Transaction ID 58293650 Case No. 11775 -VCL IN...
Transcript of Transaction ID 58293650 Case No. 11775 -VCL IN...
01:18067967.1
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE VAALCO ENERGY, INC. CONSOLIDATED STOCKHOLDER LITIGATION
) ) ) ) )
C.A. No. 11775-VCL
OPENING BRIEF IN OPPOSITION TO PLAINTIFFS’
MOTION FOR SUMMARY JUDGMENT AND IN SUPPORT OF
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
OF COUNSEL: Michael C. Holmes Andrew E. Jackson Cortney C. Thomas VINSON & ELKINS LLP Trammel Crow Center 2001 Ross Avenue, Suite 3700 Dallas, Texas 75201-2975 Dated: December 14, 2015
YOUNG CONAWAY STARGATT & TAYLOR, LLP Rolin P. Bissell (No. 4478) Kathaleen St. J. McCormick (No. 4579) Elisabeth S. Bradley (No. 5459) Benjamin M. Potts (No. 6007) Rodney Square 1000 North King Street Wilmington, Delaware 19801 (302) 571-6600 Counsel for Defendants Steven P. Guidry, Frederick W. Brazleton, O. Donaldson Chapoton, James B. Jennings, John J. Myers, Jr., Andrew L. Fawthrop, Steven J. Pully, and VAALCO Energy, Inc.
EFiled: Dec 14 2015 02:00PM EST Transaction ID 58293650
Case No. 11775-VCL
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TABLE OF CONTENTS
PRELIMINARY STATEMENT ............................................................................... 1
STATEMENT OF FACTS ........................................................................................ 6
I. VAALCO ......................................................................................................... 6
II. VAALCO’s 2009 Charter Amendment ........................................................... 6
III. VAALCO’s Board ........................................................................................... 9
IV. Events Leading to This Litigation .................................................................10
V. This Litigation ...............................................................................................13
ARGUMENT ...........................................................................................................14
I. The Charter and Bylaws Are Valid. ..............................................................14
A. To prevail on their claims, Plaintiffs must rebut the presumption that the Charter and Bylaws are valid. ...........................14
1. Delaware law promotes private ordering in the Charter and Bylaws unless contrary to Delaware statutory enactment or public policy. .......................................................15
2. Delaware courts construe charters and bylaws consistent with Delaware law, rather than striking them down. ................16
B. Plaintiffs cannot rebut the presumption that the Charter and Bylaws are valid. .................................................................................17
1. The Charter and Bylaws do not transgress a statutory enactment. .................................................................................18
2. The Charter and Bylaws do not transgress public policy. ........21
3. The legislative history further supports the validity of the Charter and Bylaws. ..................................................................26
II. Even if the Charter and Bylaws Are Invalid, Plaintiffs Are Not Entitled to the Relief They Seek. ...................................................................27
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A. For the Charter and Bylaws to be rewritten, Plaintiffs must demonstrate by clear and convincing evidence that the stockholders intended to strike the for-cause removal limitations. ...........................................................................................27
B. Plaintiffs cannot demonstrate by clear and convincing evidence that the VAALCO stockholders intended to eliminate the for-cause removal provisions. ...................................................................29
C. To the extent the Court rewrites the Charter and Bylaws, the Court should do so in a manner consistent with Delaware law and the stockholders’ intent. ................................................................30
D. Plaintiffs’ request for a declaratory judgment is premature and unripe. ..................................................................................................32
CONCLUSION ........................................................................................................35
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TABLE OF AUTHORITIES
Page(s)
CASES
Blades v. Wisehart, 2010 WL 4638603 (Del. Ch. Nov. 17, 2010) ............................................... 32, 33
Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013) .............................................................. 2, 14, 16, 30
C&J Energy Servs. v. City of Miami Gen. Emps.’ & Sanitation Emps.’ Ret. Trust, 107 A.3d 1049 (Del. 2014) ....................................................................... 27
In re Appraisal of Dell Inc., 2015 WL 4313206 (July 30, 2015) ..................................................................... 15
Hibbert v. Hollywood Park, Inc., 457 A.2d 339 (Del. 1983) ................................................................................... 16
Insituform of N. Am., Inc. v. Chandler, 534 A.2d 257 (Del. Ch. 1987) ............................................................................ 22
Jones Apparel Grp., Inc. v. Maxwell Shoe Co., Inc., 883 A.2d 837 (Del. Ch. 2004) ................................................2, 14, 15, 16, 19, 20
