Robert Gladstone v. EBC Holdings, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE ROBERT GLADSTONE, ) ) Petitioner, ) ) v. ) C.A. No. 2022-0867-PAF ) EBC HOLDINGS, INC. and ) FIREBRAND FINANCIAL ) GROUP, ) INC., ) ) Respondents. ) POST-TRIAL MEMORANDUM OPINION Date Submitted: November 11, 2025 Date Decided: August 7, 2026 Martin S. Lessner, Nicholas J. Rohrer, Elisabeth S. Bradley, Skyler A. C. Speed, Zeliang Liu, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Attorneys for Petitioner Robert Gladstone John M. Seaman, Christopher Fitzpatrick Cannataro, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Susan J. Schwartz, FOLEY & LARDNER LLP, New York, New York; Beth I.Z. Boland, FOLEY & LARDNER LLP, Boston, Massachusetts; Attorneys for Respondents EBC Holdings, Inc. and Firebrand Financial Group, Inc. FIORAVANTI, Vice Chancellor  This statutory appraisal action arises from a stock-for-stock reorganization that collapsed a dual holding-company structure above a boutique broker-dealer specializing in the underwriting of special purpose acquisition companies. The petitioner perfected appraisal rights and seeks a judicial determination of fair value under Section 262 of the Delaware General Corporation Law (the “DGCL”). The parties offered starkly different valuations. In this post-trial opinion, the court concludes that an adjusted version of the petitioner’s capitalization approach provides the better framework. After modifying the operating inputs, accounting for the cash required to support the operating company’s regulated business, valuing the securities portfolio, deducting the subordinated loan, and applying the appropriate cross-ownership allocation, the court determines that the fair value of the corporation’s common stock as of the merger date was approximately $11.08 per share. I. BACKGROUND These are the facts as the court finds them after trial.1 1 Other factual findings are contained in the analysis section of the opinion. Deposition testimony is cited as “(Surname) Dep.”; trial exhibits are cited as “JX”; stipulated facts in the pre-trial order are cited as “PTO”; and references to the docket are cited as “Dkt.,” with each followed by the docket number and the relevant section, page, paragraph, or exhibit. Citations to testimony presented at trial are in the form “Tr. # (X),” with “X” representing the surname of the speaker. Citations to the transcript of post-trial oral argument (Dkt. 136) are in the form of “Post-Trial Arg.” After being identified initially, individuals are  A. The Parties and Relevant Non-Parties Firebrand Financial Group, Inc. (“Firebrand” or the “Company”) was a Delaware holding corporation.2 Its principal asset was a majority interest in EBC Holdings Inc. (“EBCH” and, together with Firebrand, the “Respondents”), a New York holding corporation.3 EBCH’s principal operating asset was its wholly owned subsidiary, EarlyBirdCapital, Inc. (“EarlyBird”), a boutique investment bank and registered broker-dealer.4 On June 1, 2022, Firebrand merged into EBCH (the “Merger”).5 Firebrand, EBCH, and EarlyBird shared a common senior management team. At the time of the Merger, David Nussbaum chaired the boards of all three entities.6 Steven Levine was the Chief Executive Officer (“CEO”) and Michelle Pendergast referenced herein by their surnames without regard to honorifics. Unless otherwise indicated, citations to the parties’ briefs are to post-trial briefs. When resolving factual disputes, this decision generally gives more weight to contemporaneous evidence. See Lynch v. Gonzalez, 2020 WL 4381604, at *5 (Del. Ch. July 31, 2020) (“The relative weight given to any particular piece of evidence, and particularly witness testimony, is a matter for the court to determine as the trier of fact.” (citation modified)), aff’d, 253 A.3d 556 (Del. 2021) (TABLE); see, e.g., BCIM Strategic Value Master Fund, LP v. HFF, Inc., 2022 WL 304840, at *2 (Del. Ch. Feb. 2, 2022) (“The witness testimony often conflicted with the contemporaneous record. In resolving factual disputes, this decision generally has given greater weight to the contemporaneous documents.”). 2 PTO ¶¶ 26, 35. 3 Id. ¶¶ 35, 43. 4 Id. ¶¶ 40, 45. 5 Id. ¶ 1. 6 Id. ¶ 50. 