Jay Sunny Bajaj v. OSP Razor Holdings LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE JAY SUNNY BAJAJ, as Unit ) Holder of RAZOR ) MANAGEMENT ) AGGREGATOR LLC, and as ) Management Holder ) Representative of OSP RAZOR ) HOLDINGS LLC and OSP ) RAZOR MANAGEMENT ) AGGREGATOR LLC, ) ) Plaintiff, ) ) C.A. No. 2025-0976-BWD v. ) OSP RAZOR HOLDINGS ) LLC, ) ) Defendant. ) POST-TRIAL MEMORANDUM OPINION Date Submitted: June 30, 2026 Date Decided: July 17, 2026 Brian E. Farnan and Michael J. Farnan, FARNAN LLP, Wilmington, DE; OF COUNSEL: Travis Robert-Ritter and Michael Showalter, ALBRECHT RITTER, PLLC, Coral Gables, FL; Attorneys for Plaintiff Jay Sunny Bajaj. Raymond J. DiCamillo, Matthew W. Murphy, Andrew L. Milam, Zachary R. Greer, Daniel Boucot, Madison T. Devlin, RICHARDS, LAYTON & FINGER, P.A., Wilmington, DE; Attorneys for Defendant OSP Razor Holdings LLC. DAVID, V.C.  The defendant in this action, OSP Razor Holdings LLC (“Defendant” or the “Company”), was formed in 2021 to acquire Digital Management Holdings, LLC (“DMI”), an information technology services company founded by the plaintiff, Jay Sunny Bajaj (“Plaintiff”), who rolled over equity in the acquisition. The Company is taxed as a pass-through entity. Under its operating agreement, the Company must make quarterly advance tax distributions to its members, “subject to having cash available after taking into account reasonable reserves as determined in the good faith discretion of the Board.” The operating agreement includes a highly deferential definition of “good faith” under which “the Board, acting on behalf of the Company or in connection with the Company’s business and affairs, shall be conclusively presumed to be acting in good faith” if a majority of the directors participating in the decision “subjectively believe” that the decision “is in or is not opposed to the best interests of the Company.” In 2022, the Company incurred a loss of $10 million, but its rollover members, including Plaintiff, incurred “phantom” tax liability on taxable income. In August 2023, the Company’s board of directors met, considered the Company’s cash position, and determined that the Company lacked “cash available after taking into account reasonable reserves” to pay tax distributions. By August 2025, when Plaintiff filed this action, the Company still had not paid tax distributions. 1  This memorandum opinion follows an expedited three-day trial in which Plaintiff sought to prove that the Company has breached its obligation under the operating agreement to pay tax distributions to the rollover members. Plaintiff seeks to remedy that breach with an order of specific performance compelling the Company to pay tax distributions, as well as damages. At trial, Plaintiff failed to prove that the board acted in bad faith. His primary theory of bad faith—that the Company’s majority owner caused the board to withhold tax distributions as a pretext to force a buyout of the rollover members— did not bear out at trial. Plaintiff did not prove that the board failed to make “predicate” determinations of “cash available after taking into account reasonable reserves,” or that the board made determinations in bad faith. Instead, the record of the Company’s cash position supports a finding that the board reached a rational decision for comprehensible reasons. Each of Plaintiff’s additional arguments—that the Company should have incurred additional debt to pay tax distributions, that the board applied the wrong standard and treated distributions as “optional,” and that the directors “rewrote” minutes to conceal their misconduct—fail to show that the board acted in bad faith when deciding that the Company lacked available cash to pay tax distributions. Because Plaintiff failed to prove a breach of the operating agreement, judgment is entered for Defendant. 2 I. BACKGROUND The following facts are as the Court finds them following a three-day trial held April 13 through April 15, 2026.1 A. OceanSound Acquires DMI. Plaintiff founded DMI, a Delaware limited liability company that provides information technology services, in 2002.2 Plaintiff served as DMI’s Chief Executive Officer (“CEO”) from its founding until May 2023.3 Plaintiff’s father, Ken Bajaj, served as DMI’s Chief Operating Officer (“COO”) until 2021, and Michael Altshuler served as DMI’s Chief Financial Officer (“CFO”) from 2020 until 2024.4 OceanSound Partners, LP (“OceanSound”) is a private equity firm that focuses on middle-market technology businesses.5 On September 17, 2021, OceanSound acquired an indirect majority interest in DMI through the Company for 1 The Stipulation and Pre-Trial Order is cited as “PTO ¶ __”. Dkt. 98. Trial testimony is cited as “Tr. (Witness) at __”. See Dkts. 106–10. Joint exhibits are cited as “JX __” unless otherwise defined. 