below, in which the aggregate consideration to be received by such Members at the closing of such Exit Sale equal or exceed Fair Market Value; provided, that Crestview may not require ArcLight to engage in such Exit Sale if the resulting proceeds to ArcLight (when combined with all prior distributions to ArcLight) do not equal at least 1.5 times ArcLight's aggregate Capital Contributions through such date.[51]

         Consistent with what ArcLight and Crestview had told Freney, this language contemplated a Leave Behind Option for ArcLight if Crestview exercised the Exit Sale Right. Oxbow Holdings did not make any changes to other provisions in the LLC Agreement that the concept of a partial Exit Sale would affect, such as changes to the All Securities Clause or the Equal Treatment Requirements.

         Days earlier, on April 22, 2007, Koch had decided to become personally involved in negotiating the deal documents.[52] On April 25, he revised the Exit Sale Right as follows:

If (x) the Company rejects the Put Notice in writing or fails to respond to the Put Notice within 180 calendar days of its receipt and (y) the Company has no publicly traded equity, ArcLight or Crestview, as applicable, may require all of the Members to engage in an Exit Sale, on the terms set forth in Section 9(b) below, in which the aggregate consideration to be received by such Members at the closing of such Exit Sale equal or exceed Fair Market Value; provided, that neither ArcLight nor Crestview may not require the Members ArcLight to engage in such Exit Sale unless if the resulting proceeds to each Member Arclight (when combined with all prior distributions to such Member ArcLight) do not equal at least 1.5 times such Member's ArcLight's aggregate Capital Contributions through such date.[53]

         Koch weighed in again that evening by giving the following instructions to Dave Clark, a senior lawyer in the Oxbow legal department: "You should insert the words 'any other' and delete the word 'the' before the word 'Members' in Section 8(e) page 38 line 6 of Section 8(e). It should read 'neither ArcLight nor Crestview may require any member to engage in such Exit Sale unless . . . ."[54]

         After Koch's revisions, the Exit Sale Right read as follows:

If (x) the Company rejects the Put Notice in writing or fails to respond to the Put Notice within 180 calendar days of its receipt and (y) the Company has no publicly traded equity, ArcLight or Crestview, as applicable, may require all of the members to engage in an Exit Sale, on the terms set forth in Section 9(b) below, in which the aggregate consideration to be received by such Members at the closing of such Exit Sale equal or exceed Fair Market Value; provided, that neither ArcLight nor Crestview may require any other Member to engage in such Exit Sale unless the resulting proceeds to each Member (when combined with all prior distributions to such Member) equal at least 1.5 times such Member's aggregate Capital Contributions through such date.[55]

         To my eye, Koch's revisions eliminated the Leave Behind Option and created a Blocking Option.

         At trial, Koch testified that he revised the Exit Sale Right to implement a Blocking Option.[56] Koch explained that his family members were becoming minority members and that he wanted them to have the same minimum return protection as ArcLight and Crestview, but he did not want them at risk of being left behind as minority members in a successor company under new ownership. Unlike ArcLight and Crestview, who were bargaining for strong governance rights, Koch's family members were investing based on his control over Oxbow, and they would not have enjoyed continuing minority protections if a new controller took over. Koch cited his own past experience in litigation with two of his brothers in which he and another brother spent nearly two decades trying to vindicate their rights as minority investors. Based on that experience, Koch never wanted any of his family members to have their personal wealth tied up in a company controlled by others.[57] Koch's testimony was logical and credible. He either wanted the Exit Sale to involve everyone or not to occur at all.

         4. ArcLight Drops Out, and Crestview Moves Forward.

         Koch met in person with ArcLight on April 26, 2007.[58] After the meeting, ArcLight dropped out because Koch refused to accept some of ArcLight's governance demands.[59]Crestview was willing to compromise, so they went forward. On April 27, Crestview circulated comments on the draft LLC Agreement.[60]

         Crestview proposed many changes, but did little with the provisions at issue in this case. Crestview proposed stylistic revisions to the Drag-Along Right but made no substantive changes, other than to replace "ArcLight" with "Crestview." In a note written in the margin of its markup, Crestview stressed that "Exit Sale must be on same terms for all members."[61] Crestview wanted to ensure that Koch could not receive superior terms for his control block; they wanted everyone to receive the same terms in an Exit Sale.

         For the Exit Sale Right, Crestview proposed eliminating the FMV Clause, but did not make any substantive changes to Koch's rewrite of the 1.5x Clause:

If (x) the Company rejects the Put Notice in writing or fails to respond to the Put Notice within 180 calendar days of its receipt and (y) the Company is not has no Ppublicly Ttraded equity, ArcLight or Crestview, as applicable, may require all of the members to engage in an Exit Sale, on the terms set forth in Section 9(b) below, in which the aggregate consideration to be received by such Members at the closing of such Exit Sale equal or exceed Fair Market Value; provided, that neither ArcLight nor Crestview may require any other Member to engage in such Exit Sale unless the resulting proceeds to each Member (when combined with all prior distributions to such Member) equal at least 1.5 times such Member's aggregate Capital Contributions through such date.[62]

         Crestview's stylistic edits did not scan, since Crestview had eliminated the "neither . . . nor" without adding a "not."

         Crestview proposed adding a new section (f) after Article XIII, Section (e). It stated:

If ArcLight or Crestview elects to require all of the Members to engage in an Exit Sale pursuant to Section 8(e) above, at the request of ArcLight or Crestview, as the case may be, the Company shall engage a nationally recognized investment banking firm designated by ArcLight or Crestview to initiate a process for the orderly sale of the Company. The Company agrees to pay all fees and expenses of such investment bank, as well as one law firm retained by ArcLight or Crestview, in connection with such Exit Sale. In such event, each party hereto agrees to use its reasonable best efforts to take or cause to be taken to do or cause to be done all things necessary or desirable to effect such Exit Sale. Without limiting the generality of the foregoing, each Member shall vote for, consent to and raise no objections against any Exit Sale pursuant to this Section 8(f) and shall enter into customary definitive agreements in connection therewith.[63]

         The references to "all of the Members" and "each Member" evidence Crestview's belief, after Koch's revisions, that if an Exit Sale took place, then all members would participate.

         The bulk of the revisions focused on the governance rights that Crestview would receive.[64] On April 30, 2007, Coumantaros finally weighed in with comments. One of his representatives asked that the Put Right include his entity. On the Drag-Along Right, he asked why the other minority members would not receive the same return floor of 2.5 times invested capital before Oxbow Holdings could exercise the right.[65]

         5. The April 30 and May 1 Drafts

         The last two days of the negotiations were hectic. At 1:58 a.m. on April 30, 2007, Oxbow Holdings circulated a revised version of the LLC Agreement.[66] This version fixed the problem created when Crestview struck "neither . . . nor" from the Exit Sale Right. The new language stated that Crestview "may not require any other Member to engage in such Exit Sale unless the resulting proceeds to each Member (when combined with all prior distributions to such Member) equal at least 1.5 times such Member's aggregate Capital Contributions through such date."[67] The language continued to contemplate a Blocking Option, consistent with Koch's revisions.

         On the afternoon of April 30, 2007, Oxbow Holdings circulated another draft.[68] It moved the definition of "Exit Sale" from the Drag-Along Right to a stand-alone collection of definitions in Article I. The relocated definition stated:

"Exit Sale" means a Transfer of all, but not less than all, of the then-outstanding Equity Securities of the Company and/or of the assets of the Company to any non-Affiliated Persons(s) in a bona fide arms'-length transaction or series of related transactions (including by way of a purchase agreement, tender offer, merger or other business combination transaction or otherwise).[69]

         In response to a comment from Crestview, [70] the April 30 draft specified that if Oxbow Holdings exercised its Drag-Along Right, it could "require all of the Members to participate in an Exit Sale on the [sic] substantially the same terms and conditions as" Oxbow Holdings.[71] Crestview wanted this language so that Oxbow Holdings would not be able to demand better terms for its controlling block. Koch liked the "same terms and conditions" concept.[72] In a later draft, the parties added comparable language about "the same terms and conditions" to Article XIII, Section 7(d), where it persisted as one of the Equal Treatment Requirements.[73]

          The April 30 draft did not make any changes to the language of Article XIII, Section 8(e), which set out the core Exit Sale Right. The draft tweaked the procedures for hiring an investment bank in Article XIII, Section 8(f). The revision stated:

If Crestview elects to require all of the Members to engage in an Exit Sale pursuant to Section 8(e) above, at the request of Crestview, the Company shall engage a nationally recognized investment banking firm mutually acceptable to Crestview and [Oxbow Holdings] to initiate a process for the orderly sale of the Company, as well as one law firm for the Company mutually acceptable to Crestview and [Oxbow Holdings]. The Company agrees to pay all customary and reasonable fees and expenses of such investment bank and law firm in connection with such Exit Sale. In such event, each party hereto agrees to use its reasonable efforts to take or cause to be taken or do or cause to be done all things necessary or desirable to effect such Exit Sale. Without limiting the generality of the foregoing, each Member shall vote for, consent to, and raise no objections against any Exit Sale pursuant to this Section 8(f) and shall enter into customary definitive agreements in connection therewith.[74]

         The next several exchanges of drafts did not make meaningful changes to the Drag-Along Right or the Exit Sale Right.

         On the morning of May 1, 2007, Oxbow Holdings circulated another draft reflecting numerous changes to the Exit Sale Right.[75] The bulk of the revisions addressed the right of an entity controlled by Coumantaros to exercise the Put and trigger an Exit Sale. The draft introduced the concept of "the Exercising Put Party" and revised Article XIII, Section 8 accordingly. The draft contained the following revisions to the Exit Sale Right:

If (x) the Company rejects the Put Notice in writing or fails to respond to the Put Notice within 180 calendar days of its receipt and (y) the Company is not Publicly Traded, Crestviewthe Exercising Put Party may require all of the Members to engage in an Exit Sale, on the terms set forth in Section 9(b) and 9(c) below, in which the aggregate consideration to be received by such Members at the closing of such Exit Sale equal or exceed Fair Market Value; provided, that Crestviewthe Exercising Put Party may not require any other Member to engage in such Exit Sale unless the resulting proceeds to eachsuch Member (when combined with all prior distributions to such Member) equal at least 1.5 times such Member's aggregate Capital Contributions through such date.[76]

         As part of these edits, the reference to proceeds to "each Member" changed to "such Member."

         Crestview has focused on these changes to argue that they made the 1.5x Clause more consistent with a Leave Behind Option. That is a fair observation, but after tracing the evolution of the language, the edits look to me like lawyers' cleanup. Someone noticed that the phrase "such Member" already appeared in the phrase "equal at least 1.5 times such Member's aggregate Capital Contributions" and was trying to use parallel language. If the parties really were trying to create a Leave Behind Option, they would have revised other sections of the LLC Agreement to address the All Securities Clause and the Equal Treatment Requirements. The lawyers already were making significant changes to the agreement to accommodate an entity controlled by Coumantaros. If they had wanted to create a Leave Behind Option, they would have done much more to integrate that concept into the LLC Agreement. None of the contemporaneous documents suggest a substantive change. I cannot infer that the parties intended one.

