9 ms·

Former employee sues startup for financials in order to value granted stock

231 points by nstj 10y ago

chollida1 10y ago
The article links to the actual law cited, read it, it only takes a few minutes. http://delcode.delaware.gov/title8/c001/sc07/#220 http://delcode.delaware.gov/title8/c001/sc07/#220 It does make it seem very cut and dry that any employee who has a single share is allowed to view not only the financials but also the cap table and shareholder list. To be honest, if this is the case I'm very surprised that fund managers like T Rowe Price and Fidelity haven't been invoking it for as long as they've held shares to do their monthly marking of their private positions. I mean, doesn't it seem like they actually have a fiduciary duty to do this as it lets them most accurately value the holdings that they have? If this is really the case then, unless the companies can force some sort of NDA on shareholders, then this opens the floodgates where any company that has vested shareholders, not just option holders, is going to have its books made public? This seems like a positive thing for employees as each new round would be scrutinized looking for provisions in the new raise that could screw employee's ie ratchets or liquidation preferences.
- cdubzzz 10y ago
  Looks like the NDA question may have to be taken up here? - > A Domo spokeswoman says the company had asked Mr. Biederman to sign a nondisclosure agreement before providing financial records, but that he refused to do so.
  - philsnow 10y ago
    I don't see anywhere in subsection 220 (I haven't read the rest) that allows Domo to require this of Biederman. > The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other or further relief as the Court may deem just and proper. Unless the court has told Biederman that he needs to sign that NDA, it doesn't seem that he has to and that Domo is still acting against subsection 220.
    - spinlock 10y ago
      An NDA seems reasonable in this case. The article did state that Biederman objected to some of the stipulations which asked him to give up some of his shareholder rights. I suspect the lawyers will make some more money off this and then a more reasonable NDA will be signed.
      - protomyth 10y ago
        > An NDA seems reasonable in this case. Why is an NDA reasonable? I am really curious of the mechanics of a startup that would make this different from any other company under that law.
        potatolicious 10y ago
        Without knowledge of the law in this specific case, it still feels like there are reasonable grounds that a private, not-publicly-traded company should be allowed to keep its financials private. Though of course, any such NDA should be revealed ahead of time, including the precise language of the NDA, so that investors (and yes, employees who receive equity in lieu of cash are investors) make a fully informed decision.
        jessaustin 10y ago
        ...any such NDA should be revealed ahead of time, including the precise language of the NDA... Is this a common thing with NDAs? ISTM it's rare that during the hiring process one would receive a folder containing all the NDAs one might potentially be asked to sign while working at a firm. One might receive an "initial" NDA, to sign before starting, but every time there is an ownership change one can expect a new round of NDAs, because apparently NDA terms are a rapidly-evolving area of contract law.
        toast0 10y ago
        Requiring a new NDA as a condition (but not prom is) of continued employment is one thing; requiring it as a condition of exercising a statutory right is another.
  - dboreham 10y ago
    I think we'd need to see the wording for that NDA to understand why he refused. For example, many NDAs use wording along the lines of "must not disclose or USE..". It would be hard to agree not to "use" the information being disclosed in this case. There could have been other unacceptable conditions attached beyond the basic requirement to refrain from public disclosure.
    - frugalmail 10y ago
      He should refuse any NDA he doesn't get anything in exchange for. if the startup is already required to give him the financials then he's not getting anything "more" so would he agree to give up his rights?
- wtvanhest 10y ago
  IMO, this is an area of needed legislation. There are likely thousands of people working for 'unicorns' where the founders have already cashed out, but the employees will get nothing due to liquidation preferences.
  - birken 10y ago
    I just don't understand this argument. If you are working for a company and they wont give you this information, leave and join one that will. If you are thinking of joining a company, ask for all the stock option information. Ask for the details of the funding rounds including liquidation preferences. If they don't give it to you, join another company that will. If no private companies will give you this information (though I know of many that do), join a publicly traded company. Additionally what would more legislation do that the existing Delaware law doesn't? The fact that a lawsuit is being filed here is a good thing... a company isn't fulfilling its legal obligations and the courts will settle it.
    - criley2 10y ago
      The argument is that people routinely get abused and your equivalent of "be smarter or deal with the consequences, and if no one will give you basic transparency: TOO BAD this industry isn't for you, move on" is a rather brutal approach. I'd prefer a state law for transparency, so if your SV start-up wants to play Wild West, they have to move to Texas or a similar state where it is a lot easier to abuse your employees legally.
      - birken 10y ago
        You have no idea if people are being routinely "abused" or not. The original commenter's hypothetical is as follows (I've expanded a bit): A likely extremely highly paid employee is working at a company where they aren't sure whether their stock options are valuable are not. It is extremely likely if they ask the company for information necessary to value those stock options, they would get it. Completely unrelated, founders of the business may or may not have sold stock during a previous round of funding. How is this person a victim exactly? If an employee doesn't want any risk in their compensation, they should reject stock options in favor of salary. If they decide to take stock options there is always going to be risk, not only due to the information risk we are talking about but because the future is uncertain even to people with all the relevant information. And FWIW, almost every startup is incorporated in Delaware which already has this law on the books.