2 was the Chief Financial Officer of all three entities.7 Levine was also a director of all three companies.8 Robert Gladstone (the “Petitioner”) has worked at EarlyBird or its affiliates since 1990, when he joined the predecessor firm that ultimately became EarlyBird.9 Petitioner perfected statutory appraisal rights as to 693,165 shares of Firebrand common stock held in record name.10 B. The Cross-Ownership Structure Firebrand and EBCH had a circular ownership structure, with each holding shares of the other. In connection with the Merger, Firebrand reconciled its capitalization table to reflect 14,430,614 total shares of common stock.11 Of those shares, EBCH held 7,096,210 (the “Disputed Shares”), Firebrand held 17,500, and outside Firebrand stockholders held the remaining 7,316,904.12 In turn, Firebrand held 20,000,000 shares of EBCH common stock, representing approximately 81.5% 7 Id. ¶¶ 53, 59; Tr. 188:16−19, 189:1−9 (Pendergast); Pendergast Dep. 31:3−13. 8 PTO ¶ 53. 9 Id. ¶ 23; Tr. 6:19–7:2 (Gladstone). 10 PTO ¶ 25. 11 JX 230a Tab “Merger Calculations” Cells A1‒B1; Tr. 200:10‒12 (Pendergast); see also JX 308. Prior to the reconciliation, Firebrand’s records did not accurately reflect the number of shares; a variety of sources incorrectly indicated 14,794,267 as the total number of shares of Firebrand common stock. See Tr. 196:13‒16 (Pendergast); JX 188; JX 267. 12 See JX 355a Tab “FFGI Pre-Merger” Cells E49, E53, E55. 3 of EBCH’s equity on an as-converted basis.13 The parties dispute how the Firebrand shares held by EBCH should be treated in determining the merger consideration attributable to Firebrand’s outside stockholders. The court refers to this disagreement as the “Share Dispute.” C. The Nature of Firebrand’s Operating Business 1. EarlyBird a. EarlyBird’s SPAC-centric business model EarlyBird’s business focuses exclusively on underwriting initial public offerings (“IPOs”) conducted through special purpose acquisition companies (“SPACs”).14 EarlyBird identifies sponsor teams, assists with the regulatory procedures, and helps identify potential acquisition targets.15 EarlyBird’s primary source of revenue is SPAC underwriting fees.16 Historically, EarlyBird received a front-end fee of approximately 2% of the amount raised in a SPAC IPO and a deferred fee of approximately 3.5% to 4%, payable upon the closing of a business combination, or a de-SPAC transaction.17 EarlyBird 13 PTO ¶ 43. 14 PTO ¶ 46; Tr. 7:13−21, 10:7−11 (Gladstone). 15 Tr. 7:22−8:7, 8:23−9:3 (Gladstone). 16 PTO ¶¶ 76−77; Tr. 8:8−12 (Gladstone). 17 Tr. 8:8−12 (Gladstone); Nussbaum Dep. 37:6−8. 4 sometimes accepted notes or issuer stock in partial payment of the deferred fee.18 As competition increased, sponsors required EarlyBird to “have a stake in the outcome of the business combination” by deferring part of its compensation or reinvesting a portion of its front-end fees in the SPAC.19 EarlyBird thus received compensation in both cash and SPAC securities.20 Those securities included shares or units purchased at $10 each and representative or founder shares acquired for nominal consideration. The securities generally lacked redemption rights and would become worthless if the SPAC did not complete a business combination.21 These securities also remained unregistered and nonmarketable before a business combination and were subject to lock-up restrictions.22 EarlyBird’s valuation of its securities changed over time. Historically, it carried these securities on the books at zero value.23 That changed in 2021, when EarlyBird retained Marcum LLP (“Marcum”) as its new auditor and engaged Cassel Salpeter & Co. (“Cassel”) to value its nonmarketable securities for financial 18 Levine Dep. 25:5−7. 19 Tr. 140:9−24 (Levine); see also JX 68 at 20. 20 Tr. 141:17–22, 142:13–16 (Levine). 21 Id. at 44:12−16, 45:7−15 (Gladstone); id. at 142:7–23 (Levine); id. at 209:2−5 (Pendergast). 22 Id. at 142:19–23 (Levine). 23 Id. at 149:10–11. 5 reporting purposes.24 Cassel performed two valuations a year: a formal January 31 valuation for the annual audit and a less formal July 31 mid-year valuation.25 Cassel prepared its first valuation as of January 31, 2021.26 Pendergast began recording Cassel’s conclusions in EarlyBird’s internal schedules and worked with Cassel during the semiannual valuation process.27 EarlyBird also monitored the market prices of its SPAC securities using information obtained by its analysts from SPACInsider, a data and analytics platform focused on the SPAC market.28 b. Regulatory requirements i. The Net Capital Rule and underwriting commitments EarlyBird is subject to oversight by the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”).29 As a 24 Id. at 149:6−20; Pendergast Dep. 29:5−7, 29:17−20, 30:15−19. 25 Tr. 151:5−152:6 (Levine); Pendergast Dep. 94:3−6, 94:11−20; see, e.g., JX 110; JX 148; JX 352. 