Solar Cells, Inc. v. True North Partners, Llc.

2002 WL 749163 (Del.Ch.2002)

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Nature of the Case

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Facts

A proposed merger of First Solar, LLC ('First Solar”) with and into First Solar Operating, LLC ('FSO'), the wholly-owned operating subsidiary of First Solar Ventures, LLC ('FSV') was made. P alleges that the individual managers of First Solar (D) acting at the direction of True North Partners, LLC ('True North'), acted in bad faith in approving the proposed merger and that Ds will be unable to prove the entire fairness of that merger. P filed a motion for a temporary restraining order requesting that this Court enjoin the proposed merger, which was scheduled to close two days later. Solar Cells was founded in 1987 to develop, design, and manufacture products and processes for photovoltaic electricity generation--technology commonly referred to as 'solar power.' In order to exploit the potential of these inventions, True North, an Arizona limited liability company, was brought in to provide needed financing. P and True North formed First Solar as a Delaware limited liability company in February 1999 to commercialize the solar technology. An Operating Agreement required P to contribute patented and proprietary technology--valued in the Operating Agreement at $35 million--to First Solar. True North was to contribute $35 million in capital to First Solar and, also pursuant to the Operating Agreement, was required to, and did, loan First Solar an additional $8 million. In return for their contributions, P and First Solar each received 4,500 of First Solar's Class A membership units. P also received 100% of First Solar's Class B membership units. The business and affairs of First Solar is conducted by five Managers. The Operating Agreement permits True North to elect three of those Managers (the 'True North Managers') and Solar Cells to elect the remaining two Managers (the 'Solar Cells Managers'). Needless to say, First Solar has been managed by True North. First Solar's inability to produce a marketable product, depleted the Company's funding. First Solar retained investment banker Adams, Harkness & Hill, Inc. ('AHH') to find a strategic investor for the Company. True North agreed to make an additional $15 million loan to First Solar. The Loan Agreement gave True North the option of converting some or all of the loan amount into Class A Units of First Solar or to retain the investment as a loan with liquidation preferences. No outside investors were brought into First Solar. True North then converted $250,000 of its outstanding loans to First Solar into Class A Units at a conversion ratio based on a January 8, 2002, AHH valuation of First Solar at $32,000,000. The True North Managers executed a written consent approving the challenged merger of First Solar into FSO, a Delaware limited liability company wholly owned by True North. Two days before the merger, P received notice of the proposed merger, which was scheduled to close and the terms of that merger. The end result of the merger-related transactions would be that P would go from owning 50% of the Class A Units of First Solar to owning 5% of the membership units of the surviving company. P filed a complaint and request for temporary restraining order enjoining consummation of the proposed merger.