- libertymcateer 10y ago
  > To be honest, if this is the case I'm very surprised that fund managers like T Rowe Price and Fidelity haven't been invoking it for as long as they've held shares to do their monthly marking of their private positions. I mean, doesn't it seem like they actually have a fiduciary duty to do this as it lets them most accurately value the holdings that they have? T. Rowe Price and Fidelity only trade in publicly traded securities. The amount of information available in publicly filed SEC documents, under normal circumstances, dwarfs what you have access to as a result of your shareholder rights under the Delaware BCL.
  - chollida1 10y ago
    > T. Rowe Price and Fidelity only trade in publicly traded securities. This is not true. They've invested in private companies for some time now. http://www.wsj.com/articles/fidelity-marks-down-startups-including-dropbox-zenefits-1459346847 http://www.wsj.com/articles/fidelity-marks-down-startups-inc... To be fair to you it is a new development. As an aside, just checked out your website. You've got a very interesting background!!
  - rlucas 10y ago
    Nope, T Rowe (or TIAA-CREF) invests in your late stage "Series T" rounds all the time recently it seems
  - runamok 10y ago
    Totally tangential question but is there any resource you know of that provides a layman's "explain like I'm 5" explanation of this Delaware BCL? A privately owned company (in which I bought my shares of when I left) was purchased via an asset sale and us common stock shareholders got zilch. I am trying to learn if I have any legal standing...
    - JonFish85 10y ago
      "was purchased via an asset sale and us common stock shareholders got zilch" Just based on this (I am not a lawyer or giving financial advice), I'd guess that you can have legal standing to your share, which is probably $0. Investors often have preferred shares, and since it was an asset sale, it doesn't sound like things went well. The shares you bought were holding your place at the very back of the line, and the money ran out long before you. Your shares are probably literally worth $0. Consult a tax attorney or CPA to figure out if you can write off some losses on taxes, maybe?
- Animats 10y ago
  Note the 5 day deadline in the law. This issue has come up before with other companies.[1] The company trying to keep the financials secret lost. Stockholders have a clear right to see the financials and the ownership ("cap table") for valuation purposes. [1] http://courts.delaware.gov/opinions/download.aspx?ID=205650 http://courts.delaware.gov/opinions/download.aspx?ID=205650
- zekevermillion 10y ago
  DE info rights are not helpful to most employees. If the employees hold options, they do not have info rights (though they may have some disclosure rights once the company gets to a certain size). Once the employees exercise and receive stock, they still may be asked to waive info rights contractually as a condition of receiving the stock if that was part of the option agreement. That said, if the employee is a stockholder and has not waived info rights, the company probably will not be able to withhold the requested financial info...if that employee is willing to drop the money on lawyers to go to DE Chancery Court. It is a pyrrhic victory. I have personally found it very frustrating to deal with venture-backed startups on behalf of departing employees. Typically the employees have to decide whether to exercise option grants within 90 days of termination, and the strike price might be a meaningful amount to someone who has just lost a job (whether voluntarily or not). Both for economic as well as tax reasons, we need insight into the value of the underlying stock. But companies are quite tight-lipped about it, and their lawyers often stonewall. They may also try to impose new contractual requirements on exercise that were not agreed to in the original option grant! I view this as the height of bad faith vis-a-vis former employees. But appears to be standard operating procedure for certain companies and law firms, who shall remain nameless...
  - gresrun 10y ago
    Why shall they remain nameless? I, for one, am interested in hearing who has historically screwed over employees like this.
    - zekevermillion 10y ago
      Because I have professional duties that prevent me from discussing specific matters! I have to wait a couple years and then complain in as general and non-attributed a manner as possible.
  - JumpCrisscross 10y ago
    > Once the employees exercise and receive stock, they still may be asked to waive info rights contractually as a condition of receiving the stock if that was part of the option agreement Section 220 rights are statutory. You cannot waive them. If you own stock in a Delaware company, you are entitled to inspection rights.
- ChuckMcM 10y ago
  To be honest, if this is the case I'm very surprised that fund managers like T Rowe Price and Fidelity haven't been invoking it for as long as they've held shares to do their monthly marking of their private positions. I mean, doesn't it seem like they actually have a fiduciary duty to do this as it lets them most accurately value the holdings that they have? They do invoke it, and they sign the non-disclosure agreement, and they don't talk about what they found. However since the valuation changes pretty slowly generally (only on new shares being issued, excluding those from vesting employees) and the fact that there are generally two classes of stock (preferred and common). This argument appears to be about a fight between a person and their high school friend who was the CEO, who said one thing (in terms of ownership), but in fact did something else. A number of employment agreements these days include boiler plate text that says you wave your 220 rights when you join, but it isn't clear that that wavier survives your separation (parts of the agreement certainly do) and of course it isn't clear that Delaware law even allows you to waive those rights. Personally I think Domo is not thinking straight here, settle with this person and move on. But personal egos may be involved and that can be an impediment to forward progress.
