HControl Holdings LLC v. Antin Infrastructure Partners S.A.S.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

HCONTROL HOLDINGS LLC, OTI FIBER )
LLC, RURAL BROADBAND SYSTEMS, )
LLC, COMMUNITY FIBER LLC, and )
MARIO M. BUSTAMANTE, solely in his )
capacity as Sellers’ Representative, )
)
Plaintiffs/Counterclaim )
Defendants, )
)
v. ) C.A. No. 2023-0283-KSJM
)
ANTIN INFRASTRUCTURE PARTNERS )
S.A.S. and OTI PARENT LLC, )
)
Defendants/Counterclaim )
Plaintiffs. )

POST-TRIAL MEMORANDUM OPINION

Date Submitted: May 22, 2023
Date Decided: May 29, 2023

Richard I. G. Jones, Jr., Michael W. McDermott, Harry W. Shenton IV, BERGER HARRIS
LLP, Wilmington, Delaware; Patrick J. Smith, Brian T. Burns, Sean McMahon, CLARK
SMITH VILLAZOR LLP, New York, New York; Attorneys for Plaintiffs-Counterclaim
Defendants HControl Holdings LLC, OTI Fiber LLC, Rural Broadband Systems, LLC,
Community Fiber LLC, and Mario M. Bustamante.

William M. Lafferty, Thomas W. Briggs, Jr., Miranda N. Gilbert, MORRIS, NICHOLS,
ARSHT & TUNNELL LLP, Wilmington, Delaware; Anna G. Rotman, P.C., KIRKLAND
& ELLIS LLP, Houston, Texas; Stefan Atkinson, P.C., Mike Rusie, KIRKLAND & ELLIS
LLP, New York, New York; Zack C. Ewing, KIRKLAND & ELLIS LLP, Austin, Texas;
Counsel for Defendants-Counterclaim Plaintiffs Antin Infrastructure Partners S.A.S. and
OTI Parent LLC.

McCORMICK, C.
 On December 3, 2022, Antin Infrastructure Partners S.A.S. (“Antin”) entered into a

merger agreement (the “Merger Agreement”) to acquire a group of privately held Florida

broadband companies, collectively referred to as “OpticalTel,” which were formed by and

affiliated with Mario Bustamante. 1 The Merger Agreement contained capitalization

representations concerning the owners of OpticalTel, and Buyers negotiated for a bring-

down provision requiring that those representations be accurate in all respects at the time

of closing.

After the parties entered into the Merger Agreement, a former OpticalTel employee

named Rafael Marquez came out of the woodwork claiming an ownership interest in an

OpticalTel subsidiary based on a 2004 software development agreement. Marquez, a

seemingly colorful character and a skilled shakedown artist, embarked on a campaign of

disruption to extract as much value from Bustamante and Sellers as possible. As part of

this campaign, he made direct contact with Buyers and Buyers’ counsel, banker, and

financing partners, claiming to be a co-founder of OpticalTel. Buyers investigated

Marquez’s claims. Although both Sellers and Buyers rightly concluded that Marquez was

dramatically overstating the value of his interest, Buyers also determined that Marquez’s

claim had some factual basis. Buyers asked Sellers to settle with Marquez, but Marquez’s

1
For convenience, this decision refers to the OpticalTel parties to the Merger Agreement
as the “Sellers” and the Antin parties to the Merger Agreement as the “Buyers.” The Sellers
are: HControl Holdings LLC, OTI Fiber LLC, Rural Broadband Systems, LLC,
Community Fiber LLC, and Mario Bustamante in his capacity as Sellers’ representative.
The Buyers are Antin Infrastructure Partners S.A.S. and OTI Parent LLC. See C.A. No.
2023-0283-KSJM, Docket (“Dkt.”) 93, Pre-Trial Stipulation and Order (“PTO”) at 1.
unreasonable demands made that unachievable. Ultimately, Buyers noticed a breach of

the capitalization representations based on Marquez.

Marquez’s campaign of disruption stirred up other potential capitalization issues.

In one of his unsolicited calls to Antin’s senior partner, Marquez warned: “I am not the

only one!” Antin interpreted this to mean that there might be other former employees who

would claim an ownership interest in OpticalTel and began investigating that suspicion.

That investigation unearthed another former employee, Wajid Iqbal, who claimed to hold

options, warrants, and a 5% interest in one of the OpticalTel entities. Sellers denied that

Iqbal had any valid claims but attempted to settle with Iqbal. These efforts were

unsuccessful. Buyers took the position that Iqbal’s interests rendered the capitalization

representations inaccurate and noticed a breach on this independent basis.

The Marquez issue further snowballed into additional disputes between Buyers and

Sellers. Sellers responded to the notice of breach by asking Buyers for permission to

contact other potential acquirers. Buyers took this to mean that Sellers were already

contacting backup bidders, claimed that such efforts violated the no-shop provision in the

Merger Agreement, and ultimately noticed a breach of the no-shop.

Sellers also attempted to cure the Marquez breach, but those efforts gave rise to

other litigable issues. Without first obtaining Buyers’ consent, Sellers transferred the

software assets of the OpticalTel subsidiary in which Marquez claimed an interest to a

parent company for a value determined by the Sellers. Sellers then filed to dissolve the

subsidiary with Florida’s Department of State. The subsidiary placed in trust an amount

2
that Sellers believed sufficient to satisfy Marquez’s claims, and Bustamante agreed to

indemnify the subsidiary for any damages recovered by Marquez that exceeded that

amount. Sellers argued that this cured Marquez’s claim by reducing it to a monetary claim.

Buyers denied that the transfer-dissolution plan cured the Marquez issue, claimed that the

transfer, dissolution, and indemnity agreement violated multiple interim covenants in the

Merger Agreement, and served a notice of breach on that basis.

Ultimately, Buyers terminated the Merger Agreement based on Sellers’ breaches of

the Merger Agreement. In anticipation of termination, Sellers filed this suit for specific

performance. They claim that Buyers breached the Merger Agreement by wrongfully

terminating it and by failing to use best efforts to close the merger. To support their claim

for breach of the best-efforts provision, Sellers took the position that it became impossible

to settle with Marquez because Buyers attempted direct contact, giving him greater

leverage in negotiations. Buyers counterclaimed for breach of the capitalization

representations, interim covenants, and no-shop provisions.

With Buyers’ debt commitment expiring on June 9, 2023, the parties moved

expeditiously toward a three-day trial in May 2023, and requested a prompt posttrial

decision. 2 This decision finds that the Marquez issue rendered the capitalization

2
See PTO ¶ 135; Dkt. 147 (May 26, 2023 letter from counsel). The parties are to be
commended for the efficiency with which they proceeded to trial and for avoiding any
discovery disputes in the process. To issue a posttrial decision in time to permit potential
appellate review and final disposition of this action before the debt commitment expired, I
wrote this decision quickly and cut the editing process short. As a consequence, aspects of
this decision probably lack polish (please forgive the typos) and the extended treatment
that the issues deserve.
3
representations inaccurate, and that Sellers failed to cure the issue. Sellers breached the

Merger Agreement on this basis, rendering Buyers’ termination valid. The parties failed

to prove any of their other claims or counterclaims.

It bears noting that the financial value of the Marquez issue is minor relative to the

deal value, as Buyers concede. One would think that Buyers could protect themselves from

the economic risk of those claims through an escrow arrangement at closing, which would

supplement the protections of the broad special indemnity Buyers secured in the Merger

Agreement. Apparently, however, Buyers do not want the hassle. In an ironic twist,

Buyers—who previously enjoyed a reputation as a reliable deal partner likely to provide a

target with deal certainty—say that that their business reason for backing out of the deal is

the concern that Marquez himself posed reputational risks post-closing.

Ultimately, it is not for this court to question the business wisdom of Buyers’

decision to terminate. Buyers negotiated for the ability to terminate if the capitalization

representations were not accurate in all respects, and this decision enforces that right.

Judgment is entered in favor of Buyers.

I. FACTUAL BACKGROUND

Trial took place over three days. As reflected in the Joint Schedule of Evidence

submitted by the parties, the record comprises 598 joint trial exhibits, trial testimony from

eleven fact and two expert witnesses, deposition testimony from 16 fact and two expert

4
witnesses, and stipulations of facts in the pre-trial order. 3 These are the facts as the court

finds them after trial.

A. OpticalTel

OpticalTel is a Florida broadband provider founded by Bustamante in 2003.4

Currently, OpticalTel is structured as four top-level limited liability companies formed

under Florida law: HControl Holdings LLC; OTI Fiber LLC; Rural Broadband Systems,

LLC; and Community Fiber LLC. 5 HControl Holdings holds three relevant operating

entities: HControl Corporation, which developed and held Sellers’ back-office software;

Optical Telecommunications, Inc., which was the government-regulated utility that

obtained the necessary certifications from the state of Florida; and Community Services

LLC, which owned special-purpose entities for each community in which Sellers

operated. 6 OpticalTel used OTI Fiber, Rural Broadband, and Community Fiber to enter

contracts on behalf of and obtain loans for HControl Holdings. 7

3
See Dkt. 140, Joint Schedule of Evid. This decision cites to: trial exhibits (by “JX”
number); the trial transcript, Dkts. 134–136 (by “Trial Tr. at” page, line, and witness); the
deposition transcripts of Garrett Baker, Mario Bustamante, Gregory Campanella, Chris
Clark, Mark Dennis Clark, Mark Crosbie, Richard Edlin, Kevin Genieser, Kemal Hawa,
Wajid Iqbal, Rafael Marquez, Juan O’Naghten, Ravit Purohit, Michael Pusateri, Marc
Reiser, Luis Rodriguez, Steven Davidoff Solomon, and Christopher Turek (by the
deponent’s last name and “Dep. Tr. at” page and line); and stipulations of fact in the Pre-
Trial Stipulation and Order.
4
PTO ¶ 42; Trial Tr. at 100:1–101:12 (Bustamante).
5
JX-82 at 7; PTO ¶¶ 34–37.
6
Trial Tr. at 117:7–20 (Bustamante); Bustamante Dep. Tr. at 22:11–23; JX-82 at 7.
7
O’Naghten Dep. Tr. at 153:23–154:18.
5
 The Merger Agreement refers to the four top-level entities as the “Purchased

Entities.” 8 The Purchased Entities and their subsidiaries comprise OpticalTel, sometimes

called the “Company” or the “Company Group.” 9 Bustamante and his affiliated trusts own

a majority of the interests in each of the four Purchased Entities. 10

Bustamante served as the Company Group’s CEO for most of the Company’s

existence. 11 In 2021, Bustamante stepped down from his role as CEO 12 and elevated Luis

Rodriguez from President and Chief Operating Officer to that position. 13

One four-person Board of Directors oversaw the entire Company Group. 14

Bustamante served as Executive Chairman and selected the remaining directors from his

friends and acquaintances. 15 The three other directors were Juan O’Naghten, Godfrey

Thomas, and Tiffany Cant. 16 O’Naghten served as HControl Holdings’ outside general

counsel, and he had been outside general counsel for Bustamante’s other ventures since the

8
JX-160 (“Merger Agreement”) at 5.
9
Id. §§ 1.01, 4.02.
10
Trial Tr. at 187:8–14 (Bustamante).
11
Id. at 179:1–3 (Bustamante).
12
Id. at 187:5–7 (Bustamante).
13
Id. at 113:18–114:8 (Bustamante); id. at 289:6–10 (Rodriguez).
14
See, e.g., JX-37 (OTI Fiber Operating Agreement) at 1 (“[T]he company and HControl
shall at all times be governed and managed by the same Board of Directors, Manager, and
officers.”); JX-48 (Rural Broadband Operating Agreement) at 2 (same).
15
Trial Tr. at 239:12–13 (Bustamante) (“The board is four guys that know each other.”);
id. at 247:3–5 (referring to his “three friends who are sitting on the board”).
16
See JX-55 (listing board members).
6
early 2000s. 17 Thomas and Cant were early investors in HControl Holdings. 18 Bustamante

added a new acquaintance, Mark Clark, to the board in an advisory and non-voting capacity

in July 2022. 19 Bustamante, O’Naghten, and Mark Clark played an active role in the sale

process, and all three testified at trial.

B. OpticalTel Launches A Sale Process.

In early 2022, OpticalTel launched a sale process and engaged Lazard Freres & Co.

LLC (“Lazard”) as its financial advisor and Latham & Watkins LLP (“Latham”) as its legal

advisor. 20 Over fifty potential buyers signed non-disclosure agreements, and thirteen

potential buyers submitted first-round bids. 21

Antin is a private-equity firm formed under French law that focuses on

infrastructure investments. 22 On July 28, 2022, Antin executed a non-disclosure agreement

to facilitate diligence. 23 Antin engaged Greenberg Traurig, LLP (“Greenberg”) as its legal

advisor and TD Securities as its financial advisor. 24 Antin believed that OpticalTel

17
O’Naghten Dep. Tr. at 11:20–13:2.
18
Rodriguez Dep. Tr. at 84:7–18; Bustamante Dep. Tr. at 143:3–14.
19
Trial Tr. at 494:15–19 (M. Clark).
20
PTO ¶¶ 43–44.
21
JX-74 at 2.
22
PTO ¶ 39.
23
JX-56.
24
PTO ¶ 46; Crosbie Dep. Tr. at 66:3–20.
7
presented an attractive acquisition opportunity given market conditions, its quality

management team, and opportunities for growth within its market. 25

On August 18, 2022, Antin submitted a non-binding indication of interest on behalf

of Antin and its affiliates (Buyers) offering to buy the Company for $216 million. 26 At

Lazard’s prompting, Buyers bumped the offer to $225 million on August 24 to make it to

the second round of bidding. 27

As bidding entered the second round, Buyers and another firm emerged as the

leading bidders. 28 At Sellers’ request, Buyers submitted a non-binding “refresh bid” of

$230 million. 29 Although the competing bidder offered a higher base price of $235 million,

Sellers’ management identified Buyers as its preferred bidder, and Lazard pushed in favor

of Buyers. 30 As Mark Clark explained during trial, Sellers preferred Buyers because they

perceived them as offering deal certainty. 31 Buyers enjoyed that reputation and understood

the value of offering certainty at the transactional table. 32

25
Trial Tr. at 890:12–891:22 (Genieser).
26
JX-69.
27
JX-71; Trial Tr. at 124:19–125:15 (Bustamante).
28
Trial Tr. at 126:18–127:8 (Bustamante).
29
JX-87; JX-92.
30
Trial Tr. at 126:18–127:8 (Bustamante).
31
Id. at 474:11–475:11 (M. Clark) (“Certainty is important. These are high-stakes
transactions. . . . And you want to make sure that, when you do it, you pick the right party
and that that party is capable of closing.”).
32
Id. at 923:12–24 (Genieser) (describing the value placed on deal certainty); id. at 475:15–
476:2 (M. Clark) (describing Antin’s reputation for deal certainty).
8
 On November 4, Buyers submitted another non-binding offer to buy the Company

for $230 million, along with a potential earnout payment of $10 million. 33 Later on

November 4, Lazard asked Buyers and the other finalist to increase their offers to $255

million, inclusive of potential earnouts. 34 Whoever accepted first would be granted

exclusivity. 35 Buyers accepted first. 36 Sellers and Buyers entered into an exclusivity

agreement on November 5. 37

C. The Parties Enter Into The Merger Agreement.

Sellers and Buyers executed the Merger Agreement on December 3, 2022. 38 The

Merger Agreement provides for the merger of the Purchased Entities into four of Buyers’

“Merger Subs,” 39 for a “Base Purchase Price” of $230 million. 40 Through two earnouts

payable if the Company met certain milestones post-closing, Sellers could be paid up to an

additional $30 million. 41 The parties also contemplated that, post-closing, Rodriguez

33
JX-94.
34
JX-103; JX-93.
35
JX-99.
36
JX-101 (Bustamante writing: “I can’t express how happy I am with this result
considering the state of the market. . . . [Buyers] were clearly the most competent team of
all the bidders.”).
37
JX-100.
38
PTO ¶ 62; see also Merger Agreement.
39
Merger Agreement § 2.01.
40
Id. § 1.01.
41
Id. § 2.06.
9
would continue to serve as CEO and Bustamante would continue to serve on OpticalTel’s

Board of Directors. 42

During the exclusivity period, the parties exchanged draft transactional documents

while continuing diligence efforts. Using Latham’s “auction draft” as a starting point, 43

the parties exchanged seven markups. 44 In briefing, the parties identified aspects of that

drafting history as relevant to this litigation.

Greenberg sent Buyers’ first markup of the auction draft to Latham on November

11, 2022. 45 Greenberg’s edits to two provisions featured heavily in the parties’ briefing.

Those two provisions are: Section 4.02, where Sellers made representations and warranties

concerning who owned the businesses being sold (the “Capitalization Representations”); 46

and Section 7.01(a), where Sellers agreed that all “Fundamental Representations,” defined

42
Trial Tr. at 791:16–23 (Reiser); Merger Agreement § 6.08(a).
43
JX-109 (auction draft). An “auction draft” is a form of agreement prepared by the sellers
and made available to buyers, typically through the data room. Trial Tr. at 9:5–9 (Purohit).
44
PTO ¶¶ 55–61; see JX-107 (Greenberg’s Nov. 11 markup to the auction draft); JX-114
(Latham’s Nov. 15 markup to the Nov. 11 draft); JX-121 (Greenberg’s Nov. 22 markup to
the Nov. 15 draft); JX-124 (Latham’s Nov. 23 markup to the Nov. 15 draft); JX-127
(Latham’s Nov. 25 further markup to the Nov. 15 draft); JX-128 (Greenberg’s Nov. 28
markup to the Nov. 23 and Nov. 25 drafts); JX-134 (Latham’s Nov. 29 markup to the Nov.
28 draft).
45
JX-107.
46
Trial Tr. at 13:9–13 (Purohit) (“You would like to understand the capitalization of the
company, who owns what, and if you need to get somebody’s vote or you know who the
ownership is of the company that you’re stepping into post-closing.”); id. at 699:15–18
(Reiser) (“[T]he purpose of the capitalization representation is for the buyer to get
representations regarding the kind of interests in the company group entities.”); id. at
400:23–401:2 (Solomon) (“If you’re buying a house, you want to know that you’re buying
title to the house, and so this is what assures you that you’re actually getting that house.”).
10
to include the Capitalization Representations, would be true and correct at closing (the

“Bring-Down Provision”).

