Delaware Supreme Court Requires Credible Evidence Of A "Proper Purpose" To Review A Corporation's Books And Records

In City of Westland Police & Fire Retirement System v. Axcelis Technologies, Inc., 1 A.3d 281 (Del. 2010), the Delaware Supreme Court affirmed the dismissal of an action brought under Section 220 of the Delaware General Corporation Law, 8 Del. Code § 220, to review books and records of a corporation. The Court of Chancery had dismissed the action on the ground that plaintiff failed to present “some evidence” suggesting a “credible basis” from which the court could infer a “proper purpose” for the review, such as possible wrongdoing or mismanagement. The decision offers enhanced guidance on the “proper purpose” test, particularly with respect to corporations that follow “plurality plus” governance policies.

Axcelis Technologies, Inc. (“Axcelis”) is a Delaware corporation specializing in the manufacture of ion implantation and semiconductor equipment. Plaintiff is a Michigan pension fund that beneficially owns Axcelis common stock. In 1983, Axcelis and a Japanese company, Sumitomo Heavy Industries, Ltd. (“Sumitomo”), became partners in a joint venture. In February and March 2008, Sumitomo made two unsolicited bids to acquire Axcelis. The Board of Directors of Axcelis rejected the bids, stating that the bids undervalued Axcelis and were not in the best interests of the company or its shareholders. The Board, however, expressed its willingness to meet with Sumitomo privately to explore whether the parties could reach an agreement on a transaction involving their joint venture.

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