         Oxbow Holdings circulated another round of edits at 4:28 p.m. on May 1, 2007.[77]The edits cleaned up cross-references in the Exit Sale Right.[78]

         C. The Final LLC Agreement

         At 8:28 p.m. on May 1, 2007, Oxbow Holdings circulated fully executable versions of the transaction documents.[79] The parties signed and closed the deal on May 8.[80]

         The final LLC Agreement spanned sixty-four pages, not including exhibits and signature pages. The parties intended for the LLC Agreement to be the full expression of their agreement. To that end, the LLC Agreement contained an integration clause stating:

Entire Agreement. This Agreement constitutes the entire agreement of the Members and any Additional Members with respect to the subject matter hereof, and supersedes all prior and contemporaneous communications (whether or not oral or in writing) regarding such subject matter.[81]

         Consistent with this provision and industry practice, Crestview wanted the LLC Agreement to cover its rights comprehensively, including its exit rights, rather than leaving anything to implication.[82]

         Under the terms of the final documents, Crestview made a capital contribution to Oxbow of $190 million and received a total of 1, 899, 729 units, representing a 23.48% equity interest in Oxbow.[83] Crestview gained the right to appoint two members of the Oxbow Board and appointed Hurst and Volpert.[84]

         Coumantaros made a capital contribution to Oxbow of $75 million through Load Line Capital LLC ("Load Line"), a newly formed entity. Load Line received 750, 000 units, representing a 9.27% equity interest. Load Line gained the right to appoint one member of the Oxbow Board and appointed Coumantaros.[85]

         Oxbow Holdings made a capital contribution to Oxbow of $483, 038, 499.86 and received 4, 830, 385 units, representing a 59.69% equity interest.[86] Oxbow Holdings gained the right to appoint six members of the Oxbow Board.[87] Members of Koch's family or their affiliates made capital contributions totaling $61, 163, 382.38. The Wyatt I. Koch 2000 Trust received 224, 704 units, representing a 2.78% interest. The William I. Koch Family Trust dated December 26, 1976 for the benefit of Charlotte Koch received 55, 764 units, representing a 0.69% interest. Joan Granlund, Koch's ex-wife, received 331, 167 units, representing a 4.09% interest. Together, Koch and his family members owned 67% of the equity in Oxbow.[88]

         Article XI, Section 1 of the LLC Agreement required that Oxbow make a quarterly distribution to its members of all net cash flow "in accordance with their Percentage Interests."[89] Oxbow was the only investment in Crestview's initial fund in which Crestview secured a cash-flow distribution right.[90]

         Beginning on May 8, 2014, Crestview could exercise the Put in Article XIII, Section 8(a) and have the Company repurchase its units at Fair Market Value.[91] Section 8(b) specified that Fair Market Value "shall be determined on a going concern basis, without any discount for lack of liquidity (including the absence of a public market and the presence of transfer restrictions) or minority interest."[92] Section 8(b) also specified a procedure by which a combination of investment banks would determine Fair Market Value. The provisions contemplated that if Crestview chose to exercise the Put, then Load Line could tag along, and that if Crestview did not exercise the Put, then Load Line could do so. The LLC Agreement referred to Crestview and Load Line together as the "Minority Members."

         If the Company declined to buy the Minority Members' units, then the Exercising Put Party could exercise the Exit Sale Right. If Crestview was the Exercising Put Party but Load Line had tagged along, then Load Line could exercise the Exit Sale Right if Crestview declined. The final LLC Agreement described the Exit Sale Right in the following terms:

If (x) the Company rejects the Put Notice in writing or fails to respond to the Put Notice within 180 calendar days of its receipt and (y) the Company is not Publicly Traded, the Exercising Put Party may require all of the Members to engage in an Exit Sale, on the terms set forth in Section 7(c), Section 7(d) and Section 9(b), in which the aggregate consideration to be received by such Members at the closing of such Exit Sale equal or exceed Fair Market Value; provided, that the Exercising Put Party may not require any other Member to engage in such Exit Sale unless the resulting proceeds to such Member (when combined with all prior distributions to such member) equal at least 1.5 times such Member's aggregate Capital Contributions through such date.[93]

         The 1.5x Clause is the proviso to the Exit Sale Right.

         The final LLC Agreement defined "Exit Sale" as follows:

"Exit Sale" means as a Transfer of all, but not less than all, of the then-outstanding Equity Securities of the Company and/or all of the assets of the Company to any non-Affiliated Person(s) in a bona fide arms'-length transaction or series of related transactions (including by way of purchase agreement, tender offer, merger or other business combination transaction or otherwise).[94]

         Crestview's principals understood that the definition of "Exit Sale" was one of the "Key Definitions" in the LLC Agreement.[95]

         The Exit Sale Right stated that any Exit Sale had to take place "on the terms set forth in [Article XIII, ] Section 7(c), Section 7(d) and Section 9(b)." These sections established requirements for pro rata treatment that this decision refers to as the Equal Treatment Requirements. Article XIII, Section 7(c) stated:

In the case of both a Tag-Along Transfer and an Exit Sale, each Member shall be obligated to pay only its pro rata share (based on the aggregate consideration received by such Member in respect of the Units Transferred by such Member) of expenses incurred in connection with a consummated Tag-Along Transfer or Exit Sale to the extent such expenses are incurred for the benefit of all Members and are not otherwise paid by the Company or another Person.[96]

         Article XIII, Section 7(d) stated:

In the case of both a Tag-Along Transfer and an Exit Sale, (A) each Unit Transferred in such Tag-Along transfer and Exit Sale shall be Transferred on the same terms and conditions as each other Unit so Transferred and (B) each Member shall (i) make such representations, warranties and covenants and enter into such definitive agreements as are reasonably required in the proposed Transfer and as are customary for transactions of the nature of the proposed Transfer, provided that if the Members are required to provide any representations or indemnities in connection with such Transfer, liability for misrepresentation or indemnity shall (as to such Members) be expressly stated to be several but not joint (provided, that any collective escrow, holdback or adjustment may be treated as a joint obligation) and each Member shall not be liable for more than its pro rata share (based on the aggregate consideration received by such Member in respect of the Units Transferred by such Member) of any liability for misrepresentation or indemnity and (ii) be required to bear their proportionate share of any escrows, holdbacks or adjustments in purchase price.[97]

         Article XIII, Section 9(b) stated:

No Member shall be obligated in connection with any such Exit Sale (i) to agree to indemnify or hold harmless the Person to whom the Units are being sold with respect to any indemnification or other obligation in an amount in excess of the net proceeds paid to the such [sic] Member in connection with such Exit Sale or (ii) to enter into any non-competition, non-solicitation or other similar arrangement; provided, further, that such indemnification or other obligations shall be pro rata as among the Members other than with respect to representations made individually by a Member (e.g., representations as to title or authority of such Member or the lack of any encumbrance on any of the Units to be sold by such Member). Allocation of the aggregate purchase price payable in an Exit Sale will be determined by assuming that the aggregate purchase price was distributed to [Oxbow Holdings] and the remaining Members in accordance with Article XI, Section 1 hereof.[98]

         The last sentence of Article XIII, Section 9(b) called for distributing proceeds from an Exit Sale "in accordance with Article XI, Section 1 hereof." This reference incorporated a daisy chain of provisions that would result in a pro rata distribution. Article XI, Section 1 stated:

Subject to such conditions as may be imposed under any Financing Arrangements and to the prior payment of distributions pursuant to Article XI, Section 2, all Net Cash Flow shall be distributed on a quarterly basis to the Members in accordance with their Percentage Interests within 45 calendar days after the end of each Fiscal Quarter. . . .[99]

         This language referenced Article XI, Section 2, which stated:

Prior to making any distributions in respect of any quarter pursuant to Article XI, Section 2, the Company will make quarterly distributions to each Member, to the extent of Net Cash Flow, in an amount equal to such Member's Maximum Permitted Tax Amount; provided, that if the amount of Net Cash Flow is not sufficient to make the foregoing payments in full, the amount that is available will be distributed in the same proportion as if the full amount were available . . . .[100]

         These provisions call for distributing proceeds from an Exit Sale to all members in proportion to their Percentage Interests, which is a term that uses all of the units as the denominator. The provisions thus contemplated that the Company would distribute the proceeds from an Exit Sale to all unitholders in proportion to the number of units held.

         In a memorandum to Crestview's investment committee, Hurst and Volpert described the Exit Sale Right as permitting Crestview to exit if the proceeds satisfied the 1.5x Clause for all members.

If the Company declines to exercise [the Put] option, [Crestview] can elect to require a 100% exit sale, provided that the proceeds from such a sale equal at least 1.5 times any investor's aggregate capital contributions to date.[101]

         GSO Capital Partners LP, which co-invested $30 million in one of the Crestview entities, described the exit rights to its investment committee in similar terms.[102]

         The final LLC Agreement did not expressly provide for a top off right.[103] During the negotiations, Crestview never asked for a top off right and did not offer a top off right for Koch's Drag-Along Right.[104] The parties did negotiate over what categories of returns would be included when determining whether the 1.5x Clause had been met, starting with only sale proceeds, then progressing to sale proceeds plus distributions other than tax distributions, and finally settling on sale proceeds plus all prior distributions, including tax distributions.[105]

         D. The Admission Of Family LLC and Executive LLC

         In fall 2010, Oxbow was finalizing an all-cash acquisition of a large sulfur-trading business known as International Commodities Export Corporation. The sulfur company was owned by its executives, and Oxbow wanted to offer the executives an opportunity to purchase equity in Oxbow.[106]

         On November 1, 2010, Koch emailed the Board about the acquisition and noted that he would be sending out "a dilution analysis resulting from offering [the sulfur-company executives] and certain Oxbow employees Oxbow [] stock via an investment trust at various amounts and prices. This is part of the deal."[107] Koch subsequently sent an email stating, "I suggest offering $30 million at $300/share to minimize our dilution from an investment trust, so that we have only one additional stockholder."[108] The email attached graphs showing the level of dilution at various prices ranging from $100 per unit to $300 per unit.

         Koch's email included a summary prepared by Oxbow's then-COO, Steven Fried. It described an investment structure in which

a newly formed entity ("Newco") will be formed, and that Newco would purchase units of Oxbow at fair market value. The amount available and the price is entirely TBD, but as a placeholder, I would analyze the case of Newco owning 100, 000 units at $300/unit = $30 million.
Invited participants ([sulfur-company] and Oxbow employees) would in turn hold equity interests ("Units") in Newco and would therefore indirectly own an interest in Oxbow through their investment in Newco.[109]

         Fried listed eighteen bullet points describing details of the structure, including:

• "Newco would be a Delaware limited liability company."
• "Newco would be a single purpose vehicle, with no assets other than the Units and some cash."
• "Newco would become a member of Oxbow, owning the same class of units as currently exists."
• "An affiliate of Oxbow would be an investor in Newco and serve as the Manager of Newco. The Manger would not be subject to removal. This will enable Oxbow to maintain control and management of Newco."
• "The information rights of Newco with respect to the operation of Oxbow would be limited (and specifically members of Newco would not be entitled to receive Oxbow's financial statements, annual budgets, etc.)."[110]

         Fried envisioned that "[t]he existing members of Oxbow would be required to consent to an amendment to implement the rights of Newco as described above."[111]

         Later that evening, Fried emailed the Board a memorandum about the proposed acquisition.[112] It explained that Oxbow intended "to implement an investment vehicle structure through which some former [sulfur-company] management (as well as some existing Oxbow management) may invest in [Oxbow] equity at fair market value."[113]

         Around the same time, Koch proposed to have members of his family invest alongside the sulfur-company executives. On November 3, 2010, Volpert emailed Quentin Chu, one of his colleagues at Crestview, stating:

Bill [Koch] called today. Among other things, he asked if it is okay with us for his ex-wife to invest "a few million" in Oxbow at $300/share alongside [the sulfur-company executives]. I told him I thought this would be fine. It occurred to me that we should see if either [of our co-investors] want to sell, and frankly whether we should sell a few shares, rather than accept the dilution.[114]

         Volpert's email forwarded the Newco analysis prepared by Fried and the slides showing the level of dilution at various issuance prices.[115] Crestview ultimately signed off on the investment by Koch's family members as an accommodation to Koch.[116] Hurst testified that Crestview probably understood that Koch would control the vehicle and "just didn't make a big deal out of it."[117]

         In January 2011, Oxbow acquired the sulfur company for $150 million.[118] During a meeting of the Board on April 28, 2011, the directors voted unanimously to issue units worth $20 million to members of Koch's family and units worth $10 million to the sulfur-company executives, all priced at $300 per unit.[119]

         Despite the Board's authorization, Oxbow did not immediately implement the transactions. There were details to hammer out with the sulfur-company executives.[120] In addition, Oxbow had not set up an equity investment program for its own executives, so the proposal to include a limited number of Oxbow executives complicated matters.[121]

         Internally, Oxbow noticed a preemptive rights provision in the LLC Agreement. In an email dated April 29, 2011, Oxbow's then-CFO, Zach Shipley, explained the issue to Koch and Richard Callahan, who was Oxbow's corporate secretary at the time:

In the context of [Oxbow] selling new equity to members of Bill's family, it has been drawn to my attention that the Operating Agreement of [Oxbow] gives all members certain rights of participation in any equity [issuance] by the Company. . . . I don't think this will have a practical effect on the ultimate outcome of the equity sales to Bill's family, but it does present a procedural requirement. Basically, we have to offer equity to all members at $300 per unit. . . . I expect that, at $300/unit, no one but the intended buyers will buy additional equity, but if they do, maybe that is a good thing.
[T]his does raise a question about whether we need to get a slightly different approval from the Board.[122]

         No one appears to have considered whether the issuance was a related-party transaction that would trigger a requirement for Board approval by a "Supermajority Vote, "[123] defined as approval from a majority of the Board that included the Load Line director and at least one Crestview director.[124] Oxbow did not get any further approvals from the Board for the issuance to Koch's family members.