26 JX 110; Pendergast Dep. 94:8−12. 27 Tr. 206:7−13 (Pendergast). 28 Id. at 206:14−20, 207:1−6. 29 PTO ¶¶ 45, 78; Tr. 95:7−13 (Nussbaum). Section 3(a)(5)(A) of the Exchange Act defines a “dealer” as “any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise.” JX 402 (“Carr Report”) ¶ 18. Broker-dealers are generally required to register with the SEC under Section 15(a)(1) of the Exchange Act. Id. ¶ 19. Broker-dealers must register before selling both registered and unregistered securities, including private placements or Regulation D offerings. Id. Before a broker- dealer begins doing business, it must become a member of a self-regulatory organization 6 registered broker-dealer, EarlyBird is subject to Rule 15c3-1 of the Securities Exchange Act of 1934 (the “Net Capital Rule”), which requires it to maintain a minimum regulatory net capital at all times.30 The net capital computation begins with the broker-dealer’s equity under generally accepted accounting principles and then applies deductions and adjustments required by the rule.31 For purposes of the computation, assets are classified as allowable or nonallowable.32 The rule accounts for market and transactional risks by requiring specified deductions—commonly referred to as “haircuts”—for certain securities positions and contractual commitments.33 The size of the haircut depends on the type and risk characteristics of the asset or commitment.34 Cash and certain short-term liquid assets are fully allowable and are not subject to haircuts.35 Other assets may be allowable in part, (“SRO”). Id. ¶ 21. SROs assist the SEC in regulating the activities of broker-dealers. Id. FINRA and the national securities exchanges are all SROs. Id.; see also Tr. 400:12−18, 401:2−4 (Carr). 30 17 C.F.R. § 240.15c3-1; Carr Report ¶¶ 17(a), 23; Tr. 95:14−22 (Nussbaum); id. at 210:8−13, 210:22−211:2 (Pendergast); id. at 401:9−402:2, 406:6−12 (Carr). The Net Capital Rule “was adopted under the 1934 Act in order to create a uniform capital requirement for all registered broker-dealers and to ensure the liquidity of broker-dealers.” American Institute of Certified Public Accountants, Accounting Guide: Brokers and Dealers in Securities §3.41 (Aug. 1, 2019). 31 Carr Report ¶¶ 29−30; Tr. 402:10−18 (Carr). 32 Tr. 411:19−412:6, 424:5−13 (Carr). 33 Carr Report ¶¶ 37, 43; Tr. 403:2−8 (Carr). 34 Carr Report ¶ 37; Tr. 424:5−13 (Carr). 35 Carr Report ¶ 44. 7 with haircuts that reduce the amount of regulatory net capital available.36 Nonmarketable securities are subject to a 100% haircut and do not contribute to regulatory net capital.37 Broker-dealers commonly maintain excess net capital in addition to the regulatory minimum.38 In practice, broker-dealers may satisfy their net capital requirement through a combination of cash, other allowable assets, and qualifying subordinated loans, subject to FINRA’s limitations on short-term subordinated borrowings (including the frequency limits applicable to short-term loans).39 Under the Net Capital Rule, firm-commitment underwriting obligations are treated as “open contractual commitments” and are therefore subject to haircuts.40 When a broker-dealer commits to purchase securities that are not yet listed or trading—such as shares in an IPO—the rule requires a deduction equal to 30% of the value of the securities subject to the broker-dealer’s underwriting commitment.41 If multiple underwriters participate through a syndicate, the deduction is allocated 36 Id. ¶¶ 39−41; Tr. 402:14−22, 403:9−16 (Carr). 37 Carr Report ¶ 42; Tr. 403:17−404:2 (Carr). 38 See Tr. 409:6−16 (Carr). 39 Carr Report ¶¶ 34−35; Tr. 96:21−24 (Nussbaum); id. at 416:2−12, 417:21−418:12, 424:14−425:12 (Carr). 40 Carr Report ¶¶ 46−47; Tr. 404:3−12 (Carr). 41 Tr. 404:13−22 (Carr). 8 among them.42 The requirement applies from the time the underwriting commitment becomes effective or irrevocable until the distribution of the IPO shares is completed.43 Accordingly, underwriting-related net capital needs arise during the offering period, but the required amount varies with the size and timing of the underwriting activity rather than remaining fixed at a constant level. EarlyBird typically satisfied underwriting-related net capital requirements by maintaining regulatory capital in cash or short-term market accounts, in part because other assets were subject to haircuts.44 EarlyBird could also obtain capital through 45-day subordinated loans bearing interest at a 1% monthly rate.45 When EarlyBird lacked sufficient cash, it would first seek to raise funds internally to avoid borrowing costs, though such contributions were rare.46 EarlyBird historically aimed to maintain $30 million in cash or cash equivalents, though balances fluctuated. As of May 31, 2022—one day before the Merger—EarlyBird reported $6,784,564 of cash, $71,976,493 of net capital, $694,018 of minimum net capital, and $71,282,475 of excess net capital.47 42 Carr Report ¶ 50. 