In its November 11 markup of the Capitalization Representations, Greenberg

inserted the defined term “Equity Securities,” which is quoted fully in the legal analysis. 47

As revised, the Capitalization Representations state that: “The Units constitute the only

outstanding Equity Securities of the Purchased Entities” and “[a]ll of the Equity Securities

of each of the Subsidiaries of the Purchased Entities are wholly-owned by the applicable

Purchased Entity or one of the applicable Purchased Entity’s Subsidiaries.” 48 Sellers

accepted this change and the definition of Equity Securities, 49 which remained in the final

agreement. 50

Importantly, Buyers did not alter the last sentence in the Capitalization

Representations, except to insert the defined term Equity Securities in the place of the

undefined term “equity securities.” The untouched portions of the auction draft remained

the same through each round of markups. 51 In the final draft, the Capitalization

Representations provide that “[t]here are no outstanding . . . phantom equity, . . . or other

similar rights, agreements, arrangements, undertakings or commitments of any kind to

47
JX-107 at 12–13.
48
Id. at 32.
49
JX-114.
50
Merger Agreement § 4.02.
Compare JX-107, JX-114, JX-121, JX-124, JX-127, JX-128, and JX-134, with Merger
51

Agreement § 4.02.
11
which any such member of the Company Group is a party obligating it to . . . grant, extend

or enter into any . . . phantom stock.” 52 Due to this language, the Capitalization

Representations extended beyond the definition of Equity Securities and cover phantom

equity, among other things.

In its November 11 markup to the Bring-Down Provision, Buyers struck Sellers’ de

minimis qualifier, which provided that the Fundamental Representations (including the

Capitalization Representations) “shall be true and correct in all respects (except failures to

be true and correct as are, individually and in the aggregate, de minimis in nature).” 53 By

striking the de minimis qualifier to secure a “flat” Bring-Down, Buyers required Sellers to

maintain their Fundamental Representations at closing in all respects. 54 The parties went

back and forth on this provision in subsequent drafts. Sellers reinserted the de minimis

qualifier twice, and Buyers struck it twice. 55 Buyers ultimately prevailed on this point, and

the final draft contained language requiring that the Fundamental Representations be “true

and correct in all respects” at the time of closing. 56

52
Merger Agreement § 4.02.
53
JX-107 at 82.
54
Trial Tr. at 622:14–623:5 (Turek); id. at 713:2–9 (Reiser).
55
Compare JX-114 at 85 (Latham’s Nov. 14 markup) and JX-124 at 84 (Latham’s Nov.
23 markup), with JX-121 at 85 (Greenberg’s Nov. 22 markup) and JX-128 at 84
(Greenberg’s Nov. 28 markup).
56
Merger Agreement § 7.01(a). Two categories of Fundamental Representations, neither
relevant to this dispute, were exempted from the de minimis qualifier. See id.
12
 Simultaneously, Buyers continued diligence into Sellers’ businesses. Diligence into

Sellers’ capitalization table prompted other revisions to the Merger Agreement that were

discussed at length in the parties’ briefing.

On November 11, Greenberg requested a “detailed capitalization table” from

Sellers, and Bustamante provided one on November 14 that was prepared by Sellers’

accountant. 57 There were discrepancies between the November 14 table and the prior

version of the table that Sellers provided through the data room. 58 These discrepancies led

Buyers to add a new request to the diligence tracker concerning “Equity Ownership /

Capitalization.” 59

Specifically, on November 15, Buyers asked Sellers to confirm that certain

subsidiaries were wholly owned and further requested: “[Q558] Please provide copies of

all documentation related to the issuances and/or transfers of shares of HControl Holdings

and the [Purchased] Entities.” 60 Lazard described these as “the highest priority requests”

57
JX-106 at 48.
58
JX-111 (capitalization table as of 11/14/23); Trial Tr. at 128:22–129:21 (Bustamante)
(explaining that “there was a capitalization table that was in the data room from early in
the process,” but when Buyers asked for a capitalization table during the exclusivity period,
Bustamante provided a table that he obtained from the Company Group’s tax accountant,
and this table did not reflect a few transactions); id. at 631:20–632:2 (Turek).
59
JX-115.
60
Id.
13
and “items that [Buyers] would like addressed asap.” 61 On November 16, Sellers

confirmed that the subsidiaries were wholly owned but questioned the need for Q558. 62

About a week after circulating its initial markup, Buyers (through TD Securities)

sought to “emphasize the priority” of obtaining documentation about share transfers, 63 a

request that, by November 21, TD Securities described as “massively important” and as

“the most significant outstanding request.” 64 A Greenberg deal lawyer testified that the

documentation Sellers provided in response was “inadequate.” 65 While not unusual for a

family-owned business like Sellers to have less-than-perfect recordkeeping, 66 the

capitalization questions led Buyers to negotiate for particular protections.

Through a November 22 markup, Greenberg proposed two additional changes

driven by diligence into Sellers’ capitalization table.

61
Id.
62
JX-117.
63
JX-131 at 11; see also JX-118 (Nov. 21 request, identifying it as “the most significant
outstanding request” and “massively important to tying out diligence on the legal side”);
JX-130 (Nov. 28 request).
64
JX-130.
65
Hawa Dep. Tr. at 25:18–28:10; see also Trial Tr. at 656:12–14 (Turek) (“I think we just
wanted to understand why we couldn’t find them. It’s something we typically would see
in transactions like this.”).
66
Purohit Dep. Tr. at 105:24–106:17; see also Trial Tr. at 286:20–22 (Bustamante) (“Q.
And sometimes you would scan documents and then throw away the original? A. Yes.”);
id at 287:22–288:1 (Bustamante) (“Q. And there was no central repository that the
company had to maintain corporate documents? A. No. Like I said, depending on the
document, it’s supposed to be in a certain place.”).
14
 First, Greenberg proposed changing the transaction’s structure from a purchase and

sale agreement to a merger. 67 A merger addresses capitalization concerns by effectively

reducing claims of shareholders who do not sign a sale agreement to one for money

damages, rather than a claim of ownership in the new entity, thereby ensuring that the buyer

obtains 100% of the shares in the merged entity. 68 Sellers agreed to this change. 69

Second, Greenberg proposed a special indemnity, inserted as a new Section 9.03,

requiring Bustamante to personally indemnify Buyers for any costs or damages arising

from third-party claims relating to any breach of the Capitalization Representations (the

“Special Indemnity”). 70 Sellers also accepted this change. 71 As Sellers’ attorney testified

at trial, the Special Indemnity provided a broad “dollar one, uncapped, untimed indemnity”

that was extremely favorable to Buyers. 72

These changes, coupled with the other terms of the Merger Agreement, addressed

Buyers’ concerns regarding capitalization issues that arose in diligence. 73 On December

1, 2022, Buyers sought approval for the deal from their Investment Committee. 74 The deal

team reported that questions regarding Sellers’ capitalization remained unanswered, but

67
JX-121.
68
See Trial Tr. at 16:10–21 (Purohit); id. at 626:9–22 (Turek); id. at 707:24–708:9 (Reiser).
69
JX-124.
70
JX-121.
71
JX-124
72
Merger Agreement § 9.03; Trial Tr. at 19:1–6 (Purohit).
73
Trial Tr. at 758:2–5 (Reiser); see also id. at 632:6–21, 709:6–9 (Turek).
74
JX-142.
15
“[a]ny issues that came up during diligence were subsequently addressed in the Merger

Agreement.” 75 They further explained that they completed confirmatory diligence

“without finding any material gating issues.” 76 The Investment Committee unanimously

approved the deal. 77

In addition to the deal’s features discussed above—the Capitalization

Representations, the Bring-Down Provision, the structure as a merger, and the Special

Indemnity—the final Merger Agreement contained interim operating covenants. Among

other things, these covenants: required Sellers to operate the Company in the “Ordinary

Course of Business” and “preserve intact the business organizations;” 78 prohibited Sellers

from entering certain types of agreements with affiliates; 79 and prohibited Sellers from

dissolving a material subsidiary within the Company Group. 80 The final Merger

75
Id. at 4.
76
Id.
77
Trial Tr. at 899:15–20 (Genieser).
78
Merger Agreement § 6.01(a) (“During the Interim Period . . . each Seller shall, and shall
cause the Company Group to . . . conduct its and their respective Businesses in the ordinary
Course of Business in all material respects.”).
79
Id. § 6.01(b)(xi) (“Seller shall not, and shall not permit any member of the Company
Group to . . . enter into or modify any Contract with any Affiliate of the Company Group
(other than within the Company Group)[.]”).
80
Id. § 6.01(b) (prohibiting Sellers from adopting a plan of dissolution of any member of
the Company Group, “other than intra-company mergers or a dissolution of immaterial
Subsidiaries”).
16
Agreement also contained a provision requiring that both sides make best efforts to

consummate the merger 81 and a no-shop provision. 82

For Buyers to validly terminate under the Merger Agreement due to Sellers’ breach,

Buyers could not be “in material breach of any of its representations, warranties, covenants

or other agreements.” 83

The Merger Agreement sets an “Outside Date” of June 3, 2023, but the Outside Date

is suspended where—as here—Sellers seek specific performance in defined “Legal

Proceedings.” 84 Buyers’ debt financing commitment, however, would expire five business

days after the Outside Date, or June 9. 85

D. A Former Company Employee, Rafael Marquez, Claims An Ownership
Stake In OpticalTel After The Deal Is Announced.

In Schedule 4.02 to the Capitalization Representations, Sellers identified all persons

who own Equity Securities in any of the Company Group entities. 86 After the parties

signed the Merger Agreement, a Company employee who did not appear on Schedule 4.02,

Rafael Marquez, claimed ownership in certain Company Group entities.

81
Id. § 6.04(a).
82
Id. § 6.18(a).
83
Id. § 8.01(d).
84
Id. § 8.01(a).
85
Dkt. 147 at 13 (“In the event that the Closing Date does not occur on or before . . . the
date that is five business days after the Outside Date . . . , if the Acquisition has not been
consummated on or prior to such date, . . . the applicable commitments hereunder shall
automatically terminate.”).
86
JX-616 at 19.
17
 1. Marquez’s 2004 Software Agreement

Marquez’s relationship with Sellers dates back to 2004. When Bustamante formed

the Company, the business needed software for various billing and provisioning tasks. 87

Bustamante testified that he designed that software himself, including the databases, tables,

naming conventions, and flow charts. 88 Given the time demands of running the business,

however, Bustamante needed coders to implement the software’s design. 89 He hired

Marquez at the recommendation of a friend. 90

Bustamante could not afford to pay Marquez the $6,000 per month that

Bustamante’s prior employer had paid its coders. 91 Bustamante and Marquez discussed a

compromise, which they memorialized in a Software Development Agreement dated April

19, 2004 (the “Software Agreement”). 92 The key language is in Section 2 of the Software

Agreement:

Fee and Other Compensation. In consideration of the services to be performed
during the term of this Agreement, HControl shall pay to the Consultant:

• $3,000 per month payable on the 15th and 30th day of each month.

87
Trial Tr. at 101:19–102:7 (Bustamante).
88
Id. at 102:8–102:22 (Bustamante).
89
Id.
90
Id. at 102:23–103:11 (Bustamante).
91
Id. at 103:18–104:13 (Bustamante).
92
JX-3; see also Trial Tr. at 104:19–105:8 (Bustamante) (“And so I told him that what I
was willing to do, if he accepted the $3,000, was if I ever sold the software and I got money
from the sale of the software, I would give him 5 percent of whatever I got.”).
18
 • 5% ownership of HControl Corporation to be distributed upon a
liquidation event. 93

During trial, Bustamante provided context for this arrangement. He testified that

Marquez did not want stock in HControl Corporation for tax reasons. 94 Bustamante further

testified that he did not want to issue stock to Marquez because Bustamante wanted to own

and control 100% of each of his companies. 95 While there were discussions about licensing

the software to monetize it, the Software Agreement did not cover licensing fees. 96 On its

face, the Software Agreement states that it is the parties’ “entire agreement” and is non-

assignable. 97

Bustamante did not view the Software Agreement as conveying a form of equity

interest. 98 And he did not treat Marquez as a stockholder. Marquez never received a K-1,

never received any distributions, and never voted on any matters as a stockholder of

HControl Corporation. 99 Bustamante assumed that the Software Agreement called for

93
JX-3.
94
Trial Tr. at 105:9–23 (Bustamante) (“He did not want stock in HControl because he had
a tax issue with the IRS at the time. Also, if you gift him or give him the stock, he’s going
to have to pay taxes on it, which he obviously didn’t want to do.”).
95
See id. (Bustamante) (“I also didn’t want to have to have a partner. I wanted to have 100
percent ownership because I wanted to be able to execute my strategy without having to
worry about what somebody else -- whether somebody else agrees or disagrees with what
I am doing.”).
96
JX-5 at 1; Trial Tr. at 155:3–156:7 (Bustamante).
97
JX-3 at 3.
98
Trial Tr. at 107:18–108:1, 108:18–109:22 (Bustamante).
99
Id. at 110:2–7 (Bustamante).
19
some form of cash payment that Bustamante would make to Marquez upon a liquidation

event, like the merger. 100

Marquez worked for Sellers until around 2016, 101 and communications between

Marquez and Bustamante around the time of Marquez’s departure provide further context

for the Software Agreement. In one email, Bustamante described the Software Agreement

as providing $6,000 per month: “[W]e would defer $3,000 for future payment and you

would collect $3,000 in cash per month.” 102 Bustamante expressed concern that Marquez

was attempting to claim 5% ownership over the entire Company Group, although the

Software Agreement limited his stake to HControl Corporation. 103 Marquez was being

difficult at that time, vacillating between a strong “dislike” 104 and a “love you to death”105

attitude toward Bustamante. After some cajoling, Bustamante got Marquez to confirm his

understanding that the Software Agreement was limited to HControl Corporation and did

not extend to other entities. 106

100
Id. at 109:7–21 (Bustamante).
101
Marquez Dep. Tr. at 90:5–12; Trial Tr. at 111:5–111:20, 158:17–159:18 (Bustamante).
102
JX-34 at 2; see also id. at 4 (explaining that Marquez would get 5% of proceeds from a
sale of the software).
103
See, e.g., id. at 3 (Sept. 8, 2016 email from Bustamante to Marquez stating, “I hope you
are not trying to claim ownership in those entities because if you are, we have a serious
problem.”).
104
Id. at 1 (Marquez emailing sober).
105
JX-35 (Marquez emailing drunk).
106
See, e.g., id. at 1 (Marquez replying to Bustamante’s request that Marquez confirm his
understanding that his 5% ownership is limited to HControl Corporation, “Also make sure
that as I don’t have any interest in any of your interest, you will stop anybody from firing

20
 2. Marquez’s Shakedown

A few weeks after the Merger Agreement was publicly announced, Marquez

emailed Bustamante, ostensibly to congratulate him on the deal. 107 Marquez also “assured”

Bustamante (unsolicited) that his intentions were “all good.” 108 This was the first

interaction between Bustamante and Marquez since 2016. 109 On December 29, 2022,

Marquez sent a follow-up email to Bustamante, writing, “[f]or almost two decades it was

a tacit agreement that you would take care of me when the company was sold. You can

easily take care of me with 5% of 5% of . . . what you are getting.” 110 On December 30,

Marquez requested a meeting with Bustamante. 111 Bustamante replied that he needed time

to collect documentation, but he attempted to comfort Marquez: “Don’t stress out because

I have no intention of walking away from my commitments and I’m not stalling, I simply

have a ton of work to do to get ready for a closing.” 112 After a few more emails, Bustamante

agreed to meet with Marquez. 113 Bustamante did not disclose his interactions with

Marquez to Buyers in the period between December 27 and December 30, as he did not

me or anything bad that could or would happen to me regarding Hcontrol.”); JX-36 at 1
(Marquez replying to Mario, “I do not have any interests or claims to any other companies
or entities other than to HControl Corporation, the owner of the software.”).
107
JX-175.
108
Id.
109
Bustamante Dep. Tr. at 81:12–17.
110
JX-128.
111
JX-608 at 4.
112
Id. at 3.
113
Trial Tr. at 139:4–16 (Bustamante).
21
think it was relevant. 114 Bustamante testified that, at this time, he believed Marquez’s 5%

interest in HControl Corporation to be worth a maximum of $300,000 115 and that he did

not view it as subject to the Capitalization Representations.

The interactions quickly escalated. By January 3, 2023, Marquez had retained a

Florida personal injury attorney, John Hoffman, whom he began copying on his emails to

Bustamante. 116 Marquez’s emails became “aggressive” and “unpredictable.” 117 Marquez

started claiming to be a “co-founder” of the Company Group. 118 By January 5, 2023,

Marquez was describing himself to Bustamante as a “totally out of control and really angry

partner that feels completely betrayed and cheated by you.” 119 Marquez began demanding

settlement amounts far beyond what Bustamante viewed as reasonable. 120 Bustamante told

Marquez to direct future communications to Sellers’ counsel. 121

114
Id. at 140:16–141:8 (Bustamante) (“This is a post-closing -- this is a negotiation I have
to have with Rafael Marquez to see what kind of payment he’s going to get after the closing.
And it’s just one of many payables and many issues that we’ve got to deal with.”).
115
Id. at 145:16–23 (Bustamante).
116
JX-177.
117
Trial Tr. at 146:9–17 (Bustamante).
118
JX-177.
119
JX-178.
120
Trial Tr. at 146:22–149:1 (Bustamante).
121
JX-178 at 3 (Jan. 5, 2023 email from Marquez to Bustamante stating: “From this point
on, do not communicate directly with me in any way. You will be hearing from [my
counsel] soon.”).
22
 Rebuffed but undeterred, Marquez switched tactics and told Bustamante that he

intended to be as disruptive as possible by contacting Buyers, Buyers’ attorneys, Buyers’

bankers, and any financing parties he could identify. 122

On January 6, Sellers informed Buyers of the Marquez issue through counsel.123

Word of Marquez had not yet reached Buyers’ senior partner Kevin Genieser, however.