         During a meeting on November 9, 2011, the Board revisited its approval of the issuance of units to the sulfur-company executives. This time, the Board reached consensus to issue units worth $15 million, rather than $10 million, but still at a price of $300 per unit.[125] The Board approval did not address the question of preemptive rights.

         Koch formed Ingraham Investments LLC to hold the units issued to his family members, rather than having his family members own the units directly.[126] Because the entity is an investment vehicle for members of Koch's family, this decision calls it "Family LLC." Koch has controlled Family LLC from its inception.[127]

         Oxbow formed Oxbow Carbon Investment Company LLC to hold the units issued to the former executives of the sulfur-trading company. The documents frequently refer to it as "OCIC." Because the entity is an investment vehicle for executives, this decision calls it "Executive LLC." Koch is the sole manager of the managing member of Executive LLC.[128]

         On December 23, 2011, Family LLC wired $20 million to Oxbow, and Oxbow issued 66, 667 units to Family LLC.[129] The Board resolved to distribute the funds, and Family LLC received its proportionate share.[130]

         On March 12, 2012, Executive LLC wired $15 million to Oxbow, and Oxbow issued 50, 000 units to Executive LLC.[131] The Board gave Koch discretion over whether to distribute the funds from Executive LLC's investment. He elected to distribute the money.[132] Both Family LLC and Executive LLC received their proportionate share.[133]

         Together, Family LLC and Executive LLC own approximately 1.4% of Oxbow's units.[134] As mentioned previously, this decision refers to the entities together as the "Small Holders."

         The issuance of units to the Small Holders had potential implications for the Exit Sale Right. After four years of distributions from Oxbow, all of the existing members had received a sufficient return on their investment to satisfy the 1.5x Clause.[135] Issuing equity at $300 per unit created a new group of unitholders who had not yet received any distributions and had a return hurdle of $450 per unit.

         When Oxbow issued the units to the Small Holders, Crestview's principals were aware of the 1.5x Clause, [136] and the firm was evaluating its alternatives for exiting from Oxbow.[137] They had already discussed potential exit scenarios with Koch.[138]

         There is some reason to think that Crestview's principals were not overly concerned with the issuances to the Small Holders because of the valuation that they placed on Oxbow. Using multiples ranging from seven to ten times EBITDA, Crestview was forecasting exit values in a sale of Oxbow from $283.34 to $452.04 per unit.[139] Crestview generally believed that a multiple of ten times EBITDA was appropriate for Oxbow.[140]Crestview projected that Oxbow would generate EBITDA of $566 million in 2015, supporting a potential exit at close to $560 per unit.[141] Oxbow in fact achieved EBITDA of $571.6 million in 2011.[142] In an email, Crestview's principals discussed whether Koch should "explore whether Petrochina is interested in purchasing 10-20% of the company at $500/share . . ., maybe as a way for us to pave the way for an eventual exit."[143] Morgan Stanley & Co. LLC was contemporaneously advising Oxbow and Crestview that Oxbow could go public at around $400 per unit and that the stock would trade up to around $500 per unit.[144] Volpert later wrote that when Crestview approved the issuance of units to the Small Holders, "[w]e thought we were giving them all a great discount."[145]

         Internally at Oxbow, after Crestview began raising the possibility of an exit, Koch tasked Oxbow personnel with evaluating Crestview's exit rights and considering potential strategic alternatives.[146] As part of that process, Shipley prepared a summary of the Minority Members' exit rights.[147] It included the following analysis:

Regarding the 1½-times-capital-contributions proviso: At this point in time, most Members' distributions have been so great that there is no lower bound on net proceeds. A key exception is [Executive LLC], which recently contributed capital of $300 per unit for newly issued equity. By 2014, [Executive LLC] will undoubtedly have received some distributions, but, by the letter of the Agreement, [Executive LLC] may have the right not to participate in an Exit Sale if the price is low enough. Furthermore, the Agreement defines an Exit Sale to be a sale of all (but not less than all) of the equity or assets of the Company. [Executive LLC] may therefore be in a position to prevent an Exit Sale altogether, if the price is much less than $300 per unit.[148]

         Shipley appears to have thought that if an Exit Sale did not satisfy the 1.5x Clause for a particular member, then it could not go forward. This is an example of the Blocking Theory. He did not take the next step of analyzing the Equal Treatment Requirements to arrive at the Highest Amount Theory.

         As noted, Oxbow did not obtain a specific waiver of the existing members preemptive rights, nor did Oxbow consider whether the issuances to the Small Holders required a Supermajority Vote. In addition, the LLC Agreement required that, "[a]s a condition to being admitted as a Member of the Company, any Person must agree to be bound by the terms of this Agreement by executing and delivering a counterpart signature page to this Agreement, and make the representations and warranties set forth in Section 7 below as of the date of such Person's admission to the Company."[149] The Small Holders did not provide Oxbow with signed signature pages until 2016, after this litigation began.[150]

         Despite not satisfying these formal requirements, everyone treated the Small Holders as members. Starting in early 2012, Oxbow listed the Small Holder as members in the monthly management reports that Crestview and Load Line received.[151] Oxbow's audited financial statements for 2011, 2012, and 2013 reported the issuance of units to the Small Holders and identified those entities as affiliated with Koch.[152] In 2012 and 2013, Oxbow's auditor identified the Small Holders as members in its reports to the audit committee, which Hurst chaired. The first time that Crestview and Load Line raised any objection to the Small Holders' status as members was after this litigation began.[153]

         E. The Third Amendment To The LLC Agreement

         Under the terms of the LLC Agreement, Crestview could exercise the Put beginning on the seventh anniversary of the effective date of its investment, or May 8, 2014.[154] Koch and the executive team at Oxbow viewed the Put and the Exit Sale Right as serious threats. In March 2013, Brian Bilnoski of Oxbow wrote a private memorandum to Koch in which he warned that "[i]f Oxbow cannot afford to buyout [sic] the minority investors with debt, the majority shareholders will be at the mercy of either the minority shareholders in terms of exit timing (and price as determined by the market at that time) or timing of finding a new equity investor."[155] Bilnoski's memorandum reflected a belief that Oxbow's units were worth $217 per unit.[156] The fact that Bilnoski viewed the Exit Sale Right as a meaningful threat at that valuation indicates that he did not perceive the 1.5x Clause and the Equal Treatment Requirements as working together to generate the Highest Amount Theory.

         By May 2013, Koch perceived that Crestview was focusing on achieving liquidity for its investment and that its interests were diverging from his.[157] By November 2013, Koch had become concerned that Crestview was "more interested than the near term than in the long term" and would be pushing for an exit.[158]

         To give Koch more time to raise money and alleviate Koch's anxiety about the Put, Crestview offered to extend the exercise date.[159] The parties reached agreement on Amendment 3 to the LLC Agreement, dated February 13, 2014 (the "Third Amendment").[160]

         The Third Amendment extended the exercise date for the Put until January 1, 2015. It also permitted Crestview to exercise the Put for only some, but in no case less than 25%, of its units. Before the Third Amendment, Crestview had to put "all (but not less than all)" of its units.[161] The Third Amendment amended and restated the Exit Sale Right to limit its availability to situations in which Crestview owned 10% or more of the Company. The new provision stated:

If (x) the Company rejects the Put Notice in writing or fails to respond to the Put Notice within 180 calendar days of its receipt and (y) the Company is not Publicly Traded:
(A) if at such time Crestview owns ten percent (10%) or more of the outstanding Member Interests and Units of the Company, the Exercising Put Party may require all of the Members to engage in an Exit Sale, on the terms set forth in Section 7(c), Section 7(d) and Section 9(b), in which the aggregate consideration to be received by such Members at the closing of such Exit Sale equal or exceed Fair Market Value; provided, that the Exercising Put Party may not require any other Member to engage in such Exit Sale unless the resulting proceeds to such Member (when combined with all prior distributions to such Member) equal at least 1.5 times such Member's aggregate Capital Contributions through such date; and
(B) if at such time Crestview owns less than ten percent (10%) of the outstanding Member Interests and Units of the Company, then notwithstanding any other provision of this Agreement the Exercising Put Party (and if applicable, the Tag-Along Put Party) shall have the right (i) to Transfer all of its or their Member Interests and Units that were subject to the Put Notice to any non-Affiliated Person at any time on such terms and conditions as the Exercising Put Party (and if applicable, the Tag-Along Put Party) shall determine, or (ii) to require the Company to use commercially reasonable efforts to complete an Initial Public Offering on customary terms and conditions as promptly as practicable and to include in such Initial Public Offering all Member Interests and Units then held by the Exercising Put Party (and if applicable, the Tag-Along Put Party).
The obligation of the Company to provide cooperation and support as contemplated by Section 8(f) of this Article XIII in the event of an Exit Sale shall apply, mutatis mutandis, to any Transfer or Initial Public Offering pursuant to clause (B) above. For the avoidance of doubt, the provisions of Section 6 and 7 of this Article XIII shall not apply to any Transfer or Initial Public Offering pursuant to clause (B) above.[162]

         The Third Amendment continued to speak in terms of all members engaging in an Exit Sale "on the terms set forth in Section 7(c), Section 7(d) and Section 9(b), " which gave rise to the Equal Treatment Requirements. The Third Amendment did not make any changes to the definition of Exit Sale, which included the All Securities Clause.

         During the negotiations over the Third Amendment, Chu spoke with Oxbow's then- General Counsel, Michael McAuliffe, about the mechanics of the Put and the Exit Sale Right. In an email to Chu dated February 12, 2014, McAuliffe followed up on the conversation:

I have been thinking about the discussion yesterday regarding the "Put" and "Drag Along" provisions. I will forward some additional language that addresses the issues you raised. The challenge is to be as surgical as possible and avoid unintended consequences, but still effect the changes sought. The existing agreement is somewhat cumbersome because, as you noticed, the transfer provisions arguably are in tension with the Put/Drag along language . . . .
As a result, additional language may need to be added to the previously forwarded language amendments:
-Article I Definitions-Modification of definition of "Exit Sale" to reflect that an "Exit Sale" may include a less than whole company sale pursuant to Article XIII, Section 8. This, of course, is a result of the creation of a partial put right and the elimination of a drag along in the case of a less than 10% holding by Crestview. The other possible less than whole company "Exit Sale" in Article XIII, Section 8(e), is moot given that all members have received proceeds in excess of 1.5 times their capital contributions.

         Dave Clark will draft some language . . . .[163]McAuliffe copied Clark and Bill Parmelee, who had taken over as Oxbow's CFO.

         In his email, McAuliffe recognized the conflict between the All Securities Clause and a partial Exit Sale, but he stated that "a less than whole company sale" was possible. He viewed one possibility as "of course [the] result of the creation of a partial put right and the elimination of a drag along in the case of less than 10% holding by Crestview." But that statement mixed up different concepts. Crestview was always going to exercise the Put for a minority of the Company's units. If Crestview exercised the Put for all of its units, it would offer to sell 23.5% of the Company. The fact that Crestview might offer to sell less than all of its units did not change the relationship between the Put and the Exit Sale. The point of the Exit Sale was to put teeth into the Put so that the Company would buy rather than pass. Nor did the elimination of the Exit Sale Right if Crestview owned less than 10% of the Company's securities have anything to do with a partial Exit Sale. Under those circumstances, Crestview gave up its Exit Sale Right in favor of either selling its units freely to any non-Affiliated Party or having the right to force the Company to undertake an initial public offering. But McAuliffe told Crestview that these scenarios contemplated a less-than-whole-company Exit Sale.