43 Id. ¶ 48; Tr. 404:23−405:7 (Carr). 44 Tr. 96:12−20 (Nussbaum). 45 Id. at 97:7−13. 46 Id. at 97:20−24, 98:8−14. 47 JX 224 at 2, 4−5 Nos. 1, 10−11, 14. 9  ii. Reporting obligations As a broker-dealer, EarlyBird is required to periodically file a Financial and Operational Combined Uniform Single Report (or SEC Form X-17A-5, “FOCUS Report”) with the SEC and FINRA.48 A FOCUS Report is a “basic financial and operational report required of those brokers or dealers subject to any minimum net capital requirements” under the Net Capital Rule.49 EarlyBird filed a FOCUS Report monthly.50 EarlyBird is also required to file an audited annual financial statement with the SEC within 60 calendar days after the end of its fiscal year.51 As the ultimate parent entity, Firebrand’s audited financial statements consolidated EBCH and EarlyBird, with a fiscal year-end date of January 31.52 Firebrand’s financial statements indicated that restricted shares, options, and warrants constituted a 48 17 C.F.R. § 240.17a-5(a). 49 U.S. Securities and Exchange Commission, Form X-17A-5 Part IIA (FOCUS Report), General Instructions 1 (Nov. 2019). 50 Tr. 211:3−14 (Pendergast). Pendergast prepares those filings, which contain EarlyBird’s financials and the net capital calculation. Id. at 215:1−11; id. at 180:19−181:1 (Levine). 51 17 C.F.R. § 240.17a-5(d); Tr. 211:9−22 (Pendergast). 52 PTO ¶ 34; see JX 393 (“Margolin Report”) ¶ 10. 10 significant asset on its balance sheet. EarlyBird tracked these securities’ prices over time.53 iii. Trading restrictions and withdrawals EarlyBird is not a market maker in its SPAC securities; instead, it employs a trader dedicated to marketing them.54 FINRA imposes a 180-day lock-up on the representative shares and the public units that EarlyBird receives.55 Withdrawals of capital, including for dividend distribution purposes, are subject to FINRA approval.56 2. The rise of SPACs and the regulatory response The SPAC market expanded in 2019,57 accelerated dramatically in 2020, and peaked in 2021.58 EarlyBird completed 29 SPAC IPOs in 2021, its strongest year on record. The positive outlook on the SPAC market is reflected in the valuation of EarlyBird’s nonmarketable securities portfolio during that period, which Cassel valued at approximately $36.9 million as of January 31, 2022.59 53 JX 83 Tab “Investment Holdings 5-31-2022” Columns M, AC–AG (reflecting trading price as of the first day of each month for January through June 2022); see Tr. 148:9−149:3 (Levine) (describing tracking the cost-basis for the securities). 54 Tr. 170:5−9 (Levine). 55 Id. at 171:17−172:19 (Levine); see JX 1051 at 150. 56 Tr. 406:1−5 (Carr). 57 Id. at 135:9−17 (Levine). 58 Id. at 33:11−14, 47:20−48:1 (Gladstone). 59 JX 148 at 20. 11  By late 2021, management recognized that the SPAC cycle had already peaked and that it had “missed the window” to sell EarlyBird during the strongest part of the up cycle.60 Management nevertheless explored a potential sale and approached Jefferies LLC (“Jefferies”) to serve as its financial adviser.61 In January 2022, Jefferies prepared discussion materials that adopted a “Buyer View,” which significantly discounted management’s expectations.62 Jefferies lacked management’s optimism because the SPAC market had already “experienced a cyclical high” and buyers “may be hesitant to pay a multiple off of the high earnings run rate.”63 Even so, the Jefferies materials illustrated a valuation range of $125 million to $175 million.64 By early 2022, the broader public equity markets had weakened, and the SPAC market had begun to slow.65 In March 2022, the SEC announced proposed rules “to enhance disclosure and investor protection” in SPAC IPOs and de-SPAC 60 Nussbaum Dep. 115:14–117:1. 61 JX 140 at 1; Nussbaum Dep. 111:6–16. 62 PTO ¶ 64; JX 147. 63 JX 147 at 2. 64 Id. at 4. 65 Tr. 33:15−22, 34:20−35:14, 48:2−5, 49:10−21 (Gladstone). EarlyBird completed only three SPAC IPOs during the first quarter of 2022. Id. at 104:22−24 (Nussbaum). 