2 PTO ¶¶ 2, 7; Tr. (Bajaj) at 709:4–15. 3 PTO ¶ 7. 4 Id. ¶¶ 12, 14. 5 Id. ¶¶ 2, 9; Tr. (Benavides) at 60:1–12. 3 $543.1 million, plus potential earnout payments, pursuant to an equity purchase agreement (the “Acquisition”).6 The post-Acquisition Company was governed by the Amended and Restated Limited Liability Company Agreement of OSP Razor Holdings LLC (the “Operating Agreement”).7 The Company emerged with two members. OSP Razor Equity Aggregator, LP, an entity indirectly owned by OceanSound, held 82% of the membership interests in the Company.8 OSP Razor Management Aggregator LLC, an entity through which Plaintiff and other former DMI equity holders (collectively, the “Rollover Members”) rolled over $58.9 million of equity into the Company, owned the remaining 18%.9 After the Acquisition, Plaintiff continued to serve as DMI’s CEO while nonparty Rocky Thurston replaced Ken Bajaj as COO.10 The Operating Agreement contemplated a seven-member board of directors (the “Board”) comprising four classes of directors: one “CEO Director,” one “Rollover Director” appointed by 6 PTO ¶ 17; JX 6; id. § 1.7(a); JX 56 at 18. Plaintiff was entitled to 51% of the earnout payments from the Acquisition. Tr. (Bajaj) at 719:7–9. 7 JX 9 [hereinafter OA]. The Operating Agreement has since been amended, but the parties have not identified any material changes to the provisions relevant to this dispute. See JX 1001. 8 PTO ¶¶ 9, 19. 9 Id. 10 Id. ¶¶ 7, 13. 4 Plaintiff in his capacity as the “Principal Rollover Seller,” one “Independent Director,” and four “OSP Directors” appointed by OceanSound.11 At closing, Plaintiff served as the CEO Director; Ken Bajaj served as the Rollover Director; Joe Benavides, Addison Nordin, Jeff Kelly, and Theodore Coons served as the OSP Directors; and the Independent Director seat was vacant. Benavides served as Chairman of the Board, and the Operating Agreement vested him with “the majority voting power of the Board.”12 B. The Operating Agreement Contemplates Pass-Through Tax Liability And Tax Distributions. Section 7.3(d) of the Operating Agreement explains that “[t]he Members intend that the Company shall be treated as a partnership for federal, state and local income and franchise tax purposes” and provides that “[e]ach Member and the Company shall file all tax returns consistent with such treatment.”13 Under federal tax law, a member of a limited liability company that elects pass-through tax treatment may owe taxes on “phantom income,” taxable income that is allocated to the member even if the company has operated at a loss and the member has not received cash distributions from the investment.14 Although the 11 OA § 4.1(b)(i). 12 Id. § 4.1(b)(i)(D). 13 Id. § 7.3(d). 14 See JX 107 at 4. Because OSP Razor Management Aggregator LLC has a lower historical tax basis in the Company and did not receive the purchaser-specific 5 possibility of owing taxes on phantom income may seem onerous, Section 6.2(c) of the Operating Agreement confirms that “[t]he Members are aware of the tax consequences of the allocations made” under the Operating Agreement “and agree to be bound by the provisions of this Section 6.2 in reporting their shares of items of Company income, gain, loss and deduction.”15 Section 6.3 of the Operating Agreement provides that “[n]o Member shall have the right to demand or receive Distributions of any amount, except as expressly provided in this Article VI.”16 Section 6.6 governs tax distributions to Members (“Tax Distributions”). That section states in its entirety: Notwithstanding any other provision herein to the contrary, so long as [the Company] is treated as a partnership for federal income tax purposes, [the Company] shall, subject to having cash available after taking into account reasonable reserves as determined in the good faith discretion of the Board, make quarterly advance cash distributions to each Member in an amount equal to the Member’s Quarterly Estimated Tax Amount for such quarter (“Tax Distributions”), and the Board shall use commercially reasonable efforts to cause such Tax Distributions to be made at least five days before estimated U.S. federal income tax payments for individuals are due. If, on the date of a quarterly estimated distribution, the cash available to [the Company] (as determined in the good faith discretion of the Board) is not sufficient to distribute to each Member the full amount of such Member’s Tax Distribution that would otherwise be Section 743(b) adjustment allocated to acquisition goodwill, it does not receive corresponding amortization deductions. See I.R.C. § 743. The resulting taxable income is then passed through to the Rollover Members with no corresponding deductions passed through to offset it. 15 OA § 6.2(c). 16 PTO ¶ 30; OA § 6.3. 6  required under this Section 6.6, then (A) distributions shall be made by [the Company] to the Members pursuant to this Section 6.6 to the extent of the cash so available in proportion to the amounts that would have been distributed to each Member pursuant to this Section 6.6 if there had been a sufficient amount of cash available to [the Company] to make such Tax Distribution in full, (B) [the Company] shall make future distributions as soon as reasonably practicable following the date on which there exists an amount of cash available to [the Company] after taking into account reasonable reserves as determined in the good faith discretion of the Board sufficient to pay the remaining portion of such Member’s required Tax Distribution and (C) [the Company] shall not, until the remaining portion of each such Member’s required Tax Distribution is so distributed, make a Distribution other than pursuant to this sentence. [The Company] shall make commercially reasonable efforts to ensure that any financing documents allow for full Tax Distributions. Notwithstanding anything to the contrary in this Agreement, all distributions made to a Member pursuant to this Section 6.6 shall be treated as an advance against, and thus reduce, the amount of the next succeeding Distribution or Distributions which would otherwise have been paid to such Member pursuant to Section 6.4 or Section 11.1, if applicable.17 Under Section 4.7(c), the Board is “conclusively presumed” to have acted in good faith if a majority of the Board participating in a decision subjectively believes that the decision “is in or not opposed to the best interests of the Company”: For all purposes of this Agreement, each Covered Person (acting in its capacity as such) and the Board, acting on behalf of the Company or in connection with the Company’s business and affairs, shall be conclusively presumed to be acting in good faith if such Person (or, in the case of the Board, a majority of the Directors participating in the decision) subjectively believe(s) that the action taken (or omitted to be taken), the consent or approval given or withheld, or the decision 17 OA § 6.6 (emphasis added). 7  or determination made or not made, is in or is not opposed to the best interests of the Company.18 C. The Company Finances The Acquisition With Debt. To finance the Acquisition, Plaintiff executed a credit agreement on behalf of the Company and its affiliates (the “Credit Agreement”) that provided for a $265 million term loan (the “Term Loan”) and a $40 million revolving credit facility (the “Revolver”).19 By 2025, the variable interest rate on the Term Loan had risen to approximately 11.25%.20 The Credit Agreement includes covenants restricting the Company’s ability to incur additional debt, sell assets, engage in transactions with affiliates, make additional investments, or issue dividends.21 Among other restrictions, under Section 2.8(c) of the Credit Agreement, if the Company disposes of an asset, it must use the proceeds to pay down its debt to stay within a specified leverage ratio (the “Consolidated Total Net Leverage Ratio”): 18 Id. § 4.7(c) (emphasis added). Section 4.7(c) also provides that when the Board or a director takes action on behalf of the Company, it “shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation (fiduciary or otherwise) to give any consideration to any interest of or factors affecting the Company [or] any of the Members.” Id. § 4.7(c). 19 PTO ¶ 22; JX 15 at 10. 