         McAuliffe also indicated that he believed that the 1.5x Clause gave rise to "[t]he other possible less than whole company 'Exit Sale.'" McAuliffe did not explain why he thought this, and his comment did not take into account either the definition of an Exit Sale, which included the All Securities Clause, or the terms for an Exit Sale, which included the Equal Treatment Requirements. McAuliffe then described the possibility of a less-than-whole-company sale under this route as "moot given that all members have received proceeds in excess of 1.5 times their capital contributions." McAuliffe in fact was wrong about that, because the Small Holders had not received sufficient distributions to satisfy the 1.5x Clause. Regardless, he clearly indicated to Chu that if there had been members who had not received sufficient distributions, then a less-than-whole-company Exit Sale would have been possible. For that to happen, he must have been contemplating either the Leave Behind Interpretation or the availability of a Top Off Option.[164]

         At trial, Hurst testified that Crestview did not negotiate for any changes in the definition of an Exit Sale or the general requirements for an Exit Sale Right in reliance on McAuliffe's statements.[165] To rebut McAuliffe's contemporaneous email, Koch relies on a post-litigation affidavit from McAuliffe in which he averred that, after he sent the email, either Clark or Parmelee reminded him that the Small Holders had not yet received sufficient distributions to meet the 1.5x Clause. He then reached out the next evening to Chu and corrected his statement.[166] The Crestview witnesses dispute this account, [167] and one of Oxbow's attorneys testified that when he first met McAuliffe in August 2015, McAuliffe told him that all members had received enough distributions to satisfy the 1.5x Clause.[168] I think it is more likely that McAuliffe did not follow up with Chu and correct himself.

         F. Oxbow Considers Seeking Capital For A Buyout.

         During 2014, Koch tried to raise replacement capital to redeem Crestview's units, and the Oxbow team began interviewing investment banks to lead a process.[169] Also during 2014, Christine O'Donnell emerged as a key player within Oxbow.

         In 2011, Koch had hired O'Donnell as a consultant to his family office, Renegade Management, Inc.[170] She performed well and gained Koch's trust.[171] In February 2014, Koch made her a member of the Oxbow Board.[172] In August 2014, Koch made her the CEO of Renegade.[173] She also held the positions of President of Family LLC and Vice President of Oxbow Holdings.[174] In these capacities, she had broad responsibility for overseeing Koch's personal financial holdings, including Oxbow Holdings' majority interest in Oxbow.[175]

         O'Donnell appears to have believed that she could help Koch solve various issues at Oxbow and in his personal life. She thought that good relations with Crestview were critical, so she began cultivating Volpert and Hurst.[176]

         Koch continued to worry that Crestview was focusing on its short-term desire for liquidity to the detriment of Oxbow's long-term success.[177] In September 2014, Koch and O'Donnell had a dinner meeting with Hurst, Volpert, and Chu during which they discussed Crestview's desire to exit.[178] Afterwards, tensions between Koch and Crestview rose.[179] O'Donnell tried to maintain good relations with both sides.[180]

         Another face-to-face meeting took place in November 2014. During the meeting, Crestview reported that it would extend the life of the fund that had invested in Oxbow and therefore did not need to exit until 2017 or 2018.[181] Koch believed that détente had been achieved and halted Oxbow's efforts to hire an investment banker. After the meeting, Koch sent a detailed email to Volpert and Hurst in which he described the understandings he believed they had reached.[182] Among other points, Koch expressed a desire

to modify the LLC/Put agreement with the current 5 year partial put to be consistent with your stated possible delay to 2017 or 2018 so that we can operate efficiently our business to achieve profits and growth without the constant uncertainty of when to raise and/or save cash for your exit.[183]

         He further noted that "[i]t would also be helpful to both of us to correct much of the vagueness and contradictions that exist in the current LLC agreement."[184]

         Crestview, however, did not stand down from its efforts to achieve an exit. Crestview began actively analyzing the exit provisions of the LLC Agreement.[185]Crestview also worked with GSO Capital to generate an actionable term sheet for the purchase of half of Crestview's position.[186] O'Donnell worked with Crestview and GSO Capital, believing that a partial sale could help defuse the tensions between Koch and Crestview.[187]

         G. A Management Crisis Brings Together O'Donnell, Johnson, and Crestview.

         In December 2014 and early 2015, a management crisis developed at Oxbow. It was the second of the year. In April 2014, Fried had resigned from the COO position. Koch replaced Fried with Eric Johnson.[188] Now, Johnson was on the verge of resigning.[189]

         Koch wanted to keep Johnson, but he and Johnson had a poor relationship.[190] Koch asked Hurst, Volpert, and O'Donnell to convince Johnson to stay.[191] After an all-hands-on-deck effort, they succeeded.[192] As part of the deal, Koch agreed to increase Johnson's salary, give him equity in Oxbow, and promote him to President.[193] Johnson felt indebted to Crestview and told his wife he had a "[m]an crush on [the] Crestview guys."[194]

         Despite reaching agreement with Johnson, Koch resisted giving up day-to-day control.[195] On January 13, 2015, Koch announced Johnson's new role as President, while making clear that he remained in charge as Chairman and CEO.[196]

         Unfortunately, the relationship between Koch and Johnson did not improve.[197]O'Donnell had come to respect Johnson, and they became close friends.[198] She also respected Hurst and Volpert, and their working relationship grew closer as well.[199] Whether individually or collectively, O'Donnell, Johnson, Hurst, and Volpert all seem to have reached the conclusion that Koch was often his own worst enemy and that Oxbow would be best served if he stepped back, gave up control, and let Johnson lead the Company.[200] Koch was confronting problems unrelated to Oxbow that demanded his attention, and my impression is that O'Donnell, Johnson, Hurst, and Volpert believed that taking a step back would be best for Koch personally as well.[201]

         One path was for the Board to empower Johnson to run Oxbow.[202] Another was for Crestview to purchase enough units from Koch to acquire control.[203] A third was to "bring in a new investor to purchase enough of [Koch's] shares to give Crestview plus the new investor a majority interest."[204] Yet another was for Koch to agree to sell the Company.[205]

         None of these options were viable unless Koch agreed, [206] so O'Donnell, Johnson, Hurst, and Volpert set out to convince him. In addition to the potential benefits for the Company and Koch, the Put loomed as leverage. If exercised, it would bring on a storm, and that danger might motivate Koch to change course. Recognizing that Koch might view their efforts as an attack, O'Donnell, Johnson, Hurst, and Volpert kept their discussions secret.[207]

         During January and February 2015, Crestview and O'Donnell quietly explored possible investments by other private equity firms.[208] Crestview took steps to enhance its relationship with Johnson.[209] O'Donnell and Hurst suggested to Koch that he take a brief leave of absence to attend to personal matters.[210] Koch saw these suggestions as an effort to undermine his control, and his suspicions about Crestview grew.[211]

         H. Koch Tasks O'Donnell With Raising Capital.

         In March 2015, Johnson told Volpert that Oxbow could cut nearly $18 million in annual expenses, largely by eliminating programs that Koch personally valued.[212] Volpert concluded that Oxbow was spending too much to support Koch's lifestyle, and he raised these issues during a March Board meeting.[213]

         Koch felt attacked.[214] On March 22, 2015, he responded with a lengthy and condescending email to Volpert that he sent to the full Board.[215] In the midst of it, he announced that O'Donnell would "start to put together a program" to raise equity financing that would provide all investors in Oxbow with liquidity.[216] By that time, Koch had learned about O'Donnell's interactions with GSO Capital, [217] but he did not know the extent of O'Donnell and Crestview's approaches to other investors, nor the degree to which O'Donnell, Johnson, Hurst, and Volpert were working together. He also did not know that O'Donnell, Johnson, Hurst, and Volpert had concluded that it would best serve Oxbow if Koch were no longer in control.[218]

         On March 23, 2015, Koch sent another combative email to Volpert in which he proposed that they "work out a peace agreement" but threatened serious consequences if they did not:

If you want peace only on your terms HELL will come down on both of us which will be both a financial and reputational disaster for all of the Oxbow unit holders. I will point [out] that I have been there before and know many of the techniques and their consequences. I have shown over and over that I am willing to accept them. On the other hand I will point out that rationally it is far better for us to cooperate than to fight. . . .
I know that you have said in a macho matter that you have not thrown your first punch. Neither have I. However I have been in many more fights than you with far more nasty, powerful, and clever opponents than you, such as Koch Industries (for 20 years), the Turkey mafia, the Turkish Government, the IRS, the MAS RS, a vindictive ex-wife who threw me in jail, the NY Times, wine counterfeiters, etc., etc., etc. It makes more sense for us to come to a peace treaty than to dissipate the value we have in Oxbow by fighting.
I am intelligent enough to know from Bob [Hurst's] numerous conversations with me, his continued repeated unsolicited advice to me, his secret and devious maneuvers with Oxbow employees, and you[r] waterboarding combined with your actions and behavior at the recent unofficial board meetings that Crestview has a hidden agenda, which is consistent with PE firm's exist [sic] tactics. These tactics have been and are harmful to Oxbow in spite of some good intentional and unintentional consequences of Crestview's waterboarding. Crestview's motives are very clear. I have told Bob directly that it appears that Crestview wants me out "dea[d] or alive, but putting that that label on someone can be very dangerous to the bounty hunter."[219]

         The next day, Koch privately sent a mea culpa note to Volpert, which Volpert graciously acknowledged, but Koch had made his position clear.[220] Evidencing her role in the midst of it all, O'Donnell received and responded to requests from both Koch and Volpert for feedback on their emails.[221]

         Koch's decision to put O'Donnell in charge of the financing process enabled her to meet with investors openly, but Koch wanted O'Donnell to run the financing process without any involvement from Crestview.[222] He viewed Crestview as the other side in a negotiation, and he did not want them to participate in the financing efforts. Contrary to Koch's instructions, O'Donnell and Crestview continued to work together.[223] They coordinated their efforts using private email accounts, text messages, and telephone calls, many of which stressed the need to keep their interactions secret from Koch.[224]

         During the next three months, O'Donnell and Johnson targeted approximately ten investors.[225] They signaled that as part of a transaction, Koch was willing to transition the CEO role to Johnson and sell enough equity to give up control. Koch had not committed to do either.[226] There is conflicting evidence about whether and how strongly O'Donnell and Johnson conveyed these messages, and there is reason to think that the investors would have inquired about CEO succession and control in any event, but I am satisfied that O'Donnell and Johnson put these points on the table. Both believed that transitioning the CEO role and having Koch give up control best served Oxbow's interests and, although Koch might not perceive it, his interests as well. Those parameters also would enable the capital raise to generate more proceeds than the sale of a minority interest, which would make it easier to buy out Crestview and potentially generate some liquidity for Koch himself. Koch has pointed out that Johnson would benefit personally from taking the CEO role and that a major capital raise would be a professional feather in O'Donnell's cap. Both observations are true, but I believe that at this stage of the process, O'Donnell and Johnson saw a capital raise in which Koch gave up control and the CEO role as the outcome that served everyone best.[227]

         During March 2015, the first month after Koch instructed O'Donnell to raise capital, a medical issue sidelined Koch. After his recovery, O'Donnell tried to limit his involvement with potential investors.[228] Koch views her actions as perfidious, but considerable evidence indicates that Koch was not the best pitch man for Oxbow and that his presence at meetings dampened investor interest.[229] O'Donnell was trying to achieve an outcome that she believed was best for everyone, and accomplishing that meant protecting the process from Koch and Koch from himself.

         During the process, O'Donnell tried to convince Koch that the right decision for Oxbow, his family, and himself was to accept a transaction that would involve giving up control and transitioning the CEO role to Johnson.[230] As part of that effort, O'Donnell depicted candidly for Koch the effects of his spending habits. At one point, she asked Volpert to have Chu assist her in analyzing Koch's personal finances, [231] but after a positive meeting with Koch, decided she did not need Chu's help.[232] Koch sees the request for Chu's help as manipulative and duplicitous, [233] but I believe it was part of O'Donnell's effort to achieve the outcome that she believed was best for everyone.