12 transactions.66 The proposed rules threatened to impose new liabilities on SPAC underwriters and, according to EarlyBird’s management, materially worsened market conditions, prompting several investment banks and sponsors to exit the business.67 According to Nussbaum, EarlyBird responded by entering “crisis management mode” and holding daily internal meetings.68 Nussbaum and Levine expected the SEC’s proposed rules to cost EarlyBird approximately $150,000 in additional expenses per underwriting.69 3. The Merger In early 2022, Nussbaum and Levine decided to implement their long-term plan to consolidate Firebrand and EBCH, which would simplify the corporate structure, permit the issuance of options, and avoid potential double taxation.70 In 66 U.S. Securities and Exchange Commission, SEC Proposes Rules to Enhance Disclosure and Investor Protection Relating to Special Purpose Acquisition Companies, Shell Companies, and Projections (Mar. 30, 2022) https://www.sec.gov/newsroom/press- releases/2022-56. The court takes judicial notice of this announcement. D.R.E. 201(b)(2). 67 Tr. 51:11−14, 51:19−52:2 (Gladstone); id. at 137:7−138:15 (Levine); id. at 105:9−13 (Nussbaum); Nussbaum Dep. 101:3−16. Nussbaum described the proposal as contributing to an “implo[sion] [of] the SPAC market.” Nussbaum Dep. 101:5; see also Tr. 135:23−136:7, 136:13−14 (Levine). 68 Tr. 105:9−12 (Nussbaum); id. at 32:9−33:2 (Gladstone). 69 Id. at 106:1−5 (Nussbaum); id. at 136:17−22 (Levine). 70 Id. at 85:24−89:1 (Nussbaum); id. at 133:13–134:4 (Levine); see id. at 86:10−87:1 (Nussbaum) (testifying that the process took roughly 18 months from the moment management consulted the auditor and counsel until the merger was executed). By then, Firebrand owned 80.21% of EBCH. See JX 41 at 7. Firebrand still had a $25 million net 13 setting the exchange ratio for the stock-for-stock merger, management did not commission a fairness opinion or merger-specific valuation of Firebrand.71 Instead, it relied in part on the most recent Cassel valuation of EarlyBird’s nonmarketable securities as of January 31, 2022, which had been prepared for financial reporting purposes.72 On March 14, 2022, Firebrand and EBCH entered into an Agreement and Plan of Reorganization (the “Merger Agreement”), pursuant to which Firebrand would merge with and into EBCH, with EBCH surviving.73 The respective stockholder approvals were obtained that same day by written consent.74 Section 2.01 of the Merger Agreement stated that each outstanding Firebrand share would be converted into a number of EBCH shares calculated by dividing the 20,000,000 EBCH shares held by Firebrand by the number of Firebrand shares operating loss carryforward from the early 2000s. Tr. 86:8−11 (Nussbaum). Management had used those losses between 2015 and 2019 to offset federal tax liability generated by EarlyBird’s profitable operations. Id. at 86:12−14. 71 JX 194 at 3. See Tr. 134:11–23 (Levine) (testifying that no valuation was performed because the only result of the Merger was simplification of the corporate structure). 72 JX 148 at 20; Margolin Report ¶¶ 26–27; Tr. 52:21−53:1 (Gladstone). 73 PTO ¶ 2; JX 195 (the “Merger Agreement”). The Merger Agreement incorrectly represented that Firebrand had 14,794,267 shares of common stock issued and outstanding. See Merger Agreement at 1. On May 19, 2022, counsel circulated an updated stockholder ledger, which indicated 14,430,614 outstanding Firebrand shares for purposes of the exchange ratio. JX 230 at 1; JX 230a Tab “Common Post-Merger” Rows 14, 15, 43, Cell E84; see also Tr. 199:9−16, 199:24−200:6 (Pendergast). The parties do not dispute the corrected number of total shares. 74 PTO ¶ 3; JX 199 at 3−4. 14 outstanding immediately before closing. For purposes of the calculation, Section 2.01 treated the Firebrand shares held by EBCH and its wholly owned subsidiaries as “issued and outstanding.”75 Elsewhere, in Section 2.04, “Treasury Stock” was defined as Firebrand shares held by Firebrand or its wholly owned subsidiaries, other than EBCH and EBCH’s subsidiaries.76 The Merger Agreement included the EBCH-held Firebrand shares in the exchange-ratio denominator and provided for their cancellation at closing.77 Contemporaneous records also reflected the value assigned to EarlyBird’s securities portfolio immediately before the Merger. EarlyBird’s May 31, 2022, FOCUS Report reported approximately $38.8 million in “[s]ecurities and/or other investments not readily marketable” “[a]t estimated fair value” and approximately $6.1 million in “[o]ther securities,” for a combined total of approximately $44.9 million.78 Pendergast’s May 31 securities schedule reflected the same amounts.79 75 Merger Agreement § 2.01; Tr. 195:13−20 (Pendergast). 