Much to his surprise, Genieser began receiving voicemails and calls on his personal phone

from Marquez on the evening of January 6. 124 Genieser did not engage with Marquez, then

or ever, 125 but Genieser did forward the messages to Lazard. 126

At Genieser’s request, Lazard scheduled a call for Saturday, January 7, to discuss

Marquez. 127 During the call, Bustamante stated his understanding that Marquez would

122
JX-178 at 1 (Marquez responding “I have nothing to discuss with your “private”
attorneys. You can’t and won’t control who I talk to . . .”); see also Trial Tr. at 543:14–17
(Marquez) (“Question: Was it part of your strategy to loudly make your claims known to
Antin and its representatives? Answer: H*ll yes.”).
123
JX-185.
124
Trial Tr. at 892:14–894:22 (Genieser); JX-176 (Marquez texting Genieser: “I am the
original developer and sole owner of all the software that the company uses up to this very
day,” claiming that he was “ready to share pertinent information” with Buyers, and offering
that Marquez “will be very useful to you”).
Trial Tr. at 896:21–897:4 (Genieser); see also, e.g., JX-195 (Jan. 9, 2023 email from
125

Genieser stating “he [Marquez] called me again a few minutes ago. I did not pick up.”).
126
JX-176; JX-180; JX-181; Trial Tr. at 893:4–894:8 (Genieser).
127
JX-189.
23
receive a payment out of the proceeds of the sale. 128 After the call, Latham referred to

Marquez as a “capitalization issue.” 129

As the Marquez issue developed, Bustamante drafted summaries of his relationship

with Marquez to provide to counsel and Buyers. 130 The summaries used a variety of

verbiage to describe Marquez’s rights. In a January 8 memo, for example, Bustamante

wrote that Marquez “would be treated as a 5% owner, meaning he would get 5% of the

profit” from HControl Corporation. 131 In a later memo, Bustamante wrote that Marquez

had an “ownership interest” that entitled him to “5% of any net proceeds made from

licensing fees on the software or from a liquidity event in respect of HControl

Corporation.” 132

128
Trial Tr. at 152:4–6 (Bustamante) (“It means that I know about Rafael Marquez. I made
a deal with him, and I have known that he was one of the issues I had to deal with post-
closing.”); id. at 895:22–896:2 (Genieser) (“I remember Mario being very apologetic,
saying it’s -- he was aware of this issue and -- but had never thought it would get to this
point and so was surprised that Marquez had reached out to me and had taken this additional
step.”).
129
JX-339 at 2; see also Trial Tr. at 130:12–17 (Bustamante) (“I was approached by
Latham, and I was asked if I was willing to give a special indemnity to handle any cap
issues. And I said absolutely, no problem, I will agree to anything they want as far as
capitalization issues because I understand their position.”); id. at 642:10–16 (Turek); Hawa
Dep. Tr. at 79:19–80:8.
130
See JX-5 (memo provided to Sellers’ Florida counsel); JX-265 (memo provided to
Greenberg).
131
JX-5 at 1.
132
JX-265 at 3.
24
 Marquez’s campaign continued. 133 In a January 8 voicemail to Genieser, Marquez

described himself as a “whistleblower,” accused Bustamante of using shell companies to

improperly shift assets around, and warned that there were other individuals who owned

equity in Sellers but were not being paid as part of the transaction. 134 In another voicemail

to Genieser, Marquez promised that he “would not go away.” 135 Marquez conveyed the

same determination to a Latham corporate partner. 136

On January 9, Greenberg called Marquez to request that he stop contacting

Buyers. 137 The call lasted about fifteen minutes, during which Marquez thanked Buyers

for returning his call and tried to dive in to the details of his claims. 138 The call ended when

Marquez told Greenberg that he was represented by Hoffman. 139

Sellers hired Florida counsel to respond to Marquez. 140 O’Naghten forwarded some

of this correspondence to Greenberg, which included a copy of the Software Agreement. 141

A Greenberg attorney then reached out to Hoffman directly to “get some time to speak to

133
JX-195; JX-541; JX-542.
134
JX-541; JX-233 at 7.
135
JX-542.
136
JX-218 (voicemail from Marquez stating he was “trying to contact all the parties” to let
them know that he was “not going away”).
137
Trial Tr. at 686:5–15 (Turek).
138
Id. at 686:16 – 687:9 (Turek).
139
Id.
140
See, e.g., JX-183; JX-186; JX-187 (Jan. 6, 2023 letter to Hoffman); JX-190; JX-196
(Jan. 9, 2023 letter to Hoffman).
141
JX-196.
25
Rafael” and to ask for “the materials [Marquez] believe[s] substantiate his position.”142

Greenberg did not include any of Sellers’ representatives on this outreach. 143 Although

Hoffman agreed to the meeting, Greenberg refused to sign a formal confidentiality

agreement and ultimately pulled the plug before any meeting occurred. 144 Hoffman,

however, continued contacting Greenberg. 145

Meanwhile, Marquez’s claims became more ambitious. On January 13, 2023,

Hoffman sent separate letters to Sellers’ Florida counsel and to Greenberg. Each stated

that Marquez was asserting two claims for cash payments that extended well beyond the

Software Agreement. 146 The letter to Greenberg also stated that Marquez owned HControl

142
JX-233 at 1.
143
See id.
144
See id. at 90; JX-251 at 3.
145
See JX-260; JX-331; JX-357; JX-393; JX-410; JX-484; JX-497; JX-499. Hoffman
contacted Greenberg each time he corresponded with Sellers. See, e.g., JX-331; JX-357;
JX-393; JX-410; JX-484; JX-499. Each letter begins with the phrase, “[c]onsistent with
your request to be kept up to date,” but Greenberg denies ever making such a request. See
Trial Tr. at 734:4–9 (Reiser) (“I never authorized Greenberg to be asking for updates. And
my understanding is that Mr. Bustamante testified that he never asked for updates. So I
don’t believe this is consistent with reality.”); see also Pusateri Dep. Tr. at 101:2–5.
146
JX-259 at 1 (letter to Greenberg stating, “Just for the record Rafael Marquez does not
recognize the contract he has been presented with as being enforceable.”); JX-256 at 1
(letter to Sellers’ Florida counsel demanding payment for an alleged liquidation event in
2009 and information rights to know the exact amount Bustamante and his family would
receive in the transaction).
26
Corporation’s software and threatened to make it available to a network of developers in

Venezuela. 147 Buyers did not share the January 13 letter with Sellers. 148

Litigators began gearing up to address the Marquez issue. On January 22, Sellers

had an introductory call with Latham’s litigators. 149 After that call, Latham’s lead litigator,

Chris Clark, began working on a memo to evaluate the exposure from Marquez. 150 Chris

Clark suggested that Sellers and Buyers enter into a common interest agreement so that he

could share his analysis of the Marquez issue 151 and asked for a call with Greenberg. 152

The original call was “helpful and constructive.” 153 After Greenberg and Latham

discussed a common interest agreement, the discussion turned to the Marquez issue. 154 The

parties talked in generalities about the possibility of setting up an indemnity or an

escrow, 155 but no specifics were discussed. 156 The call ended with Chris Clark “saying that

147
JX-259 at 1.
148
Trial Tr. at 799:6–11 (Reiser).
149
JX-288.
150
See JX-311 at 10–17.
151
Id. at 3; C. Clark Dep. Tr. at 81:10–23.
152
JX-300.
153
JX-302; see also Trial Tr. at 62:4–13 (Purohit).
154
Trial Tr. at 30:9–18 (Purohit)
155
Id. at 62:14–18 (Purohit).
156
Edlin Dep. Tr. at 26:4–17.
27
he was going to send the Latham memo and that we would digest the memo and take it

from there.” 157 The litigators agreed to continue conferring on next steps. 158

As the lawyers negotiated a common interest agreement, Buyers remained keen on

closing and, according to Bustamante, were “acting like they already own the company.” 159

Buyers were operating “full steam ahead” on the assumption that Bustamante would

resolve the Marquez issue. 160 Buyers were “setting up appointments for Luis and telling

him it’s okay to sign some contracts and to close on an acquisition of a couple of very

attractive properties.” 161 At that time, Bustamante believed these deals were “clearly the

right thing to do.” 162

As Buyers moved toward closing, they believed that Sellers were working to settle

with Marquez. 163 Under this impression, Geneiser prepared his comments for Buyers’

Investment Committee meeting on January 30, 164 and he secured the Investment

Committee’s approval for the deal team to continue toward closing while learning more

about the Marquez issue. 165

157
Id. at 29:18–23.
158
Trial Tr. at 62:14–18 (Purohit).
159
JX-304.
160
Trial Tr. at 723:15–724:15 (Reiser); see also id. at 901:11–902:7 (Genieser).
161
JX-304.
162
Id.
163
Trial Tr. at 901:11–902:7 (Genieser).
164
Id. at 906:2–6 (Genieser).
165
JX-372 at 5.
28
 3. Marquez Refuses Reasonable Settlement Overtures.

Sellers were having a difficult time bringing the Marquez issue to ground. Sellers

had offered to mediate with Marquez, but those efforts were stymied by Marquez’s request

to see copies of the deal documents, which Bustamante did not provide. 166 Bustamante

said that he did not provide a copy of the documents because they were confidential, but

Sellers never asked Buyers for permission to share the deal documents with Marquez. 167

It seems likely that Bustamante did not want to provide the deal documents to Marquez,

presumably because he was concerned (reasonably) about how Marquez would use them.

Ultimately, Sellers did make settlement offers to Marquez. Bustamante’s first

instinct was unusual (although perhaps relatable)—he decided to sic his cousin on Marquez

to make him “go away.” 168 Hoffman described the cousin’s outreach as follows: “I’m

offering you $300,000 to go away, you better take this offer in the next 24 hours, otherwise,

I’ll close on the deal, leave the amount in escrow, and good luck suing me in court.” 169 It

is unclear whether this was what was actually conveyed. In all events, Marquez denied the

166
JX-304; see also JX-322.
167
Trial Tr. at 646:3–10 (Turek); id. at 726:6–19 (Reiser) (“We would have been happy to
do so. Obviously, we would have made Mr. Marquez sign an NDA, but similar to the
common interest agreement, we wanted to do what we could to assist the sellers in getting
this thing resolved so we can close.”).
168
JX-352 at 3.
169
Id.
29
offer. Bustamante reported to Lazard that Marquez was “not interested in working

something out right now” and that Marquez “wants to ‘blow up the deal.’” 170

Sellers made a second offer to Marquez on January 31. 171 Bustamante’s Florida

counsel wrote to Marquez and explained that Bustamante could not provide the deal

documents to Marquez. 172 In another “exploding” offer that expired the next day,

Bustamante’s counsel offered to pay Marquez $204,750 for Marquez’s entitlement to “5%

of the net proceeds from the sale of HControl Corporation,” assuming a sale price of $6.5

million. 173 Sellers did not share this letter with Buyers. 174 Marquez refused the offer. 175

Sellers made a third offer to Marquez on February 1, offering $300,000 based on a

$9.5 million valuation of HControl Corporation. 176 Sellers also proposed that if Marquez

believed the valuation was too low, the parties could share the expense of a third-party

appraiser. 177 The appraiser’s determination could only increase the amount of Marquez’s

settlement; a lower valuation would not decrease the payout below $300,000. 178

170
JX-304 at 1.
171
JX-322.
172
Id.
173
Id. at 1.
174
Trial Tr. at 726:6–19 (Reiser).
175
Id. at 223:13–15 (Bustamante).
176
JX-324 at 3.
177
Id.
178
Id. at 3–4.
30
 On February 2, Hoffman wrote to Sellers’ counsel. 179 He threatened that “[b]efore

any serious negotiations can start to resolve the matter at hand, you better reign in your

client Mario Bustamante.” 180 Hoffman stated that Bustamante’s “reckless and unethical

behavior,” including trying to “go around” Hoffman via Bustamante’s cousin, “continues

to undermine the credibility and effectiveness of your efforts.” 181

Hoffman made an eye-popping offer of $4.5 to $5.4 million to resolve Marquez’s

claim. 182 That offer was based on Marquez’s position that he was entitled to 5% of

Bustamante’s total deal proceeds because Bustamante had supposedly been playing

“equity-diluting shell company games” to dilute Marquez’s interest. 183 Bustamante

thought this offer was “crazy” and ceased negotiations with Marquez. 184

4. Sellers And Buyers Reach An Impasse.

Meanwhile, communications between Sellers and Buyers began to deteriorate.

Genieser viewed Sellers’ settlement efforts as inadequate and scheduled a one-on-one with

179
JX-352.
180
Id. at 3.
181
Id.
182
Id. at 4.
Id.; see also Trial Tr. at 539:3–7 (Marquez) (“The reason I’m actually asking for Mr.
183

Bustamante’s [money] and not everybody else is because I do not know how many shell
company games he has played and how many times he actually tried to dilute me and take
me out of the contracts.”).
184
Bustamante Dep. Tr. at 207:4–7; see also Trial Tr. at 225:4–6 (Bustamente) (“I am not
amenable to settling a blackmail. I’m not amenable to paying blackmail based on a claim
that I committed fraud.”).
31
Buyers’ lead banker, Lazard’s Garrett Baker, for January 30. 185 According to Genieser,

Baker became “threatening” during this meeting and stated that Sellers intended to force a

closing regardless of Buyers’ concerns. 186 The tone was similarly hostile on a January 31

call between Latham and Greenberg. 187 The attorneys convened to discuss Chris Clark’s

memorandum regarding Marquez. 188 Greenberg attorneys testified that, during the

meeting, Chris Clark became “hostile” and “shouted,” threatening to sue Buyers if they did

not resolve their concerns over Marquez. 189

At Genieser’s request, 190 Bustamante and he met in Fort Lauderdale on

February 1. 191 Genieser testified that, despite the ongoing issues, Bustamante and he had

“always had a very good relationship and a very jovial type of relationship.” 192 According

185
Trial Tr. at 907:13–23 (Genieser).
186
Id. at 907:24–908:16 (Genieser); see also id. at 594:2–18 (Baker) (recalling himself
stating that “Mario’s trying to do the right thing here, but if you continue to hold this up, I
believe he’s going to sue you for specific performance, and I believe he’ll win”).
187
JX-543; JX-321.
188
Trial Tr. at 64:13–16 (Purohit).
189
Id. at 645:8–20 (Turek); see also Hawa Dep. Tr. at 118:4–7. When asked whether Chris
Clark became agitated during the January 31 call, a former colleague of Chris Clark’s at
Latham testified: “You’re talking about Chris Clark here. Those words are relatively
synonymous on any call that he’s on.” Trial Tr. at 65:5–19 (Purohit). Bustamante’s
contemporaneous email corroborates the attorneys’ recount: “[On] Tuesday [January 31],
there was a pretty heated discussion[] between all the lawyers in which our lawyers from
Latham Watkins stated that if we gave them a 3 day notice they had an obligation to close
and that their advice to us is that if they don’t close, we should immediately file suit in
Delaware.” JX-353.
190
Trial Tr. at 908:17–909:2 (Genieser).
191
See JX-353; Trial Tr. at 911:12–15 (Genieser).
192
Trial Tr. at 912:19–913:3 (Genieser).
32
to Bustamante’s contemporaneous account of the meeting, Genieser reiterated “how

excited they are to buy the company, how they love the management team and how much

they are looking forward to executing their very ambitious plans over the next few

years.” 193 Genieser then “assured [Bustamante] that people who were saying they were

getting cold feet or had buyer’s remorse were wrong.” 194 By the time of trial, Genieser

testified that “still like[d] the business” as an investment. 195

The parties, however, were unable to reach an agreement on how to address the

Marquez risks. On February 1, Latham emailed Greenberg to propose restructuring the

transaction to exclude HControl Corporation. 196 To “ensure the Company Group has

access to the license/software held by HControl Corporation to ensure continuity of the

business,” Sellers proposed that “Buyer/Company Group would enter into a licensing

agreement with HControl Corporation for $1.00 / year.” 197 The proposal also suggested

that “Bustamante would covenant in good faith to resolve the Marquez issue.”198

Bustamante also offered to indemnify Buyers for any costs relating to the Marquez issue,

although the Merger Agreement already included the Special Indemnity. 199

193
JX-353 at 1.
194
Id.
195
Trial Tr. at 891:7–22 (Genieser) (“I still think it has a lot of growth potential. I think it
is a very exciting, dynamic market.”).
196
JX-339 at 1–2.
197
Id. at 2.
198
Id.
199
Id.
33
 Latham’s February 1 proposal did not include an escrow of any funds to cover

liability relating to Marquez. The lack of escrow confused Buyers’ in-house counsel, Marc

Reiser, and Greenberg because Latham had indicated that an escrow would be part of any

proposal. 200 Buyers rejected the proposal. 201

5. Buyers Serve Their First Notice Of Breach.

Buyers were first informed of the Marquez issue on January 6, 2023. They did not

immediately serve a notice of breach because they anticipated that Sellers would fix the

problem. 202 By February 6, however, Sellers had not done so.

