Opinion
Civil Action No. 11574.
Submitted: July 16, 1990.
Decided: August 29, 1990
Paul P. Welsh, Esquire, Steven C. Blackmore, Esquire, MORRIS, NICHOLS, ARSHT TUNNELL, Wilmington, DE.
Wayne N. Elliott, Esquire, Joseph Grey, Esquire, PRICKETT, JONES, ELLIOTT, KRISTOL SCHNEE, Wilmington, DE.
DECISION AFTER TRIAL
Gentlemen:
After trial, I find that plaintiff is entitled to inspect the stock list of defendant but is not entitled to any other records of defendant in addition to those already furnished to him.
I
Plaintiff, Bernard J. Eastlund, is the owner of 4,723 shares of stock of defendant, Fusion Systems Corporation ("Fusion"). On April 13, 1990, plaintiff sent to defendant a demand to inspect its stockholder list and a demand to inspect a broad list of books and records. Defendant's shares are not publicly traded.
Plaintiff's stated purpose in making the demands was to obtain information he needs to further his attempt to sell his shares to other stockholders or to others. The stock of the defendant is subject to a First Refusal Option which is triggered in response to bona fide offers to purchase.
Defendant refused to permit any of the inspections demanded unless plaintiff first entered into certain confidential agreements. Defendant also refused to furnish most of the books and records sought because it desires to limit disclosure to the annual and quarterly financial statements and one extract from its Board minutes and two other documents.
After the initial demands defendant furnished to plaintiff certain financial information but not all that he seeks.
II
Plaintiff's demand requested:
1. Annual financial statements of Fusion, whether audited or not, together with accountants' notes, and any quarterly or monthly financial statements for periods subsequent to the end of the period covered by the most recent annual financial statements. This request includes balance sheets, income statements, statements of financial position, cash flow analyses and similar financial reports as well as any other financial documents furnished to Fusion.
2. Documents reflecting valuations or opinions about value as to Fusion, assets of Fusion, or Common Stock, including, but not limited to, documents prepared for or submitted to the Internal Revenue Service ("IRS") relating to the availability of any tax loss carry forward or any other tax treatment having an impact on the value of Fusion or the Common Stock and any responses from the IRS.
3. Documents describing Fusion's internal corporate organization, identifying its subsidiaries, divisions or departments, and reflecting their executive personnel, budgets, products, and gross and net sales and profit figures.
4. Any projections prepared by or for Fusion relating to future business and profits of the corporation.
5. Documents reflecting or referring to any transactions, proposed transactions, or expressions of interest in the Common Stock or any other securities of Fusion, including but not limited to any information or material distributed by Fusion to any purchasers or potential purchasers of Common Stock. This request includes, but is not limited to, all such documents related to Dainippon and Greater Washington Investors, Inc.
6. All agreements relating to any material acquisition or disposition of assets of Fusion, including letters of intent relating to any such transaction.
7. All agreements between Fusion and any Fusion stockholder that are currently in effect.
The demand of plaintiff also stated that its purpose was "to enable plaintiff to ascertain the value of Fusion and his shares therein in order to permit him to obtain fair value for his shares in a sale or sales which he wishes to make." Exhibit 2 to the Complaint states that plaintiff's purpose in demanding a copy of the stock list is "to permit [him] to communicate with other stockholders of Fusion, to offer to sell them shares of Common Stock owned by him."
As to plaintiff's demand for books and records, defendant responded by indicating that "it was prepared to permit plaintiff to inspect, subject to receipt of appropriate confidentiality agreements, those of its books and records which are genuinely essential and sufficient to satisfy his stated purpose of ascertaining the value of his Fusion shares." In particular, defendant offered to make available the following books and records:
Copies of Fusion's audited Financial Statements for the three fiscal years ended December 31, 1989;
Copies of Fusion's consolidated quarterly Financial Statements for the quarter ended March 31, 1990;
A copy of the Stock Purchase Agreement between Fusion and Dainippon Screen Mfg. Co. Ltd. ("Dainippon Screen"), pursuant to which Fusion sold 15,850 shares of its Common Stock to Dainippon Screen for $236.00 per share plus rights to acquire an additional 15,850 shares of Common Stock at the same price;
Extracts of the minutes of the meeting of the Board of Directors on December 12, 1989, relating to the granting of incentive stock options, in which the Board of Directors established $130.00 as the fair market value of a share of Common Stock if sold in a private transaction of less than 5,000 shares; and
A copy of Fusion's Offer to Purchase for cash units ("Units") consisting of 15,850 shares of its Common Stock and call Options for an additional 15,850 shares of stock, dated December 21, 1989 pursuant to which Fusion purchased 15,850 Units for $230.00 per Unit.