76 Merger Agreement § 2.04. 77 Id. 78 JX 224 at 2; Tr. 181:2−7 (Levine); id. at 216:7−12, 216:19−217:3 (Pendergast). 79 Tr. 217:9−218:15, 219:6−220:1 (Pendergast); see JX 83. 15  The Merger became effective on June 1, 2022 (the “Merger Date”).80 At closing, the Firebrand shares held by EBCH were canceled.81 On July 8, 2022, Pendergast notified the former Firebrand stockholders that each Firebrand share had been converted into approximately 1.385942 shares of EBCH common stock.82 4. Post-Merger developments a. The EBCH dividend distribution Before the Merger closed, Nussbaum and Levine considered making a cash distribution to EBCH’s stockholders.83 They wanted to distribute as much cash as possible, but Pendergast urged retaining additional capital to address potential losses and liabilities.84 Shortly after the Merger, EBCH approved a dividend of $3.20 per share.85 In seeking preferred stockholders’ consent, EBCH represented that its “remaining 80 PTO ¶ 1. 81 Merger Agreement § 2.04. 82 PTO ¶ 10. 83 Tr. 99:16−100:17, 100:23–101:8 (Nussbaum). Nussbaum testified that management’s interest in distributing cash was tied to its view that the business could no longer be sold on favorable terms. Id. According to Nussbaum, management had hoped from 2019 through the Merger Date to sell the business while the SPAC market remained strong, but that strategy collapsed in 2022 as the market deteriorated and the SEC’s proposed SPAC rules raised the possibility of substantial underwriter liability. Id. In his view, by June 2022, those developments made a sale of the business no longer realistic. Id. 84 Id. at 102:2−11; see also id. at 102:13−18 (indicating that Nussbaum also considered whether EBCH could liquidate approximately $45 million in restricted sponsor shares reflected on the balance sheet). 85 PTO ¶¶ 85−86. 16 working capital, when combined with available funding sources, [would] be sufficient to support underwritings for the foreseeable future.”86 On August 19, 2022, EarlyBird sought FINRA authorization to withdraw $45 million for payment to EBCH.87 The filing reported approximately $73.1 million in excess net capital.88 EarlyBird ultimately transferred approximately $45 million to EBCH,89 and EBCH distributed approximately $43.8 million to its stockholders.90 b. The post-Merger reassessment of the securities portfolio The SPAC market continued to deteriorate after the Merger. SPAC volume and de-SPAC completion rates declined, underwriting fees compressed, and expected diligence burdens increased.91 In August 2022, management began questioning whether Cassel’s existing methodology accurately reflected the value of EarlyBird’s nonmarketable securities. On August 12, Cassel circulated an “initial 86 JX 282 at 1. 87 JX 454. 88 Id. at 2. 89 JX 455. 90 Tr. 99:14−15, 100:17−22 (Nussbaum); JX 336 at 1, 3; see JX 282 at 1‒2; see also Margolin Report ¶ 24 & n.17. Petitioner received the dividend on the 150,000 shares of EBCH common stock that he had owned prior to the Merger. Gladstone Dep. 252:8−12. 91 See JX 400; Tr. 105:1−2, 106:15−16 (Nussbaum); id. at 209:6−8 (Pendergast); Nussbaum Dep. 101:17−20; Tr. 98:17−24, 105:14−17 (Nussbaum) (describing that the gross fee would be used to pay bankers (50%), counsel (20%), leaving the underwriter with 30% of the net fee); id. at 136:14−137:6, 141:11−17 (Levine); contra id. at 33:23−34:5 (Gladstone) (testifying that EarlyBird completed five SPACs in the first quarter of 2022 and about the same amount in the following quarter). 17 draft spreadsheet” for its July 31, 2022 mid-year valuation, which estimated EarlyBird’s portfolio value at approximately $29.6 million.92 Six days later, “after various conversations with and without Marcum,” Cassel issued a “revised analysis utilizing substantially reduced probabilities of De-SPACing,” which reduced the estimated value to approximately $5.6 million.93 The revised approach used the trading prices of SPAC rights as a market-based reference for pricing EarlyBird’s restricted securities.94 II. ANALYSIS Petitioner has perfected his appraisal rights for 693,165 shares of Firebrand common stock under Section 262 of the DGCL.95 A. The Legal Standard A statutory appraisal proceeding provides stockholders that dissent from a merger an opportunity to receive a judicial determination of the fair value of their shares. Cavalier Oil Corp. v. Harnett, 564 A.2d 1137, 1142 (Del. 1989). The operative statutory provision, Section 262 of the DGCL, requires the court to determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger [or] consolidation, . . . together with interest, if any, to be paid upon the 92 JX 322a Tab “Summary” Cell X59. 