         As a result of these efforts, Oxbow received term sheets from ArcLight, Energy Capital Partners, and Trilantic Capital Partners. The ArcLight term sheet contemplated Koch selling control and Johnson becoming CEO.[234] The Energy Capital term sheet contemplated Koch selling control, and O'Donnell told Koch that Energy Capital wanted Johnson to become CEO.[235] The Trilantic term sheet also contemplated Koch selling down below 50%.[236]

         I. Koch Hires Mintz Levin And Takes Over The Minority Financing Effort.

         Koch did not like any of the term sheets, largely because they endangered his control over Oxbow.[237] Koch asked Pierre Azzi, an in-house lawyer who held roles at both Oxbow and Oxbow Holdings, to analyze Crestview's exit rights. Azzi summarized the Exit Sale Right as follows:

Exit Sale means a transfer of all of the equity of Oxbow to a non-affiliated buyer in a bona fide arms' length transaction (e.g., sale, tender or merger).
○ The parties must "mutually agree" on the sale process and terms and conditions of any resulting Transaction. So Crestview cannot impose the type of sale.
○ Crestview can require Oxbow to engage an investment bank and law firm that is mutually acceptable to [Oxbow Holdings], Crestview and Load Line.
Note: [Oxbow Holdings] could delay the Exit Sale process by failing to agree on the sale process, terms, conditions, investment bank and/or law firm.[238]

         Although Azzi cited the All Securities Clause, he did not try to interpret the 1.5x Clause. Azzi also prepared a memorandum for Koch analyzing the scope of his authority and rights under the LLC Agreement.[239] Both memoranda seem geared towards protecting Koch's interests rather than considering the best interests of Oxbow.

         McAuliffe and O'Donnell recommended that Koch retain separate counsel to advise him personally.[240] In May 2015, after considering several firms, Koch accepted O'Donnell's recommendation and hired R. Robert Popeo and the law firm of Mintz, Levin, Cohen, Ferris, Glovsky & Popeo, P.C.[241] On Tuesday, May 19, 2015, Popeo and one of his litigation partners, Bret Leone-Quick, met with O'Donnell.[242] She briefed them on the situation, including Koch's personal finances, the capital raising effort, and Crestview's rights under the LLC Agreement.[243] They understood that their primary task was to evaluate the situation themselves, then meet with Koch to advise him on what was in his best interests, even if that advice conflicted with his wishes.[244] Consistent with Mintz Levin's role as Koch's personal counsel, the firm's engagement letter described the firm as representing Koch and his wife "in connection with your stock ownership of [Oxbow Holdings], [Oxbow] as well as estate planning matters."[245]

         Popeo asked Leone-Quick to examine Crestview's rights under the LLC Agreement.[246] Leone-Quick prepared a summary that made the following observations about the Exit Sale Right:

• Members cannot be forced to participate in the sale unless the proceeds of a sale (and all prior distributions to them) equal at least 1.5 times their aggregate capital contributions.
• Note: because an Exit Sale must, by definition, result in the sale of all outstanding securities of Oxbow, it appears that a single member could block such a sale unless proceeds from the sale (and all prior distributions) equals at least 1.5 of their aggregate capital contributions.[247]

         Leone-Quick thus interpreted the 1.5x Clause using the Blocking Theory. His memorandum did not address whether the members could receive a Top Off to satisfy the 1.5x Clause. He also did not parse the Equal Treatment Requirements to develop the Highest Amount Theory.

         Popeo and Leone-Quick asked Rich Kelly, a partner in Mintz Levin's corporate group, and Greg Fine, a partner in the private equity group, to help them analyze the term sheets that Oxbow had received.[248] They concluded that that the investments would be disastrous for Koch's control over Oxbow.[249] Koch made clear to Popeo that he did not want to give up control and wanted to continue as CEO.[250]

         Over the next two weeks, O'Donnell and Crestview worked to promote a transaction with one of the three private equity firms in which Koch gave up control and Johnson became CEO.[251] After conferring with Mintz Levin, Koch reached the conclusion that O'Donnell, Johnson, and Crestview were trying to use the capital raise to stage a coup. Koch felt that O'Donnell had betrayed him, [252] but he and Mintz Levin decided "to keep [her] on the reservation for now."[253]

         To stop the perceived coup, Koch asserted control over the capital-raising process.[254] In June 2015, Koch advised the Oxbow Board that Crestview had "informed the Company of its desire to sell its shares and, absent a negotiated sale, it would exercise its put.'"[255] He asserted that "the interests of Crestview . . . are not consistent with the Company's interests."[256] Hurst and Volpert were not pleased by Koch's actions, [257] and they sent a letter of their own to the Board disputing Koch's assertions.[258]

         At Popeo's suggestion, Koch engaged Intrepid Financial Partners to help him evaluate the term sheets, negotiate with investors, and continue the search for replacement capital.[259] Koch let O'Donnell and Johnson know that they were no longer involved unless he said otherwise.[260] Despite these instructions, O'Donnell and Johnson continued interacting secretly with Crestview.[261] After a long delay, Koch sent a term sheet to ArcLight that was consistent with his goal of retaining control.[262]

         Crestview did not believe that Intrepid was up to the task of raising minority capital.[263] They argued for bringing in Morgan Stanley to run a "transparent, cooperative process."[264] When Morgan Stanley pitched for the business, they advised Koch, Popeo, O'Donnell, Hurst, and Volpert that if Crestview exercised the Put, it "will get out to the market and will impact a sale process as bidders will believe there is a potential fire sale."[265]To address Koch's concern that Crestview might exercise the Put at any moment, Koch, Crestview, and Load Line entered into the Fourth Amendment to the LLC Agreement. In that agreement, Crestview committed not to exercise the Put before September 3, 2015, and Oxbow reduced its time to respond to the Put to 135 days.[266]

         In July 2015, Koch, Freney, O'Donnell, and Popeo had a follow-up meeting with Morgan Stanley.[267] During the meeting, Morgan Stanley argued that Oxbow needed to raise money immediately. Popeo intervened and disagreed. He explained that the Put had two major weaknesses. One was that the Small Holders had invested at $300 per unit, so the Minority Members could not force them to sell unless they received over $400 per unit. He observed that because of the All Securities Clause, an Exit Sale could not proceed without the Small Holders. In other words, he described the Blocking Theory.

         The other weakness derived from corporate statutory and common law limitations on stock redemptions, which only permit a corporation to redeem shares if it has both (i) adequate surplus and (ii) sufficient legally available funds to avoid rendering itself insolvent. Popeo explained that because of these limitations, Oxbow could accept the Put, then redeem Crestview and Load Line's equity slowly over time, to the extent it had the financial capacity to do so. Popeo described this theory as the "Thoughtworks strategy."[268]After the meeting, Koch began telling people, including McAuliffe, that the Put was defective.[269]

         Volpert heard from O'Donnell about the Blocking Theory and the Thoughtworks strategy.[270] On August 18, 2015, Volpert met with Popeo. Anticipating that Popeo would raise the Blocking Theory, Volpert led with the Leave Behind Theory.[271] Popeo chose not to get into a legal debate and did not respond. After the meeting, Crestview began investigating the facts surrounding the Small Holders' investment and contacted litigation counsel at Quinn Emmanuel Urquhart & Sullivan LLP.[272] Crestview began analyzing a Top Off as another way to defeat the Blocking Theory.[273] Internally, Quinn Emmanuel attorneys debated whether the language of the Exit Sale Right permitted the Leave Behind Option, supported the Blocking Theory, or permitted a Top Off.[274]

         Meanwhile, Koch had continued negotiating with ArcLight and Trilantic, but it became increasingly clear that an agreement would not be reached.[275] Mintz Levin's assignment shifted towards efforts to "stop Crestview from exercising the Put . . . or having an Exit Sale."[276] Mintz Levin began search for additional ways to "delay the payment of the Put in order to have negotiating leverage"[277] and to create "serious deadlock in the put process."[278] Koch and Mintz Levin modified the firm's engagement letter so that Mintz Levin represented Oxbow.[279]

         Effective as of September 3, 2015, Oxbow and Crestview entered into the Fifth Amendment to the LLC Agreement, which extended the date for exercising the Put until September 17. In exchange, Oxbow reduced its time to respond to the Put to 121 days.[280]Effective as of September 21, Oxbow and Crestview entered into the Sixth Amendment to the LLC Agreement, which extended the date for exercising the Put until September 28. In exchange, Oxbow reduced its time to respond to 113 days.[281] In conjunction with these amendments, Oxbow and Crestview tried to reach a compromise. Those efforts failed.

         J. Crestview Exercises The Put Right.

         On September 28, 2015, Crestview exercised the Put and demanded that Oxbow purchase all of its units.[282] Load Line did the same.[283] Under the Sixth Amendment, Oxbow had until January 19, 2016 to acquire the Minority Members' units. Otherwise, Crestview could exercise the Exit Sale Right.[284]

         Attached to Crestview's exercise notice was a valuation prepared by Duff & Phelps, LLC, that appraised the Company's Fair Market Value at $256.56 per unit. Under Article XIII, Section 8(b) of the LLC Agreement, the next step was for Oxbow Holdings to retain an investment bank of its own and have that bank generate an opinion as to Fair Market Value. If the two valuations were within 10% of each other, then Fair Market Value for purposes of the Put Right would be the average of the two. If the two valuations differed by more than 10%, then the two banks would select a third bank, and Fair Market Value would be the median of the three valuations.[285] Oxbow Holdings retained Evercore Group L.L.C.

         Shortly before the exercise of the Put, Oxbow had interviewed Goldman, Morgan Stanley, and Perella Weinberg Partners L.P. as potential financial advisors to raise capital to satisfy the Put.[286] In October 2015, Oxbow retained Goldman. The evidence suggests that Crestview preferred Goldman over the other banks, which is not surprising given that Hurst and Volpert spent decades at Goldman before founding Crestview.[287] Goldman began the process of preparing an updated confidential information memorandum and reaching out to potential investors. My overall impression is that Goldman executed a professional and independent process under difficult circumstances.

         Mintz Levin continued their efforts to brainstorm defenses to the Put Right. They focused primarily on the Thoughtworks strategy[288] but also developed other potential arguments.[289] McAuliffe and Clark, the two senior members of Oxbow's legal department, disagreed with the Thoughtworks strategy. They consulted with outside counsel[290] and prepared memoranda calling into question the Thoughtworks strategy.[291]

         Koch hired Ropes & Gray LLP as his personal counsel.[292] They began brainstorming defenses to the Put Right.[293]

         Quinn Emmanuel analyzed the Put Right and Exit Sale Right for Crestview. In an internal memorandum, a Quinn Emmanuel attorney concluded that

[t]he plain language of the contract is arguably ambiguous. On the one hand, Section 8(e)(A) uses the words "other Member" suggesting that the Exercising Put Party can require some Members to engage in an Exit Sale depending on whether the 150% return requirement is satisfied. This language suggests that the failure of some Members to earn a 150% return prevents the Exercising Put Party from requiring such members to engage in an Exit Sale but does not prevent the Exit Sale as to other Members. However, on the other hand, Exit Sale is defined under the contract as a Transfer of all, but not less than all, of the then-outstanding Equity Securities of the Company and/or all of the assets of the Company. This language could be relied on to suggest that unless all Members receive a 150% return, the Exit Sale cannot occur. [294]

         The Quinn Emmanuel attorney argued for the Leave Behind Interpretation, explaining that the small percentage interest owned by the Small Holders counseled in favor of interpreting the 1.5x Clause limiting Crestview's ability to compel the Small Holders to sell, "but it should not be interpreted as giving these minority members the extraordinary right to block the entire sale and thereby affect the rights and obligations of all other members."[295] The attorney suggested a Top Off as a solution: "Perhaps one option would be to offer the [Small Holders] additional consideration in exchange for their agreement to participate in the Exit Sale."[296] The attorney did not analyze the Equal Treatment Requirements.

         In November 2015, Mintz Levin prepared a slide deck to present to Oxbow Holdings' appointees to the Oxbow Board. The deck analyzed the structure of the Put Right and presented various options that the Company had available.[297] It noted that Oxbow's preferred outcome was to raise sufficient financing to redeem all of Crestview and Load Line's units.[298] It then discussed three principal alternatives available to the Company.