As to plaintiff's demand for the stockholder list, defendant indicated that it was prepared to disclose a complete record or list of the names and addresses of its stockholders and the number of shares of stock registered in the names of each stockholder but that it claimed that the "information is confidential and proprietary to defendant." In return for disclosure of the stockholder list, defendant insisted: (a) that plaintiff agree that the information contained in the stockholder list is and shall remain the confidential and proprietary information and property of Fusion; (b) that plaintiff agree to use the utmost care to maintain the information as confidential and not to disclose it to any third party; and (c) that plaintiff agree not to use the stockholder list except in connection with the purpose stated in his demand letter, namely for the purpose of contacting potential purchasers of his shares, and that any alteration of his purpose shall necessitate a new demand letter and return of the list previously furnished.
III
After considering all the properly admissible evidence adduced at trial, I find:
1. Plaintiff made demands in proper form and manner to inspect the stock list of defendant and to inspect certain books and records of the defendant, which are not publicly available.
2. Defendant is not a publicly traded corporation.
3. Defendant, since its formation in 1970 as a high technology corporation, has shielded its financial and product information from the public and its competitors for legitimate business reasons.
4. Plaintiff was one of the founders of defendant but left employment with it in 1979.
5. Plaintiff originally owned over 16,000 shares of common stock of defendant but has sold all but 4,723 shares.
6. Plaintiff has no present definite plan to sell his remaining shares but merely wants to ascertain their value and then offer 1,500 shares for sale.
7. Very little public information is available in the industries in which defendant participates.
8. Most of the information sought by plaintiff might, if disclosed to competitors of defendant, impair the interests of defendant and its stockholders.
9. Plaintiff has previously indicated that he would be willing to disclose confidential information about defendant to defendant's competitors.
10. Plaintiff is likely to disclose any information he obtains from defendant to competitors of defendant.
11. Plaintiff, if given the opportunity, will seek to offer to one or more competitors of defendant a "window" into defendant's affairs.
12. If plaintiff discloses non-public information about defendant to defendant's competitors, defendant and its stockholders will likely be injured.
13. Plaintiff has received sufficient information to reasonably enable him to establish a value for his stock.
14. Plaintiff, in part, desires a list of the stockholders of defendant to enable him to offer his stock to them. This is a proper purpose.
15. While defendant might not like its stock list to be used by plaintiff for any purpose other than communication with other stockholders and has shown that plaintiff might use it for other purposes, defendant has not shown that it would likely suffer any injury from any such possible misuse by plaintiff.
IV
The plaintiff has no absolute right to non-public information of defendant and has not shown any reasonable need for it. State ex rel Rogers v. Sherman Oil Co., Del. Super., 117 A. 122 (1922); Neely v. Oklahoma Publishing Co., Del. Ch., C.A. No. 5293-NC, Brown, V.C. (June 30, 1977). See H.P. Skoglund v. Ormand Indus., Inc., Del. Ch., 372 A.2d 204 (1976); Radwick PTY Ltd. v. Medical Incorporated, Del. Ch., C.A. No. 7610-NC, Berger, V.C. (Nov. 7, 1984).
Plaintiff is therefore not entitled to inspect the books and records of defendant or to receive information about the financial affairs of defendant in addition to those he has already received or has been offered if he will sign a confidentiality agreement. Plaintiff is, however, entitled to inspect the stockholder list of defendant.
Neither plaintiff nor defendant has shown a sufficient reason why any attorney fees should be awarded.
IT IS SO ORDERED.