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.
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.
this also calls into question the general practice of "forfeit right X to get benefit Y" that appears common
In cases where "benefit Y" is actually "right Y", then it raises the question of whether these agreements are valid.
I don't know if that's actually happening, but probabilistically would not be surprised if it were - just given the legal complexity involved in these documents.
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.