20 JX 15 § 1.1 (defining “LIBOR Rate,” “Base Rate,” and “Applicable Margin”); id. § 2.3; Tr. (Carlson) at 658:14–23. The interest rate on the Revolver is 225 basis points lower than the interest rate on the Term Loan. PTO ¶ 22; JX 15 § 1.1 (defining “Applicable Margin”). 21 PTO ¶ 23. 8  [P]romptly upon receipt by a Credit Party and/or such Restricted Subsidiary of the Net Cash Proceeds of such Disposition or Event of Loss, the Borrower shall deliver, or cause to be delivered, an amount equal to either (i) solely in the case of a Disposition or Event of Loss pursuant to clause (c)(i), 100% of such excess Net Cash Proceeds or (ii) solely in the case of a Disposition of Identified Assets, the amount of Net Cash Proceeds to the extent required to cause the Consolidated Total Net Leverage Ratio not to exceed 3.50 to 1.00 on a pro forma basis (with no netting of the Net Cash Proceeds of such Disposition in such calculation), in each case, to the Administrative Agent for distribution to the Lenders as a prepayment of the Loans, which prepayment shall be applied in accordance with Section 2.8(f) hereof.22 To obtain additional financing, OSP Razor Intermediate Holdings LLC, a Company subsidiary,23 also issued a $40 million senior payment-in-kind note bearing 11.25% interest (the “PIK Note”).24 The PIK Note comes due on October 25, 2028, but requires a payment of approximately $30 million by October 25, 2026.25 Interest on the PIK Note accrues as additional principal.26 D. The Company And OceanSound Execute A Management Consulting Agreement. In connection with the Acquisition, the Company and OceanSound entered into a management consulting agreement (the “Management Consulting 22 JX 15 § 2.8(c). 23 Verified Compl. for Equitable Relief [hereinafter Compl.], Ex. A, Dkt. 1. 24 PTO ¶ 26. 25 JX 14 at 6, 8, § 1.4(b); JX 455 at 28; Tr. (Benavides) at 269:1–5. 26 PTO ¶ 26. 9 Agreement”)27 under which the Company must pay OceanSound an annual “Advisory Fee” representing “the greater of (i) $1,500,000 (the ‘Base Amount’) and (ii) three percent (3%) of annual Consolidated EBITDA.”28 The Management Consulting Agreement also requires the Company to pay OceanSound “Transaction Fees” for transactions in which OceanSound is involved in “an aggregate amount . . . equal to the greater of (i) $250,000; and (ii) an amount equal to three percent (3%) of the Transaction Value.”29 Section 4(c) of the Management Consulting Agreement states: All Advisory Fees or Transaction Fees shall be paid to the extent permitted under any credit agreement or other definitive documentation concerning the financing of the Company Group (the “Financing Documents”), and if not permitted to be paid, shall be deferred and shall be payable as soon as permitted under the Financing Documents or upon the payment in full of all obligations under the Financing Documents. If any Advisory Fee or Transaction Fee is not timely paid, such Advisory Fee or Transaction Fee, as applicable, shall accrue interest at a rate of five percent (5%) per annum, compounded quarterly, from the date due until the date of payment (the “Interest Payment”).30 E. DMI Makes Acquisitions. Between March 2022 and early 2023, DMI acquired three additional businesses. In March 2022, DMI acquired Aurotech, LLC using $14.3 million in 27 PTO ¶ 21; JX 11. 28 PTO ¶ 21; JX 11 § 4(a)(1). 29 PTO ¶ 21; JX 11 § 4(b)(1). 30 JX 11 § 4(c). 10 cash.31 In October 2022, DMI acquired Ambit Group for $37 million, using cash and OceanSound equity.32 In early 2023, DMI acquired Simplex Mobility Inc. by drawing down $16 million on the Revolver.33 The Board, including Plaintiff, unanimously approved each of those transactions.34 F. The Rollover Members, Including Plaintiff, Incur Tax Liability. Although the Company incurred a loss of $10 million in 2022, the Rollover Members were allocated approximately $6.628 million in taxable income for that year.35 OceanSound did not incur a similar tax burden.36 Plaintiff’s tax advisor informed him of his 2022 tax liability in early 2023.37 Thereafter, Plaintiff began to engage with individuals at the Company about Tax Distributions to the Rollover Members under Section 6.6 of the Operating Agreement. At one point in April 2023, Plaintiff and Benavides spoke on the phone about distributions. According to Plaintiff, Benavides told him that the Company was “not in a position anytime soon to make Tax Distributions” but “could maybe buy [his] 31 JX 23 at 4. 32 JX 38 at 4. 33 JX 45 at 6, 10. 34 JX 64 at 94; Tr. (Bajaj) at 735:9–17. 35 JX 85 at 1. 36 JX 107 at 4. 37 Tr. (Bajaj) at 677:16–678:2. 11 stock back at $0.50 on the dollar to help ease the pain,” remarking that “I’ve been squeezed by firms worse in the past” and “I do not feel sorry for you.”38 Benavides denies making those statements. In May 2023, the Board terminated Plaintiff as CEO of DMI and hired Thurston to serve in his place.39 Under the terms of a separation agreement, OceanSound agreed to appoint Plaintiff as an OSP Director so that he would remain on the Board when he ceased to be the CEO Director.40 G. DMI Management And The OSP Directors Assess The Company’s Financial Position To Determine Whether To Recommend A Tax Distribution. In the ordinary course, DMI’s finance team prepared 13-week cash flow forecasts, which were provided to OceanSound to monitor the Company’s performance.41 On June 20, DMI’s CFO, Michael Altshuler, sent Benavides and Nordin an update on the Company’s cash flow, explaining with respect to Tax Distributions that: All-in, we would need to send tax distr[ibutions] to the management razor partners in the range of $13M this year. This is having a significant negative impact on our cash flow as you can imagine, and 38 Tr. (Bajaj) at 678:21–679:1. The only document purporting to describe this call is an email Plaintiff sent to himself nearly two years later—two months before filing his Complaint. See JX 420. 39 PTO ¶¶ 7, 13; Tr. (Bajaj) at 679:6–16. 40 JX 297 at 7. 41 Tr. (Benavides) at 80:13–81:8; id. (Nordin) at 312:10–22. Nordin also received daily cash updates from DMI. Id. at 314:13–24. 12  causing downward pressure beginning in August when our interest payment is due through the rest of year. We were already in a difficult cash position given our operational challenges, so this is driving additional challenges. The cash flow that [management] is sending has been updated to reflect the latest forecast.42 After reviewing the forecasts, Benavides’ initial reaction was that the Company “should not be making [T]ax [D]istributions,” and he asked Nordin for input from PricewaterhouseCoopers (“PwC”), which OceanSound had engaged to improve the tax structure of its acquisitions.43 On June 26, Nordin told Altshuler that “we are going to recommend that we don’t make a [T]ax [D]istribution to shareholders” for 2022 because “[w]e do not think the company has enough cash flow to do that right now.”44 In early July, Benavides sent other OceanSound partners an email describing PwC’s recommendations and lessons learned from the tax issues the Rollover Members at DMI were facing: We’ve done a deep dive into the tax implications of partnership vs corporate structures due to a $7.8mm tax distribution due at DMI— which we’re going to elect not to make. In short, there is almost always more current tax due under the partnership structure than under the corporate structure (unless the corporate rate exceeds the personal fed[eral] & state tax rates). A benefit of the partnership structure is that tax shields get passed forward but that may have limited value on a future sale. A theoretical benefit is that the tax distributions count as 42 JX 73 at 1. 43 Id.; Tr. (Benavides) at 91:17–92:12; id. at 93:12–24 (“So it was just a teaching moment to the team at OceanSound . . . .”). 44 JX 77 at 2. 13  return of principal which improve [internal rate of return] but the benefit doesn’t move the needle. Going forward unless there’s an incredibly compelling and well documented/analyzed reason for using the partnership structure, we will only use fully blocked, corporate structures to set up new portfolio company investments. For example, if there’s a very large [net operating loss] AND we have a good sense for what tax distributions will be for the forward 2-3 years AND our agreements have the flexibility to not make tax distributions, we can use partnership structure. At DMI, we were fortunate to have complete flexibility to NOT make the payments, but it’s a painful situation for the [Rollover Members].45 OceanSound’s analysis of the Company’s cash position continued into mid- July. On July 12, Altshuler sent Nordin a new forecast that modeled various distribution scenarios, recommending that the Company pay a 25% or 50% Tax Distribution: Bottom line is the 0% and 25% scenario can be managed through working capital with no need to draw on line. The 50% is closer, and may result in very brief period of time where we could spring. 