Lions Gate Entm’t Corp. v. Image Entm’t, Inc., 2006 WL 1668051 (Del. Ch. June 5, 2006) ........................................ 4, 25, 28, 29
Multi–Fineline Electronix, Inc. v. WBL Corp. Ltd., 2007 WL 431050 (Del. Ch. Jan. 10, 2007) ................................................... 33, 34
Nycal Corp. v. Angelicchio, 1993 WL 401874 (Del. Ch. Aug. 31, 1993) ....................................................... 23
Orenstein v. Kahn, 119 A. 444 (Del. 1922) ....................................................................................... 30
In re Paine Webber Ltd. P’ships, 1996 WL 535403 (Del. Ch. Sept. 17, 1996) ....................................................... 20
Rohe v. Reliance, 2000 WL 1038190 (Del. Ch. July 21, 2000) ...................................................... 23
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Roven v. Cotter, 547 A.2d 603 (Del. Ch. 1988) ............................................................ 3, 21, 22, 26
State v. Hobson, 83 A.2d 846 (Del. 1951) ..................................................................................... 16
Sterling v. Mayflower Hotel Corp., 93 A.2d 107 (Del. 1952) ..................................................................................... 16
Stroud v. Grace, 1990 WL 176803 (Del. Ch. Nov. 1, 1990), aff’d in part, rev’d in part, 606 A.2d 75 (Del. 1992) ..................................................................................... 19
Stroud v. Grace, 606 A.2d 75 (Del. 1992) ..................................................................................... 19
Stroud v. Milliken Enters., Inc., 552 A.2d 476 (Del. 1989) ................................................................................... 33
In re Toys “R” Us, Inc. S’holders Litig., 877 A.2d 975 (Del. Ch. 2005) ............................................................................ 27
Waggoner v. Laster, 581 A.2d 1127 (Del. 1990) ................................................................................. 28
XI Specialty Ins. Co. v. WMI Liquidating Trust, 93 A.3d 1208 (Del. 2014) ................................................................................... 33
STATUTES
8 Del. C. § 102(b)(1) ................................................................................ 2, 15, 19, 20
8 Del. C. § 109(b) ..................................................................................... 2, 15, 19, 20
8 Del. C. § 141(d) ......................................................................................... 18, 24, 25
8 Del. C. § 141(k)(1) .................................................................................... 17, 20, 25
OTHER AUTHORITIES
David A. Drexler et al., Delaware Corp. Law and Practice § 13.01[8] n.80 (2014) .................................................................................................................. 24
15 Richard A. Lord, Williston on Contracts § 45:6 (4th ed. 2012) ......................... 30
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Official Comment to the 1974 amendment to § 141(k), reprinted in 2 R. Franklin Balotti & Jesse A. Finkelstein, Del. Law of Corps. & Bus. Orgs., IV-14 (3d ed. 2014) .................................................................................. 26
01:18067967.1
Defendants VAALCO Energy, Inc. (“VAALCO” or the “Company”) and its
current board members, Steven P. Guidry, Frederick W. Brazleton, O. Donaldson
Chapoton, LLB, James B. Jennings, John J. Myers, Jr., Andrew L. Fawthrop,
Steven J. Pully (with VAALCO, “Defendants”), respectfully submit this Opening
Brief in Opposition to the Motion for Summary Judgment of Plaintiffs Vladimir
Gusinsky Living Trust and George Shapiro (“Plaintiffs”) and in support of
Defendants’ Cross-Motion for Summary Judgment.
PRELIMINARY STATEMENT
In 2009, VAALCO amended its corporate charter (the “Charter”) to
eliminate its staggered board and establish a board elected annually. This
amendment (the “2009 Amendment”) altered Article V Section 2 of VAALCO’s
Charter, which had previously established a three-class, staggered board. The
2009 Amendment did not touch Article V Section 3 of VAALCO’s Charter, or the
corresponding provision in Article III Section 2 of VAALCO’s bylaws (the
“Bylaws”), which limit the removal of directors to “only for cause.” Through their
Motion for Summary Judgment, Plaintiffs seek to invalidate the removal for-cause
provisions of VAALCO’s Charter and Bylaws, contending that such provisions are
“in conflict” with Section 141(k) of the Delaware General Corporation Law (the
“DGCL”). In seeking invalidation, Plaintiffs raise an issue of first impression for
this Court: Does Section 141(k) affirmatively prohibit a Delaware corporation
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from maintaining a previously adopted charter provision limiting director removal
to cause if that corporation ceases to have a staggered, classified board?
Plaintiffs assumed an onerous burden in seeking to invalidate VAALCO’s
Charter and Bylaws. Corporate stakeholders have great flexibility structuring
corporate governance provisions so long as they “are not contrary to the laws of
this State.” 8 Del. C. § 102(b)(1); see also 8 Del. C. § 109(b). Reflecting
Delaware’s “commitment to private ordering in the charter,” Jones Apparel Grp.,
Inc. v. Maxwell Shoe Co., Inc., 883 A.2d 837, 845 (Del. Ch. 2004), Delaware law
presumes corporate instruments to be valid, Boilermakers Local 154 Ret. Fund v.