         One option was to negotiate a reduced redemption amount. Mintz Levin thought Oxbow had the leverage to achieve a reduction because "the Put Right does not provide Crestview with as clear a path to full liquidity as it claims."[299] Another option was to reject or ignore the Put, permit Crestview to exercise its Exit Sale Right, then dispute the validity of an Exit Sale based on the Blocking Theory. A third option was the Thoughtworks strategy, in which the Company would accept the Put, then take the positon that it only had the capacity to redeem units periodically over time.

         The bulk of the presentation described the Thoughtworks strategy.[300] Significant portions of the presentation addressed the Blocking Theory. For example, the presentation described the following "potential legal argument" under the Exit Sale Provision:

• Under the Agreement, an Exit Sale cannot occur without all members selling their units.
• In other words, an Exit Sale requires that no member be left behind.
• Under the Exit Sale Provision . . ., any member can refuse to participate in an Exit Sale if the proceeds of the sale (along with prior distributions) do not "equal at least 1.5 times such Member's aggregate Capital Contributions . . . ."
• If any such member refuses to participate pursuant to this provision, then by definition, an Exit Sale cannot occur.[301]

         The presentation noted that "[i]t appears that at least one investor, [Family LLC], would have the ability to block any Exit Sale based on the current Duff & Phelps valuation."[302]Later, another slide revisited the Blocking Theory, asking "Can [Family LLC] hold up an Exit Sale?"[303] The presentation did not discuss the Equal Treatment Requirements, and it did not develop the Highest Amount Theory.

         Koch's notes from the November 2015 meeting indicate that Mintz Levin advised the Board members that a Top Off provided a viable path around a Blocking Option. Koch wrote that, "[n]ot all [Members were] at 1.5x" because Family LLC had "not received anything" and that "[s]ome[one] has to come up with cash for [Family LLC delta]."[304] This interpretation comports with how Mintz Levin's corporate lawyers interpreted the 1.5x Clause. Kelly had questioned from the outset whether the 1.5x Clause could "halt the train if Crestview and Load Line are willing to divert transaction proceeds to any small holder who would not otherwise receive the minimum."[305]

         Koch's advisors suggested other ways to defeat the Put, including by going public through an initial public offering or by merging with a public shell company.[306] Under the LLC Agreement, the Minority Members could not exercise the Put if Oxbow was publicly traded. Koch did not want to go public but was willing to consider it if it blocked the Put.[307]Evercore advised that there was not time to conduct an initial public offering.[308]

         Koch's advisors developed these theories because they believed that that if the 1.5x Clause was read to create a Blocking Option, then Crestview could satisfy the 1.5x Clause a Top Off. They did not believe that the Blocking Theory was a showstopper, so they needed other ways to defeat the Put.

         In late November 2015, Evercore determined that the Fair Market Value of Oxbow was $145 per unit, dramatically lower than Duff & Phelps' valuation of $256.56 per unit.[309]Because the valuations differed by more than 10%, the bankers had to pick a third banker. They selected Moelis.

         K. The Results of the Goldman-Led Process

         In December 2015, bids arrived from interested investors. None of the values exceeded $120 per unit for a minority stake, and several offers fell below $100 per unit.[310]ArcLight offered approximately $115 per unit.[311]

         There is evidence that Crestview sought to influence the financing process so that the efforts to raise capital would not succeed and an Exit Sale would become more likely.[312]Crestview perceived that if an Exit Sale took place, it might be able to roll over part of its interest or co-invest with the buyer. This would allow Crestview to continue to own what it regarded as a highly profitable business, but without the headaches of dealing with Koch. In backchannel discussions with Goldman, Volpert observed that "the minority sale is really hard and this likely results in a wholeco sale."[313] He later told Goldman that the assignment was "really [Crestview's] to allocate, " because the Put would likely lead to an Exit Sale that he felt Crestview would have the right to control.[314] One week before the deadline for bids, Volpert was "encouraging" Goldman to have bidders "hang around" because Crestview "would roll a good chunk of [its] stake into a control deal run by one of" the bidders.[315] During the process, Hurst and O'Donnell secretly met with Trilantic, [316]O'Donnell and Johnson had a private dinner meeting with ArcLight, [317] and O'Donnell and Johnson continued to communicate secretly with Crestview.[318]

         L. Oxbow Rejects The Put.

         On January 14, 2016, Moelis advised Oxbow Holdings and Crestview that in its opinion, the enterprise value of the Company was $2.65 billion, which equated to a value of $169 per unit.[319] As the median of the three investment banker valuations, this figure established Fair Market Value for purposes of the Put Right.

         On January 15, 2016, the directors appointed by Oxbow Holdings met for the first of two sessions to discuss whether to accept or reject the Put. They focused on the possible deployment of the Thoughtworks strategy. Popeo made a passing reference to the Blocking Theory.[320] I believe he did not emphasize it because Mintz Levin thought that even if the 1.5x Clause gave rise to a Blocking Option, Crestview could use a Top Off to bypass it.

         Contemporaneous communications support this view. On January 16, 2016, Kelly wrote to Popeo to recommend against the Thoughtworks strategy. He believed that Oxbow did not need to take that aggressive step because the Minority Members would not be able to find a buyer who would pay Fair Market Value. Kelly based his recommendation "on the assumption that the declining value of Oxbow versus FMV of $169/unit precludes an Exit Sale under Article XIII, Section 8(e), " but he warned that "[i]f that premise is wrong, [Koch] could end up an involuntary seller . . . [and he] will need to be OK if, however unlikely, he sells the Company at $169/unit through the Exit Sale."[321] Kelly thought that the Minority Members could force Koch to sell because, if a buyer existed, the Small Holders could be topped off.

         On January 17, 2016, Leone-Quick circulated a memorandum describing strategies for defeating an Exit Sale. One was to "[s]tipulate to higher Fair Market Value (Crestview's original mark of $190)" in order to "[d]ecrease[] the chances of a successful Exit Sale."[322]Leone-Quick's memorandum suggests that he shared Kelly's view about the viability of a Top Off. If Leone-Quick had believed at this point in the Highest Amount Theory, then an Exit Sale would have to generate enough proceeds to yield $414 per unit. Stipulating to Crestview's original mark of $190 would make no difference.[323]

         On January 18, 2016, Ropes & Gray drafted a memorandum outlining ways to defeat an Exit Sale, including taking the Company public through a merger with a special purpose acquisition company ("SPAC").[324] Popeo testified that he already had shared the Highest Amount Theory with Ropes & Gray, [325] but their memorandum did not mention it.

         On January 19, 2016, the directors appointed by Oxbow Holdings met for a second session on the Put. No one discussed the Blocking Theory, much less the Highest Amount Theory.[326] The directors decided unanimously to reject the Put.[327] Koch ended the meeting by demanding that Oxbow and its counsel work to "obstruct [and] derail" or "delay" the Exit Sale process.[328]

         Shortly after the meeting, Koch asked Ropes & Gray and Mintz Levin to "[d]evise a lawsuit" or "devise something on [the Exit Sale]" to avoid having to sell the Company.[329]Each firm analyzed various options, collectively identifying over a dozen different strategies. Neither firm discussed the Highest Amount Theory.[330]

         M. Crestview Exercises The Exit Sale Right.

         On January 20, 2016, Crestview exercised the Exit Sale Right.[331] At the time, McAuliffe and Parmelee both believed that the 1.5x Clause could be addressed with either a Top Off or by leaving the Small Holders behind. On January 21, Parmelee emailed McAuliffe to confirm that approximately $28 million was the amount necessary "to top up the two holders that wouldn't yet be at 1.5x."[332] McAuliffe replied: "Or they stay in new entity as shareholders. All members have obligation to support exit sale and vote for it, but their interests can't be sold to buyer absent the 1.5 x figure. At least, that is how I am reading it."[333]

         On January 28, 2016, Koch and David Rosow, a director appointed by Oxbow Holdings, met with Volpert and Hurst. Rosow told Crestview, in Koch's presence, that Crestview "had to reach a minimum of $169 [per unit]."[334] Koch did not disagree or raise the Highest Amount Theory.[335] Koch testified that during January and February 2016, he "participated in discussions about the topic of a top off payment" and that he did not "remember anyone telling [him] in January or February that a top-off payment was prohibited under the LLC Agreement."[336]

         On February 18, 2016, Parmelee asked Kelly whether the Small Holders could be "paid $414 per unit from the consideration paid, while other unit holders receive substantially less than that on a per unit basis."[337] Parmelee was anticipating a Top Off, and he wanted to know "the mechanics of dividing up the cash consideration in a way that [the Small Holders] get to 1.5x and the other members share what's left."[338] Kelly deferred, proposing to "discuss sometime soon."[339]

         Although Kelly did not answer Parmelee directly, the record reflects that Mintz Levin believed during this period that Crestview could satisfy the 1.5x Clause using a Top Off. Popeo wrote in his notes that "Crestview must net $169 after Investment Bank fee- pay out to [Family LLC] . . . . Calculate amount due [Family LLC] & others re: sale."[340]Popeo was expecting a Top Off.[341]

         Kelly and Eric Macaux, an associate in Mintz Levin's corporate department, thought that the Small Holders could be left behind or taken care of with a Top Off. Macaux explained his reasoning in an email dated February 25, 2016:

There are two possible readings of [Section 8(e)]: (1) that a Member can opt not to participate in [an] Exit Sale, which would go forward without him/her/it, or (2) that a Member could block the Exit Sale entirely. Section 8(e) does not say that the Exit Sale cannot proceed, only that the Exercising Put Party may not compel a Member to participate unless the 1.5x multiple is reached for that Member. That is, Section 8(e) acts as an exception to the definition of an Exit Sale.[342]

         Macaux elaborated on this analysis in a memorandum dated February 26, 2016, in which he concluded that "[a]ny Member not receiving at least 1.5x its aggregate Capital Contributions from the Exit Sale (when combined with all prior distributions) can remain in the Company but cannot block the Exit Sale."[343] He reasoned that,

Unlike the Fair Market Value requirement, the 1.5x threshold is not drafted as a condition to conducting the Exit Sale. Instead, it is included in Section 8(e) as a proviso, suggesting that the 1.5x threshold is a specific requirement intended to modify the general requirement that an Exit Sale be a sale of "all, but not less than all" of the equity securities.[344]

         Consequently, he believed that a member failing the 1.5x Clause would have a choice: the member could waive the requirement and participate or "opt out of the Exit Sale and remain a Member of the Company."[345] His memorandum acknowledged that this analysis did not work if the Exit Sale was accomplished as a sale of assets, which would not provide an equivalent ability to opt out. He suggested that, in that setting, the member might have an implied right to block distributions until the 1.5x Clause was met, effectively resulting in a Waterfall Top Off.[346] Macaux's memorandum did not analyze the Equal Treatment Requirements.

         Kelly held the same view. He noted in an email dated March 1, 2016, that Popeo and Macaux already knew his opinion, which was "that the proviso that says unit holders can't be forced into an Exit Sale does not . . . enable them or anyone else to block an otherwise agreed to Exit Sale from happening because they don't get their catch-up payments."[347] He believed that Crestview could pay the Small Holders additional amounts to satisfy the 1.5x Clause-a Seller Top Off.[348] Kelly recognized that the Exit Sale Right contained language that cut against this interpretation, such as the All Securities Clause and the language in Article XIII, Section 8(f) that spoke in terms of all unitholders selling in an Exit Sale, but he did not view language as strong enough to prevent an Exit Sale.[349]At this point, Kelly had not yet focused on the Equal Treatment Requirements.

         N. Oxbow Hires Goldman To Conduct A Full-Company Sale.

         The Exit Sale Right provided that at the request of the exercising party, "the Company shall engage a nationally recognized investment banking firm mutually acceptable to Crestview, Load Line and [Oxbow Holdings] to initiate a process for the orderly sale of the Company, as well as one law firm for the Company mutually acceptable to Crestview, Load Line and [Oxbow Holdings]."[350] Crestview wanted Oxbow to retain Goldman. Crestview did not have a strong preference for any particular law firm.