On February 6, 2023, Buyers’ Investment Committee met to receive “an update on

the status of closing.” 203 The deal team explained that “it does not appear that Sellers have

200
Trial Tr. at 728:20–729:7 (Reiser) (“And then we received this email from Latham,
which, number one, didn’t include an escrow, which was what has been told. . . . This was
unfortunate to receive, from my perspective.”); Hawa Dep. Tr. at 121:16–20 (“I don’t
remember which one it was, but there -- there was like one of Latham’s – ‘Here’s a
proposed resolution.’ It didn’t have an escrow in it. Although we were fully expecting it,
in view of our conversations.”).
201
Trial Tr. at 729:11–730:5 (Reiser) (testifying that Latham’s proposal was “not
something that [Buyers] can accept on a go-forward basis” because Buyers required either
a settlement with a full release from Bustamante or a unilateral right to settle with Marquez
out of an escrow fund).
202
Id. at 646:21–647:2 (Turek) (“Q. Under the terms of the merger agreement, could Antin
have served a notice of breach earlier than February 6? A. Yes, they could have. They
could have served it, in my opinion, January 9, when we got a copy of the software
development agreement.”); id. at 732:2–14 (Reiser) (similar); id. at 918:20–919:3
(Genieser) (“We wanted to give them time to resolve it. We thought, frankly, that they
might need some time to resolve it. They had a good period of time. Again, what surprised
me in those conversations early February, they didn’t seem to be focused on resolving the
issue.”).
203
JX-372.
34
taken actions to cure the breach to-date notwithstanding the fact that Antin has provided

Sellers with over a month to resolve the issue.” 204 Genieser testified that the Investment

Committee “decided to serve the notice of breach because we wanted to send another

indication that we were quite serious about it.” 205 The Investment Committee unanimously

“determined that it was appropriate for the deal team to serve the notice of breach on the

Sellers.” 206 Reiser also authorized the notice of breach, 207 and Buyers served the notice

that afternoon. 208 The notice of breach letter was based on a breach of the Capitalization

Representations. 209

Even at this point, Genieser testified that he “never thought that we would actually

terminate the transaction,” because he thought that Bustamante and the rest of Sellers

would resolve the outstanding issues. 210

The parties dispute Buyers’ motives for serving the notice of breach on February 6.

In this litigation, Sellers came to believe that the notice had something to do with an

investigative report on the Company Group, Bustamante, and Rodriguez prepared by a

third party, Kroll. 211 Buyers received the report on February 1, after they had

204
Id.
205
Trial Tr. at 917:1–7 (Genieser).
206
JX-372; Trial Tr. at 900:8–15 (Genieser).
207
Trial Tr. at 792:14–16 (Reiser).
208
JX-344.
209
Id.; see also Trial Tr. at 683:1–4 (Turek).
210
Trial Tr. at 917:8–20 (Genieser).
211
JX-323.
35
commissioned it mid-January upon learning about Marquez. 212 The report cast a number

of aspersions on Sellers, who received a copy through discovery. Sellers deny the

statements in the report. Sellers point to this report as the impetus behind Buyers’ decision

to back out of the deal. They insinuate that Buyers’ legal grounds for termination are

pretextual.

At trial, Buyers’ representatives testified, again credibly, that the Marquez issue

concerned them. They acknowledged that the post-closing risks related to Marquez were

not primarily financial—Buyers viewed Marquez’s claim as “worth a minimal amount of

money compared to the deal.” 213 Buyers believed, however, that Marquez would continue

to pursue his claims aggressively post-closing 214 and that litigation would consume and

distract Sellers’ management. 215 Buyers also had reputational concerns related specifically

to the Marquez issue. They were worried about being “dragged through the mud” with the

local communities, 216 their creditors, 217 and their limited partners. 218 Genieser relayed

212
JX-253; JX-262.
213
JX-286 at 1.
214
Trial Tr. at 916:15–24 (Genieser).
215
Id. at 597:2–11 (Baker); id. at 806:15–20 (Reiser); id. at 938:20–939:1, 903:10–15
(Genieser).
216
JX-286; Trial Tr. at 916:15–24 (Genieser) (expressing concerns that Marquez would go
to the local press); see also Genieser Dep. Tr. at 225:5–13; Trial Tr. at 590:9–16 (Baker).
217
Trial Tr. at 732:15–23, 806:2–6 (Reiser); see also Crosbie Dep. Tr. at 79:2–12.
218
Trial Tr. at 730:6–20 (Reiser) (“We can’t have this where we close and especially know
about an individual who has an ownership interest in the company that we’re buying and
then are tied up in litigation with that individual. We can’t explain that to our limited
partners.”); id. at 916:5–14 (Genieser) (describing Antin’s limited partners base as

36
these risks to Lazard and Bustamante in real time. 219

It is also true that Buyers’ trust in Bustamante had frayed, and perhaps the Kroll

report played a role in this. 220 Bustamante’s failure to disclose Marquez (and Iqbal,

discussed below), surely also played a role in Buyers’ diminishing trust. 221

In all events, the parties’ dispute over Buyers’ motives are largely beside the point.

The real issue, discussed in the legal analysis, is whether they had a legal basis to notice a

breach and terminate the Merger Agreement.

E. Sellers Attempt To Cure The Marquez Issues Through A Transfer-
Dissolution Plan.

Sellers’ first response to the February 6 notice of breach was to attempt, again, to

negotiate a settlement with Marquez. 222 That did not work. So, Bustamante asked Latham

to come up with a way to cure the breach. 223 Latham devised the transfer-dissolution plan.

“conservative” and that it would be “hard to justify” post-closing that Buyers had chosen
to go through with the transaction despite knowing about a capitalization risk).
Id. at 168:7–19 (Bustamante); id. at 590:5–18 (Baker); id. at 907:13–23, 911:21–912:5
219

(Genieser)
220
Id. at 791:24–792:2 (Reiser).
221
Id. at 589:17–20 (Baker); id. at 791:13–23 (Reiser); id. at 910:19–911:3.
222
They made a generous offer to pay Marquez $300,000.00 “to ‘assist with the closing,”
and without prejudice to Marquez’s ability to pursue claims against Bustamante concerning
“any additional amounts that Mr. Marquez believes he is due from his 5% interest in
HControl Corporation.” JX-358 at 1. Marquez should have accepted that offer. He
rejected it. Trial Tr. at 226:16–18 (Bustamante).
223
Trial Tr. at 263:13–17 (Bustamante).
37
 1. Sellers Propose The Transfer-Dissolution Plan, Which Buyers
Object To As A Breach Of Interim Covenants.

With an aim to reduce any claim to equity by Marquez to a damages claim, Sellers

laid out the plan to transfer HControl Corporation’s assets and then dissolve HControl

Corporation in a February 17 letter to Buyers. 224 Simplified, the transfer-dissolution plan

would involve three sequential steps. 225 First, HControl Corporation would transfer its

proprietary software to HControl Holdings in exchange for $215,000 (5% of the software’s

valuation of $4.3 million) paid into a trust. 226 Second, Sellers would dissolve HControl

Corporation by filing articles of dissolution in Florida. 227 Third, when HControl

Corporation eventually settled or litigated its claims with Marquez through the dissolution

proceedings, the trust would pay up to $215,000 and Bustamante would indemnify

HControl Corporation for any excess. 228

Buyers were not enthused with the plan. In response to Sellers’ February 17 letter,

Buyers took the position that the plan would breach interim covenants. 229 Buyers also

lamented that the dissolution process could take months, and then the statute of limitations

period for bringing claims against HControl Corporation would extend for another four

224
JX-376.
225
Trial Tr. at 264:1–13 (Bustamante).
226
Id.
227
JX-376 at 2.
228
Id.
229
JX-378.
38
years under Florida law. 230 Sellers responded by seeking Buyers’ consent to the plan.231

Buyers did not consent.

2. Sellers Go Forward With The Transfer-Dissolution Plan.

Sellers went forward with the plan. On February 23, Bustamante executed an

agreement transferring HControl Corporation’s software to HControl Holdings. 232 The

agreement assumed a fair market value of the software at around $4.3 million. 233 Sellers

arrived at this figure based on an informal analysis conducted by Mark Clark that hewed

to the cost of replacing the software. 234 The $215,000 was paid into a trust to address

Marquez’s claims. 235 Bustamante also agreed to indemnify HControl Corporation and

other Company entities for any amount above $215,000 in connection with Marquez’s

claims (the “Indemnity Agreement”). 236 Sellers filed articles of dissolution for HControl

Corporation with the Florida Department of State on February 23. 237 Sellers submitted

their Pre-Closing Statement to Buyers on February 27. 238

230
Id. at 2.
231
Id. at 3.
232
JX-386.
233
Id. at 2.
234
Trial Tr. at 478:4–20 (M. Clark).
235
JX-386 at 1.
236
Id. at 2.
237
JX-397 at 2.
238
JX-404.
39
 3. Buyers Send A Notice Of Breach Based On The Transfer-
Dissolution Plan.

Buyers sent their second notice of breach letter on March 1. 239 In the March 1 notice

of breach, Buyers stated that the dissolution failed to resolve Sellers’ breach related to

Marquez and had incurred further breaches of the Merger Agreement. 240 Buyers noted that

the asset transfer failed to account for third-party contracts held by HControl Corporation,

which could not be assigned without those third parties’ consents and therefore could form

an ongoing basis for Marquez’s claim against HControl Corporation. 241 Buyers also raised

concerns that the dissolution could give rise to a claim of fraudulent transfer. 242

F. Buyers Terminate The Merger Agreement Based On The Marquez
Issues.

On March 6, Buyers’ deal team advised the Investment Committee that Sellers had

not yet cured the breach of the Capitalization Representations related to Marquez. 243 The

Investment Committee determined that if Sellers did not cure the Marquez breach by March

7, Buyers would terminate the Merger Agreement on March 8. 244

On March 8, Buyers terminated the Merger Agreement due to Sellers’ failure to

cure their breach of Section 4.02 related to Marquez. 245 At trial, Genieser testified that, at

239
JX-411.
240
Id. at 1.
241
Id.
242
Id.
243
JX-491 at 3.
244
Id.
245
JX-492.
40
this point, he still viewed the deal as economically attractive and found Bustamante

enjoyable. 246 He simply was not willing to accept the risks associated with Marquez. 247

G. A Second Former Employee, Wajid Iqbal, Claims An Ownership
Interest In Sellers.

The Marquez dust-up unearthed another potential capitalization issue. In one of

Marquez’s voicemails to Genieser, Marquez stated, ominously: “I am not the only one.” 248

Somewhat alarmed, Buyers asked Sellers for more information concerning potential equity

holders. 249 Through an exchange of communications concerning the requests, Sellers

identified Iqbal as a potential option holder. Iqbal’s potential claims had not been disclosed

during due diligence. 250

1. Iqbal Claims Options, Warrants, And Ownership Interests.

Iqbal was OpticalTel’s Chief Technology Officer from 2007 until 2014. 251 During

his employment, the HControl Holdings Board executed written consents providing that

Iqbal “shall” receive options in three consecutive years. In 2012, Iqbal executed a

246
Trial Tr. at 936:2–9 (Genieser) (“Q. To this day you still like OpticalTel’s business
very much? A. I do. Q. And you still like Mr. Bustamante? A. I still like Mr. Bustamante.
Q. And the management team still remains very strong? A. Yes.”).
247
Id. at 919:16–22 (Genieser) (describing the Investment Committee’s determination that
“because the issue was not resolved, we do not feel we could close over this issue and that
we should issue the notice to terminate”).
248
JX-542; Trial Tr. at 904:14–16 (Genieser) (recalling Marquez saying there “were others
out there”).
249
JX-289; JX-351.
250
Trial Tr. at 313:14–16 (Rodriguez); id. at 338:14–18 (O’Naghten); id. at 775:8–13
(Reiser).
251
Id. at 178:5–8 (Bustamante)
41
promissory note in which he loaned $33,300 to HControl Holdings. 252 In exchange, Iqbal

received warrants to purchase 2,664 shares of HControl Holdings at a strike price of $2.50

per share. 253 Also, according to Iqbal, when he began employment negotiations with

Bustamante in 2006, Bustamante orally offered to pay Iqbal $7,000 per month plus a five

percent ownership interest in OTI Fiber, which Iqbal accepted. 254

2. Sellers Attempt To Settle With Iqbal.

Buyer’s investigation prompted Sellers to contact Iqbal to schedule a meeting,

which occurred on February 10, 2023. 255 Iqbal testified that, during the meeting, a

prominent HControl Holdings investor made Iqbal an offer to settle his claims for

$55,000. 256 The investor then presented Iqbal with a release that O’Naghten had

prepared. 257 Iqbal rejected the offer, refused to sign the release, retained counsel, and sent

a demand on February 22. 258 The factual bases for Iqbal’s claims are discussed in greater

detail the legal analysis.

252
JX-21 at 2.
253
Id. at 5.
254
Trial Tr. at 565:4–16 (Iqbal).
255
Id. at 563:7–18 (Iqbal).
256
Id. at 563:7–18 (Iqbal)
257
Id. at 563:7–18 (Iqbal); id. at 373:9–11 (O’Naghten); see also JX-325 (draft of Iqbal
release).
258
JX-385; Trial Tr. at 564:4–7 (Iqbal) (testifying that the OpticalTel representative wrote
the number on a napkin and that he was insulted by the amount offered).
42
 3. Buyers Notice A Breach Based On The Iqbal Issues.

Sellers provided a copy of Iqbal’s February 22 letter to Buyers’ counsel around

February 24, 259 and Buyers requested additional information regarding Iqbal’s claims in

their March 1 notice of breach. 260 After Sellers filed this action, Buyers sent a third notice

of breach due to Iqbal on March 7, which started Sellers’ 20-day cure period. 261

H. Buyers Terminate The Merger Agreement Based On The Iqbal Issues
And Also For Ostensible Breach Of The No-Shop.

On April 11, Buyers again terminated the Merger Agreement under Section 8.01(d)

due to Sellers’ failure to cure their breaches of the Merger Agreement arising out of the

transfer-dissolution plan and Sellers’ failure to cure the Iqbal issues. 262

The April 11 notice added a no-shop breach to Buyers’ termination arsenal. On

March 5, Sellers’ litigation counsel had sent a formal “notice of intent to commence

litigation” 263 and proposed a one-week standstill agreement during which Sellers would be

allowed to “contact other potential buyers to assess interest in buying OpticalTel as an

alternative to the Antin transaction.” 264 Seemingly based on the March 5 request to contact

other potential buyers, the April 11 letter stated opaquely that “Buyer has reason to believe

that Sellers have committed another breach by” engaging in discussions or negotiations

259
JX-398.
260
JX-411 at 4.
261
JX-487.
262
JX-511.
263
JX-485.
264
Id. at 1–2.
43
with other potential purchasers in violation of Section 6.18. 265 Buyers developed these

suspicions further during discovery and at trial based on communications among Sellers

referring to a “backup” plan; those allegations are discussed more fully in the legal analysis.

For the purposes of the April 11 letter, Buyers claimed that the no-shop breach gave rise to

irreparable harm under Section 6.18(c), meaning that it was an incurable breach. 266 Buyers

independently terminated the Merger Agreement on this basis on April 11. 267

I. This Litigation

Sellers filed their complaint on March 6 in anticipation of Buyers’ March 8

termination notice. 268 The parties agreed to an expedited schedule leading to a three-day

trial, which took place from May 10 through May 12, 2023. 269 Posttrial briefing concluded

on May 22, 2023. 270 There was no time for posttrial argument.

II. LEGAL ANALYSIS

Buyers claim that Sellers breached the Merger Agreement, and failed to cure those

breaches, in three ways. First, they claim that Sellers breached the Capitalization

Representations because Marquez and Iqbal own interests captured by the Capitalization

265
JX-511.
266
Id.
267
Id. at 2.
268
Dkt. 1.
269
Dkts. 134–36.
270
Dkt. 137 (“Sellers’ Opening Posttrial Br.”); Dkt. 138 (“Buyers’ Opening Posttrial Br.”);
Dkt. 141 (“Sellers’ Answering Posttrial Br.”); Dkt. 144 (“Buyers’ Answering Posttrial
Br.”).
44
Representations and because Sellers failed to cure the issues. Second, they claim that

Sellers breached their interim operating covenants by consummating the transfer-

dissolution plan and entering the Indemnity Agreement, both without Buyers’ consent,

which was not unreasonably withheld. Third, they claim that Sellers breached the no-shop

provision by engaging with a third party regarding an alternative transaction.

Sellers claim that Buyers breached the Merger Agreement in multiple ways, but

only two require separate analysis. First, Sellers claim that Buyers breached by contacting

Marquez without Bustamante’s written consent. Second, they claim that Buyers breached

by failing to use their best efforts to consummate the merger.

Typically, the party seeking to enforce a contract must prove each element of its

breach of contract claim by a preponderance of the evidence. 271 M&A agreements add a

layer of complication to the burden-shifting analysis. 272 Skipping the extended discussion

of these complications in the interest of expediency, the burden-shifting analysis shakes

out in this case as follows. Buyers bear the burden of proving by a preponderance of the

evidence their claims for breach. 273 Sellers bear the burden of proving by a preponderance

See Dermatology Assocs. of San Antonio v. Oliver St. Dermatology Mgmt. LLC, 2020
271

WL 4581674, at *19 n.214 (Del. Ch. Aug. 10, 2020).
272
See generally S’holder Representative Servs. LLC v. Shire US Hldgs., Inc., 2020 WL
6018738 (Del. Ch. Oct. 12, 2020), aff’d 267 A.3d 370 (Del. 2021) (TABLE) (footnotes
omitted); AB Stable III LLC v. Maps Hotels and Resorts One LLC, 2020 WL 7024929, at
*50 (Del. Ch. Nov. 30, 2020), aff’d, 268 A.3d 198 (Del. 2021).
273
AB Stable, 2020 WL 7024929, at *50 (“This court also has held that when a buyer
claims that a covenant compliance condition failed because the seller failed to operate its
business in the ordinary course, then the buyer has asserted a theory analogous to a claim

45
of the evidence that Buyers could not exercise their termination rights because Buyers were

in breach of their own obligations. 274

The Merger Agreement is governed by Delaware law, so Delaware’s principles of

contract interpretation apply. 275 Under Delaware law, when interpreting a contract, ‘the

role of a court is to effectuate the parties’ intent.” 276 The court “will give priority to the

parties’ intentions as reflected in the four corners of the agreement, construing the

agreement as a whole and giving effect to all its provisions,” 277 unless the contract is

ambiguous. 278 The court must not read ambiguity into a contract where none exists. 279

“[A] contract is only ambiguous when the provisions in controversy are reasonably or fairly

susceptible to different interpretations or may have two or more different meanings.” 280

“[A]mbiguity does not exist where the court can determine the meaning of a contract

for breach of the underlying covenant and bears the burden of proof.”) (citing Akorn Inc.
v. Fresenius Kabi AG, 2018 WL 4719347, at *82–83 (Del. Ch. Oct. 1, 2018)).
274
Akorn, 2018 WL 4719347, at *4. In addition, if this analysis reached the issue of
specific performance (it does not), Sellers would bear “the burden of proving by clear and
convincing evidence the facts necessary to justify a decree of specific performance.” Id.
275
Merger Agreement § 10.05.
276
Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006).
277
In re Viking Pump, Inc., 148 A.3d 633, 648 (Del. 2016).
278
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997).
279
O’Brien v. Progressive N. Ins. Co., 785 A.2d 281, 288 (Del. 2001) (“[C]reating an
ambiguity where none exists could, in effect, create a new contract with rights, liabilities
and duties to which the parties had not assented.”).
280
Id.; see also Rhone–Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d
1192, 1196 (Del. 1992).
46
‘without any other guide than a knowledge of the simple facts on which, from the nature

of language in general, its meaning depends.’” 281

Applying these principles, this decision proceeds in four parts. Part A addresses

Buyers’ claims for breach of the Capitalization Representations. Part B addresses Buyers’

claims for breach of the interim covenants. Part C addresses Buyers’ claims for breach of

the no-shop provision. Part D addresses Sellers’ claims for breach relating to contact with

Marquez and Buyers’ best efforts to consummate the merger.