Chevron Corp., 73 A.3d 934, 940 n.15 (Del. Ch. 2013). To rebut this presumption,
Plaintiffs must demonstrate that the challenged provisions are “contrary to the laws
of this State,” in that they “contravene . . . a mandatory rule of our corporate code
or common law.” Jones Apparel, 883 A.2d at 846.
Plaintiffs cannot meet the burden of demonstrating invalidity here. As an
initial matter, the for-cause removal provisions do not contravene any mandatory
law. Section 141(k) establishes a default rule only, and does not preclude an
unclassified board to be removable only for cause. In addition to VAALCO, it
appears that potentially 175 other public companies have taken advantage of the
flexibility inherent in Section 141(k) by establishing unclassified boards removable
only for cause.
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Likewise, the removal for-cause provisions do not transgress, but rather are
consistent with, public policy. Because Delaware law permits removal only for
cause in the case of multi-year director terms, it follows that permitting removal
only for cause in the case of annual director terms does not transgress public
policy. Moreover, Delaware law allows the functional equivalent of VAALCO’s
board under Section 141(d) and 141(k)(1), which together expressly permit a non-
staggered board of one class of directors that is elected annually and removable
only for cause. There is no policy reason for permitting the directors of a single-
class board under 141(d) to be removable only for cause, but for not permitting the
directors of an unclassified board to be removable only for cause. Limiting
director removal only for cause helps “balance concerns for continuity and director
security against those of flexibility and accountability,” and is consistent with
Section 141(k)’s overarching purpose. Roven v. Cotter, 547 A.2d 603, 606 (Del.
Ch. 1988). This is as true for a board that is elected annually as it is for a staggered
board.
The legislative history of the DGCL further supports the validity of the
Charter and Bylaws. While Delaware common law and the DGCL have always
recognized an unfettered right of stockholders to remove directors for cause, the
right to remove directors without cause is a more recent development, and one
based on the goal of increasing private ordering.
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Even assuming (arguendo) that the Charter and Bylaws are invalid,
Plaintiffs are not entitled to the relief they seek. Effectively, Plaintiffs seek
reformation of VAALCO’s Charter and Bylaws by asking this Court to allow the
2009 Amendment to stand but to strike the for-cause removal provisions. To
obtain such reformation, Plaintiffs must demonstrate that all present and past
VAALCO stockholders intended that the for-cause removal provisions not be
included in the Charter or Bylaws. The requested reformation is also subject to a
higher standard of proof, as Plaintiffs “must establish the need for the remedy by
clear and convincing evidence . . . .” Lions Gate Entm’t Corp. v. Image Entm’t,
Inc., 2006 WL 1668051, at *8 (Del. Ch. June 5, 2006). Plaintiffs cannot
demonstrate this need. In 2009, the overwhelming majority (93% of the votes cast)
of VAALCO’s stockholders manifested an intent to create directors who would be
subject to election annually but who could only be removed for cause. And, in the
six-plus years since the 2009 Amendment was approved, no stockholder has
sought to challenge or question the validity of this structure. This all shows that
the stockholders who voted in 2009 voted for a structure they intended.
Thus, if the Court were to determine that reformation is required, rather than
strike and re-write two stand-alone removal provisions in VAALCO’s Charter and
Bylaws, the Court should reform the governing documents in a manner that best
accomplishes the intent of the VAALCO stockholders by retaining the functional
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equivalent of VAALCO’s current governance structure. The Court could
accomplish this end by replacing the word “classified” in the last sentence of
Article V Section 2 of the Charter (“the Board of Directors shall not be classified
and directors shall be elected at each annual meeting for a one-year term expiring
at the next annual meeting”) with the word “staggered,” effectively converting
VAALCO from an unclassified board elected annually removable only by cause to
a single-class “classified” board elected annually removable only by cause.
Another logical alternative to Plaintiffs’ proposed relief would be to hold that the
2009 Amendment itself is invalid and of no force and effect, thereby restoring
VAALCO’s Charter to its pre-2009 Amendment status.
Ultimately, the best indicator of stockholders’ present intent is a vote of the
stockholders themselves. The VAALCO Board has called a special meeting of
stockholders for January 5, 2016, so that VAALCO’s stockholders can, in effect,
reform the Charter using the means the Charter itself provides. This stockholder
vote may either affirm the stockholders’ desire to allow only for-cause removal or
moot this dispute by expressing a contrary intent. Thus, even if the Court were to
determine that the Charter and Bylaws are invalid, it may wish to wait for the
results of that vote before deciding the issue of how the Charter should be
judicially reformed. Prior to the stockholders’ vote, Plaintiffs’ request for a
declaratory judgment may also be unnecessary, and thus premature and unripe.
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For all of these reasons, as set forth more fully below, Defendants
respectfully request that the Court deny Plaintiffs’ Motion for Summary Judgment
in its entirety, and grant Defendants’ Motion for Summary Judgment seeking a
declaration that VAALCO’s Charter and Bylaws are valid.