93 JX 331 Tab “Summary” Cell X59. 94 Id. Tab “Summary”; JX 324 at 1. 95 Petitioner demanded appraisal for 736,875 shares of Firebrand common stock, but perfected his appraisal rights for only 693,165 shares. PTO ¶¶ 9, 25. 18  amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. 8 Del. C. § 262(h). The court must value the company as a “going concern based upon the operative reality of the company as of the time of the merger.” M.G. Bancorporation, Inc. v. Le Beau, 737 A.2d 513, 525 (Del. 1999) (citation modified). This is because “[t]he underlying assumption in an appraisal valuation is that the dissenting shareholders would be willing to maintain their investment position had the merger not occurred. Consequently . . . the corporation must be valued as an operating entity.” Paskill Corp. v. Alcoma Corp., 747 A.2d 549, 553 (Del. 2000). “In a statutory appraisal proceeding, both sides have the burden of proving their respective valuation positions by a preponderance of evidence.” M.G. Bancorporation, 737 A.2d at 520. “Proof by a preponderance of the evidence means proof that something is more likely than not. It means that certain evidence, when compared to the evidence opposed to it, has the more convincing force and makes you believe that something is more likely true than not.” OptimisCorp v. Waite, 2015 WL 5147038, at *55 (Del. Ch. Aug. 26, 2015) (citation modified), aff’d, 137 A.3d 970 (Del. 2016). “‘If both parties fail to meet the preponderance standard on the ultimate question of fair value, the Court is required under the statute to make its own determination.’” In re Appraisal of Dole Food Co., Inc., 114 A.3d 541, 550 (Del. Ch. 2014) (quoting Jesse A. Finkelstein & John D. Hendershot, Appraisal 19 Rights in Mergers and Consolidations, 38–5th C.P.S. §§ IV(H)(3), at A–89 to A–90 (BNA) (collecting cases)). “The Court of Chancery may ‘adopt any one expert’s model, methodology, and mathematical calculations, in toto, if that valuation is supported by credible evidence and withstands a critical judicial analysis on the record.’” Jacobs v. Akademos, Inc., 326 A.3d 711, 736 (Del. Ch. 2024) (quoting M.G. Bancorporation, 737 A.2d at 526), aff’d, 342 A.3d 1165 (Del. 2025). “Or the court ‘may evaluate the valuation opinions submitted by the parties, select the most representative analysis, and then make appropriate adjustments to the resulting valuation.’” Id. (quoting Finkelstein & Hendershot, Appraisal Rights in Mergers and Consolidations, 38-5th C.P.S. § V(A), at A-31 (BNA, Supp. 2010 & 2017) (collecting cases)). The valuation date is the date on which the merger closes. Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1187 (Del. 1988). Thus, the court begins by determining Firebrand’s standalone value as a going concern, based on the operative reality of the enterprise as of June 1, 2022. Firebrand was a holding company whose value principally derived from its ownership of EBCH and, in turn, EarlyBird. Therefore, the standalone valuation centers on the value of EarlyBird’s operating business, its cash and securities portfolio, the effect of its regulatory capital requirements, and its subordinated debt. The court determines those components 20 before resolving the Share Dispute. It addresses the allocation of the resulting value separately. B. The Experts’ Valuations The parties’ experts adopted different valuation frameworks and reached dramatically different conclusions. Petitioner’s expert, Brett Margolin, used a capitalized cash flow analysis of EarlyBird’s operating business and added cash and securities as separately valued assets. His analysis produced a range of per-share values depending principally on the value assigned to the securities portfolio and the treatment of the Disputed Shares. Petitioner asks the court to adopt the high end of that range, $18.50 per share.96 Respondents’ expert, J.T. Atkins, valued Firebrand using an equity-level dividend discount model (“DDM”) and a guideline public company analysis. His reports assigned weight to both methodologies and produced values ranging from approximately $7.00 to $7.29 per share.97 Respondents ask the court to give no weight to the guideline company analysis and contend that Atkins’s DDM supports a value of $6.79 per share.98 96 Pet’r’s Reply Br. 1, 3. Margolin’s $18.50 per share figure assumed (i) an 81.5% allocation of EBCH’s economic value and (ii) a $47.8 million valuation of the securities portfolio. Pet’r’s Opening Br. 1, 6, 36‒37, 63; Pet’r’s Reply Br. 1, 3, 8, 31 n.142, 45. 