A. Buyers’ Claims For Breach Of The Capitalization Representations

If the Capitalization Representations of Section 4.02 were not “true and correct in

all respects,” 282 and Sellers failed to cure the breaches, then Buyers validly terminated the

Merger Agreement under Section 8.01(d). Buyers claim the Capitalization

Representations are not true and correct in all respects and Sellers failed to cure the

breaches, such that they were permitted to terminate the Merger Agreement. Sellers deny

that the Capitalization Representations were inaccurate, and argue that, even if inaccurate,

they were cured.

In its full glory, Section 4.02 containing the Capitalization Representations

provides:

Section 4.02 Company Group. Schedule 4.02 sets forth, as of the date
hereof, the name of each member of the Company Group, and, with
respect to each such member of the Company Group, (a) the
jurisdiction in which it is incorporated or organized, (b) its form of

281
Id. (quoting Rhone–Poulenc Basic Chems., 616 A.2d 1192, 1196 (Del. 1992)).
282
Merger Agreement § 7.01(a) (emphasis added).
47
organization and (c) the issued and outstanding Equity Securities
thereof owned, directly or indirectly, by any Seller or any member of
the Company Group. As of the date hereof, no member of the
Company Group owns any capital stock or other Equity Securities in
any Person that is not a member of the Company Group. The Units
are duly authorized by the applicable Purchased Entities'
Organizational Documents and are validly issued Equity Securities in
the applicable Purchased Entity. The Units constitute the only
outstanding Equity Securities of the Purchased Entities. All of the
Equity Securities of each of the Subsidiaries of the Purchased Entities
are wholly-owned by the applicable Purchased Entity or one of the
applicable Purchased Entity's Subsidiaries. All of the issued and
outstanding Equity Securities of each Subsidiary of the Purchased
Entities have been duly authorized and validly issued, were not issued
in violation of any preemptive rights, rights of first refusal or similar
rights and are free and clear of all Liens (other than Permitted Liens).
Each member of the Company Group is duly organized, validly
existing and in good standing under the Laws of the jurisdiction of its
organization, except where the failure to be so organized, existing and
in good standing would not reasonably be expected to be, individually
or in the aggregate, material to the Company Group, taken as a whole.
Each member of the Company Group has all requisite limited liability
company or other comparable entity power and authority enter into
any Transaction Document (if applicable), consummate the
Transactions (if applicable), and to own or lease all of its properties
and assets and carry on its Business as it is now being conducted,
except for such matters that would not reasonably be expected to be,
individually or in the aggregate, material to the Company Group,
taken as a whole. Each member of the Company Group is duly
licensed or qualified to do business and is in good standing under the
Laws of each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets
owned or leased by it makes such licensing or qualification required
by Law, except where the failure to be so licensed, qualified or in good
standing would not reasonably be, individually or in the aggregate,
material to the Company Group, taken as a whole. There are no
outstanding subscriptions, options, warrants, calls, stock appreciation
rights, preemptive rights, phantom equity, convertible or
exchangeable securities of any member of the Company Group, or
other similar rights, agreements, arrangements, undertakings or
commitments of any kind to which any such member of the Company
Group is a party obligating it to: (i) issue, transfer, dispose of or sell
48
 any Equity Securities of any member of the Company Group or
securities convertible into or exchangeable or exercisable for such
Equity Securities, (ii) grant, extend or enter into any such
subscription, option, warrant, call, stock appreciation right,
preemptive right, phantom stock, convertible or exchangeable
securities or other similar right, agreement, arrangement, undertaking
or commitment or (iii) redeem, repurchase or otherwise acquire any
such Equity Securities. No Person will be entitled to exercise
dissenters' rights or rights of appraisal in connection with the Mergers
or the Transactions under any applicable Laws. 283

The parties’ dispute implicates two sets of Capitalization Representations. The first

set at issue incorporates the definition of Equity Securities, in that Sellers represented that

Schedule 4.02 lists “the only outstanding Equity Securities of the Purchased Entities” and

that “all of the Equity Securities of each of the Subsidiaries of the Purchased Entities are

wholly-owned by the applicable Purchased Entity or one of the applicable Purchased

Entity’s Subsidiaries.” 284

The Merger Agreement defines Equity Securities as any

(a) capital stock, member interests, or equity security, certificate of
interest, rights to profits or revenue and any other similar interest in a
Person or participation in any profit sharing agreement,
preorganization certificate or subscription, transferable share, voting
trust certificate or certificate of deposit for an equity security,
partnership interest, limited partnership interest, Limited Liability
company interest, interest in a joint venture, or certificate of interest in
a business trust;

(b) security, warrant, right, put, call, straddle, option or other interest
convertible into or exchangeable or exercisable for any of the
foregoing, whether at the time of issuance or upon the passage of time

283
Id. § 4.02. People who wonder why Court of Chancery decisions can be longer than
decisions published by other courts often do not realize that the contractual provisions we
are called upon to interpret extend for multiple pages.
284
Id. (numbering added and formatting altered).
49
 or the occurrence of some future event, including any security
convertible, with or without consideration, into such a security or any
other security carrying any warrant or right to subscribe to or purchase
such a security; or

(c) warrant or right; or any put, call, straddle, or other option or
privilege of buying such a security from or selling from or selling such
a security to another without being bound to do so, and in any event
“Equity Securities” includes any security having the attendant right to
vote for directors or similar representatives. 285

The second set of Capitalization Representations at issue covers interests other than

Equity Securities, including phantom equity. Sellers represented that: “There are no

outstanding . . . phantom equity, . . . or other similar rights, agreements, arrangements,

undertakings or commitments of any kind to which any such member of the Company

Group is a party obligating it to . . . grant, extend or enter into any such . . . phantom stock,

convertible or exchangeable securities or other similar right, agreement, arrangement,

285
Id. § 1.01 (formatting altered).
50
undertaking or commitment.” 286 The Merger Agreement does not define “phantom equity”

or “phantom stock” or the other terms in this second set of Capitalization Representations.

Buyers contend that Sellers’ Capitalization Representations are untrue because:

(1) Marquez owns Equities Securities or phantom equity and the transfer-dissolution plan

did not cure this issue; and (2) Iqbal owns Equity Securities.

1. Marquez

Buyers’ claim of breach relating to Marquez is limited to Marquez’s rights under

the Software Agreement, 287 which grants Marquez a right to “5% ownership of HControl

Corporation to be distributed upon a liquidation event.” 288 The court must determine

whether Marquez’s “5% ownership of HControl Corporation to be distributed upon a

liquidation event” falls within the definition of Equity Securities or phantom equity and, if

so, whether Sellers successfully cured the breach through the transfer-dissolution plan. 289

Sellers offer the transfer-dissolution plan as an easy off-ramp to the analysis,

arguing that it cured whatever breach the Marquez issue created by reducing Marquez’s

286
Id. § 4.02 (numbering added and formatting altered).
287
See Defs.’ Opening Posttrial Br. at 44; Defs.’ Answering Posttrial Br. at 6; Trial Tr. at
796:22–797:3 (Reiser). Marquez asserts a series of ambitious legal theories, claiming that
the Software Agreement is unenforceable to the extent that it only applies to HControl
Corporation and not OpticalTel as a whole. See Trial Tr. at 542:12–549:22 (Marquez).
Because Buyers do not rely on Marquez’s far-fetched legal theories as a basis for their
claim of breach, this decision does not address them.
288
JX-3.
289
Merger Agreement §§ 1.01, 4.02.
51
interest to a claim for money damages against HControl Corporation. 290 Sellers are

imprecise on the mechanics. They imply, but do not state outright, that HControl

Corporation’s articles of dissolution filed on February 23, 2023, transmuted Marquez’s

interest—whatever it was—into a mere residual cash claim effective as of that date. There

is probably a better short reference, but this decision refers to this argument as Sellers’

“interest-transmutation theory.” Sellers cite no cases to support their interest-

transmutation theory, nor is this court aware of any; the issues required independent

research into an area of law previously unexplored by this jurist—Florida dissolution law.

Under Florida law, “a corporation is dissolved upon the effective date of its articles

of dissolution[.]” 291 In turn, “the term ‘dissolved corporation’ means a corporation whose

articles of dissolution have become effective and includes a successor entity[,]” which

“includes a trust, receivership, or other legal entity” that receives the dissolved

corporation’s assets and administers the winding down of the corporation’s affairs. 292

After a corporation has been dissolved, it “may not carry on any business except that

appropriate to wind up and liquidate its business and affairs,” which includes “[c]ollecting

its assets;” “[d]ischarging or making provision for discharging its liabilities;” “[m]aking

290
Sellers’ Opening Posttrial Br. at 42–43.
291
Fla. Stat. § 607.1403(2).
292
Id. § 607.1403(c)(3).
52
distributions of its remaining assets among its shareholders according to their interests;”

and “[d]oing every other act necessary to wind up and liquidate its business and affairs.” 293

In broad strokes, dissolution does not seem to fundamentally alter the structure or

form of a Florida corporation. Dissolution does not expose the corporation’s directors or

officers to “standards of conduct different from those prescribed” elsewhere in Florida law,

“[c]hange quorum or voting requirements[,]” or “[t]erminate the authority of the registered

agent of the corporation.” 294 A dissolved corporation can sue and be sued, 295 and it retains

title to its property even after filing articles of dissolution. 296 Furthermore, after filing,

corporations may revoke their dissolution within 120 days. 297 If they do so, the revocation

“relates back to and takes effect as of the effective date of the dissolution and the

corporation resumes carrying on its business as if dissolution had never occurred.” 298 In

other words, the Florida legislature did not intend a dissolution filing to be a full-stop

commitment to the winding down process; the filing simply initiates the process.

At a high level, articles of dissolution simply constrain the acts that a Florida

corporation can undertake to ensure that it winds up its affairs instead of continuing to

operate day-to-day. In keeping with this modest goal, Florida law indicates (in passing)

293
Id. §§ 607.1405(1), (1)(a), (c)–(e).
294
Id. §§ 607.1405(2)(c)–(d), (g).
295
Id. § 607.1405(2)(e).
296
See Wilson v. Wilson, 211 So.3d 313, 318 (Fla. Dist. Ct. App. 2017) (“dissolving a
corporation does not transfer title, that is, ownership, of a corporation’s assets.”).
297
Fla. Stat. § 607.1404(1).
298
Id. § 607.1404(5).
53
that persons can hold securities in dissolved corporations, just as they can in live ones. A

Florida statute refers to the dissolved corporation’s “shareholders or persons

interested[,]” 299 and case law recognizes the capacity for a dissolved corporation to have

creditors. 300 These references seem contrary to the idea that filing for dissolution of a

corporation automatically transmutes all forms of interests in the corporation or its capital

structure.

In sum, there is no reason to think that kicking off the dissolution process transmutes

securities in Florida corporations into a separate category of claims against the dissolved

entity that are not covered by the Capitalization Representations. The most plausible

reading is that one can be a “claimant” as an equity holder, creditor, or phantom equity

holder in a dissolved Florida corporation. The claimant’s status pre-dissolution affects

their rights during the dissolution, at the least rendering it a “similar” right captured by the

Capitalization Representations. Accordingly, as best one can tell, during the ongoing

dissolution proceedings, Marquez continues to hold whatever claim to “5% ownership” he

previously owned.

Sellers’ point might be that after HControl Corporation completes its wind-down, it

will cash Marquez out for his interest—so there is a cure forthcoming, even if it is not

effective yet. But HControl Corporation’s affairs are unlikely to wind down before the

299
Id. § 607.1406(2)(g).
300
Continental Cas. Co. v. Cura Gp., Inc., 2005 WL 8155321, at *19 (S.D. Fla. Apr. 6,
2005) (referring in passing to “creditors of dissolved corporations”).
54
debt financing commitment expires on June 9, 2023. 301 Florida dissolution proceedings

take months to conclude, as Sellers conceded at trial. 302 And a dissolved corporation

cannot give known claimants fewer than 120 days after the date that articles of dissolution

have been filed to notice their claims against the dissolved corporation. 303 In other words,

HControl Corporation’s dissolution will not be complete by the time the financing

commitment expires. 304 So if it delivers a cure, the cure is unlikely to arrive in time to be

meaningful as to the Capitalization Representations.

In sum, for all intents and purposes, whatever right Marquez had before the

dissolution, he has now. And the window is still open for him to assert his claims against

HControl Corporation. Furthermore, it is possible, as Buyers noted in their March 1 letter,

that HControl Corporation still holds third-party contracts that have not been assigned to

HControl Holdings. Although the plan might have been a good faith effort to cure any

breach, it did not work. Unfortunately, there is no analytical short-cut to the question of

whether the Marquez issue constitutes a breach of the Capitalization Representations.

The analysis reverts to the primary question concerning the nature of Marquez’s

interests under the Software Agreement, which is governed by Florida law. 305 According

301
Dkt. 147 at 13.
302
See Trial Tr. at 522:4–7 (M. Clark); see also Fla. Stat. § 607.1405(1)(a)–(d).
303
Fla. Stat. § 607.1406.
304
HControl Corporation filed its articles of dissolution on February 23, 2023, meaning
that the 120-day period will not expire until June 23, 2023. See JX-397. Meanwhile, the
Buyers’ debt financing commitment expires on June 9, 2023. See Dkt. 147 at 13.
305
JX-3 at 3.
55
to Sellers, Florida legal principles of contract interpretation are substantially the same as

Delaware law. 306 Buyers do not dispute this. The court has foregone independent research

in the interest of time and applies Delaware contract principles.

The Software Agreement provides Marquez with “5% ownership of HControl

Corporation to be distributed upon a liquidation event.” 307 Both sides (rather humorously)

claim that this language is completely unambiguous and clearly supports their position.

Sellers say that the Software Agreement provides Marquez something akin to a distribution

right or a contingent value right (“CVR”). Buyers argue that the Software Agreement

provides Marquez an equity interest in HControl Corporation. In reality, both sides’

interpretations are reasonable, rendering the language ambiguous. The court is therefore

free to consider extrinsic landmarks in addition to the plain language of the Software

Agreement to inform its meaning.