STATEMENT OF FACTS1
I. VAALCO
VAALCO is a Houston, Texas-based independent energy company
principally engaged in the acquisition, exploration, development and production of
crude oil and natural gas. Ex. 8, VAALCO Energy, Inc., Annual Report (Form 10-
K) at 6 (March 16, 2015). VAALCO’s business activities are primarily focused on
West Africa. Id.
II. VAALCO’s 2009 Charter Amendment
The parties’ dispute in this case stems from the 2009 Amendment to
VAALCO’s Charter. See Ex. 1, VAALCO Energy, Inc., Quarterly Report (Form
10-Q) (Nov. 10, 2014), Exhibit 3.1 (Amendment to Restated Certificate of
Incorporation (June 3, 2009)). This amendment arose, at least in part, from a
proxy contest with Nanes Balkany Partners, which sought the declassification of
VAALCO’s staggered Board of Directors. Ex. 3, Nanes Delorme Partners I LP,
1 Citations are to the Exhibits (cited as “Ex.”) attached to the Transmittal Affidavit of Benjamin M. Potts filed with this brief and to docketed pleadings, cited by docket (“Dkt.”) number.
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General Statement of Acquisition of Beneficial Ownership (Schedule 13D) at Ex.
99.2 (March 12, 2008). On May 23, 2008, as part of an agreement to settle the
proxy contest, VAALCO’s Board of Directors (the “Board”) agreed to recommend
and submit a resolution for approval by its stockholders at the 2009 Annual
Meeting of Stockholders to declassify the Board. Ex. 4, VAALCO Energy, Inc.,
Additional Proxy Soliciting Materials (Form DEFA14A) (May 27, 2008).
The Board submitted the matter to a vote by VAALCO’s stockholders at the
Company’s Annual Meeting held on June 3, 2009. Ex. 5, VAALCO Energy, Inc.,
Definitive Proxy Statement (Schedule 14A) at 24 & Ex. A (Apr. 7, 2009). The
proposed amendment to the Charter stated that “Section 2 of Article Five of the
Corporation’s Restated Certificate of Incorporation” would be amended if the
proposed amendment was approved by the stockholders. Id. The proposed
amendment did not suggest changes to any other section of the Charter or any
section of the Bylaws. Id. The amendment expressly altered only Section 2 of the
Charter—Section 3, which provides that directors “may be removed from office
only for cause,” was not altered in any respect. See Ex. 1, VAALCO Energy, Inc.,
Quarterly Report (Form 10-Q) (Nov. 10, 2014), Exhibit 3.1 (Restated Certificate of
Incorporation (Sept. 15, 1997) and Amendment to Restated Certificate of
Incorporation (June 3, 2009)) (cited as “Charter”)), Art. V, § 3.
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The amendment passed by approximately 93% of the votes cast. See Ex. 6,
VAALCO Energy, Inc., Quarterly Report (Form 10-Q) at 26 (Aug. 10, 2009). The
same day, the Board approved the amended Charter. See Ex. 1 (Amendment to
Restated Certificate of Incorporation (June 3, 2009)).
As amended, Article V of the Charter provides:
Section 2. Number, Election and Terms of Directors. . . . Until the date of the 2010 annual meeting of stockholders, the directors . . . shall be classified, with respect to the time for which they severally hold office, into three classes, each as nearly equal in number as possible. From and after the date of the 2010 annual meeting of stockholders, the Board of Directors shall not be classified and directors shall be elected at each annual meeting for a one-year term expiring at the next annual meeting.
Section 3. Removal of Directors. Subject to the rights of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, any director may be removed from office only for cause.
Charter, Art. V.
Article III of the Bylaws mirrors the language of the Charter:
Section 2. . . . Subject to the rights of any class or series of stock having preference over the common stock as to dividends or upon liquidation to elect additional directors under specified circumstances, any director may be removed from office only for cause.
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Ex. 2, VAALCO Energy, Inc., Amended and Restated Bylaws at Art. III (Aug. 19,
2013), included in Exhibit 3.1 to Current Report (Form 8-K) (Sept. 23, 2013) (cited
hereinafter as “Bylaws”).
VAALCO’s resulting structure—a de-staggered board and “for cause”
removal—is also employed by many other Delaware corporations. It appears as if
at least 175 other Delaware corporations have de-staggered boards and restrict
director removal to “cause” in their organizational documents. See Compendium
of Corporate Instruments filed contemporaneously herewith. 2
III. VAALCO’s Board
Beginning with the 2010 Annual Meeting of the Company, the Board began
serving one-year terms that expired at the next annual meeting. Ex. 1, Charter, Art.
