C.A. No. 2024-0855- MTZ
Del. Ch.Apr 11, 2025Background
- Exabeam, Inc., a Delaware private corporation, was acquired via a stock-for-stock merger with LogRhythm Parent, LP (owned by Thoma Bravo), leading to the cancellation of Exabeam common shares with no consideration for common stockholders.
- The merger was approved by a majority of the common and preferred stockholders; preferred stockholders were alleged insiders who benefitted uniquely from the transaction.
- The company distributed an Information Statement on June 18, 2024, advising stockholders of their appraisal rights under Section 262 of the DGCL.
- Petitioner Barkan, a common stockholder, attempted to demand books and records by substituting a Section 262 appraisal petition for a Section 220 demand; he never made a formal Section 220 demand prior to the merger’s closing.
- Another stockholder (Schneerson) did make a timely Section 220 demand which was denied when the merger closed; a class action challenging the merger is also pending.
- Exabeam moved to dismiss Barkan’s Section 262 petition for lack of standing and opposed his motion to intervene and stay the pending class action.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing under Section 220 | Barkan claims the abrupt merger closing prevented him from making a Section 220 demand. | Exabeam argues Barkan never made any Section 220 demand; statutory requirements are mandatory. | Barkan lacked standing; demand is mandatory. |
| Using Section 262 as alternative | Argues Section 262 can substitute for Section 220 to obtain books and records, relying on Zoox. | Section 262 does not provide for presuit investigatory rights; it is narrowly focused on value. | Section 262 is not a failsafe for Section 220. |
| Discovery scope under Section 262 | Section 262 should allow discovery of Section 220-like documents when 220 is frustrated by the merger. | Section 262 is strictly construed—limited to appraisal, not broad discovery. | No Section 220-type discovery via 262 here. |
| Intervention in class action | Sought to intervene to stay class action pending his 'investigation.' | Opposed: Barkan lacks standing and would delay action; his interests are already represented. | Motion to intervene denied. |
Key Cases Cited
- Cede & Co. v. Technicolor, Inc., 684 A.2d 289 (Del. 1996) (clarifies the appraisal remedy is limited to fair value determination of shares)
- Compaq Computer Corp. v. Horton, 631 A.2d 1 (Del. 1993) (inspection right under 220 is qualified, not absolute)
- Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117 (Del. 2006) (proper purpose and procedural compliance required for Section 220 inspection)
- Saito v. McKesson HBOC, Inc., 806 A.2d 113 (Del. 2002) (stockholder inspection at common law and under Section 220)
- Swift v. Houston Wire & Cable Co., 2021 WL 5763903 (Del. Ch.) (Section 220 demands must meet technical, statutorily prescribed requirements)