Ultimately, Sellers have the better side of this dispute. They root their interpretation

foremost in the language of the Software Agreement, which provides that HControl

Corporation “shall pay” Marquez. 308 Greenberg attorney Chris Turek testified that,

typically, “you don’t pay someone equity. So you grant someone equity.” 309 In other

Company records, the board consistently used the words “grant” and “issue” to describe

306
See Sellers’ Opening Posttrial Br. at 35 (citing Crastvell Trading Ltd. v. Marengere, 90
So.3d 349, 353 (Fla. Dist. Ct. App. 2012)).
307
JX-3 at 3.
308
Id.
309
Turek Dep. Tr. at 123:17–24 (emphasis added).
56
conferring stock options. 310 The fact that payment is due upon a liquidation event

reinforces the conclusion that “shall pay” refers to a right to a cash payment, because

typically cash is what gets distributed in a liquidation. 311

To contextualize this language, Sellers introduced the expert testimony of Professor

Steven Davidoff Solomon on relevant industry custom and practice. 312 As he observed,

“[i]n an M&A transaction, agreements are not created from scratch. Instead, they are based

on provisions negotiated in prior deals and past practices” and lawyers “negotiate

provisions with knowledge of these past practices.” 313 For this reason, a court can consider

custom and practice when evaluating the plain language of the agreement. 314

310
JX-23; JX-24; JX-25; JX-39.
311
See Liquidation, Black’s Law Dictionary (11th ed. 2019) (definition of liquidation as
“[t]he act or process of converting assets into cash, esp. to settle debts”); Liquidate,
Merriam-Webster Dictionary (definition of liquidate as “to settle (a debt) by payment or
other settlement; . . . to convert (assets) into cash”).
312
See JX-535 (Solomon Expert Report); Trial Tr. at 393:1–469:8 (Solomon). I should
note that, before trial, I was skeptical of the value of Professor Solomon’s testimony
because aspects of his report, highlighted in motion practice by Buyers, seemed to draw
the sort of legal conclusions that are more appropriately within the purview of the court.
My skepticism waned and I became a believer during trial, where he rightly and helpfully
focused his opinions on custom and practice.
313
JX-535 at 11 (citing Benjamin E. Hermaline et al., 1 The Law and Economic of
Contracts, in The Handbook of Law and Economics 1 (A. Mitchell Polinsky & Steven
Shavell eds., 2007)).
314
Although it is of no matter here given the ambiguities in the agreement, a court need not
deem a contract ambiguous before turning to information concerning custom and practice.
See Mass. Mut. Life Ins. Co. v. Certain Underwriters at Lloyd’s of London, 2010 WL
2929552, at *4 (Del. Ch. July 23, 2010) (“There is no requirement that an agreement be
ambiguous before evidence of a usage of trade can be shown.”) (quoting Restatement
(Second) of Contracts § 222, cmt. (b) (1981)).
57
 Professor Solomon opined that the contractual right granted in the Software

Agreement does not have the defining features of equity or an equity security (or even a

security at all). 315 Although it includes a right to share in liquidation, which is a common

feature of an equity security, it lacks voting rights, fiduciary rights, and appraisal rights,

among others. 316 He concluded that the Software Agreement grants Marquez a CVR, or

“a right that triggers payment upon a defined event such as an M&A transaction or a type

of liquidation.” 317

Viewing the Software Agreement as a CVR tracks with Bustamante’s testimony

concerning the negotiation of the Software Agreement, which can be probative of the

parties’ contractual intent. 318 Bustamante and Marquez negotiated the Software

Agreement. 319 Bustamante testified, credibly, that the language was intended to provide

315
JX-535 at 58–61.
316
Id. at 59, Figure P (noting that the following common features of equity securities are
not present in the Software Agreement: “[a] definable and transferable interest,”
“evidenced by any form of certificate or instrument,” “[v]oting rights,” “[a] right to share
in profits and revenue/dividend rights,” “[a] right to vote on liquidation,” “[c]ancelability
in a merger,” “[a]ppraisal rights,” “[a] fiduciary duty from the company to the
shareholder,” “[a] right authorized by or specified as existing as an equity security (with
attending rights) in the HControl Corp. Certificate of Incorporation,” “[r]ights to bring
litigation to enforce fiduciary duties”).
317
Id. at 61; see also The Nasdaq Stock Market Rulebook, Rule 5732, Nasdaq (2023),
available at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules (defining “CVRs” as
“unsecured obligations of the issue, which provide for a possible cash payment . . . upon
the occurrence of a specific event or events related to the business of the issues or an
affiliate of the issuer.”).
318
See, e.g., United Rentals, Inc. v. RAM Hldgs., Inc., 937 A.2d 810, 834 (Del. Ch. 2007).
319
Trial Tr. at 104:8 –106:10 (Bustamante); id. at 533:4–536:12 (Marquez).
58
Marquez a right to a cash payment in the future and not a form of equity security. He

testified that Marquez did not want stock, that Bustamante did not want to give him stock,

and that they agreed that Marquez would be entitled to receive a payment if the software—

housed in HControl Corporation—were sold. 320 Bolstering this testimony, in emails with

Marquez around the time of Marquez’s departure in 2016, Bustamante described the

agreement as providing $6,000 per month: “[W]e would defer $3,000 for future payment

and you would collect $3,000 in cash per month.” 321 Characterizing the “5% ownership”

as a form of “defer[ed] . . . future payment” is consistent with characterizing it as a CVR.

To be fair, Buyers’ interpretation of the Software Agreement finds a good deal of

support in the record. As stated above, Buyers’ interpretation of the Software Agreement

is reasonable. The agreement uses the phrase “5% ownership.” 322 The term “ownership,”

particularly when accompanied by a percentage, often refers to an equity interest and not a

CVR. 323 Bustamante referred to Marquez’s interests as an “ownership” interest in the 2016

emails and referred to the interests as “equity” in memos he prepared for the purpose of

320
Id. at 103:18–105:23 (Bustamante).
321
JX-34 at 2; see also id. at 4 (explaining that Marquez would get 5% of proceeds from a
sale of the software).
322
JX-3.
323
See Black’s Law Dictionary, Equity (11th ed. 2019) (defining equity as “[a]n ownership
interest in property, esp[ecially] a business”) (emphasis added); Black’s Law Dictionary,
Share (11th ed. 2019) (defining a share as “[a]n allotted portion owned by, contributed by,
or due to someone” or “represent[ing] an equity or ownership interest,
depending on the usage) (emphasis added).
59
this litigation, 324 but it seems unlikely that Bustamante recognized the difference between

terms like “ownership” and “equity” in the CVR he negotiated. 325 Latham referred to the

Marquez issue as a “capitalization issue” in early 2023, 326 but credible testimony from

Latham lead negotiator on these statements reflect that he did not view Marquez’s claims

as colorable such that this reference was a shorthand for Buyers’ claims. 327 The record

contains at least one capitalization table identifying Marquez as an “owner” of HControl

324
In May 2016, the Company Group’s then-President and COO (now CEO), Luis
Rodriguez, was dissatisfied with Marquez’s work product. In an email to Marquez,
Rodriguez stated that he wanted to “restructur[e]” how the Company would give him
“projects and payments in the future.” JX-31 at 5. In response, Marquez claimed that
Bustamante told him that he was entitled to a paycheck “FOR LIFE, or until we sell the
company and then we liquidate [Marquez’s] stock.” Id. at 2. Marquez wrote that he owned
5%, not just of HControl Corporation, but of the “whole thing,” meaning the Company
Group. JX-31 at 2. Rodriguez looped in Bustamante to the email exchange. Id. at 1.
Bustamante reviewed the Software Agreement. Id. at 2. After a lengthy and unfriendly
email exchange, the parties met, and Bustamante followed up on that meeting asking
Marquez to confirm that his claims were limited to an interest in HControl Corporation,
which Marquez did. See JX-34, JX-35, JX-36.
325
See, e.g., Bustamante Dep. Tr. at 62:21–23 (“Q. Who drafted [the Software Agreement]
for you? A. I have no idea, but if I knew, I would kill him.”); id. at 63:6–16 (answering a
question as to why he said he would “kill” the drafter, “[b]ecause it doesn’t reflect what
the intention of the parties was. . . . [T]he intent was only to give him a cash payment if we
sold the software to a third party.”).
326
E.g., JX-339.
327
Trial Tr. at 80:23–81:14 (Purohit) (“I do not think Mr. Marquez has an equity security.
But in the interest of trying to get a deal done, what I did was try to reassure Mr. Hawa that
the capitalization indemnity would remain. . . . Thus, my use of those terms to reassure him
that we can add some language what would address “unknown issues.”).
60
Corporation, but it is isolated and Sellers challenge its authenticity. 328 The Company

Group never treated Marquez as an stockholder. 329

Ultimately, the preponderance of the evidence reflects that the right granted to

Marquez under the Software Agreement is a CVR—specifically, a right to a cash payment

upon a liquidation event in the amount of 5% of the value of HControl Corporation.

The question turns to whether this right falls within the definition of Equity

Securities or phantom equity captured by the Capitalization Representations. 330 On this

328
The challenged document, marked JX-11 in this litigation, includes an email and
attachment purportedly between Bustamante, Rodriguez, Iqbal, and other Company
employees in 2011. The email chain shows Bustamante sending a spreadsheet to
Rodriguez, who forwarded the document to Iqbal. The spreadsheet purports to be a
capitalization table for the Company Group and shows Marquez as a 5% owner of
HControl Corporation and Iqbal as a 5% owner of Optical Telecommunications, Inc.
Sellers challenged JX-11’s authenticity through the testimony of Bustamante and
Rodriguez, who testified that they had no recollection of the document, that Iqbal had the
power to manipulate documents in the Company’s email system, and that Iqbal had first
produced the document at his own deposition. JX-11; see also Trial Tr. at 278:4–282:12
(Bustamante); id. at 290:17–294:5 (Rodriguez); Joint Schedule of Evid. at 1 (noting
Sellers’ objections to JX-11 under Delaware Rules of Evidence 802 and 1002); Sellers’
Opening Posttrial Br. at 34 (“Sellers object to JX011’s admission on authenticity grounds
under D.R.E. 901.”).
329
Marquez Dep. Tr. at 116:19–117:16. For completeness, it bears nothing that Marquez
repeatedly referred to his interest as “stock” (see, e.g., Marquez Dep. Tr. at 10:6–16; JX-
31 at 2 (Marquez describing “my stock”)), but he also claimed to own 5% of the entire
Company Group and disclaimed reliance on rights under the Software Agreement (see
Trial Tr. at 542:12–549:22 (Marquez); JX-31 at 2)). It is hard to credit anything he said at
any time.
330
As Professor Solomon and Turek described during trial, the terms “phantom stock” and
“phantom equity” refer to the same kind of interest, just in either a corporate or alternative
entity context. Trial Tr. at 407:8–21 (Solomon); id. at 618:21–619:5 (Turek). This
decision uses the phrases interchangeably because Buyers have argued that Marquez could
have a claim against HControl Corporation (i.e., phantom stock) or HControl Holdings

61
point, the term phantom equity comes to Buyers’ rescue. 331 Phantom equity, as typically

conceived, is an unsecured contractual right that takes on economic characteristics of the

employer’s equity. Black’s Law Dictionary defines the related concept of a “phantom

stock plan” as a “long-term benefit plan under which a corporate employee is given units

having the same characteristics as the employer’s stock shares. It is termed a ‘phantom’

plan because the employee doesn’t actually hold any shares but instead holds the right to

value those shares.” 332 Other secondary sources are to the same effect:

• Fletcher Cyclopedia of the Law of Corporations provides: “Phantom stock
is the grant of a right to the appreciation in the corporation’s stock” that does
“not actually result in the [employee] receiving shares of stock.” 333

• Folk on the Delaware General Corporation Law provides: Phantom equity
gives the employee “an immediate stake in the company’s future” while
creating “no dilution of equity because stock is not issued.” 334

• Guide to Executive Compensation provides: “Phantom stock plans mimic the
financial upside of being an owner without requiring an actual grant of
shares.” 335

• Business Planning: Financing the Start-Up Business and Venture Capital
Financing provides: “A ‘phantom equity’ plan usually is a cash

(i.e., phantom equity) following the dissolution of HControl Holdings. The naming
conventions are largely a distinction without a difference in this case.
331
Merger Agreement § 4.02.
332
Phantom stock plan, Black’s Law Dictionary (11th ed. 2019).
333
5 William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Corporations §
2137.20 (2006).
334
1 Edward Welch et al., Folk on the Delaware General Corporation Law § 157.08 (7th
ed. 2023 supp.).
335
Sharon Reece et al., Guide to Executive Compensation: Legal and Regulatory
Compliance Issues 43–44 (2022).
62
 compensation plan that pays bonuses based on changes in the value of the
company’s stock.” 336

• Employee Benefits Handbook provides: “By offering a phantom stock plan,
an employer can give key employees the benefits of stock ownership without
sharing ownership of the company. . . . The phantom stock benefits are
usually paid out in cash.” 337

Similar definitions appear in case law, 338 practical publications, 339 and law journals. 340

The parties’ witnesses understood phantom stock similarly. Sellers’ counsel

testified that phantom equity is “management compensation” that has “various attributes

of stock.” 341 Turek testified that “phantom stock or phantom equity typically refers to a

contract right to receive some sort of payment in connection with a transaction or some

336
Therese H. Maynard et al., Business Planning: Financing the Start-Up Business and
Venture Capital Financing 358 (3d ed. 2018).
337
2 Jeffrey D. Mamorsky, Employee Benefits Handbook § 56:20 (2008).
338
See, e.g., Norton v. K-Sea Transp. P’rs L.P., 67 A.3d 354, 357 (Del. 2013) (describing
“phantom units” that “became immediately payable if a change of control occurred”);
Keystone Assocs. LLC v. Benjamin Fulton, 2020 WL 3432601, at *4 (D. Del. June 23,
2020) (referencing “Phantom Stock for employees that would not share in profits but
benefit at a liquidity event only”).
339
See, e.g., National Center for Employee Ownership, Phantom Stock and Stock
Appreciation Rights (SARs) (May 9, 2018), available at
https://www.nceo.org/articles/phantom-stock-appreciation-rights-sars (defining “phantom
stock” as “simply a promise to pay a bonus in the form of the equivalent of either the value
of company shares or the increase in that value over a period of time”); 5 Robert Joe Hull
et al., Representing Start-Up Companies § 8:13 (2022 ed.) (“Pursuant to the terms of the
phantom stock agreement, at some future date, typically subject to vesting, the phantom
stock is settled in cash.”).
340
See, e.g., Nithya Narayanan, Activist Nominee Compensation: Balancing the
Hedgehog’s Dilemma, 41 Del. J. of Corp. L. 345, 385 (2017) (“A phantom stock plan is an
employee benefit plan that gives selected employees or directors many of the benefits of
stock ownership without actually giving them any company stock.”).
341
Trial Tr. at 14:9–15:6 (Purohit).
63
other right to receive something in connection with a transaction.” 342 Reiser testified that

“phantom stock and phantom equity are contract rights entitling the recipient thereof to

some payment or some amount of money at a future event or at a future time[.]” 343

Sellers argue that the Software Agreement does not provide a form of “phantom

equity” because that term refers to management compensation with other “attributes of

stock.” 344 They list, as examples, “dividends or voting rights.” 345 In essence, Sellers argue

that the Software Agreement does not grant phantom equity because it is not equity. But

just like ghosts are not people, phantom equity is not equity, as reflected in the definitions

listed above.

Because Marquez’s interests fall within the definition of phantom equity, there is,

in fact, “outstanding . . . phantom equity,” rendering the Capitalization Representations

false. There is no de minimis qualifier; Buyers negotiated for the Capitalization

Representations to be “true and correct in all respects.” 346 It is not true in all respects.

Tacitly conceding the strength of this conclusion, Sellers argue that Buyers raised

their arguments based on phantom equity too late in this litigation and therefore waived it.

Buyers first raised the argument in their pretrial brief. Although that point might be too

342
Id. at 618:14–20 (Turek).
343
Id. at 704:23–705:2 (Reiser).
344
See Sellers’ Opening Posttrial Br. at 40–41 (quoting Phantom stock plan, Black’s Law
Dictionary (11th ed. 2019)); Trial Tr. at 14:9–15:6 (Purohit); id. at 406:10–408:24
(Solomon).
345
See Sellers’ Opening Posttrial Br. at 40–41; Trial Tr. at 406:10–408:24 (Solomon).
346
Merger Agreement § 7.01(a).
64
late in some litigation before this court, it was timely here. This case revved up from filing

to trial in under two months—the complaint was filed on March 6, 2023, and the pretrial

briefs were filed on May 3, 2023. It is hard to fault Buyers for not formulating all of their

legal theories earlier. Moreover, the record suggests that Sellers anticipated this argument

before the pretrial brief, thus mitigating any prejudice. 347 In all events, Sellers had the

opportunity to respond in trial and through posttrial briefing, which they did ably. Sellers

lost on the merits of the issue, not because Buyers raised it too late for them to prepare an

adequate defense.

Given the court’s finding that Marquez’s right constitutes a form of phantom equity

covered by the Capitalization Representation, it is unnecessary to reach the parties’ dispute

regarding the set of Capitalization Representations related to Equity Securities. Because

this was Buyers’ lead argument, to which the parties devoted considerable time, the court

offers some observations on the issue.

The definition of Equity Securities is confusing. Two subsections of that definition

are at issue—subsection (a) and subsection (b).

Recall that subsection (b) includes any “security, warrant, right, put, call straddle,

option or other interest convertible into or exchangeable or exercisable for any of the

347
See, e.g., Trial Tr. at 14:9–15:6 (Purohit) (testifying about phantom equity in the auction
draft); id. at 682:2–24 (Turek) (same); id. at 797:10–13 (Reiser) (testifying about Buyers’
claim as to phantom equity).
65
foregoing, whether at the time of issuance or upon . . . the occurrence of some future

event.” 348

Buyers say that the phrase “any of the foregoing” refers to the immediately

preceding list found in subsection (b), which includes “security, warrant, right, put, call

straddle, option.” 349 Under Buyers’ reading, subsection (b) covers any right (the Software

Agreement’s contingent value right) exercisable for any other right (cash payment) upon

the occurrence of some future event (a liquidation).

Sellers say that the phrase “any of the foregoing” refers back to the list in

subsection (a), which includes:

capital stock, member interests, or equity security, certificate of
interest, rights to profits or revenue and any other similar interest in a
Person or participation in any profit sharing agreement,
preorganization certificate or subscription, transferable share, voting
trust certificate or certificate of deposit for an equity security,
partnership interest, limited partnership interest, Limited Liability
company interest, interest in a joint venture, or certificate of interest
in a business trust. 350

Although the list in subsection (a) is longer than that of subsection (b), it does not include

the broad term “right,” nor does it expressly cover CVRs or phantom equity. Also, as

Sellers argue, 351 none of the terms in subsection (a) neatly describe the CVR at issue.

348
Merger Agreement § 1.01.
349
Id.
350
Id.
351
Sellers’ Opening Posttrial Br. at 36–38; Sellers’ Answering Posttrial Br. at 4–5.
66
 Although variants of the “nearest reasonable antecedent” canon direct that

“foregoing” refers to the nearest list—which is found in subsection (b)—that approach

leads to the odd conclusion that the parties intended that subsection (b) capture any “right”

that is convertible into another “right.” Such a definition would result in an extremely

broad definition of Equity Securities. Although Buyers’ counsel testified that he was

aiming for an extremely broad scope, 352 Sellers presented compelling custom and practice

evidence that the language did not perfectly achieve Buyers’ desired breadth. 353 Moreover,

a “right” convertible into another “right” seems out of scope from concepts of “equity” and

“securities” that the title of the definition suggests. Perhaps with more time, the court could

solve this puzzle. This decision, however, offers no solution. In all events, given the

analysis concerning “phantom equity,” this decision does not resolve this other aspect of

the dispute.

Buyers proved that Sellers breached the Capitalization Representations based on the

Marquez issues.

2. Iqbal

Iqbal claims to hold three categories of interests relevant to the Capitalization

Representations: options in HControl Holdings issued in 2012, 2013, and 2014 or 1,000

shares of stock issued when those options were canceled; warrants to buy shares in

352
Trial Tr. at 694:8–9, 696:1–5, 696:19–697:6, 700:24–701:11 (Reiser); id. at 608:3–10,
615:4–11 (Turek).
353
Id. at 403:7–406:4, 417:18–420:20 (Solomon); see also JX-535 at 26–31, 35–39.
67
HControl Holdings for $2.50 per share; and a 5% interest in OTI Fiber by virtue of a 2007

oral contract between him and Bustamante. Buyers argue that each of these interests render

the Capitalization Representations inaccurate.