  - abcampbell 10y ago
    Domo is not the issue here. The issue is the huge can of worms this (could) open up if every shareholder realizes access to financial information is a #right and not a #privilege At least as far as I understand the law, which is (admittedly) limited.
    - ChuckMcM 10y ago
      Yes and no right? Being able to inspect the financial books is a right that share holders of Delaware based corporations have. You can read the law above, collida linked it. It's really straight forward. The questions here are two fold, disclosure limitation and rights waivers. The first is the question "Can a corporation compel a shareholder to sign a non-disclosure in order for that share holder to exercise their rights under rule 220?" As I mentioned I've never experienced anyone who has been part of a funding round (investing) balking at the idea of signing a non-disclosure which prevents them from disclosing the financial information to third parties. They person in the article is refusing to sign a non-disclosure. Which suggests they are considering disclosing that information to third parties (most likely other employees) and (I presume) management feels that would be detrimental to the business. The second question, which doesn't seem to be part of this suit, but one that bears on it, is whether or not a corporation can compel an employee, who will become a future shareholder, from exercising their rule 220 rights by having them waive their future rights as part of their employment agreement. See the Chriscross sibling comment where it is asserted the 220 right is statutory and thus immune to waiver. And what will probably be an interesting future question, since California is an at will work state, can a company fire an employee for invoking their rule 220 rights? Whether or not they sign a non-disclosure agreement? I'm guessing that they can (fire the employee) which would make it the last thing you got to request at a company.
gjem97 10y ago
"Mr. Biederman holds 64,166 Domo shares that would be worth $540,919 at the $8.43-per-share price where Domo sold stock to investors last year." Is there any reason to believe that these are the same series of shares? Isn't it more likely that the investors bought preferred shares that are worth a lot more than the common shares that he probably has?
- thegranderson 10y ago
  They almost certainly aren't the same series of shares, but that in and of itself isn't a reason to expect them to be worth less. Usually preferred shares have additional rights (e.g., preferred share holders will get returned their original cost or some guaranteed return before common shareholders get any returns). Some have features that get them some incremental value over time (e.g., a 10% return paid through additional ownership over time), but this would differ wildly depending on funding round, investor, etc. If the business keeps growing and the whole equity cap table is "in the money," his shares could probably be close to this estimated value. Caveat: you can go totally nuts with complicated share structures, so this could not at all be the case for Domo.
  - pbreit 10y ago
    Actually, the preferred rights almost certainly make them more valuable than employee common stock, and probably significantly more valuable. Do we know what the 409a valuation is?
  - marme 10y ago
    which is exactly the reason he should be allowed to see the full details of the cap table to see what makes those shares more valuable than his and estimate his stocks value based on that info plus other financial info. It is exactly why this law exists because otherwise it is impossible for someone to value their shares and when you own shares that include a right to first refusal clause it makes it nearly impossible to shop the shares around on the private market
  - gjem97 10y ago
    You're correct, at a liquidity event the value of common and preferred shares could converge. A term called "participating preferred shares" would mean that they don't. But most capital structures I have seen are such that earlier in the story (pre liquidity event), the values of the two shares are drastically different.
koolba 10y ago
So if one exercises even just one of their stock options would they have full access to the cap table for a standard Delaware C-corp anytime they want to value their shares?
- toufka 10y ago
  That actually seems quite reasonable. How else can the stock be valued?
  - koolba 10y ago
    > That actually seems quite reasonable. How else can the stock be valued? I'm not saying it's unreasonable. Far from it. I'm trying to casually suggest a way for the startup proletariat grab the reins of their futures!
justinzollars 10y ago
This is cute. Go to Domo website: "Information is empowering."
will_brown 10y ago
Assuming the facts as true, the shareholder might also have a claim for retaliation against the company, specifically: 1. Pursuant to DE law shareholder requested the books be opened to value his shares; 2. His request was not just unlawfully denied, but company in writing explained, by law shareholder was not entitled to the requested documentation; 3. Then "a few days later" the company fired the shareholder in his capacity as employee. Could be a great claim for retaliation, though not the federal title 7 type, but the DE state equivalent.[1] Note the citation includes whistle blower claims, which is similar/associated with retaliation claims but they are separate. Basically the DE retaliation claim is triggered by the employer taking action contrary to DE public policy (i.e. Being fired for trying to exercise a right as a shareholder) [1] http://www.workplacefairness.org/whistleblower-retaliation-claim-DE http://www.workplacefairness.org/whistleblower-retaliation-c...

231 points by nstj 10y ago

The article links to the actual law cited, read it, it only takes a few minutes. http://delcode.delaware.gov/title8/c001/sc07/#220 http://delcode.delaware.gov/title8/c001/sc07/#220 It does make it seem very cut and dry that any employee who has a single share is allowed to view not only the financials but also the cap table and shareholder list. To be honest, if this is the case I'm very surprised that fund managers like T Rowe Price and Fidelity haven't been invoking it for as long as they've held shares to do their monthly marking of their private positions. I mean, doesn't it seem like they actually have a fiduciary duty to do this as it lets them most accurately value the holdings that they have? If this is really the case then, unless the companies can force some sort of NDA on shareholders, then this opens the floodgates where any company that has vested shareholders, not just option holders, is going to have its books made public? This seems like a positive thing for employees as each new round would be scrutinized looking for provisions in the new raise that could screw employee's ie ratchets or liquidation preferences.

cdubzzz 10y ago
Looks like the NDA question may have to be taken up here? - > A Domo spokeswoman says the company had asked Mr. Biederman to sign a nondisclosure agreement before providing financial records, but that he refused to do so.
- philsnow 10y ago
  I don't see anywhere in subsection 220 (I haven't read the rest) that allows Domo to require this of Biederman. > The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other or further relief as the Court may deem just and proper. Unless the court has told Biederman that he needs to sign that NDA, it doesn't seem that he has to and that Domo is still acting against subsection 220.
  - spinlock 10y ago
    An NDA seems reasonable in this case. The article did state that Biederman objected to some of the stipulations which asked him to give up some of his shareholder rights. I suspect the lawyers will make some more money off this and then a more reasonable NDA will be signed.
    - protomyth 10y ago
      > An NDA seems reasonable in this case. Why is an NDA reasonable? I am really curious of the mechanics of a startup that would make this different from any other company under that law.
      - potatolicious 10y ago
        Without knowledge of the law in this specific case, it still feels like there are reasonable grounds that a private, not-publicly-traded company should be allowed to keep its financials private. Though of course, any such NDA should be revealed ahead of time, including the precise language of the NDA, so that investors (and yes, employees who receive equity in lieu of cash are investors) make a fully informed decision.
        jessaustin 10y ago
        ...any such NDA should be revealed ahead of time, including the precise language of the NDA... Is this a common thing with NDAs? ISTM it's rare that during the hiring process one would receive a folder containing all the NDAs one might potentially be asked to sign while working at a firm. One might receive an "initial" NDA, to sign before starting, but every time there is an ownership change one can expect a new round of NDAs, because apparently NDA terms are a rapidly-evolving area of contract law.
        toast0 10y ago
        Requiring a new NDA as a condition (but not prom is) of continued employment is one thing; requiring it as a condition of exercising a statutory right is another.
- dboreham 10y ago
  I think we'd need to see the wording for that NDA to understand why he refused. For example, many NDAs use wording along the lines of "must not disclose or USE..". It would be hard to agree not to "use" the information being disclosed in this case. There could have been other unacceptable conditions attached beyond the basic requirement to refrain from public disclosure.
  - frugalmail 10y ago
    He should refuse any NDA he doesn't get anything in exchange for. if the startup is already required to give him the financials then he's not getting anything "more" so would he agree to give up his rights?
wtvanhest 10y ago
IMO, this is an area of needed legislation. There are likely thousands of people working for 'unicorns' where the founders have already cashed out, but the employees will get nothing due to liquidation preferences.
- birken 10y ago
  I just don't understand this argument. If you are working for a company and they wont give you this information, leave and join one that will. If you are thinking of joining a company, ask for all the stock option information. Ask for the details of the funding rounds including liquidation preferences. If they don't give it to you, join another company that will. If no private companies will give you this information (though I know of many that do), join a publicly traded company. Additionally what would more legislation do that the existing Delaware law doesn't? The fact that a lawsuit is being filed here is a good thing... a company isn't fulfilling its legal obligations and the courts will settle it.