         Behind the scenes, Hurst, Volpert, Johnson, and O'Donnell conferred about how best to convince Koch to retain Goldman. On January 22, 2016, Johnson suggested points for Hurst to include in an email to Koch concerning the benefits of retaining Goldman, but cautioned, "[o]bviously you don't want to oversell those points as Goldman needs to feel like his choice."[351] After speaking with O'Donnell for forty-five minutes, Volpert offered Hurst some suggestions of his own.[352]

         By this point, Koch had sidelined O'Donnell and repeatedly criticized her. Six months earlier, she had wanted to achieve a solution that would be best for everyone, including Koch. Now, she despised Koch. On January 23, 2016, O'Donnell vented in an email to Johnson:

Let's take his company from him quickly, not a day of relief, put him through the hell he put us through, let's find $30 million of cost savings if he's not running it. Let's make it very personal, just like he did.
Let's remind him we know things about him as well. Let's take his plane, his job, and when it's over let's drink his wine before you take me dancing.[353]

         She texted Johnson that she "want[ed] [Koch] out with no office and no place to go."[354]

         To achieve that outcome, Johnson and O'Donnell suggested that Crestview adopt "the ambush approach."[355] Under this strategy, Crestview would act "as though they have zero interest to sell or change anything this year."[356] Crestview would be "very subtle" by "creating the illusion that Goldman Sachs is not favored by Crestview, doesn't want to go to market for a year and will be the only firm that can protect all the company's deep dark confidential data."[357] Then, as soon as Oxbow hired Goldman, Crestview would "turn on a dime and sell hard."[358] Johnson and O'Donnell believed that it would be easy to outsmart Koch by following this strategy.[359]

         On February 10, 2016, the Oxbow Board met. Koch reported on a recommendation from Goldman to have "a three- to six-month pause in the marketing effort" for an Exit Sale.[360] The minutes recite that Hurst, Volpert, and Coumantaros "agreed in principle with the recommended three- to six-month pause."[361] The minutes state that "it was the consensus of the Board to proceed with the negotiation of an engagement letter with Goldman Sachs."[362]

         The directors next discussed Crestview's right to have the Company retain legal counsel to handle the Exit Sale. Koch "indicated that he felt it was premature to engage a law firm, given the recommended pause."[363] Hurst, Volpert, and Coumantaros argued for accelerating the engagement of a law firm.[364]

         After the meeting, Mintz Levin engaged in discussions with Goldman over its engagement letter. Both Koch and Crestview wanted non-customary terms that Goldman resisted.[365] For present purposes, it is significant that the discussions over Goldman's fee reflected a belief that Crestview could satisfy the 1.5x Clause with a Top Off. On February 23, 2016, for example, Kelly sent an email discussing Goldman's potential engagement to conduct "an Exit Sale under Article XIII, Section 8(e) and (f), of the operating agreement, and not any general engagement to sell all or parts of Oxbow."[366] Kelly advised Koch, Clark, Parmelee, and Popeo that he had revised the engagement so that "Goldman's fee increases as a percentage of per Unit value received above a threshold of $190/Unit."[367] He chose this figure to

cover without broadcasting it at this time that the sale price will need to be above $169/Unit in order for holders of Units to net at least $169/Unit as is required for such an Exit Sale (not to mention the extra amounts needed to assure all holder[s] will get at least 1.5 times their respective investments).[368]

         Kelly envisioned a Top Off.

         A month later, the discussions with Goldman were still ongoing. On March 24, 2016, Goldman agreed to an engagement letter with a lower threshold that nevertheless accounted for a "true up with an enterprise value figure that reflects the unit holders' receiving the $169 per unit FMV as a minimum to be received by them at the end of the day."[369] The final terms of Goldman's engagement letter thus accommodated a Top Off.

         O. Crestview Solicits An Offer From ArcLight.

         To be prepared to "sell hard"[370] once Oxbow retained Goldman, Hurst, Volpert, Johnson, and O'Donnell began working to find a buyer. O'Donnell sent Crestview the list of investors that had signed confidentiality agreements with the Company.[371] A few days later, O'Donnell met secretly with Kevin Crosby, a managing director with ArcLight.[372]After the meeting, O'Donnell reported back to Volpert.[373]

         On February 1, 2016, Koch fired O'Donnell and removed her from the Oxbow Board.[374] Koch also fired McAuliffe.[375] He promoted Clark to General Counsel.

         O'Donnell continued helping Crestview. On February 21, 2016, she set up a meeting between Crosby and Volpert.[376] She also sent Crestview a copy of the confidentiality agreement between Oxbow and ArcLight so that Crestview could evaluate what it could tell ArcLight about Oxbow.[377]

         Internally, Crestview modeled a leveraged buyout of Oxbow that contemplated satisfying the FMV Clause by paying a total enterprise value of $2.355 billion, with Crestview rolling a significant portion of its equity into the new ownership structure.[378]Crestview developed its model by working backwards from the Fair Market Value figure of $169 per unit.[379] On February 24, 2016, Volpert sent the analysis to Crestview's co-investor in Oxbow, GSO Capital, and disclosed that the model incorporated the valuation from "the Moelis appraisal."[380]

         On February 26, 2016, Volpert met with Crosby.[381] On March 2, Crosby submitted a report to ArcLight's investment committee that proposed a transaction in which ArcLight would acquire approximately 80% of Oxbow's equity and offer existing investors the opportunity to roll over a portion of their proceeds. His memorandum noted that Crestview had exercised its Put Right and stated: "While the target valuation is unknown, we believe there may be an opportunity to pre-empt a broad sale process and acquire the Company at a [total economic value] of $2.4 billion."[382]

         Volpert had a follow-up call with Crosby on March 7, 2016.[383] Afterwards, a Crestview analyst provided Volpert with different per-unit prices for Oxbow based on an enterprise valuation of $2.4 billion.[384]

         On March 9, 2016, Hurst asked Koch for the current unit count.[385] Crestview and ArcLight needed the count to confirm whether an offer at an enterprise value of $2.4 billion would clear the FMV Clause. On March 15, the day after Koch provided the unit count, ArcLight sent a proposed letter of intent to Crestview.[386] Crestview reviewed it, and Volpert and Crosby had a call to discuss it.[387]

         On March 16, 2016, ArcLight sent Oxbow Holdings, Crestview, and Load Line a letter of intent to acquire 100% of Oxbow's equity "for $1, 448, 990, 000 or $176.59 per unit."[388] The per unit figure exceeded the Fair Market Value hurdle of $169 per unit, satisfying the FMV Clause. ArcLight's proposal achieved this result by excluding unvested units, resulting in a lower number of outstanding units than Moelis had used when calculating the per unit figure for Fair Market Value. Including debt, the letter of intent contemplated an enterprise value for Oxbow of $2, 399, 990, 000, or $10, 000 less than the $2.4 billion reflected in the ArcLight and Crestview documents.[389] The offer expired at 5:00 p.m. on March 22.[390]

         P. The Initial Response To ArcLight's Letter of Intent

         ArcLight's offer surprised Koch and his advisors, because they had not believed that anyone would make a proposal that satisfied the FMV Clause.[391] They immediately began analyzing the offer to determine whether it really had cleared the threshold.

         One question was whether ArcLight's proposal satisfied the FMV Clause after making the deductions that Koch and his advisors believed were required before determining a per unit value. Freney had joined Oxbow as an executive in the years since he brokered the original 2007 transaction with the Minority Members, and he analyzed the payment waterfall for Koch.[392] In an email dated March 17, 2016, Freney circulated an analysis that deducted $27.9 million as the "[a]mount required to achieve minimum 1.5x aggregate capital contribution for all unitholders."[393] Freney circulated a series of these analyses during March 2016, all of which deducted $27.9 million as the amount "required to achieve 1.5x" for the Small Holders.[394] Freney testified that he was trying to provide "an accurate assessment of [the ArcLight] offer" by treating the 1.5x Clause as calling for a Waterfall Top Off.[395] No one disagreed with this aspect of his analysis.

         Because ArcLight's offer contemplated an Exit Sale at the unitholder level, ArcLight had addressed its letter to Oxbow Holdings, Crestview, and Load Line. On March 18, 2016, Koch emailed Crestview and Load Line that, based on his reading of ArcLight's proposal, it was "below the required Fair Market Value . . . after all required deductions are made."[396] Koch said that he would be consulting with Oxbow, its counsel, and its financial advisor.[397]

         Popeo believed that Oxbow might be able to resist the Exit Sale if Goldman advised the Oxbow Board that it was possible to secure a better offer for the Company, at which point the directors could take the position that their fiduciary duties required them to seek out a better offer, notwithstanding the Exit Sale Right. In an email dated March 18, 2016, Popeo told Koch that if Goldman said the ArcLight bid was an "amazing offer, " then Oxbow was "dead in the water."[398] His statement was consistent with using a Top Off to take care of the Small Holders.

         Over the next several days, Koch and his advisors continued analyzing whether ArcLight's offer still satisfied the FMV Clause even after deducting "transaction specific adjustments, " including a Waterfall Top Off payment of $27.9 million.[399] Koch provided the analyses to Goldman.[400] Goldman understood that the $27.9 million deduction represented "the [C]ompany's interpretation" of the 1.5x Clause.[401]

         Goldman analyzed ArcLight's offer using a Waterfall Top Off to satisfy the 1.5x Clause for the Small Holders.[402] At trial, Popeo testified that he did not believe a Waterfall Top Off was possible and had explained the Highest Amount Theory to Carr on March 21, 2016.[403] The weight of the evidence indicates that Popeo misremembered the conversation. All of the contemporaneous documents reflect a Waterfall Top Off; none reflect the Highest Amount Theory. Carr testified that Popeo did not tell him about the Highest Amount Theory.[404] There is an internal Goldman email in which Stephanie Cohen, another senior banker on the deal, asked a junior colleague, "At what enterprise value is the 1.5x threshold met for everyone[?]"[405] The junior banker noted that the Small Holders needed to receive $450 per unit or approximately $414 per unit net of distributions, and he observed that a deal at that price would equate to approximately $4.5 billion in enterprise value, which he described as "nothing reasonable."[406] But he immediately explained the "minor cost associated with truing them up" with a Waterfall Top Off.[407] A longer version of the email chain shows that the Goldman team was discussing a Waterfall Top Off.[408] My sense is that Cohen asked for an enterprise value that included a Waterfall Top Off, and the junior banker either misunderstood or mentioned the $4.5 billion enterprise value in an effort to provide a complete response. Goldman invariably analyzed the ArcLight offer using a Waterfall Top Off.[409]

         Ironically, before receiving ArcLight's offer, Oxbow still had not signed off on Goldman's engagement letter. Koch finally executed it on March 24, 2016.[410] It was backdated to March 18.[411]

         On March 25, 2016, Koch emailed the Oxbow Holdings appointees about convening "an official board call" to discuss the ArcLight offer. [412] Summarizing the analysis to date, he stated:

The price they quote is not what the unit holders would get as they have left out the deductions of expenses that will reduce the face amount of their proposal. . . . The Agreement requires that all members receive at least $169/unit while other members are required to receive additional funds which will bring their returns to 1.5 times their original investments.[413]

         This email described a Waterfall Top Off. Koch sent this email after "reading and studying [the LLC Agreement] quite a bit" and after receiving Popeo's advice and comments on a draft version.[414] Koch believed that a Waterfall Top Off was viable.

         Q. The Highest Amount Theory

         The Highest Amount Theory did not make its appearance until March 24, 2016. Mintz Levin had been working on a letter that it would send on behalf of the Company to Oxbow Holdings, Crestview, and Load Line. Although nominally prepared on behalf of Oxbow and directed to the member-level participants in the Exit Sale process, in substance it raised objections to the ArcLight offer that served Koch's interests.

         On the evening of March 24, 2016, Macaux emailed Leone-Quick with comments on the letter:

I especially want to flag a point Greg [Fine] raised regarding the 1.5x, which I don't think we have discussed. Because Exit Sale proceeds must be paid pro rata (see Section 8(e), incorporating by reference Section 9(b)), ArcLight cannot simply increase their offer $27.5M to get a handful of Members their 1.5x. Everyone's per Unit price must be the same, so whatever price is required to deliver 1.5x is the price everyone must get.[415]

         This is the first reference in the record to the Highest Amount Theory. I have the impression that in analyzing the ArcLight offer, Fine and Macaux worked through the payout mechanics for the first time. Their analysis took them through the Equal Treatment Requirements, including the Distribution Provisions, prompting them to recognize the implications of these provisions for the Exit Sale Right.

