Opinion
Civil Action #8755 (1986).
Submitted: January 13, 1987.
Decided: February 4, 1987.
ON PLAINTIFF'S APPLICATION TO INSPECT STOCK LIST: GRANTED IN PART.
Edward B. Maxwell, 2nd, Esquire YOUNG, CONAWAY, STARGATT TAYLOR, Wilmington, DE.
P. Clarkson Collins, Jr., Esquire MORRIS, JAMES, HITCHENS WILLIAMS Wilmington, DE.
Gentlemen:
Plaintiff, a stockholder of defendant Trans-Lux Corporation, seeks a list of the stockholders of the corporation for its own use and the use of two other stockholders. I find after trial that, although the demand for the stocklist may not have been sufficiently detailed to shift the burden of persuasion to defendant, plaintiff at trial showed that it is entitled to some (but not all) of the stocklist materials it requested.
I
The demand for inspection of the stocklist made pursuant to 8 Del. C. § 220 stated in part:
"The purpose of this demand is to ascertain the name, address and stock ownership of holders of record and beneficial owners of the corporation's voting stock. The corporation has not made this information available and we consider this information to be material to our interests as stockholders and to the value of our holdings. We also desire to ascertain the identity and holdings of the holders of voting stock in order to communicate with such persons with respect to the recent recapitalization of the corporation and any plan that may be proposed with respect to the corporation's future capitalization. The list of beneficial owners shall be used exclusively for the purpose of corporate communications."
This demand is somewhat vague and indefinite. Northwest Industries v. The B.F. Goodrich Company, Del. Supr., 260 A.2d 428 (1964); Weisman v. Western Pacific Industries, Inc., Del. Ch., 344 A.2d 267 (1975); Harker v. Harnischfeger, Del. Ch., C.A. No. 6930-N.C.C., Hartnett, V.C. (Feb. 3, 1983); Shamrock Associates v. The Dorsey Corporation, Del. Ch., C.A. No. 7678-N.C.C., Brown, V.C. (July 24, 1984); Hatleigh v. Lane Bryant, Inc., Del. Ch., C.A. No. 6259-N.C.C., Hartnett, V.C. (Oct. 20, 1980).
This being so plaintiff is probably not entitled to the benefit of the presumption provided by 8 Del. C. § 220(c) that a demand for inspection of a stocklist is for a proper purpose if the stockholder has made his demand in accordance with the statute.
8 Del. C. § 220(c) states in part:
"(c) . . . The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether or not the person seeking inspection is entitled to the inspection sought . . . Where the stockholder seeks to inspect the corporation's stock ledger or list of stockholders and he has complied with the provisions of this section respecting the form and manner of making demand for inspection of such documents, the burden of proof shall be upon the corporation to establish that the inspection he seeks is for an improper purpose . . ."
II
Notwithstanding that the demand made by plaintiff may not have stated with sufficient particularity the reason that plaintiff sought to obtain the stocklist, plaintiff may still prevail if, at trial, it showed that it is entitled to the list. Weisman v. Western Pacific Industries, Inc., Del. Ch., 344 A.2d 267 (1975);Devon v. Pantry Pride, Inc., Del. Ch., C.A. No. 7843-N.C.C., Hartnett, V.C. (Nov. 21, 1984); Carpenter v. Texas Air Corp., Del. Ch., C.A. No. 7976-N.C.C., Hartnett, V.C. (April 18, 1985);Henshaw v. American Concrete Corp., Del. Ch., 252 A.2d 125 (1969); Odyssey Partners v. Trans World Corp., Del. Ch., C.A. No. 7125-N.C.C., Hartnett, V.C. (March 29, 1983); Hatleigh Corp. v. Lane Bryant, supra.III
The evidence at trial showed that at the annual meeting of the corporation held on May 16, 1986, management proposed a restructuring of the corporation as part of an "anti-takeover" plan. Under the restructuring two classes of stock will exist. The Class A stock will be convertible into Class B stock which will have ten times the voting rights of the Class A stock. In order to discourage conversion, the Class A stock will receive a higher dividend than the Class B stock. The Class A stock will be freely transferrable but the Class B stock will have restricted transferability.
The proposed restructuring was clearly designed to give management much greater control over the corporation. Under the proposal the holders of the Class A stock had 30 days after the annual meeting to elect to convert their stock into Class B stock.
Plaintiff, following the annual meeting, attempted to learn whether the restructuring plan had been adopted by the requisite majority vote and to learn the number of shares converted. These legitimate requests were never answered by defendant.
Defendant, at trial, revealed that on the eve of trial it set forth the vote on the restructuring in materials which it belatedly (and apparently untimely) filed with the Securities and Exchange Commission.
Considering all the facts and circumstances, plaintiff has shown that it is entitled to detailed information concerning the vote on the restructuring proposal and a list of those stockholders who elected to convert their stock in order to ascertain if the restructuring plan was adopted and implemented.
IV
Plaintiff also seeks updated materials such as a magnetic computer tape list of the registered holders and beneficial owners of Trans-Lux stock, and a copy of the daily transfer sheets. Plaintiff has not, however, shown any need for these up-date materials. Plaintiff does not claim that it is about to mount a proxy battle or to do anything other than learn whether the reorganization became effective, and whether management now controls the corporation and to reevaluate whether it should continue to hold its stock in defendant.
V
Plaintiff also indicated that it was seeking the stockholder information for itself and two other stockholders who, however, did not join in the demand. No good reason has been advanced why the information may not be shared. Knop v. Precious Metal Holdings, Inc., Del. Ch., C.A. No. 6173-NC, Hartnett, V.C. (June 26, 1980). Plaintiff is cautioned, however, that neither it nor those it shares the information with are to use it for an improper purpose.
VI
Trans-Lux, as a defense, claims that the true purpose of plaintiff is to harass defendant into paying a premium for its shares. While plaintiffs motives are somewhat suspect, the furnishing of a stocklist can hardly be such a burden as to constitute harassment.