  - criley2 10y ago
    The argument is that people routinely get abused and your equivalent of "be smarter or deal with the consequences, and if no one will give you basic transparency: TOO BAD this industry isn't for you, move on" is a rather brutal approach. I'd prefer a state law for transparency, so if your SV start-up wants to play Wild West, they have to move to Texas or a similar state where it is a lot easier to abuse your employees legally.
    - birken 10y ago
      You have no idea if people are being routinely "abused" or not. The original commenter's hypothetical is as follows (I've expanded a bit): A likely extremely highly paid employee is working at a company where they aren't sure whether their stock options are valuable are not. It is extremely likely if they ask the company for information necessary to value those stock options, they would get it. Completely unrelated, founders of the business may or may not have sold stock during a previous round of funding. How is this person a victim exactly? If an employee doesn't want any risk in their compensation, they should reject stock options in favor of salary. If they decide to take stock options there is always going to be risk, not only due to the information risk we are talking about but because the future is uncertain even to people with all the relevant information. And FWIW, almost every startup is incorporated in Delaware which already has this law on the books.
libertymcateer 10y ago
> To be honest, if this is the case I'm very surprised that fund managers like T Rowe Price and Fidelity haven't been invoking it for as long as they've held shares to do their monthly marking of their private positions. I mean, doesn't it seem like they actually have a fiduciary duty to do this as it lets them most accurately value the holdings that they have? T. Rowe Price and Fidelity only trade in publicly traded securities. The amount of information available in publicly filed SEC documents, under normal circumstances, dwarfs what you have access to as a result of your shareholder rights under the Delaware BCL.
- chollida1 10y ago
  > T. Rowe Price and Fidelity only trade in publicly traded securities. This is not true. They've invested in private companies for some time now. http://www.wsj.com/articles/fidelity-marks-down-startups-including-dropbox-zenefits-1459346847 http://www.wsj.com/articles/fidelity-marks-down-startups-inc... To be fair to you it is a new development. As an aside, just checked out your website. You've got a very interesting background!!
- rlucas 10y ago
  Nope, T Rowe (or TIAA-CREF) invests in your late stage "Series T" rounds all the time recently it seems
- runamok 10y ago
  Totally tangential question but is there any resource you know of that provides a layman's "explain like I'm 5" explanation of this Delaware BCL? A privately owned company (in which I bought my shares of when I left) was purchased via an asset sale and us common stock shareholders got zilch. I am trying to learn if I have any legal standing...
  - JonFish85 10y ago
    "was purchased via an asset sale and us common stock shareholders got zilch" Just based on this (I am not a lawyer or giving financial advice), I'd guess that you can have legal standing to your share, which is probably $0. Investors often have preferred shares, and since it was an asset sale, it doesn't sound like things went well. The shares you bought were holding your place at the very back of the line, and the money ran out long before you. Your shares are probably literally worth $0. Consult a tax attorney or CPA to figure out if you can write off some losses on taxes, maybe?
Animats 10y ago
Note the 5 day deadline in the law. This issue has come up before with other companies.[1] The company trying to keep the financials secret lost. Stockholders have a clear right to see the financials and the ownership ("cap table") for valuation purposes. [1] http://courts.delaware.gov/opinions/download.aspx?ID=205650 http://courts.delaware.gov/opinions/download.aspx?ID=205650
zekevermillion 10y ago