V, § 2. The current board consists of seven members: Steven Guidry, Frederick
Brazleton, O. Donaldson Chapoton, Andrew Fawthrop, James Jennings, John
Myers, and Steven Pully.3 Each of these board members, with the exception of Mr.
Pully, was re-elected to the Board at the June 3, 2015 Annual Meeting. See Ex. 9,
VAALCO Energy, Inc., Current Report (Form 8-K) (June 9, 2015). Mr. Pully was 2 The Compendium may not complete as it was based on preliminary and expedited review of publicly available charters and bylaws of Delaware corporations. 3 Two of these directors—Messrs. Brazleton and Chapoton—served on the Board when the 2009 Amendment was recommended and voted upon. Ex. 5, VAALCO Energy, Inc., Definitive Proxy Statement (Schedule 14A) at 5 (Apr. 7, 2009); Ex. 7, VAALCO Energy, Inc., Annual Report (Form 10-K) at 44 (Mar. 16, 2010).
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appointed by the current Board to serve as a member until the next annual meeting
of stockholders in 2016 in accordance with the Bylaws.4 Ex. 10, VAALCO
Energy, Inc., Current Report (Form 8-K) (Aug. 5, 2015). Each of these seven
board seats will be up for election at VAALCO’s 2016 annual meeting. Charter,
Art. V, § 2.
IV. Events Leading to This Litigation
More than six years passed since the 2009 Amendment before anyone
challenged the validity of the removal “for cause” provision included in
VAALCO’s Charter and Bylaws. The reason this lawsuit is being pursued now
stems from an ongoing attempt of activist stockholders to obtain control of the
Company. Understanding that attempt is necessary to understand the context in
which this lawsuit has been brought.
In May 2015, Group 42, Inc. (“Group 42”) made its initial investment in the
Company, and in June 2015, Bradley L. Radoff and his related entities made their
initial investment in the Company (collectively, the “Activist Stockholders”). Ex.
14, Group 42, Inc. Definitive Proxy Statement (Form DEFC14A) at 4 (Dec. 4,
2015) (hereinafter “Group 42 Proxy”); see also Ex. 15, List of Olshan 2015
4 The Bylaws provide that when any Board vacancy arises prior to an annual meeting, the current Board members may fill the seat by a majority vote. Directors who fill such vacancies serve a term that expires at the next annual meeting. Ex. 2, Bylaws, Art. III, § 2.
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Activist Campaigns. Group 42 is a San Antonio, Texas-based holding company
that “provides proprietary wellbore cleanup and specialty stimulation chemicals” to
the energy industry. Ex. 16, Group 42 Homepage, http://www.group-42.com/ (last
visited Dec. 11, 2015). Bradley Radoff is a private, “activist” investor based in
Houston, Texas. Ex. 12, Group 42 and Bradley Radoff Comment on VAALCO
Third Quarter Earnings (Nov. 11, 2015); Ex. 11, Group 42, Radoff to solicit
consents to replace Vaalco board members (Nov. 9, 2015). Shortly after making
an initial investment in the Company, the Activist Stockholders began making
demands for, among other things, board representation and an issuer tender offer to
repurchase stock at a premium. Ex. 14. Group 42 Proxy at 4. The Company had
several meetings with the Activist Stockholders throughout June and July 2015,
offering them one board seat but rejecting their other demands. Id.
On September 25, 2015, without giving the Company any advance notice,
the Activist Stockholders filed their initial Schedule 13D, disclosing the formation
of a group and a combined ownership of 11.1%. Id. at 5. On September 26, 2015,
the Board adopted a stockholder rights plan, which is triggered at 10% beneficial
ownership and is designed to ensure that, among other objectives, the Activist
Stockholders will not acquire control or negative control of the Company without
the payment of a control premium to the stockholders of VAALCO. Id. The
Board also amended the Bylaws to, among other objectives, clarify certain
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corporate governance procedures of the Company.5 Id. Immediately following the
public announcement of these actions, VAALCO’s Chief Executive Officer, Mr.
Steve Guidry, reached out to the Activist Stockholders and offered to meet and
discuss their concerns. Id. This overture was ignored. Id.
Instead, on October 5, 2015, the Activist Stockholders sent a public letter to
the Board stating that they were prepared to take measures to make changes to the
Board’s composition. Ex. 14, Group 42 Proxy at 5. Again, the Company reached
out several times to the Activist Stockholders and offered to meet, but to no avail.
Id. On November 6, 2015, the Activist Stockholders delivered notice to the
Company (the “Notice”) of its intent to undertake a solicitation of stockholder
consents and initiated its consent solicitation by filing a preliminary consent
solicitation statement, which included a proposal to replace four Board members
without cause (the “Removal Proposal”). Id. The Company responded on
November 16, 2015, by notifying the Activist Stockholders that the Notice was
deficient because, among other reasons, the Removal Proposal was contrary to the
Company’s Charter and was thus not a proper matter for stockholder action. Id.
