Start-Up Hauled to Court |Over Secret Stock Value

     (CN) – A former manager of a multibillion-dollar start-up claims in court the company is muzzling his efforts to find out exactly what his stock is worth.
     Domo Inc., like many startups in the tech world, refuses to provide financial information to most of its shareholders, including former Domo manager Jay Biederman.
     According to a complaint filed August 15 in Delaware state court, Biederman owns over 64,000 shares of Domo Inc. after his stock options vested and he purchased the options under an employee incentive plan for 32 cents per share.
     But Biederman says just days after he requested information about the stock’s worth, he was fired.
     And then the stonewalling began, the complaint says.
     Biederman says for more than a year, he repeatedly asked Domo officials for financial information about the company so that he could determine the value of his Domo shares. In each case, however, his attempts to get the information was thwarted, the complaint says.
     But then “The Wall Street Journal ran an article entitled ‘Startup Employees Invoke Obscure Law to Open Up Books’ written by Rolfe Winker,” Biederman says.
     In The Wall Street Journal article, Winker writes that the “law, little known in Silicon Valley, is a potentially valuable tool for thousands of tech workers who received stock awards to join fast-growing startups, as well as other small investors, who now question their shares’ worth.”
     According to the Delaware law, any shareholder can compel a private company like Domo to open its books by simply proving ownership of the company’s stock.
     In Delaware these complaints are commonly called a “books and records” action or a “Section 220 action,” which refers to the section number in the Delaware Code.
     The Wall Street Journal article focuses on Biederman’s efforts to get the financial information he needs to determine the value his shares in Domo. The company itself was recently valued at $2 billion after a private equity investment of $200 million last April.
     But just eight days after The Wall Street Journal article ran, Biederman says in his lawsuit, Domo filed a complaint against him in Utah state court alleging defamation and breach of contract, as well as an arbitration proceeding seeking almost $300,000 in damages.
     When that did not stop Biederman from pursuing his “books and records” action for financial information, the complaint says, Domo’s counsel promised to produce documents, but only if Biederman signed a “standard NDA,” or non-disclosure agreement.
     “However, the ‘standard NDA’ in Domo’s view was an NDA that would include a ‘liquidated damages’ provision assessable against Biederman if he in any way ‘breached’ the NDA,” states the complaint.
     According to court papers, Biederman’s counsel informed Domo that “an NDA with a liquidated damages provision was a complete non-starter and was by definition not a ‘standard NDA.”
     After additional back and forth between Biederman and Domo, the confidentiality restrictions demanded by the tech firm “were so tight as to inhibit Plaintiff from potentially filing a claim to protect or enforce his rights as a stockholder even if on the face of the documents produced as part of the Section 220 inspection a claim emerged,” the complaint says.
     “Biederman remains plainly concerned that the abuses that he has suffered to date — the outright refusal to provide information, the attempted imposition of onerous restrictions, the filing of baseless litigation resulting as a result of seeking to enforce his rights as stockholder — will only continue unless there is Court intervention,” the complaint states.
     According The Wall Street Journal article by Winkler, Fidelity Investments valued Domo’s shares at $8.43 per share following the $2 billion valuation made last April.

%d bloggers like this: