                                                     EFiled: Nov 25 2015 04:53PM EST
                                                     Transaction ID 58218247
                                                     Case No. 11483-VCN
                            COURT OF CHANCERY
                                  OF THE
                            STATE OF DELAWARE

 JOHN W. NOBLE                                             417 SOUTH STATE STREET
VICE CHANCELLOR                                            DOVER, DELAWARE 19901
                                                          TELEPHONE: (302) 739-4397
                                                          FACSIMILE: (302) 739-6179

                               November 25, 2015


Martin S. Lessner, Esquire                     Bradley R. Aronstam, Esquire
Young Conaway Stargatt & Taylor, LLP           Ross Aronstam & Moritz LLP
1000 North King Street                         100 S. West Street, Suite 400
Wilmington, DE 19801                           Wilmington, DE 19801

                         Douglas Herrmann, Esquire
                         Pepper Hamilton LLP
                         1313 North Market Street
                         Wilmington, DE 19801

      Re:   Capital Link Fund I, LLC v. Capital Point Management, LP
            C.A. No. 11483-VCN
            Date Submitted: November 9, 2015

Dear Counsel:

      Plaintiffs in this action are Capital Link Fund I, LLC (“CLFI”), CT Horizon

Legacy Fund, LP (“Connecticut Fund”), Capital Point Partners, LP (“CPP” or “the

Partnership”), and Sema4 USA, Inc. (together, the “Plaintiffs”). Defendants in this

action are Capital Point Management, LP (“CPMLP” or the “General Partner”),

Capital Point Advisors, LP, Princeton Capital Corporation (“Princeton Capital”),

Princeton Investment Advisors, LLC (“Princeton Advisors”), Princeton Advisory
Capital Link Fund I, LLC v. Capital Point Management, LP
C.A. No. 11483-VCN
November 25, 2015
Page 2



Group, Inc., Alfred Jackson, Munish Sood, Gregory J. Cannella, Thomas Jones, Jr.,

Trennis L. Jones, and Martin Tuchman (together, the “Defendants”).

      Plaintiffs bring this action against Defendants for breach of the Capital Point

Partners, L.P. Amended and Restated Limited Partnership Agreement (the

“Partnership Agreement”), breach of the covenant of good faith and fair dealing;

equitable rescission; breach of fiduciary duties; aiding and abetting breach of

fiduciary duties; fraud; and civil conspiracy to commit fraud.

                               I.   BACKGROUND

      In August 2008, Plaintiffs and CPMLP entered into a partnership to “invest

in [s]ecurities for long-term appreciation.”1 CPMLP served as general partner of

the Partnership, and CLFI and Connecticut Fund were among the limited partners.2

The Partnership Agreement governs the relationship among the parties, and

provides that “Seventy Percent in Interest of the Limited Partners may remove the

General Partner and/or the Investment Manager at any time without cause.”3


1
  Verified Compl. (“Compl.” or the “Complaint”) Ex. A (“P’ship Agmt.”) § 1.8(a).
2
  Compl. ¶ 1. A large majority of CPP’s limited partners are public pension funds.
Id. ¶ 30.
3
  P’ship Agmt. § 2.8(a).
Capital Link Fund I, LLC v. Capital Point Management, LP
C.A. No. 11483-VCN
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Following removal of the General Partner, “Eighty Percent in Interest of the

Limited Partners” may “designate a successor general partner within 90 days of the

effective date of such removal.”4

      The Partnership Agreement requires consent of a majority-in-interest of

limited partners “before the General Partner can cause the Partnership to commit a

large percentage of its assets to one portfolio investment[] [or] hold a majority of

the voting shares of a portfolio investment.”5 The Partnership Agreement also

provides for a five-member board of advisors (the “Board of Advisors”) consisting

of representatives of the limited partners and “other persons unaffiliated with the

General Partner.”6 The Board of Advisors has authority to “review and approve or

disapprove [of] . . . the appropriateness of any action or inaction on the part of the

Partnership in any situation that poses, or may pose, a conflict of interest involving

the Partnership, the General Partner, the Investment Manager and their Affiliates.”7




