## Facts

- Three hedge-fund founders (Olson, Halvorsen, and Ott) formed the Viking Global enterprise in 1999 after working together at Tiger Management.
- The founders orally agreed to core economic terms known as “Cap and Comp”: if a founder left, he would receive accrued compensation and his capital account balance, but no continuing equity-type payout.
- The founders formed Delaware entities (including an LLC collecting performance fees and an LP collecting management fees) and adopted written governing agreements reflecting the Cap-and-Comp exit terms.
- Olson later proposed a separate entity, Viking Global Founders LLC, to provide a post-departure “earn-out” for founders.
- A certificate of formation for Founders was filed and draft operating agreements containing an earn-out were circulated, but Halvorsen and Ott did not sign them and did not otherwise manifest assent to the earn-out terms.
- Founders was used at times as a conduit for certain funds at Olson’s direction, but its role and any earn-out concept were not formally adopted through signed agreements or management action.
- Olson was dismissed in August 2005 and was paid accrued compensation and his capital account balance under Cap and Comp.
- Olson sued, claiming entitlement to a substantial earn-out under the unexecuted Founders operating agreement and, alternatively, a “fair value” buyout of his interest.

## Issues

1. Whether the founders agreed to amend the original Cap-and-Comp arrangement to grant Olson an earn-out through Founders.
2. Whether Delaware’s statute of frauds applies to LLC operating agreements and alleged oral modifications, rendering an alleged oral earn-out amendment unenforceable.
3. Whether the governing agreements displaced any default statutory entitlement to a “fair value” payout upon Olson’s departure.

## Decision

- The Court of Chancery entered judgment for defendants on Olson’s earn-out and fair-value theories.
- The court found Olson failed to prove any binding amendment adding an earn-out to the parties’ agreed compensation and exit terms.
- The court held the statute of frauds applies to LLC operating agreements and bars enforcement of the alleged oral earn-out modification.
- The court held the written Cap-and-Comp provisions controlled exit payments and supplanted any default “fair value” entitlement.

## Legal Principles

- LLC operating agreements are subject to general contract doctrines, including the statute of frauds, when the asserted agreement or modification requires a signed writing.
- An alleged oral amendment to an LLC’s compensation or withdrawal terms is unenforceable if it falls within the statute of frauds and lacks the required signed writing.
- Unexecuted drafts and ambiguous conduct are insufficient to establish mutual assent to modify core economic terms, especially where written agreements already define exit compensation.
- Default valuation or withdrawal rights under Delaware alternative-entity statutes may be modified or displaced by clear contractual provisions allocating exit payments (such as capital account plus accrued compensation).

## Conclusion

The Court of Chancery enforced the founders’ written Cap-and-Comp exit terms, rejected Olson’s claimed Founders earn-out for lack of proof of assent, and held that the statute of frauds barred any alleged oral modification of the LLC operating arrangements.


Olson v. Halvorsen, 2009 WL 1317148 (Del. Ch. May 13, 2009)