City of Westland Police & Fire Retirement System v. Axcelis Technologies, Inc.
Delaware Court of Chancery
2009 WL 3086537
Axcelis Technologies, Inc. (Axcelis) (defendant) began attracting takeover bids in 2008. The bidder, SHI, made multiple offers in early 2008 at a premium over Axcelis’ share price. The board of Axcelis rejected the offers, arguing that the transaction would not be in the shareholders’ best interest. Axcelis held its annual shareholders’ meeting on May 1, 2008. Three directors were up for reelection. They each received a plurality of the vote but not a majority. Delaware law and the Axcelis bylaws permit director election by plurality vote. An Axcelis policy, modeled after one pioneered by Pfizer, Inc., required any director who received a plurality but not a majority of the vote to submit her resignation to the board. The board then had sole discretion whether to accept or reject the resignations. The three directors’ resignations were rejected by the board on May 23, 2008. The board argued that the three directors had significant experience with the company, that they held key committee posts, and that they would be best positioned to continue negotiations with SHI. SHI made no further offers to purchase Axcelis, however, and the Axcelis share price fell dramatically by the fall of 2008. The City of Westland Police & Fire Retirement System (CWPFRS) (plaintiff) became a shareholder of Axcelis in 2007. In December 2008, CWPFRS submitted a demand for access to Axcelis’ books and records pursuant to Delaware General Corporation Law (DGCL) § 220. CWPFRS alleged that the Axcelis board breached its fiduciary duty to shareholders by, among other things, retaining the three directors after they failed to receive a majority at the 2008 annual meeting. CWPFRS asserted that the board had been motivated by defensive strategy rather than shareholder interest. Axcelis rejected the demand, stating that CWPFRS had not stated a credible basis for suspecting wrongdoing as required by § 220. CWPFRS sued to compel Axcelis to turn over the records.
Rule of Law
Holding and Reasoning (Noble, J.)