75% and 100% will definitely spring, and will likely not have enough cash going into next year to manage through the bonus and earnout without putting too much pressure. So my recommendation would be something between the 25% and 50% distr[ibution].46 Thurston responded, “[i]t would be good to cover a portion of this (25%-50% as Mike suggest[s])—if not for anything other than employee morale and the surprise 45 JX 83 at 2. 46 JX 85 at 1. 14 news of this matter.”47 Nordin “agree[d] with what [Thurston] [was] saying,” explaining that “[o]nce we have better visibility on the cash flow scenarios described below, we will be able to decide quickly.”48 On July 14, however, Altshuler sent a “likely more realistic” updated cash flow projection, noting “[t]he one I saw earlier this week as I said was a bit on [the] aggressive side” while the updated forecast was “more in our current reality.”49 Altshuler explained that, “[b]ased on this current cash flow, I would exercise more caution.”50 The next week, Altshuler told the Company’s second-largest Rollover Member by equity ownership that management was “going to recommend to the [B]oard that we cannot fund [Tax Distributions] at this point given our current cash position.”51 As Altshuler socialized the idea of not paying a Tax Distribution, he reminded Rollover Members “that the operating agreement only requires that we fund if we believe there is sufficient liquidity and there [i]s not[,]” explaining that “[s]ome large cash requirements are coming over the next 6-8 months, including a 47 JX 87 at 2. 48 Id. at 1. 49 Id. 50 Id. The updated cash flow projection showed that if the Company paid a 25% partial Tax Distribution, it would have a negative $2.9 million cash balance in some weeks. Id. at 4. 51 JX 93 at 1; Tr. (Nordin) at 466:7–11; see also JX 95. 15 few large interest payments, the upcoming earnout payment, and the year-end bonus payment, all of which we need to manage through.”52 He further explained: The above items, coupled with the significant rollover of legacy investors that are not able to take advantage of the tax shield[,] is creating the perfect storm of pressure on our near-term cash needs. This is therefore putting us in [a] position where it is not prudent for me to recommend to the board that we fund the tax distributions until we get more visibility into some of these growth opportunities and are able to manage through these near-term cash headwinds.53 On August 3, Altshuler sent an updated 13-week cash flow forecast to OceanSound, noting significant upcoming payments: [Y]ou’ll see that we can manage through March next year without accessing additional capital, but starting with March after bonus payment, we will need to pull as much as $20M additional off line at certain points b/w March and June, so will have in excess of $30M on line. This is no growth model . . . . Bottom line is that we go into next year with no cash and $13M on the line. We have $8M in bonuses and $9M in earnout, so $17M, and another $2M in Simplex holdback payment.54 H. The Board, Including Plaintiff, Votes To Not Make A Tax Distribution For Tax Year 2022. On August 7, the Board held a special meeting to determine whether to pay Tax Distributions to the Rollover Members.55 In advance of the meeting, the Board received a “Board Update” presentation describing the Rollover Members’ tax 52 JX 103 at 1. 53 Id. at 2. 54 JX 105 at 2 (emphasis added). 55 PTO ¶ 34; JX 119. 16 liability, including the factors that “resulted in a scenario where, despite DMI being in a taxable loss position of $10m, the management aggregator ultimately end[ed] up with income and a tax bill.”56 The Board Update explained that: Under the holding/operating company’s limited liability company agreement, DMI is required to make [T]ax [D]istributions to its shareholders to cover projected tax liability if distributions for that year are not sufficient to cover that projected tax liability, unless the board determines that the company does not have sufficient liquidity to support [T]ax [D]istributions[.] - Due to add-on acquisition expenses, low organic bookings and high restructuring charges, DMI has drawn its revolver to $13.5m (out of $40m capacity) and currently has mid-single digit cash on hand. DMI also has ~$25m of non-operating cash expenses expected to come out of the company over the next 12 months and could further strain liquidity[.] - As a result, the DMI management and the OSP [Directors] recommend that the DMI board does not cause the company to make any distributions to shareholders until there is improved liquidity.57 At the meeting, members of management provided an overview of the Rollover Members’ tax burden and the Company’s financial position, and Board members asked questions.58 The Board, including Plaintiff, unanimously voted not to make any Tax Distributions for tax year 2022.59 56 JX 106 at 4. 