Iqbal bases his claim to options on a Membership Interest Plan (the “Plan”) created

in June 2011 for offering employees equity as a form of deferred compensation. 354 The

Plan defines “Award” in relevant part as “the grant of any form of stock option . . . to a

Participant.” 355 In Section 7.2, the Plan provides that a participant must enter into an

Award Agreement to receive an Award: “Each Award shall be evidenced by an Award

Agreement, which shall specify the term of the Award, the number of Membership Interests

to which the Award pertains, the restrictions to which the Award is subject, the Award’s

vesting schedule, and such other provisions as the Committee shall deem appropriate.”356

The Plan defines “Award Agreement” as “an agreement entered into by and between a

Participant and the Company, setting forth the terms and conditions applicable to an

Award.” 357

In 2011, 2012, and 2013, the members of the HControl Holdings Board adopted

Unanimous Written Consents providing that “the Company shall issue” grants pursuant to

the Plan. 358 As O’Naghten testified, “the board would meet yearly to consider executive

354
JX-15.
355
JX-14 at 2.
356
Id. at 4.
357
Id. at 2.
358
JX-19; JX-24; JX-25.
68
compensation, at which time it would consider authorizing the issuance of stock

options.” 359 Those consents provided, respectively, that Iqbal “shall” receive grants of

options for the following: 75,000 shares with a strike price of $1.50 per share effective

January 1, 2012; 360 12,000 shares with a strike price of $2.50 per share effective January

1, 2013; 361 and 12,000 shares with a strike price of $2 effective January 1, 2014. 362 Iqbal

was never presented with any Award Agreement as contemplated by the Plan. 363

Sellers advance the syllogistic argument that no Company employees ever received

options pursuant to the Plan because the Plan required an employee to execute an Award

Agreement to receive options and no employee (save one, whose interests are not at issue)

ever executed an Award Agreement.

Bustamante was emphatic that he did not present employees identified in the 2011,

2012, and 2013 Unanimous Written Consents with Award Agreements and his failure to

do so was intentional—he wanted to avoid granting those employees options. Bustamante

testified that he could unilaterally decide not to grant options, even though the board said

that they “shall” be issued. He claimed that he had “the power to veto the board’s

359
Trial Tr. at 332:3–9 (O’Naghten). He testified that the Board’s decision would be
“documented in the minutes,” but it appears that they were documents in the form of
Unanimous Written Consents. Id.
360
JX-19.
361
JX-24.
362
JX-25.
363
Trial Tr. at 573:16–24 (Iqbal).
69
decisions” as CEO and manager, 364 although the HControl Holdings Operating Agreement

says the opposite. 365 O’Naghten testified to the same effect—that no one ever received

options, 366 and that the Board gave Bustamante the discretion to award the options because

he owned two-thirds of the Company. 367 Because Bustamante never presented Award

Agreements to the awardees, Sellers say that there were no outstanding options pursuant

to the Plan.

Having spent a few days in their presence, the court can say that Bustamante and

O’Naghten seem like good men and were credible witnesses generally. Their testimony

on this point, however, was unconvincing. This is so for a number of reasons.

For starters, O’Naghten is an accomplished attorney. He drafted the Unanimous

Written Consents. He selected the language “shall” and not language (like “may”)

indicating that the options would be granted upon Bustamante’s discretion. 368

364
Id. at 241:11–15 (Bustamante).
365
JX-9 (requiring Bustamante to execute “any and all decisions of the board of directors
where the board of directors is acting within its area of competency”). Bustamante’s
employment agreement requires that he serve the Company “faithfully and diligently
according to the terms of the Company’s Operating Agreement.” JX-10.
366
See, e.g., Trial Tr. at 338:17–18 (O’Naghten).
367
Id. at 332:7–9, 333:19–334:3 (O’Naghten); see also id. at 243:24–244:4 (Bustamante)
(“I just deferred doing it until finally it got to the point where we got to get rid of this thing.
And then we had a board meeting, and I got the board to terminate the incentive plan or
the stock option plan before the options were ever issued.”).
368
Id. at 342:15–343:9 (O’Naghten).
70
 Also, multiple capitalization tables created by the Company reflect that all option

awardees identified on the Unanimous Written Consents, including Iqbal, were granted

options.

• In 2015, 2016, and 2018, the Company updated the HControl Holdings
capitalization table. Each version reflects that Iqbal’s options were
granted. 369

• On October 28, 2022, Matthew Rogers created a spreadsheet reflecting that
Iqbal holds 3,000 options. 370 The October 28 spreadsheet reflected the
“HControl Holdings LLC Schedule of Employee and Director Stock Option
Grants as of December 31, 2017.” 371 O’Naghten testified that the
spreadsheet was reliable and that he had no reason to disagree with its data. 372
The spreadsheet shows that Iqbal was granted and held 3,000 options in
HControl Holdings as of December 31, 2013. 373

• On February 1, 2023, O’Naghten created a spreadsheet to track the HControl
Holdings capitalization table, 374 and it too reflected that Iqbal was granted
options in 2012, 2013, and 2014. 375 During trial, O’Naghten claimed this

369
See, e.g., JX-23 (spreadsheet created by Bustamante titled “Stock Option Grants As Of
December 2013”); JX-26 (spreadsheet created on January 12, 2015 titled “Stock Option
Grants To Date”); JX-28 (spreadsheet created on April 7, 2015 titled “Schedule of
Employee and Director Stock Option Grants”); JX-30 (January 2016 email attaching the
“official spreadsheets as approved with Bill [Davis],” which shows that Iqbal held 65,250
unexpired options); JX-33; JX-545 (June 2016 spreadsheet calculating that Iqbal held
65,250 unexpired options); JX-38 (February 1, 2018 spreadsheet titled “Stock Option
Grants as of December 31, 2017”); see also JX-44 (Feb. 1, 2023 spreadsheet prepared by
O’Naghten showing that options had been issued under the Plan).
370
JX-38. Rogers is a former board member and CFO of HControl Holdings who pled
guilty to tax fraud. Trial Tr. at 121:5–10 (Bustamante). Rogers thereafter resigned from
his director and CFO positions. Id. at 121:11–21 (Bustamante).
371
JX-38.
372
O’Naghten Dep. Tr. at 108:4–109:18.
373
JX-38.
374
See JX-44; Trial Tr. at 359:14–23 (O’Naghten).
375
JX-44.
71
 spreadsheet was not “a reflection of reality,” and instead was only to help
him understand “the worst-case scenario against the company.” 376
O’Naghten also attempted to explain that his spreadsheet was incorrect
because it did not account for Iqbal’s employment being terminated as of
January 3, 2014, at which point any unvested options were cancelled.377
Even accepting that premise for the purpose of argument, O’Naghten agreed
that 3,000 of Iqbal’s options would have vested and would not have been
cancelled. 378

Also, Sellers repeatedly described Iqbal as an “awardee” who “got options” in

communications with Latham in January and February 2023. In response to Latham’s

January 20 request for information, O’Naghten called Iqbal an “awardee,” emailing that

“[t]he only ‘awardees’ that have not signed this release are Ruben Perez Sanchez and Wajid

Iqbal.” 379 In another email chain between counsel concerning Iqbal and other issues,

Purohit stated: “Think only one or two people that are not sellers that got options and that’s

basically Ruben” (whose interests are not at issue) “and Wajid.” 380 By December 12, 2022,

Bustamante continued to describe Iqbal as a “loose end” that he needed to tie up for the

merger to close. 381

Moreover, Sellers claim that the Plan was terminated in 2017 and that all options

issued pursuant to the Plan were cancelled at that time. Section 10.1 of the Plan permits

376
Trial Tr. at 360:21–361:5 (O’Naghten).
377
Trial Tr. at 362:19–24 (O’Naghten); JX-297.
378
Trial Tr. at 363:10–14 (O’Naghten).
379
JX-289.
380
JX-296.
381
JX-715.
72
the HControl Holdings Board to terminate the Plan, 382 and the record reflects that the board

did so on January 18, 2017. 383 O’Naghten testified that Bustamante was “doing away with

the whole concept of options” to grant “executives a direct participation in the company

and then arranging for a disproportionate distribution on sale.” 384 According to the minutes

of the January 18 board meeting, the Board resolved that “all options previously granted

[under the Plan] are . . . cancelled and nullified” and that “each holder of Terminated

Options is hereby issued 1,000 Shares of the capital of the Company and OTI Fiber

LLC[.]” 385

The January 18 board resolutions raise obvious questions: Why terminate options

that were never granted? Why go to the next step and define the term (“Terminated

Options”) or refer to option holders (“each holder of Terminated Options”) for a null set?

Perhaps the most harmful fact for Sellers’ argument is that, after the Board cancelled

“all options previously granted” and resolved that “each holder of Terminated Options is

hereby issued 1,000 Shares of the capital of the Company,” O’Naghten received 1,000

382
JX-14 at 41.
383
JX-39; Trial Tr. at 250:23–10 (Bustamante).
384
Trial Tr. at 336:10–16 (O’Naghten); see also id. at 251:16–24 (Bustamante) (testifying
that he had told the Board, “I’d like to have more flexibility in incentivizing the
management team”).
385
JX-39 at 2 (emphasis added).
73
shares. 386 Like Iqbal, O’Naghten was listed on the Unanimous Written Consents. Like

Iqbal, O’Naghten never received nor signed an Award Agreement. 387

As the above discussion of the Marquez issue reflects, sometimes Sellers said things

over the course of the Company’s history that they did not mean—like stating that Marquez

held stock when he did not. And a degree of informality in recordkeeping is to be expected

in a privately held start-up like the Company Group. But this issue is different. Here, the

Company seems to be opportunistically seizing, in this litigation, on its historical penchant

for business informalities to deny the business reality. In all events, Sellers’ syllogistic

argument falls short.

The parties partially briefed Florida law concerning Iqbal’s claims. Many possible

conclusions could be drawn. For example, perhaps the Board’s 2017 resolution was self-

effectuating, and Iqbal was in fact issued 1,000 shares at that time. 388 Buyers argue that it

is possible that Iqbal held 1,000 shares because a promise of share ownership is sufficient,

under Florida law, to vest share ownership. 389 If Iqbal holds 1,000 shares, then he holds

“capital stock” captured by subsection (a) of the definition of Equity Securities and subject

386
Trial Tr. at 367:24–368:4 (O’Naghten).
387
Id. at 367:12–14 (O’Naghten).
388
JX-298.
389
Buyers’ Opening Posttrial Br. at 45 (citing Acoustic Innovations, Inc. v. Schafer, 976
So.2d 1139 (Fla. Dist. Ct. App. 2008)).
74
to the Capitalization Representations. 390 Alternatively, even if the January 18, 2017 board

action was insufficient to grant Iqbal 1,000 shares, then he arguably has a “right” to 1,000

shares captured by subsection (b) of the definition of Equity Securities and subject to the

Capitalization Representations. 391

In the end, whether Iqbal’s options give rise to a breach presents a really close call.

Although Iqbal likely has viable claims for something involving the Company Group as a

consequence of the 2011, 2012, and 2013 options, Buyers have not briefed the law

sufficiently to bear their burden of proving that they contracted for the right to terminate

the Merger Agreement based on this aspect of Iqbal’s claim. Perhaps this was because

they viewed Iqbal as less of a business risk than Marquez and thus easily addressed in the

event Buyers were ordered to close. Perhaps the clock just ran out.

Buyers’ other claims for breach based on Iqbal are similarly unsuccessful. Iqbal

bases his claim for warrants on a June 14, 2012 promissory note. 392 On June 14, 2012,

Iqbal (through his company, NGN Engineering) was issued a signed promissory note that

governed the repayment of a $33,300 loan he made to HControl Holdings LLC, and he

390
Merger Agreement § 1.01 (subsection (a) to definition of “Equity Securities” covering
“capital stock”); id. § 4.02 (representing that that Schedule 4.02 is complete as to the
Purchased Entities and that all of the Company Group subsidiaries are “wholly owned”).
391
Id. § 1.01 (subsection (b) to definition of “Equity Securities” covering any “right . . .
convertible into or exchangeable or exercisable for any of the foregoing”); id. § 4.02
(representing that that Schedule 4.02 is complete as to the Purchased Entities and that all
of the Company Group subsidiaries are “wholly owned”).
392
JX-21.
75
signed a related subordination and standstill agreement. 393 The promissory note provided

that:

[HControl Holdings, LLC] shall issue to [Iqbal], on or before
June 30, 2012, a warrant to purchase 2,664 Shares, as such term
is defined in the Operating Agreement of Borrower effective
as of January 1, 2010, which warrant shall provide for a strike
price equal to $2.50 per Share and a termination date of June
30, 2017. 394

Iqbal did not exercise the warrants before June 30, 2017. 395 He is not entitled to do

so now. Those warrants are not outstanding and do not constitute a breach of the

Capitalization Representation.

Iqbal also claims to own 5% of Optical Telecommunications on an alleged oral

agreement with Bustamante. 396 According to Iqbal, when he was hired in 2006,

Bustamante agreed to pay Iqbal “$3,500 every two weeks and . . . five percent equity” in

OTI Fiber. 397 Iqbal accepted the offer. 398 In this action, Iqbal produced a spreadsheet that

he claims was sent to him in 2010 by Bustamante. 399 In the email, Bustamante

memorialized Iqbal’s ownership in a spreadsheet from 2010 titled “Entity Ownership

393
Id. at 71, 75, 82.
394
Id. at 74.
395
Trial Tr. at 579:4–22 (Iqbal).
396
JX-11.
397
Trial Tr. at 565:4–16 (Iqbal).
398
Id.
399
JX-11.
76
Structure and Role.” 400 Bustamante’s CEO, Rodriguez, supplied the spreadsheet to Iqbal

and noted “[y]ou may need this one day.” 401 Sellers dispute the authenticity of this

document. 402 The evidence on this point is underdeveloped, as are the legal arguments

concerning their significance. It suffices to say that Buyers bear the burden of proof on

this issue too and they have failed to meet it.

Buyers failed to prove that Sellers breached the Capitalization Representations

based on the Iqbal issues.

B. Buyers’ Claims That Sellers Breached Interim Operating Covenants

As another basis for termination, Buyers argue that Sellers breached interim

covenants through the transfer-dissolution plan and the attendant Indemnity Agreement.

Recall that the plan went as follows: Sellers (1) transferred the software held by HControl

Corporation to HControl Holdings, (2) set up a trust in the amount of $215,000 with an

indemnity from Bustamante to HControl Corporation to cover any future claims by

Marquez, and (3) dissolved HControl Corporation.

Buyers argue that various steps in this plan violated the following provisions in the

Merger Agreement. First, they argue that the plan violated Section 6.01(a)(A), 403 which

requires Sellers to operate the Company Group in the Ordinary Course of Business between

signing and closing. Second, they argue that the plan violated Section 6.01(a)(B)(1), which

400
Id.
401
Id.; Trial Tr. at 570:15–20 (Iqbal).
402
Sellers’ Posttrial Opening Br. at 34.
403
Merger Agreement § 6.01(a)(A).
77
required Sellers to cause the Company Group to use commercially reasonable efforts

to preserve intact the business organizations therein. 404 Third, they argue that the plan

violated Section 6.01(b)(xi), which prohibits Sellers from entering into or modifying “any

Contract with any Affiliate of the Company Group (other than within the Company

Group)” without Buyer’s consent. 405 Fourth, they argue that the plan violated Section

6.01(b)(v), which prohibits Sellers from dissolving “any member of the Company Group

(other than intra-company mergers or a dissolution of immaterial Subsidiaries)” without

Buyers’ consent. 406 Sellers deny that their good-faith effort to cure the Marquez issue

breached any interim covenant.

1. Ordinary Course Of Business

Section 6.01(a)(A) required Sellers to “cause the Company Group to . . . conduct its

and their respective Businesses in the Ordinary Course of Business in all material

respects.” 407 “Ordinary Course of Business” means “the ordinary course of Business as

conducted by the Company Group in accordance with past practice.” 408 “Business” is

defined in the Merger Agreement as “the business of the Company Group, including,

without limitation, the business of wired telecommunications services, whether regulated

or non-regulated, including private line, competitive access, broadband, local, long

404
Id. § 6.01(a)(B)(1).
405
Id. § 6.01(b)(xi).
406
Id. § 6.01(b)(v).
407
Id. § 6.01(a)(A).
408
Id. § 1.01.
78
distance, cable or other video, voice over internet protocol and internet access services,

within the State of Florida.” 409 “In all material respects” has been interpreted by this court

to mean that any deviation must “significantly alter the total mix of information available

to the buyer when viewed in the context of the parties’ contract” to be considered a

breach. 410 The general purpose of an ordinary-course-of-business covenant is to “help

ensure that the business the buyer is paying for at closing is essentially the same as the one

it decided to buy at signing.” 411

Buyers argue that neither transferring the software nor dissolving HControl

Corporation was in the Ordinary Course of Business, 412 and that Sellers breached Section

6.01(a)(A) by doing so.

The transferred software was significant to the Company Group by all accounts.

The software was critical to ensuring the operation of the Company’s business, 413 because

“obviously, you need billing software” to provide services to the Company’s

approximately 30,113 subscribers. 414 In pitches to potential buyers, Sellers advertised that

the “software automates virtually all business practices from provisioning to reporting.”415

409
Id.
410
Dermatology Assocs., 2020 WL 4581674, at *26.
411
Snow Phipps Gp., LLC v. KCAKE Acq., Inc., 2021 WL 1714202, at *38 (Del. Ch. Apr.
30, 2021).
412
Buyers’ Opening Posttrial Br. at 55–62.
413
JX-339.
414
JX-508; Trial Tr. at 101:16–102:7 (Bustamante).
415
JX-73 at 79.
79
It was “designed from the ground up” and “has complete functionality to manage current

and future commercial business growth.” 416 Bustamante valued the software at $9.5

million, or 4% of the total deal value. 417

Although the software was material, the Business was not altered by the transfer

because the Company Group still held the software. Before and after the transfer, the

Company Group owned the same assets and had the same contracts. 418 After the

transaction, the Merger Agreement still entitled Buyers to purchase OpticalTel, a

telecommunications company that has existing long-term contracts to provide its services

to communities in Florida, a regulated entity that has the required certifications with the

state of Florida, and a proprietary software that helps run the business. In other words, the

Business that Buyers had planned to purchase was essentially the same as it was at the time

of signing.