The Company explained that the Board is not in a position to ignore the clear
language of the Charter or unilaterally amend the Charter without stockholder
5 This amendment did not affect Article III Section 2 of the Bylaws.
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approval in the absence of any case law to the contrary. Ex. 13, VAALCO Energy,
Inc., Current Report (Form 8-K) at Ex. 99.1 (Nov. 16, 2015).
On the same date, in an attempt to avoid unnecessary and costly litigation,
the Company offered to call a special meeting for the purpose of voting on a
proposal to amend the Company’s Charter and Bylaws to provide stockholders
with the power to remove directors without cause, as well as on all of the proposals
contained in the Activist Stockholders’ consent solicitation, including the Removal
Proposal. Ex. 14. Group 42 Proxy at 5. The Activist Stockholders, however,
rejected this offer. Id.
Still, the Board decided to let the stockholders decide the matter. On
November 23, 2015, the Company filed a preliminary proxy statement for a special
meeting (the “Special Meeting”) to be held on January 5, 2016 for the purpose of
affording stockholders the opportunity to amend the Company’s Charter and to
vote on the proposals contained in the Activist Stockholders’ consent solicitation.
Id. at 7. The two sides subsequently traded settlement proposals with no success.
V. This Litigation
On December 7, 2015, The Vladmir Gusinsky Living Trust and George
Shapiro filed the two instant lawsuits against VAALCO. These cases relate solely
to the issues being pursued by the Activist Stockholders. The parties have agreed
to the consolidation of these two matters. See Dkt. 4, 5. The parties have also
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agreed to resolve the narrow legal issue of per se validity on whether Article V
Section 2 of the Charter and Article V Section 3 of the Charter can co-exist
through expedited proceedings on cross-motions for summary judgment. See
Dkt. 6, 7.
ARGUMENT
I. The Charter and Bylaws Are Valid.
A. To prevail on their claims, Plaintiffs must rebut the presumption
that the Charter and Bylaws are valid.
Charter and bylaw provisions of Delaware corporations are presumed to be
valid. Boilermakers, 73 A.3d at 940 n.15 (citing Frantz Mfg. Co. v. EAC Indus.,
501 A.2d 401, 407 (Del. 1985) and Stroud v. Grace, 606 A.2d 75, 96 (Del. 1992)
(citations omitted)). Thus, Plaintiffs took on “the stringent task of showing that the
[governing instruments] cannot operate validly in any conceivable circumstance”
by challenging the facial validity of the Charter and Bylaws. Boilermakers, 73
A.3d at 940 n.16, 949 n.54 (citing Frantz, 501 A.2d at 407). The high standard
Plaintiffs must meet to show the facial invalidity of the Charter and Bylaws reflects
the Delaware courts’ practice of following the bedrock policy that the DGCL is a
broad and enabling statute. Jones Apparel, 883 A.2d at 846–46.
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1. Delaware law promotes private ordering in the Charter and Bylaws unless contrary to Delaware statutory enactment or public policy.
Mere inconsistencies between the Charter or Bylaws and the law will not
lead to facial invalidation. Rather, the Charter and Bylaw provisions will only be
invalidated if they are contrary to Delaware law. “Delaware’s corporate statute is
widely regarded as the most flexible in the nation because it leaves the parties to
the corporate contract (managers and stockholders) with great leeway to structure
their relations . . . .” Id. at 845.6
Delaware’s “commitment to private ordering in the charter,” id. at 845, is
embodied in Sections 102(b)(1) and 109(b) of the DGCL, which establish great
flexibility for stockholders in drafting governing documents to effect their
purposes so long as they “are not contrary to the laws of this State.” 8 Del. C. §
102(b)(1); see also 8 Del. C. § 109(b) (“The bylaws may contain any provision, not
inconsistent with law or with the certificate of incorporation, relating to the
business of the corporation, the conduct of its affairs, and its rights or powers or
the rights or powers of its stockholders, directors, officers or employees.”). To be
“contrary to the laws of this State,” a provision must be “contrary to this State’s
6 See also In re Appraisal of Dell Inc., 2015 WL 4313206, at *13 (July 30, 2015) (“The significant role played by the Delaware courts stems from the fact that . . . the DGCL has not been viewed traditionally as a comprehensive code, but rather as a broadly enabling statute that leaves ample room for private ordering and interpretation.”).
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public policy, in the sense that it clashes with fundamental policy priorities that
clearly emerge from the DGCL or our common law or corporations.” Jones
Apparel, 883 A.2d at 843 (discussing Sterling v. Mayflower Hotel Corp., 93 A.2d
107, 118 (Del. 1952)); see also Sterling, 93 A.2d at 118 (“[T]he stockholders of a
Delaware corporation may by contract embody in the charter a provision departing
from the rules of the common law, provided that it does not transgress a statutory
enactment or a public policy settled by the common law or implicit in the General
Corporation Law itself.”); Jones Apparel, 883 A.2d at 846 (stating that a Delaware
court will “only invalidate a certificate provision if it ‘transgress[es]’—i.e., vitiates
or contravenes—a mandatory rule of our corporate code or common law”). Thus,
Delaware courts interpret this language narrowly, and their approach in finding
provisions to be invalid is a “cautious one.” Id. at 843, 845.
