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The valuation of one's shares is a valid purpose to inspect books and records. Because minority stockholders of privately held corporations do not receive the mandated, periodic disclosures associated with a publicly held corporation, those stockholders face certain unique risks. Minority stockholders in private corporations may have a legitimate need to inspect the corporation's books and records to value their investment, in order to decide whether to buy additional shares, sell their shares, or take some other action to protect their investment. In addition, where the alleged purpose is to explore a possible sale of stock, Del. Code Ann. tit. 8, § 220(c) does not require the stockholder to have taken concrete steps to sell the stockholder's shares before relying on that purpose as a basis for seeking inspection.
Quantum Technology Partners IV, L.P. ("Quantum"), a Delaware limited partnership, and Ploom, Inc. (“Ploom”), a privately held Delaware corporation, executed a Series A-3 Preferred Stock Purchase Agreement in 2009; Quantum completed the Second and Third Closings under the Purchase Agreement, but was unable to secure sufficient financing to make the Fourth Closing. Ploom’s trust in Quantum faltered. In March and August of 2013, Quantum requested by letter access to certain of Ploom's financial information, which Quantum claimed to need to value its interest in the Company. In October 2013, Quantum delivered to Ploom a demand to inspect Ploom’s books and records pursuant to 8 Del. C. § 220 (the “Demand”). Quantum also attached to the Demand a proposed confidentiality agreement. Ploom, responded to the Demand, challenging the propriety of Quantum’s purpose and the scope of the documents it demanded to inspect.
Under the circumstances, should Quantum be allowed to inspect the books and records of Ploom?
The court ordered Ploom to produce certain books and records for inspection by the stockholder Quantum, subject to the latter executing a confidentiality agreement, because the stockholder had the proper purpose of valuing its shares, evaluating a possible sale of its stock, and soliciting buyers. According to the court, Ploom did not have to produce documents for inspection concerning its strategic investment plan with a foreign entity because the stockholder's purpose was outweighed both by Ploom’s contractual obligation to maintain its confidentiality and by the relative harm associated with an unintended leak.