Companies often defend against stockholder requests to inspect books and records by contending that the plaintiff stockholder lacks a proper purpose or that his or her stated purpose is not the real purpose. Less common is a contention that the stockholder lacks standing because his or her shares were canceled due to misconduct harmful to the company, a remedy provided for in a stockholder agreement. Such a claim raises issues under Section 202 of the Delaware General Corporation Law as to the enforceability of the remedy where the restrictions set forth in the stockholder agreement were not conspicuously noted on the share certificate. The recent case of Henry v. Phixios Holdings, C.A. No. 12504-VCMR (July 10), provides guidance on the requirements to enforce a restriction on the ownership or alienability of shares of a Delaware corporation when the restriction is not conspicuously noted on the share certificate. As the Chancery Court held, such a restriction is not enforceable except upon proof that the stockholder had actual knowledge prior to purchase of the shares or subsequently agreed or voted to approve the restriction, proof that Phixios failed to provide.
Background
This action began when Phixios fired plaintiff Jon Henry. Thereafter the plaintiff sought books and records both to value his shares in the private company and to investigate mismanagement. The suspicion of mismanagement was based on the chief operating officer’s having used company funds for personal expenses. The company claimed that the plaintiff lost his shares and hence his standing to seek books and records because he violated a stockholder agreement which called for forfeiture of shares for engaging in conduct harmful to the company. Here Phixios claimed Henry was competing against the company. Henry denied such competition as well as any foreknowledge or subsequent assent to the stockholder agreement.