DE info rights are not helpful to most employees. If the employees hold options, they do not have info rights (though they may have some disclosure rights once the company gets to a certain size). Once the employees exercise and receive stock, they still may be asked to waive info rights contractually as a condition of receiving the stock if that was part of the option agreement. That said, if the employee is a stockholder and has not waived info rights, the company probably will not be able to withhold the requested financial info...if that employee is willing to drop the money on lawyers to go to DE Chancery Court. It is a pyrrhic victory. I have personally found it very frustrating to deal with venture-backed startups on behalf of departing employees. Typically the employees have to decide whether to exercise option grants within 90 days of termination, and the strike price might be a meaningful amount to someone who has just lost a job (whether voluntarily or not). Both for economic as well as tax reasons, we need insight into the value of the underlying stock. But companies are quite tight-lipped about it, and their lawyers often stonewall. They may also try to impose new contractual requirements on exercise that were not agreed to in the original option grant! I view this as the height of bad faith vis-a-vis former employees. But appears to be standard operating procedure for certain companies and law firms, who shall remain nameless...
- gresrun 10y ago
  Why shall they remain nameless? I, for one, am interested in hearing who has historically screwed over employees like this.
  - zekevermillion 10y ago
    Because I have professional duties that prevent me from discussing specific matters! I have to wait a couple years and then complain in as general and non-attributed a manner as possible.
- JumpCrisscross 10y ago
  > Once the employees exercise and receive stock, they still may be asked to waive info rights contractually as a condition of receiving the stock if that was part of the option agreement Section 220 rights are statutory. You cannot waive them. If you own stock in a Delaware company, you are entitled to inspection rights.
ChuckMcM 10y ago
To be honest, if this is the case I'm very surprised that fund managers like T Rowe Price and Fidelity haven't been invoking it for as long as they've held shares to do their monthly marking of their private positions. I mean, doesn't it seem like they actually have a fiduciary duty to do this as it lets them most accurately value the holdings that they have? They do invoke it, and they sign the non-disclosure agreement, and they don't talk about what they found. However since the valuation changes pretty slowly generally (only on new shares being issued, excluding those from vesting employees) and the fact that there are generally two classes of stock (preferred and common). This argument appears to be about a fight between a person and their high school friend who was the CEO, who said one thing (in terms of ownership), but in fact did something else. A number of employment agreements these days include boiler plate text that says you wave your 220 rights when you join, but it isn't clear that that wavier survives your separation (parts of the agreement certainly do) and of course it isn't clear that Delaware law even allows you to waive those rights. Personally I think Domo is not thinking straight here, settle with this person and move on. But personal egos may be involved and that can be an impediment to forward progress.
- abcampbell 10y ago
  Domo is not the issue here. The issue is the huge can of worms this (could) open up if every shareholder realizes access to financial information is a #right and not a #privilege At least as far as I understand the law, which is (admittedly) limited.
  - ChuckMcM 10y ago
    Yes and no right? Being able to inspect the financial books is a right that share holders of Delaware based corporations have. You can read the law above, collida linked it. It's really straight forward. The questions here are two fold, disclosure limitation and rights waivers. The first is the question "Can a corporation compel a shareholder to sign a non-disclosure in order for that share holder to exercise their rights under rule 220?" As I mentioned I've never experienced anyone who has been part of a funding round (investing) balking at the idea of signing a non-disclosure which prevents them from disclosing the financial information to third parties. They person in the article is refusing to sign a non-disclosure. Which suggests they are considering disclosing that information to third parties (most likely other employees) and (I presume) management feels that would be detrimental to the business. The second question, which doesn't seem to be part of this suit, but one that bears on it, is whether or not a corporation can compel an employee, who will become a future shareholder, from exercising their rule 220 rights by having them waive their future rights as part of their employment agreement. See the Chriscross sibling comment where it is asserted the 220 right is statutory and thus immune to waiver. And what will probably be an interesting future question, since California is an at will work state, can a company fire an employee for invoking their rule 220 rights? Whether or not they sign a non-disclosure agreement? I'm guessing that they can (fire the employee) which would make it the last thing you got to request at a company.