57 Id. 58 JX 119. 59 Id. at 5. 17  Two months later, on October 5, Plaintiff sent a letter to the Board “regarding the issue of [the Company’s] distribution obligations to its Members under Section 6.6 of the [Operating Agreement].”60 The letter asserted that, “[a]lthough I voted [at the August 7 Board meeting], together with the majority of the Board, in favor of adopting the recommendation of DMI management and the OSP [Directors] that the Board not cause DMI to make any distributions to shareholders until there is improved liquidity, our Board discussion left a number of questions unaddressed.”61 Plaintiff asked “[a]t what point will [the Company] have reached sufficiently ‘improved liquidity’ such that [the Company] will resume fulfilling its obligation to make the required [T]ax [D]istributions,” and whether “future [T]ax [D]istributions [would] . . . include amounts sufficient to cover any and all interest and penalties incurred by [Rollover Members] . . . .”62 Plaintiff also “request[ed] that DMI management provide updates to the Board on a monthly basis that address the Company’s then-current cash position, so that Board members can assess when it would be appropriate for DMI to resume fulfilling its tax distribution obligations under the [Operating] Agreement and, at the appropriate time, to vote to resume fulfilling those obligations.”63 In response to Plaintiff’s questions about the 60 JX 134 at 2. 61 Id. 62 Id. at 2–3. 63 Id. at 3. 18 Company’s liquidity, DMI’s management began sending its 13-week cash flow forecasts to Plaintiff, in addition to other regular reporting.64 Plaintiff claims that during a Board meeting in September, Benavides stated that he would reconsider making Tax Distributions only if the Company exceeded a “20MM quarterly EBITDA threshold.”65 Benavides denies making this statement. According to Plaintiff, in late October, he called Benavides for more clarity on this threshold. When Plaintiff explained that the lack of distributions was “very painful,” Benavides purportedly replied: “I can either pay your tax distributions or I can pay your earnout. But not both. So you choose.”66 Plaintiff also claims that Benavides asked him if he would “consider converting [his] earnout into equity.”67 I. Plaintiff Continues To Push For Tax Distributions Despite The Company’s Unimproved Cash Position, And OceanSound Removes Him From The Board. The Company’s cash position did not markedly improve over the next several months. On January 30, 2024, Altshuler told Nordin there was “no other way to put 64 See, e.g., JX 152; JX 156; JX 160; JX 165; JX 190; JX 192; JX 196; JX 208; JX 211; JX 213; JX 215; JX 218; JX 223; JX 226; JX 231; JX 238; JX 243; JX 245; JX 253; JX 256; JX 258; JX 261; JX 267; JX 272; JX 277; JX 281; JX 283; JX 286; JX 310; JX 317; JX 320; JX 323; JX 326; JX 329; JX 331. 65 Tr. (Bajaj) at 682:1–12. 66 Id. at 684:20–685:2. 67 Id. at 685:3–6. 19 it[,] we will miss our numbers significantly. . . . [I] unfortunately don’t need a crystal ball to say this. [E]ntirely self[-]inflicted.”68 The Board terminated Altshuler as DMI’s CFO and replaced him with Peter Carlson.69 In February, Ken Bajaj left the Board.70 In the first half of 2024, Plaintiff continued to press for a Tax Distribution. On a May 10 call, Nordin told Plaintiff that “we very clearly have cash tightness and that our #1 priority is to dig out of this hole.”71 When Benavides learned of the call, he asked Nordin if Plaintiff had “thought about selling us his equity? They can take legal action, and we’ll hose them.”72 Plaintiff says that on another call in June, Benavides told him that “we do not plan or intend on making any tax distributions. Maybe you should consider selling your equity back at a discount.”73 Plaintiff then texted another Rollover Member “to setup a call to debrief you guys on [Benavides’] stance on the tax and his offer to buy equity back at a discount.”74 On August 19, Plaintiff sent a letter to Benavides addressing “the Board’s continued failure to authorize [the Company]’s quarterly tax distributions” to the 68 JX 194 at 2. 