416
Id. at 74.
417
Bustamante Dep. Tr. at 42:22–25 (“Q. What are you valuing for that 9.5 million
valuation? A. The stock of HControl Corporation whose only asset is the software.”).
Antin’s expert witness, Gregory Campanella, estimates the fair market value of HControl
Corporation to fall between $10.31 to $11.57 million, and the fair market value of the
software to be $10.57 million. See JX-512 (Expert Report of Gregory Campanella). These
valuations are between 4.5% and 5% of the total deal value and are significant in the
context of the overall transaction, where Buyers negotiated a dollar-zero indemnity for any
breaches of the Capitalization Representation. New Enter. Assocs. 14, L.P. v. Rich, 2023
WL 2417271, at *35 (Del. Ch. Mar. 9, 2023) (identifying one source of reference for
materiality as the “magnitude of the basket that parties agree to for purposes of deal-related
indemnification, because the size of those limits indicates the magnitude of loss that a party
is willing to swallow before it can assert a claim to recover”); Harris v. Harris, 2023 WL
115541, at *12 & n.6 (Del. Ch. Jan. 6, 2023) (noting that studies of basket amounts suggest
a rule of thumb of 0.5% to 1% of deal value for materiality).
418
Trial Tr. at 176:13–177:1 (Bustamante).
80
 Buyers further argue that transferring the software exposed the Company Group to

claims of fraudulent transfer by Marquez, enhancing the materiality of the actions. It is

unclear whether the threat of a claim by Marquez challenging the transfer-dissolution plan

could transmute that plan into a Business-altering transaction that violated the Ordinary

Course of Business. But assuming for argument’s sake that this is a viable legal argument,

it does not work factually. It is true that Marquez was “very intent on being very

aggressive” 419 and told Buyers and Sellers repeatedly that he “would not go away.” 420

During his trial testimony, Genesier credibly expressed concern that public litigation over

fraud could impugn Buyers’ reputation. 421 And the court is sensitive to this issue—

Delaware law recognizes that concerns over reputational harm are legitimate because they

can significantly harm a business. 422 Here, however, Marquez’s persistence should

concern no one. Marquez has a CVR under the Software Agreement, and Sellers

established a trust and the Indemnity Agreement in the dissolution to cover the value of his

CVR. Marquez’s irrational threats do not give rise to a claim that could threaten harm that

concerns Buyers.

419
Genieser Dep Tr. at 228:22–229:5.
420
JX-218; JX-542.
421
Trial Tr. at 916:15–24 (Genieser) (“[I]t seemed like it could be a very public case and
be picked up in local press and others which we thought could have a detrimental effect on
the long-term value of the business.”).
422
See, e.g., In re Shawe & Elting LLC, 2015 WL 4874733, at *28 (Del. Ch. Aug. 13, 2015)
(countenancing “harm to a corporation’s reputation, goodwill, customer relationships, and
employee morale”).
81
 Buyers failed to prove that Sellers breached Section 6.01(a)(A).

2. Preserve Intact The Business Organizations

Section 6.01(a)(B)(1) required Sellers to cause the Company Group to “use

commercially reasonable efforts to . . . preserve intact in all material respects its and their

present business organizations.” 423 Preserving a business organization requires a company

to maintain the operations and relationships inherent in a business structure. 424 “Gutting”

a business organization does not satisfy the requirement to preserve it. 425

Defendants argue that Sellers gutted HControl Corporation by removing its sole

asset and then dissolving the entity, but, as stated above, neither the transfer nor the

dissolution materially altered the Company Group’s Business. For that reason, it is difficult

to find that doing so failed to preserve intact the Company’s Group’s Business in all

material respects.

Buyers failed to prove that Sellers breached Section 6.01(a)(B)(1).

3. Contracts With Affiliates

Section 6.01(b)(xi) provides that Sellers may not “enter into or modify any Contract

with any Affiliate of the Company Group (other than within the Company Group)” without

Buyer’s consent (not to be unreasonably withheld). 426 The Merger Agreement defines

423
Merger Agreement § 6.01(a)(B)(1).
424
Cooper Tire & Rubber Co. v. Apollo (Mauritius) Hldgs. Pvt. Ltd., 2014 WL 5654305,
at *15–16 (Del. Ch. Oct. 31, 2014).
425
AB Stable, 2020 WL 7024929, at *79.
426
Merger Agreement § 6.01(b)(xi).
82
“Affiliate” to include “any other Person that, directly or indirectly through (1) or more

intermediaries, controls, or is controlled by, or is under common control with, such Person

and the term ‘control’ . . . means the possession, directly or indirectly, of the power to

direct or cause the direction of the management and policies” at both entities. 427

Buyers argue that Sellers breached this provision when HControl Corporation

entered into the Indemnity Agreement with Bustamante. Bustamante is an Affiliate of

HControl Holdings and HControl Corporation because he has “the power to direct or cause

the direction of the management and policies” at both entities. 428 Sellers do not dispute

these facts.

Sellers argue, however, that the Indemnity Agreement was part of the Company

Group’s efforts under Section 6.01(b) of the Merger Agreement. Section 6.01(b) permits

Sellers to take “reasonable action” in response to “unforeseen” “operational matters” 429

upon notice to Buyers. Sellers further observe that (xiv) of Section 6.01(b) expressly

permits “transfers among the Company Group.” 430

Sellers have shown that the Indemnity Agreement was an “action[] taken in

response to an emergency or other unforeseen and urgent operational matter”—namely,

Marquez. 431 While Sellers had known about Marquez’s claim for some time, it was

427
Id. § 1.01.
428
Id.
429
Id. § 6.01(b).
430
Id. § 6.01(b)(xiv).
431
Id. § 6.01(b).
83
“unforeseen” that he would continue to pursue his claims, refuse to settle, and attempt to

hold up the sale so adamantly. Sellers gave Buyers notice of their plan of action in their

February 17 letter, as required by Section 6.01(b). The fact that the transfer was from

HControl Corporation to HControl Holdings, both members of the Company Group, adds

further evidence against Buyers’ claim. Under Section 6.01(b)(xiv), there need not have

even been an unforeseen operational matter for Sellers to properly transfer an asset in

excess of $50,000 to another member of the Company Group.

This result makes sense. As discussed above, the transfer and dissolution did not

change the OpticalTel Business that Buyers had contracted to purchase; nor did the

Indemnity Agreement.

Buyers failed to prove that Sellers breached Section 6.01(b)(xi).

4. Dissolution Of A Material Subsidiary

Section 6.01(b)(v) provides that Sellers may not “adopt a plan or agreement of

complete or partial liquidation or dissolution, merger, consolidation, restructuring,

recapitalization or other reorganization of any member of the Company Group (other than

intra-company mergers or a dissolution of immaterial Subsidiaries)” without Buyers’

consent (not to be withheld unreasonably). 432

Defendants argue that HControl Corporation was a material Subsidiary, and that

was true before the transfer. But HControl Corporation ceased being a material Subsidiary

after Sellers transferred the assets.

432
Id. § 6.01(b)(v).
84
 Because Section 6.01(b)(v) permits dissolution of immaterial subsidiaries, Buyers

failed to prove that Sellers breached Section 6.01(b)(v).

C. Buyers’ Claim That Sellers Breached The No-Shop Provision

Section 6.18 prohibited Sellers and their representatives from taking “any action to

encourage, initiate or engage in discussions or negotiations with, or provide any

information to, any Person (other than the Buyer and the Buyer’s representatives)

concerning any transaction similar to the Transactions.” 433 Section 6.18 requires Sellers

and their representatives to “terminate any and all negotiations or discussions with any

third party regarding any proposal” concerning such a transaction. 434 Buyers claim that,

instead of working to resolve the Marquez issue, Sellers solicited a “backup” buyer in

breach of Section 6.18. Buyers rely on emails, texts messages, and communications

beginning in January and continuing through February that reference a “backup” plan.

Sellers adamantly disclaimed this at trial. 435

Buyers have proven that, in late January, Bustamante was looking for a backup plan,

and certain Sellers were stating that Bustamante had one. In January, Bustamante had

asked Lazard about “the prospects of selling OpticalTel if the Antin deal didn’t close,” 436

433
Id. § 6.18(a).
434
Id.
435
See Trial Tr. at 185:5–186:10 (Bustamante); id. at 488:13–489:1, 492:10–493:2 (M.
Clark); see also Baker Dep. Tr. at 81:18–82:7, 84:4–17.
436
Trial Tr. at 601:23–602:10 (Baker).
85
and Lazard had a call with the auction runner-up on January 15. 437 Baker testified that he

did not recall why he had this call. 438 By January 20, Bustamante had again spoken to

Lazard and texted Rodriguez that he was “trying to decide on a plan . . . in case . . . Marquez

kills this deal.” 439

Shortly after, Sellers began talking about a backup plan as if one had materialized.

On January 21, Rodriguez told his team that there were “other plans in place if this [deal]

does not happen.” 440 Later in January, one of Sellers’ main investors contacted Marquez

and told him there was a “backup plan” that “involved conversations with a different

buyer.” 441

Hoffman similarly referenced a “backup plan” in a February 10 letter to the

Company’s Florida counsel. 442 According to Hoffman, Latham claimed that Sellers had

“a backup buyer” and had “informed the backup buyers about . . . Marquez.” 443 Latham

also stated that “Marquez will not affect this backup transaction,” but “the backup deal will

be for $15 to $20 Million dollar less.” 444 One of the “key take aways” from the call with

437
JX-264.
438
Trial Tr. at 600:18–601:22 (Baker).
439
JX-284.
440
JX-286.
441
Trial Tr. at 556:14–20 (Marquez).
442
JX-359.
443
JX-355.
444
Id.
86
Sellers’ counsel was that “OpticalTel has a second buyer lined up.” 445 Sellers responded

to this letter and did not deny Hoffman’s account. 446 On the other hand, Hoffman’s account

is hearsay within hearsay and hard to give much weight. 447

On February 24, Mark Clark texted Bustamante that he was “sitting right now with

a preferred equity/debt investor. Didn’t disclose name but confirmed appetite and cost of

capital. Backup to backup plan.” 448 Defendants infer that Mark Clark was soliciting

another potential bidder. They read this text to mean that Sellers had both a backup buyer

and a backup plan to the backup buyer. But Mark Clark credibly dispelled aspects of this

theory at trial, testifying that the backup to the backup plan involve obtaining debt

financing form another party. 449 Mark Clark did not explain his reference to the original

backup plan.

The “backup plan” communications described above raise suspicions, but they do

not support a finding of breach. The most troubling fact from this period is that Lazard

spoke to the auction runner-up. That, standing alone, does not constitute breach. The other

evidence on which Buyer relies does not strengthen its case. Rodriquez’s statement to

445
Id.
446
See JX-366.
447
Hoffman consistently used colorful and exaggerated language in his communications
with Sellers, and this court therefore takes his accounts with a grain of salt. Further,
Delaware Rule of Evidence 805 recognizes that hearsay within hearsay can only be
admitted if each part of the combined statements conforms with an exception to the rule.
D.R.E. 805.
448
JX-395.
449
Trial Tr. at 489:15–493:2 (M. Clark).
87
management seems likely intended to buoy their spirits. The Sellers’ investor’s statement

to Marquez seems likely intended to dampen Marquez’s spirits. Mark Clark’s text about

the backup backup plan does not prove the existence of either. Buyer has failed to prove

breach based on the “backup plan” conversations.

Buyers also point to the fact that, on March 5, Sellers’ litigation counsel requested

that Buyers agree to a “one-week standstill agreement” that would allow Sellers “to contact

other potential buyers to assess interest in buying OpticalTel,” 450 as evidence of the fact

that Sellers were already contacting other potential bidders. The fact that Sellers requested

leave to engage other bidders does not mean that they did so.

Buyers failed to prove that Sellers breached Section 6.18.

D. Sellers’ Claims That Buyers Breached The Merger Agreement

Sellers claim that buyers breached the Merger Agreement in multiple ways, but most

of Sellers’ claims are mooted by the above analysis. 451 Only two remain. First, Sellers

claim that Buyers breached Section 6.02 by directly contacting Marquez without

Bustamante’s written consent. Second, Sellers claim that Buyers breached Section 6.04 by

failing to use their “best efforts” to consummate the merger.

450
JX-485.
451
Sellers claim that Buyers breached Sections 2.02 and 2.03(b) by failing to close and
Section 8.01 by terminating the Merger Agreement, but this decision finds that Buyers had
a valid basis for failing to close and terminating the Merger Agreement. Also, Because the
transfer-dissolution plan did not give rise to a breach of an interim covenant, Sellers’ claim
that Buyers breached Section 6.01 by unreasonably withholding consent to the plan is a
non-issue.
88
 1. Contact With Marquez

Section 6.02 provides that Buyers shall not, “without the prior written consent of

the Sellers’ Representative” Bustamante, contact any “Person whom any member of the

Company Group has or has had a business relationship.” 452

Sellers claim that Buyers breached this provision when Greenberg called Marquez

on January 9, 2023. Turek credibly testified that the purpose of this call was to convince

Marquez to stop contacting Buyers. 453 Marquez had contacted Genieser directly only three

days earlier, and Buyers still lacked critical information about who Marquez was and what

his potential claims might entail. The call lasted no more than 15 minutes, and the

conversation stopped as soon as Marquez informed Buyers that he was represented by

counsel. 454 Though Sellers’ argument is not frivolous, it is hard to imagine how this

conversation could constitute a material breach of the Merger Agreement. The relative

insignificance of this issue is reflected in trial and briefing time devoted to it.

Sellers failed to prove that Buyers breached Section 6.02. 455

2. Best Efforts

Section 6.04(a) requires the parties to “use their best efforts to take, or cause to be

taken, all actions, and to do, or cause to be done as promptly as practicable, all things

452
Merger Agreement § 6.02.
453
Trial Tr. at 686:13–15 (Turek).
454
Id. at 687:5–688:9 (Turek).
455
Sellers do not take issue with Greenberg speaking to Hoffman. That is because
Section 6.02 does not preclude contact with Marquez’s representatives. Merger
Agreement § 6.02.
89
necessary, proper and advisable under applicable Laws to . . . cause the fulfillment at the

earliest practicable date of all of the conditions to their respective obligations to

consummate the Transaction.” 456 Sellers claim that Buyers breached the best-efforts

provision in Section 6.04(a) of the Merger Agreement, although the grounds for this claim

are not totally clear.

An efforts clause does not “require the identified outcome.” 457 “Rather, it requires

parties to try to achieve the identified outcome.” 458 Even a “best efforts” obligation “is

implicitly qualified by a reasonableness test—it cannot mean everything possible under the

sun.” 459 This is because “the concept of acting for the benefit of another is a fiduciary

standard, not a contractual one.” 460

Here, Buyers used their best efforts to close even after learning about Marquez on

January 6, 2023.

• As of January 23, Antin had requested to open up the OpticalTel investment
to a co-invest process, a “pretty clear indication that [Antin and buyers] were
continuing to . . . drive the process forward with regards to closing.” 461

456
Merger Agreement § 6.04(a).
457
Dermatology Assocs., 2020 WL 4581674, at *22.
458
Id.
459
All. Data Sys. Corp. v. Blackstone Cap. P’rs V L.P., 963 A.2d 746, 763 n.60 (Del. Ch.
2009).
460
Akorn, 2018 WL 4719347, at *91.
461
Genieser Dep. Tr. at 220:14–17; JX-292.
90
 • As of January 25, Buyers were “setting up appointments for [Rodriguez] and
telling him it’s okay to sign some contracts and to close on an acquisition of
a couple of very attractive properties.” 462

• On January 25, Buyers agreed to a common interest agreement to review the
Latham memo regarding Marquez. 463

• As Sellers told Buyers they were settling with Marquez, Buyers were “still
working on funds flows, and working with our lenders to finalize the credit
agreement.” 464

• On February 1, Genieser met with Bustamante “to try to find a path forward
to getting this done.” 465

• On February 1, Genieser “reiterated how excited [Buyers] were to buy the
company.” 466

• On February 1, after the Investment Committee was briefed on the Kroll
report, Buyers “were still trying to get this deal to close.” 467

• On February 3, Sellers acknowledged internally that Buyers “want to proceed
with a closing as quickly as possible.” 468

These are not the indicia of a buyer with cold feet.

Sellers’ claim is reduced to a contention that Buyers were required to do more to

solve the capitalization issues. But that is an overreach. Between signing and closing,

Buyers had the right not to close if Section 4.02 was not true and correct in all respects. 469

462
JX-304.
463
JX-310; JX-311.
464
Trial Tr. at 723:15–724:9 (Reiser).
465
Genieser Dep. Tr. at 268:6–12.
466
JX-353.
467
Crosbie Dep. Tr. at 159:3–7.
468
JX-353.
469
Merger Agreement § 7.01(a).
91
That flat Bring-Down Provision was specifically negotiated by the parties, with Sellers

trying three times to impose a materiality qualifier before ultimately accepting the risk of

the deal not closing if the Capitalization Representations were not true in all respects. The

best-efforts provision does not require Buyers to sacrifice their negotiated contractual

rights to solve a breach. 470 If that were the case, pre-signing diligence, a seller’s

representations and warranties, and specific closing conditions would be meaningless, as a

buyer could be required to close over any breach that arose between signing and closing.

Sellers failed to prove that Buyers breached Section 6.04(a).

III. CONCLUSION
Judgment is entered in favor of Buyers. Buyers are ordered to prepare a form of

final order consistent with this decision immediately to permit Sellers a timely appeal, if

they choose to pursue one. The court will seek Sellers’ position concerning the form of

order before entering it.

470
Akorn, 2018 WL 4719347, at *96.
92