4
  Id. § 2.8(d); accord Compl. ¶ 38.
5
  Compl. ¶ 6; accord P’ship Agmt. § 1.8(c)(i), (vi).
6
  P’ship Agmt. §§ 2.3(b), 2.6; Compl. ¶ 35.
7
  P’ship Agmt. § 2.6(b).
Capital Link Fund I, LLC v. Capital Point Management, LP
C.A. No. 11483-VCN
November 25, 2015
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Approval of the Board of Advisors does not, however, substitute for a majority

vote of the limited partners where such vote is required.8

      CPMLP sent to the Board of Advisors “summary materials” describing and

seeking approval for a proposed transaction between CPP and a new affiliate of

CPMLP.9 The proposed transaction involved a sale of substantially all of CPP’s

assets in return for shares of the new affiliate, and would therefore require not only

Board of Advisors approval, but also approval of a majority in interest of the

limited partners.10 Though CPMLP received Board of Advisors approval for the

proposed transaction, the transaction never took place; instead, without notice to

the Board of Advisors or approval of the limited partners, CPMLP, in July 2014,

caused the Partnership to “sell all of its assets to Princeton Capital,” a different

CPMLP affiliate, in return for shares of Princeton Capital’s publicly traded

common stock (the “Transaction”).11 As part of the Transaction, Princeton Capital

entered into an “Investment Advisor Agreement” with Princeton Advisors, another


8
  Compl. ¶ 35.
9
  Id. ¶ 42.
10
   Id. ¶ 43.
11
   Id. ¶¶ 44-46.
Capital Link Fund I, LLC v. Capital Point Management, LP
C.A. No. 11483-VCN
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CPMLP affiliate, in which Princeton Capital pre-approved any related-party

transactions.12 The Investment Advisor Agreement also provides for payment of

fees to Princeton Advisors for managing the assets that Plaintiffs allege were

improperly transferred to Princeton Capital.13   The Transaction resulted in an

increase in Princeton Capital’s assets from $1 million to over $50 million (the

“Disputed Assets”).14

       At a special meeting on March 6, 2015, Jackson (CPMLP’s Chairman and

Managing Partner), Sood, Thomas Jones, Trennis Jones, and Tuchman were

elected directors of Princeton Capital (collectively, the “Board”).15 The Board

hired Canella, CPMLP’s Chief Financial Officer, as Princeton Capital’s CFO, and

Sood as Princeton Capital’s Chief Executive Officer.16 Though the Transaction

closed on March 13, 2015, the limited partners first learned of it on April 14

through a public news article.17 CPMLP directly disclosed the Transaction to the


12
   Id. ¶ 46.
13
   Id.
14
   Id. ¶ 47.
15
   Id. ¶ 48.
16
   Id. ¶ 50.
17
   Id. ¶ 51.
Capital Link Fund I, LLC v. Capital Point Management, LP
C.A. No. 11483-VCN
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limited partners on May 14 in CPP’s “Quarterly Portfolio Review,” at which time

the limited partners sought additional information.18 In response to numerous

requests, the limited partners received only general information until July 30, when

Princeton Advisors circulated to the Board of Advisors an invitation to the 2015

Annual Meeting of Stockholders (the “Annual Meeting”).19 The Annual Meeting

was postponed from August 11 to September 10,20 and Plaintiffs filed the

Complaint on the morning of September 9, 2015. During a teleconference on

September 9, Defendants agreed to postpone the Annual Meeting,21 and on

October 26, the Court ruled on the parties proposed Status Quo Orders, allowing

for the payment of $243,394 in asset management fees from Princeton Capital to



18
   Id. ¶¶ 52-53.
19
   Id. ¶¶ 53-54. The Complaint further alleges that Princeton Capital’s certificate
of incorporation requires that any nominations or issues to be considered at the
Annual Meeting be proposed by July 23, and that therefore the July 30 notification
date “ensured that no Limited Partner action could affect any item to be voted on at
the Annual Meeting.” Id. ¶ 55.
20
   Id. ¶ 56.
21
   Telephonic Hr’g on Pls.’ Mot. for Status Quo Order and Rulings of the Ct. 4, 7-8
(Sept. 9, 2015) (TRANSCRIPT); Letter from Martin S. Lessner, Esquire
Regarding Entry of a Scheduling Order and Status Quo Order 7 (Oct. 29, 2015)
(“Lessner Letter”).
Capital Link Fund I, LLC v. Capital Point Management, LP
C.A. No. 11483-VCN
November 25, 2015
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Princeton Advisors for the third quarter of 2015, and $100,000 per quarter