gjem97 10y ago

"Mr. Biederman holds 64,166 Domo shares that would be worth $540,919 at the $8.43-per-share price where Domo sold stock to investors last year." Is there any reason to believe that these are the same series of shares? Isn't it more likely that the investors bought preferred shares that are worth a lot more than the common shares that he probably has?

thegranderson 10y ago
They almost certainly aren't the same series of shares, but that in and of itself isn't a reason to expect them to be worth less. Usually preferred shares have additional rights (e.g., preferred share holders will get returned their original cost or some guaranteed return before common shareholders get any returns). Some have features that get them some incremental value over time (e.g., a 10% return paid through additional ownership over time), but this would differ wildly depending on funding round, investor, etc. If the business keeps growing and the whole equity cap table is "in the money," his shares could probably be close to this estimated value. Caveat: you can go totally nuts with complicated share structures, so this could not at all be the case for Domo.
- pbreit 10y ago
  Actually, the preferred rights almost certainly make them more valuable than employee common stock, and probably significantly more valuable. Do we know what the 409a valuation is?
- marme 10y ago
  which is exactly the reason he should be allowed to see the full details of the cap table to see what makes those shares more valuable than his and estimate his stocks value based on that info plus other financial info. It is exactly why this law exists because otherwise it is impossible for someone to value their shares and when you own shares that include a right to first refusal clause it makes it nearly impossible to shop the shares around on the private market
- gjem97 10y ago
  You're correct, at a liquidity event the value of common and preferred shares could converge. A term called "participating preferred shares" would mean that they don't. But most capital structures I have seen are such that earlier in the story (pre liquidity event), the values of the two shares are drastically different.

koolba 10y ago

So if one exercises even just one of their stock options would they have full access to the cap table for a standard Delaware C-corp anytime they want to value their shares?

toufka 10y ago
That actually seems quite reasonable. How else can the stock be valued?
- koolba 10y ago
  > That actually seems quite reasonable. How else can the stock be valued? I'm not saying it's unreasonable. Far from it. I'm trying to casually suggest a way for the startup proletariat grab the reins of their futures!

justinzollars 10y ago

This is cute. Go to Domo website: "Information is empowering."

will_brown 10y ago

Assuming the facts as true, the shareholder might also have a claim for retaliation against the company, specifically: 1. Pursuant to DE law shareholder requested the books be opened to value his shares; 2. His request was not just unlawfully denied, but company in writing explained, by law shareholder was not entitled to the requested documentation; 3. Then "a few days later" the company fired the shareholder in his capacity as employee. Could be a great claim for retaliation, though not the federal title 7 type, but the DE state equivalent.[1] Note the citation includes whistle blower claims, which is similar/associated with retaliation claims but they are separate. Basically the DE retaliation claim is triggered by the employer taking action contrary to DE public policy (i.e. Being fired for trying to exercise a right as a shareholder) [1] http://www.workplacefairness.org/whistleblower-retaliation-claim-DE http://www.workplacefairness.org/whistleblower-retaliation-c...