69 PTO ¶¶ 14, 15; Tr. (Nordin) at 383:7–14. 70 PTO ¶ 12. 71 JX 242 at 2. 72 Id. at 1. 73 Tr. (Bajaj) at 688:8–10. 74 JX 60 at 2. 20 Rollover Members and “a continued lack of transparency with respect to [the Company]’s intent and ability to make those required distributions,” among other issues.75 Plaintiff’s letter claimed that “[o]n September 19, 2023 . . . [Benavides] informed the Board that no [T]ax [D]istributions would be made to the Members until [the Company] begins recording EBITDA of at least $20 million on a quarterly basis.”76 On August 26, Benavides sent a letter responding to Plaintiff’s August 19 letter, which asserted, among other things, that: Given that the Company’s liquidity position and indebtedness have deteriorated since July 2023 . . . , the Board has had, and continues to have, ample basis for its discretionary determination that its reasonable cash reserves needed exceed the cash available and that Tax Distributions are therefore not required under the [Operating Agreement].77 The letter further responded that Plaintiff’s “assertion that the Board has imposed a threshold of achieving $20 million in quarterly EBITDA prior to any Tax Distributions is incorrect.”78 75 JX 287. The letter is dated August 16 but was sent on August 19. 76 Id. at 3. 77 JX 297 at 3–4. 78 Id. at 4. 21  In addition, Benavides’ August 26 letter notified Plaintiff that OceanSound had determined to “terminat[e] [Plaintiff’s] status as its designee board member, effective immediately.”79 J. Plaintiff And Altshuler Request A Buyout. In September, Altshuler asked Nordin “to socialize a potential buyout with the powers that be if that is a possibility.”80 According to Altshuler’s notes, Altshuler told Nordin that a discount of “$.50 on [the] dollar for investment . . . was low” but between “50 cents and $1.3 [wa]s a reasonable discussion.”81 On October 25, Plaintiff sent a letter responding to Benavides’ August 26 letter.82 Plaintiff concluded his letter by requesting that OceanSound buy out the Rollover Members’ shares: Given your positive outlook on the investment, our concerns about the investment, and our lack of utility to DMI, if we cannot agree to a meaningful path of course correction, I believe consideration of a negotiated buy-out of our Class A Shares and a corresponding forfeiture of all of our rights under the Class A Agreement is warranted, as I believe it would be in the best interests of both the Class A Rollover Shareholders and OSP.83 79 Id. at 7. 80 JX 308 at 2. 81 JX 147 at 6. 82 JX 336 at 1. 83 Id. at 6. 22  The same day, another partner at OceanSound emailed Nordin requesting “the language in the [Operating Agreement] around buyback rights for [Plaintiff]’s equity[.]”84 At some point, OceanSound purportedly prepared internal documents modeling a buyout of the Rollover Members “at [a] 50% discount, and current [management] at cost.”85 K. The OSP Directors Execute A Written Consent Ratifying The Board’s Decisions To Not Make Tax Distributions Through September 2024. On November 1, OSP Directors Benavides, Nordin, Kelly, and Coons executed a written consent to “ratify and approve [the Company’s] decision not to make Tax Distributions in respect of the fiscal quarters ending March 31, 2022 through September 30, 2024” (the “November 1 Written Consent”).86 The November 1 Written Consent recounted: [T]he Board has previously determined in various meetings beginning on August 7, 2023, and has now again determined, in its good faith discretion that, after considering the Company’s operating performance and trends, liquidity position, outstanding indebtedness, total leverage ratio, interest and earnout obligations, and cash flow forecasts, among other factors, the Company has historically not had in any fiscal quarter, and does not have in the current fiscal quarter, any cash available after taking into account reasonable reserves for purposes of making Tax Distributions. ... 84 JX 335. 85 JX 510 (undated document); see JX 509; JX 511. 86 JX 343 at 1. 23  [T]he Company does not have, and has not had at any time during the fiscal quarters ending March 31, 2022 through September 30, 2024 and