thereafter (the “Management Fees”).22

                              II.   CONTENTIONS

      Defendants seek implementation of a status quo order permitting Princeton

Capital to disburse funds for two distinct purposes, neither of which the parties

addressed during the October 26 teleconference: (1) for payment of

“Administration Fees” from Princeton Capital to PCC Administrator, LLC (“PCC

Administrator”), which is a wholly owned subsidiary of Princeton Advisors, and

(2) for payment of legal fees to defend itself in this action.23 Plaintiffs seek

implementation of a status quo order preventing these additional disbursements,

alleging that they unnecessarily reduce the value of the Disputed Assets.24




22
   Teleconference Regarding Competing Proposed Scheduling Orders 32 (Oct. 26,
2015) (TRANSCRIPT) (“Tr. of Oct. 26 Teleconference”).
23
   Letter from Bradley R. Aronstam, Esquire Regarding Pls.’ Mot. for a Status Quo
Order and Enclosing Defs.’ Proposed Status Quo Order 2-3 (Oct. 29, 2015)
(“Aronstam Letter”).
24
   Lessner Letter 4-6.
Capital Link Fund I, LLC v. Capital Point Management, LP
C.A. No. 11483-VCN
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                                 III.   ANALYSIS

A. Status Quo Orders Generally

      Courts generally implement status quo orders, as opposed to preliminary

injunctions, to maintain stability during contests for corporate office pursuant to 8

Del. C. § 225.25 While the parties here contest control of assets as opposed to

control of a company, the same rationales apply, namely, that an injunction

removing and replacing incumbent directors would be “both drastic and

impractical,” and may result in “disruptive changes in corporate administration.”26

Though status quo orders are generally the more appropriate interim remedy in the

context of a control challenge, the two are similar to the extent “that the purpose of

a preliminary injunction is to preserve the status quo.”27


25
   See Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial
Practice in the Delaware Court of Chancery, § 8.08[f] (2014).
26
   Id. (citing Kumar v. Racing Corp. of Am., Inc., 1991 WL 67083, at *9 (Del. Ch.
Apr. 26, 1991)).
27
   R & R Capital LLC v. Merritt, 2013 WL 1008593, at *8 n.74 (Del. Ch. Mar. 15,
2013), aff’d, 69 A.3d 371 (Del. 2013); accord Pharmalytica Servs., LLC v. Agno
Pharms., LLC, 2008 WL 2721742, at 3 n.6 (Del. Ch. July 9, 2008) (“The
appropriateness of entering a status quo order is based on considerations similar to
those consulted in determining whether other forms of interlocutory injunctive
relief are appropriate.”); Gimbel v. Signal Cos., Inc., 316 A.2d 599, 602 (Del. Ch.)
Capital Link Fund I, LLC v. Capital Point Management, LP
C.A. No. 11483-VCN
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B. Administration Fees

      The Management Fees are paid from Princeton Capital to Princeton

Advisors as compensation for managing the Disputed Assets.28                      The

Administration Fees, however, are quarterly reimbursements of “approximately

$100,000” paid from Princeton Capital to PCC Administrator for “expenses

incurred in connection with . . . financial reporting, compliance, investor relations,

the preparation of public filings, and governance matters.”29 While such fees are

not paid directly to portfolio companies, they are paid to PCC Administrator

employees, other than Jackson (though including Canella), for the preparation of

documents necessary to comply with the United States Securities and Exchange

Commission’s     and    the   Internal   Revenue    Service’s    periodic   reporting




(“The preliminary injunction constitutes extraordinary relief generally employed to
do no more than preserve the status quo pending the decision of the cause at the
final hearing on proofs taken.” (internal quotation marks omitted)), aff’d, 316 A.2d
619 (Del. 1974).
28
   Teleconference Regarding Competing Proposed Scheduling Orders 13 (Nov. 9,
2015) (TRANSCRIPT) (“Tr. of Nov. 9 Teleconference”); Tr. of Oct. 26
Teleconference 10-11.
29
   Aronstam Letter 2.
Capital Link Fund I, LLC v. Capital Point Management, LP
C.A. No. 11483-VCN
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requirements.30 Therefore, such payments are necessary for the maintenance of the

assets currently controlled by Princeton Capital.