97 Resp’ts’ Sur-Reply Br. 3; Post-Trial Arg. at 95:5−9. 98 Resp’ts’ Answering Br. 40; see also Post-Trial Arg. at 95:7−8. 21  Both experts normalized EarlyBird’s performance using historical periods ending in FY2019, thereby excluding the extraordinary results generated during the subsequent SPAC boom. Their disagreements concerned the appropriate income approach, the treatment of cash and the securities portfolio, the amount of capital required to support EarlyBird’s regulated business, and the treatment of the subordinated loan. Their competing approaches to the Share Dispute are addressed separately. 1. Margolin’s analysis Margolin valued EarlyBird’s operating business using a single-period capitalization model and then added non-operating assets held on the consolidated balance sheet.99 He did not perform a guideline company analysis, reasoning that EarlyBird’s specialization in SPAC underwriting and the condition of the SPAC market as of the Merger Date undermined the usefulness of peer-company comparisons.100 Margolin used the five fiscal years ending in FY2019 (i.e., FY2015−FY2019) as the normalized period, excluding the extraordinary results generated during the subsequent SPAC boom.101 That period produced average annual revenue of 99 Margolin Report ¶¶ 36, 41(A), 42. 100 Id. ¶ 42. 101 Id. ¶ 45; Tr. 332:7−8 (Margolin). 22 approximately $22.4 million and average annual EBITDA of approximately $4.9 million (an EBITDA margin of about 21.8%).102 Because Margolin valued cash and the securities portfolio separately, he excluded interest on cash and realized and unrealized securities gains and losses from the operating results that formed the basis of his capitalization analysis. In his view, including those items in operating cash flow and then adding the underlying assets separately would distort the cash economics or double-count value.103 Margolin converted normalized EBITDA into annual free cash flow of approximately $3.8 million by applying a 22.41% effective tax rate, capital expenditures equal to 0.2% of revenue, and no working capital investment.104 He estimated the cost of equity using the capital asset pricing model (“CAPM”). In doing so, he used: (i) the 20-year U.S. Treasury yield of 3.31% on June 1, 2022, as the risk-free rate; (ii) a 5.35% size premium (from Kroll’s smallest revenue portfolio proxy); and (iii) a median cash-adjusted unlevered beta of 1.35 from guideline- company betas. Using those inputs, Margolin concluded that EarlyBird’s cost of equity “does not exceed 17.08%.”105 Margolin paired that required return with a 102 Margolin Report ¶ 47. 103 Id. ¶¶ 46, 72; Tr. 254:7‒256:1 (Margolin). 104 Margolin Report ¶ 48. 105 Id. ¶ 68. 23 3.0% long-term growth rate.106 Using those inputs, he capitalized the normalized free cash flow and derived a present value of operating cash flows of $26,741,788 as of the Merger Date.107 Margolin then added the cash and securities excluded from his operating model. Relying on the May 31, 2022, financials, he identified approximately $90.9 million in unrestricted cash and cash equivalents, and restricted cash of approximately $500,000.108 Margolin did not independently value the securities portfolio. Instead, he used two alternative values drawn from the record: a $47.8 million value reflected on the May 31, 2022, consolidated balance sheet and a $16.4 million value derived from the lower post-Merger Cassel materials.109 106 Id. ¶ 69. 107 See id. ¶ 70. 108 Id. ¶ 73; JX 224 at 2. Margolin opined that, in general, no discount should be applied to cash. Pet’r’s Opening Br. 41; Tr. 283:12–16 (Margolin). Petitioner argues that “[i]t is undisputed that the Company has no wasting cash.” Pet’r’s Opening Br. 41 n.197; see also Pet’r’s Reply Br. 5–6. 109 Margolin Report ¶¶ 27, 74; JX 148 at 20; JX 331 Tab “Summary” Cell X59; JX 316 Tab “Cons BS” Cell H13. Margolin did not accept Cassel’s post-closing revised valuation. In support of that position, Petitioner noted this court’s preference for contemporaneous valuations and its healthy skepticism for post-merger adjustments. Pet’r’s Opening Br. 42– 43. Petitioner further points to the FINRA Report as of June 30, 2022, which listed the value of EarlyBird’s securities portfolio at $43.4 million. Id. at 44–45 (citing JX 461 at 5). Petitioner argues that only after it was clear that he would not withdraw his appraisal demand did managemen