2. Delaware courts construe charters and bylaws consistent with Delaware law, rather than striking them down.
Delaware courts will construe charters and bylaws in a manner consistent
with the law rather than invalidating the charter or bylaws, thereby applying the
same rules used to interpret statutes and contracts. See Boilermakers, 73 A.3d at
948 (citing cases); Hibbert v. Hollywood Park, Inc., 457 A.2d 339, 342–43 (Del.
1983) (noting that “the rules which are used to interpret statutes, contracts, and
other written instruments are applicable when construing corporate charters and
bylaws”); State v. Hobson, 83 A.2d 846, 851 (Del. 1951) (“Even if the Delaware
17 01:18067967.1
statute, read literally, were susceptible of the construction which defendant urges,
it would be our duty to reject that construction, since we are required, as between
two possible constructions, to adopt the one which will uphold its validity.”). Put
differently, if a conceivable reading of the Charter or Bylaws exists that will permit
them to survive, each survives.
Based on these principles, Plaintiffs cannot meet their stringent burden of
rebutting the presumed validity of VAALCO’s Charter and Bylaws.
B. Plaintiffs cannot rebut the presumption that the Charter and
Bylaws are valid.
Through their motion for summary judgment, Plaintiffs attack the facial
validity of Article V Section 3 of the Charter and Article III Section 2 of the
Bylaws on the basis that they are “in conflict” with Section 141(k) of the DGCL.
Complaint at ¶¶ 1, 28. Each of these challenged provisions states, in relevant part:
“any director may be removed from office only for cause.” Ex. 1, Charter, Art. V,
§ 3; Ex. 2, Bylaws, Art. III, § 2 (emphasis added). Plaintiffs do not—because they
cannot—contend that this language, standing alone, is invalid. In fact, the DGCL
expressly permits board members to be removable only for cause. 8 Del. C.
§ 141(k)(1). Instead, Plaintiffs argue that these provisions are invalid because
Article V Section 2 of VAALCO’s Charter provides that the VAALCO board
18 01:18067967.1
“shall not be classified.”7 Thus, under Plaintiffs’ theory, the co-existence of these
two provisions—the removal only for cause and the unclassified board—makes
them invalid. In other words, Plaintiffs contend that Section 141(k) prohibits a
non-staggered board with annual elections from being removable only for cause.
They are wrong.
1. The Charter and Bylaws do not transgress a statutory enactment.
As discussed above, the Charter and Bylaw provisions will only be
invalidated if they contravene Delaware law, i.e., transgress a Delaware statute or
public policy. An unclassified board removable only for cause is not contrary to a
Delaware statute. In fact, Sections 141(k) and 102(b)(1) together authorize an
unclassified board removable only for cause.
a. Section 141(k) is not a mandatory provision of Delaware law.
Section 141(k) states in part:
(k) Any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except as follows: . . . .
7 This provision is also clearly permissible under the DGCL. See 8 Del. C. § 141(d).
19 01:18067967.1
8 Del. C. § 141(k) (emphasis added). This prefatory language is permissive, not
mandatory, in identifying two means through which a stockholder “may” remove a
director—“with or without cause.” Section 102(b)(1) states:
(b) . . . [T]he certificate of incorporation may also contain . . . (1) [a]ny provision for the management of the business and for the conduct of the affairs of the corporation, and any provision creating, defining, limiting and regulating the powers of the corporation, the directors, and the stockholders . . . .
Thus, the DGCL authorizes a charter provision limiting the manner in which a
stockholder may remove a director. Cf. Stroud v. Grace, 1990 WL 176803, at *12
(Del. Ch. Nov. 1, 1990), aff’d in part, rev’d in part, 606 A.2d 75 (Del. 1992).8
Despite Plaintiffs’ arguments to the contrary, Section 141(k) does not
expressly preclude a corporation with an unclassified board from having a for-
cause removal provision in its charter. Cf. Stroud, 1990 WL 176803, at *12
(concluding that a charter provision requiring a 75% stockholder vote to approve
issuance of stock was “not ‘contrary to’ 8 Del. C. § 161 because that section does
not prohibit charter limitations upon the authority of a Board to issue stock”);
Jones Apparel, 883 A.2d at 850 (explaining that the Stroud Court concluded that
8 Section 109(b) similarly authorizes “any provision, not inconsistent with law or with the certificate of incorporation, relating to . . . the rights or powers of its stockholders . . . .” 8 Del.C. § 109(b). In the absence of “bylaw excluder” language appearing in the general provision of Section 141(k), Article III of the Bylaws, which mirrors the language of the Charter, also is consistent with law. Jones Apparel, 883 A.2d at 848.