         Leone-Quick emailed back, immediately recognizing that this was a new idea:

Thanks; that is an interesting and promising argument. I want to make sure I understand it fully. Are we saying that 9(b) requires allocation of the purchase price in accordance with Article XI, Section 1 and that section requires distributions to be made per percentage interest? So this precludes any one member from getting a true-up or higher percentage of the proceeds than their ownership percentage? That seems to hang together for me.[416]

         Macaux responded: "Correct. Section 9(b) expressly states that the aggregate purchase price must be allocated to the Members pursuant to the waterfall set forth in Art. XI, Section 1 (governing interim cash distributions), which is to say that it must be allocated 'to the Members in accordance with their Percentage Interests."[417]

         After this email exchange, Mintz Levin prepared a revised draft of the letter that raised the Highest Amount Theory, but which recognized that this contention represented a change of position for Oxbow. The relevant text stated:

And finally, an Exit Sale cannot occur unless certain Members waive their rights to receive . . . . 1.5 times their aggregate Capital Contributions from the proceeds of the Exit Sale . . . . The LLC Agreement defines an Exit Sale to be "a Transfer of all, but not less than all, of the then outstanding Equity Securities of the Company . . . ." If any Member does not, therefore, receive 1.5 times their aggregate Capital Contributions, they cannot be forced to participate in an Exit Sale, which by definition, can only occur with their participation.
[T]he Company initially believed that one possible solution to this issue would be to have extra proceeds from the Exit Sale be directed to such Members so that they did hit this 1.5x threshold. But, unfortunately, the LLC Agreement forecloses this possible solution. Article XIII, Section 8(c) subjects the Exit Sale to the terms set forth in, inter alia, Article XII, Section 9(b). This section provides, in part, that "[a]llocation of the aggregate purchase price payable in an Exit Sale will be determined by assuming that the aggregate purchase price was distributed to [Oxbow Holdings] and the remaining Members in accordance with Article XI, Section 1, hereof. That section, in turn, requires that distributions be made to Members "in accordance with the[i]r Percentage Interests . . . ." Accordingly, the proceeds from any Exit Sale are required to be distributed in accordance with each member's Percentage Interests, and so it is not possible under the LLC Agreement to provide more than this in order to get certain Members over the 1.5x threshold.[418]

         These paragraphs captured how Koch and his advisors developed their position. They initially relied on the All Securities Clause to develop the Blocking Theory, but they believed that the 1.5x Clause could be satisfied with a Top Off. Only after Macaux's email on March 24, 2016 did Mintz Levin perceive that the Equal Treatment Requirements mandated the Highest Amount Theory. Over time, as he worked through these additional provisions, even Kelly became more comfortable with the Highest Amount Theory.[419]

         On March 28, 2016, Koch sent a final version of the letter to Crestview and Load Line. The final letter deleted the reference to what "the Company initially believed, " substituting the phrase, "It has earlier been suggested . . . ."[420] This letter was the first occasion when anyone representing Oxbow or Koch told Crestview and Load Line that it was "not possible under the LLC Agreement to provide more proceeds from an Exit Sale to particular Members so that those Member[s] meet the 1.5x threshold."[421] Quinn Emmanuel wrote back, invoked the Leave Behind Theory, and argued that the Small Holders simply would not participate in the Exit Sale.[422]

         R. The Exit Sale Process.

         On April 6, 2016, the Oxbow Board met with all directors in attendance. Carr and Cohen attended for Goldman, and Popeo and Leone-Quick attended for Mintz Levin.[423]Goldman made a presentation during which Carr explained that ArcLight had based its proposal on a November 2015 confidential information memorandum. As a result, "many of the assumptions on which the proposal were based were out of date."[424] Goldman analyzed ArcLight's offer using a Waterfall Top Off.[425] The directors and Goldman debated various aspects of Goldman's analysis, including "the 1.5x 'make whole' return mechanism."[426] Carr explained that under Goldman's analysis, the per-unit value of ArcLight's offer did not meet the FMV Clause, but he also advised that Goldman could reengage with Arclight and "it might be possible to obtain a modified proposal which met or exceeded this threshold."[427] Hurst, Volpert, and Coumantaros argued that the Company should negotiate with ArcLight. Koch and other directors argued for a "broad, competitive sales process."[428] Carr recommended going back to ArcLight.[429]

         After further discussion, by a vote of six to three, the Board authorized Goldman "to immediately proceed with a broad sales process, including both financial and strategic investors."[430] The Board also instructed Goldman to "seek clarification of ArcLight's . . . letter of intent, and advise ArcLight that the Company believes that the indication of interest set forth in that letter was not pre-emptive."[431]

         The Board also resolved to hire legal counsel to advise the Company on the sale process, as contemplated by Article XIII, Section 8(f) of the LLC Agreement. The Board decided to hire Robert I. Townsend, III, of Cravath, Swain & Moore LLP.[432]

         Although the Board authorized Goldman to pursue a broad sales process, Koch tried to micromanage the effort. He insisted that "Oxbow's executives [] refer all requests from anyone, except customers and suppliers, who is requesting information and meetings, directly to [him]."[433] He told Johnson and Clark that if "Goldman Sacks [sic] . . . and/or any potential buyer and/or investor calls any one of you, refer them to me. Do not answer any of their questions, give them any information written or orally, any gossip about Oxbow, any personal opinions, plans, meetings/calls with Goldman and/or buyers/investors . . . ."[434]

         Koch even tried to micromanage Goldman. In one email, he told Carr, "As GS supposedly works for the Company (Oxbow) and since I am CEO of Oxbow, before GS calls ArcLight and/or gives them information I insist on having a conversation with you."[435]When Carr explained the extent of Goldman's communications with ArcLight, Koch berated him.[436] During an update with members of the Oxbow Board on April 18, 2016, Goldman described other limitations on their efforts.[437] Later, Koch accused Goldman of "puffing" Oxbow's numbers in its presentations to ArcLight.[438] The lead bankers from Goldman described the resulting process as the "most constrained" they had encountered in at least thirty years and perhaps ever.[439]

         During the sale process, Koch pressured Oxbow's executives to provide prospective investors, including ArcLight, with a negative outlook for Oxbow. In advance of a meeting with ArcLight in late May 2016, Koch instructed Parmelee, Oxbow's CFO, to tell certain executives to dampen their forecasts or risk their bonuses.[440] Koch had never previously given that type of direction.[441]

         During the same period, Koch and the Oxbow Holdings' appointees on the Board debated whether to grant units to members of the Board and cause all unvested unit rights to accelerate. Goldman advised that this was not customary, but it helped Koch because taking this step would increase Oxbow's outstanding unit count and make it more difficult to achieve an Exit Sale. Koch, Volpert, and their attorneys began a letter-writing campaign regarding these issues and about the restrictions that Koch was placing on Goldman.[442]

         Despite the constraints on the Company's process, ArcLight remained interested and, on May 27, 2016, submitted a revised offer.[443] The new offer raised the equity value for the Company from $1, 449 million to $1, 476 million, resulting in a net value of $176.59 per unit. This time, with Oxbow having embraced the Highest Value Theory, Freney did not include a Waterfall Top Off for the Small Holders in his analysis. His report simply stated that the ArcLight offer "fails to comply with key provisions of Oxbow's LLC Agreement, including 1.5x minimum return requirement."[444]

         The Board had scheduled its next meeting for June 3, 2016. On June 2, Clark cancelled the meeting. Volpert and Hurst argued in favor of going forward so anyone who could participate could receive an update from Goldman and advice from Cravath. A debate ensued over the propriety of the cancellation.[445] The meeting did not take place.

         The next meeting of the Oxbow Board was scheduled for June 10, 2016. During the lead-up to the meeting, Koch concluded that he could kill the ArcLight deal by firing Johnson and suing Crestview.[446]

         Just before the Board meeting, Koch terminated Johnson.[447] At the meeting, Koch announced his termination of Johnson and asked for a ratifying vote. Volpert, Hurst, and Coumantaros voted against the resolution. Koch and his appointees voted in favor.[448]

         During the meeting, Goldman analyzed the ArcLight offer. Goldman continued to include a "1.5x Return 'Make Whole' Adjustment" of $27.8 million, [449] but noted that it was a placeholder pending a final determination on how the 1.5x Clause operated.[450] Carr advised that "the valuation by ArcLight exceeded the fair market value for the Company's units established through the appraisal process."[451] Carr also advised that "under the present circumstances it seemed unlikely . . . that any other purchaser would make a better bid."[452] Goldman provided a timeline for reaching a definitive agreement with ArcLight within three months, while conducting a parallel market check that would extend for an additional month post-signing.[453]

         In the midst of the meeting, Koch instructed his attorneys to file a lawsuit against Crestview and Load Line. The attorneys filed the lawsuit at 2:22 p.m., while the meeting was still going on.[454]

         Cravath had been prepared to give its views on the Exit Sale process during the meeting, but it adjourned before Townsend could provide his thoughts. His talking points noted that "there is a fair amount of ambiguity in the [1.5x Clause]."[455] He planned to say that "[i]n [his] experience, provisions like this are designed to stop a particular member from being dragged along in an exit sale, not to preclude the entire exit sale."[456] For support, Townsend planned to cite "the references to 'such Member' in the 1.5 times provision, rather than 'any Member'" and "the reference to 'any other Member.'"[457] His talking points expressed "full[] support" for Goldman's recommendation that Oxbow seek to "finalize the terms and conditions of a definitive deal with ArcLight, " while simultaneously pursuing a market check.[458]

         On June 14, 2016, Crosby left a message for Koch. When Koch returned his call, Crosby told him that ArcLight would not be part of a "forced hand deal."[459] Crosby had heard about Koch's lawsuit against Crestview, and Koch informed him that he had fired Johnson. Crosby told Koch that ArcLight would let the current investors work things out and that ArcLight would not buy in with a lawsuit pending.[460]

         S. This Litigation

         The complaint that Koch's lawyers filed on June 10, 2016, spanned sixty-five pages, contained 134 numbered paragraphs, and asserted six counts. The plaintiffs were Oxbow Holdings, the Small Holders, and Koch himself The defendants were the Crestview entities, Hurst, Volpert, and Load Line.

• Count I asserted that the Crestview member entities and Load Line had breached the LLC Agreement both before and after exercising the Exit Sale Right.
• Count II asserted a claim for tortious interference with contract against the defendants who were not members of Oxbow.
• Count III sought a declaratory judgment determining that the Highest Amount Theory was the proper interpretation of the 1.5x Clause.
• Count IV sought a declaratory judgment determining that under Article XIII, Section 8(f), the Company alone controlled the Exit Sale process, not Crestview or Load Line.
• Count V sought a declaratory judgment that the ArcLight offer did not satisfy the FMV Clause, the 1.5x Clause, or result from "bona fide, arms'-length" negotiations.
• Count VI sought a declaration that in connection with the Exit Sale, Koch did not owe any fiduciary duties to Crestview or Load Line and had not breached any fiduciary duties that might exist.

         The Crestview member entities and Load Line answered and asserted counterclaims. Count I sought declaratory judgments adopting their interpretations of the LLC Agreement, including that Crestview could compel a sale to ArcLight, had the right to control the Exit Sale process, and could compel an Exit Sale under the Leave Behind Theory. Count II asserted claims for breach of the LLC Agreement against Oxbow Holdings.

         On June 28, 2016, Koch caused Oxbow to file a separate action against the Crestview member entities, Volpert, Hurst, O'Donnell, and Johnson. This complaint spanned 144 pages, contained 515 numbered paragraphs, and asserted eleven counts.

• Count I asserted a claim for breach of the LLC Agreement against the Crestview member entities.
• Count II asserted a claim for breach of the implied covenant of good faith and fair dealing against the Crestview member entities.
• Count III asserted a claim for breach of fiduciary duty against O'Donnell.
• Count IV asserted a claim for breach of fiduciary duty against Johnson.
• Count V asserted a claim against Johnson to claw back compensation under his ...

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