      Further, while Plaintiffs initially opposed any payment other than those

“necessary to pay directly to the portfolio companies,” including payments to

employees of Princeton Capital or its affiliates,31 they later indicated a willingness

to allow payments to Princeton Capital employees “specifically for maintaining the

assets.”32 Therefore, because the Administration Fees are necessary to maintain

the assets in Princeton Capital’s control, the Court approves payment of quarterly

Administration Fees to PCC Administrator of $100,000, subject to a “true-up at the

end of the quarter in the event that the projected fees are [greater or] less than what

was required.”33


30
   Tr. of Nov. 9 Teleconference 14, 25.
31
   Tr. of Oct. 26 Teleconference 8-9.
32
   Id. at 15.
33
   Tr. of Nov. 9 Teleconference 15-16. Plaintiffs also seek to prevent Princeton
Capital from paying its independent director fees, arguing that such directors have
not performed any compensable actions. Id. at 11. While Defendants do not
dispute this specific contention, they argue, and the Court agrees, that it is
inappropriate at this stage to implement a blanket restriction preventing all
payment to independent directors (especially where such directors should further
Plaintiffs’ interests by ensuring proper management of the Disputed Assets). Id.
Capital Link Fund I, LLC v. Capital Point Management, LP
C.A. No. 11483-VCN
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C. Legal Fees

      Defendants seek to use Princeton Capital assets to defend themselves in this

action.34 They argue that Princeton Capital is entitled to defend itself with its own

assets and that Jackson and Canella are entitled to advancement and

indemnification pursuant to Princeton Capital’s bylaws.35            Plaintiffs cite

Technicorp International II, Inc. v. Johnston36 to support their position.       The

Technicorp court rejected the plaintiffs’ argument that the company was a nominal

defendant and the real parties in interest were the company’s controllers, and that

therefore the company’s payment of the controllers’ legal fees was improper.37

The court held that “the corporation customarily pays the legal costs of opposing

the § 220 or § 225 claim, even though the opposition often serves the interests (or




at 18. Defendants, therefore, may continue to make distributions to the
independent directors from the Disputed Assets to the extent such fees reasonably
accrue.
34
   Aronstam Letter 2.
35
   Tr. of Nov. 9 Teleconference 16-17.
36
   2000 WL 713750 (Del. Ch. May 31, 2000).
37
   Id. at *43.
Capital Link Fund I, LLC v. Capital Point Management, LP
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the position being taken) by the incumbent management,”38 though it ultimately

rejected the controllers’ fee request on other grounds.39

      This case, however, presents issues not considered in Technicorp. Most

significantly, the corporation in Technicorp was a manufacturing company

consisting of assets independent from the allegedly improper transactions.40 Here,

however, as Plaintiffs argue, the bylaws containing mandatory advancement and

indemnification provisions govern a company that Defendants themselves created

and capitalized solely by means of the disputed transaction.41 In fact, Princeton

Capital held only $1 million in assets before the contested Transaction.42 The

Court is unwilling to sanction Defendants’ use of the Disputed Assets to pay its

legal costs in defense of the transaction resulting in the dispute. The fact that the

Disputed Assets are now controlled by an entity contractually obligated to

indemnify Defendants does not change the outcome, especially where such assets



38
   Id.
39
   Id. at *43-44.
40
   Id. at *2.
41
   Tr. of Nov. 9 Teleconference 24.
42
   Compl. ¶ 47.
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constitute substantially all of the entity’s assets and Defendants seemingly used the

entity solely to effectuate the disputed transaction.43

                               IV.    CONCLUSION

        For the reasons above, the Court approves Defendants’ request to pay

quarterly Administration Fees of $100,000 subject to an end-of-quarter adjustment

and independent director fees, and rejects Defendants’ request to pay their legal

fees with the Disputed Assets. Counsel are requested to confer regarding the form

of an implementing status quo order.

                                        Very truly yours,

                                        /s/ John W. Noble

JWN/cap
cc: Register in Chancery-K




43
     Id. ¶ 50.