20 01:18067967.1
Section 102(b)(1) “authorized the charter provision because § 161 did not contain
any language stating that the powers granted in it could not be altered by a
certificate provision”).9 And, no Court has held that Section 141(k) precludes such
a provision in a Delaware corporation’s charter.
Based on the lack of any clear language to the contrary and the permissive
language in Section 141(k), Section 141(k) is not a mandatory provision.10
9 See also Jones Apparel, 883 A.2d at 847 (rejecting an argument that a certificate provision overriding an “unqualified grant of board authority in the specific statute” would “render[] that provision contrary to law”). Cf. also In re Paine Webber Ltd. P’ships, 1996 WL 535403, at *5 (Del. Ch. Sept. 17, 1996) (“This Court has enforced a stockholders’ agreement that expands the rights of the contracting stockholders to obtain a stockholder list beyond those rights conferred by § 220. Such an agreement was recognized as creating ‘additional [enforceable] rights beyond those created by § 220.’”) (citing Ostrow v. Bonney Forge Corp., 1994 WL 114807, at *10 (Del. Ch. Apr. 6, 1994)). 10 The “except as follows” language appearing in Section 141(k) does not convert this general default rule into the mandatory rule for which plaintiffs advocate. Instead, the logical interpretation is that the enumerated exceptions set a different default in the particular circumstances identified, and with respect to Section 141(k)(1), the default—that directors are removable only for cause—is made more difficult to alter by requiring that a provision ordering otherwise must be included in the certificate of incorporation rather than in the bylaws. See Jones Apparel, 883 A.2d 837, 848 (Del. Ch. 2004) (explaining that the “more obvious and rational meaning for . . . . use of the words ‘unless otherwise provided in the certificate of incorporation’ can be read as a ‘bylaw excluder,’ in the sense that those words make clear that the specific grant of authority in that particular statute is one that can be varied only by charter and therefore indisputably not one that can be altered by a § 109(b) bylaw”).
21 01:18067967.1
b. The organizational documents of numerous Delaware corporations with unclassified boards have a “for cause” removal provision.
As an external indicator that the challenged provisions are not contrary to
Delaware law, numerous corporations have provisions similar to those challenged
by plaintiffs. In fact, based on a review of charters and bylaws of Delaware
corporations, VAALCO has identified potentially 175 other companies that have
such provisions. See Compendium of Corporate Instruments filed
contemporaneously herewith. Although numerous other Delaware corporations
have provisions similar to those at issue here, no Delaware court has previously
determined that governance documents creating an unclassified board removable
only for cause are invalid. Plaintiffs would have this Court effectively rewrite the
charters and bylaws of each of these 175 other companies.
2. The Charter and Bylaws do not transgress public policy.
VAALCO’s Charter and Bylaw provisions also do not violate the public
policy of Delaware. In fact, there is no policy reason for deeming a board elected
annually and removable only for cause to be “invalid.”
a. The Charter and Bylaws are consistent with Delaware public policy.
Consistent with the recognized purpose of Section 141(k), removal “only for
cause” provisions help achieve continuity and limit disruption between annual
meetings while nevertheless promoting accountability among directors. Roven 547
22 01:18067967.1
A.2d at 606 (explaining, in the context of affirming stockholders’ rights to provide
in the charter for removal without cause of directors of classified boards, Section
141(k)’s overarching purpose was to reserve for stockholders “the ultimate
decision of how they will balance concerns for continuity and director security
against those of flexibility and accountability”). For-cause removal limitations can
also prove a valuable means to protect the rights of minority stockholders. See
Insituform of N. Am., Inc. v. Chandler, 534 A.2d 257, 266–67 (Del. Ch. 1987).
The typical “staggered” classified board prevents stockholders from
removing a classified board member without cause for a period of three years. In
contrast, VAALCO’s stockholders are prevented from removing directors without
cause only for a period of only one year under VAALCO’s organizational
documents. Under VAALCO’s Charter and Bylaws, VAALCO’s directors must
go through the election process each year to continue in their position.
Rather than only having two polar positions—a staggered board removable
only for cause and a de-staggered board removable without cause—Delaware law
provides that corporations may allow for a middle ground in their Charter and
Bylaws. Having such a middle ground—in effect, allowing stockholders to have a
de-staggered board, but one that cannot be removed between yearly elections
except for cause—is consistent with Delaware corporation law and policy.11
11 See Roven, 547 A.2d at 606.
23 01:18067967.1
Because Delaware policy allows removal of directors serving multi-year terms
only for cause, there can be no policy concerns raised by directors elected annually
removable only for cause.
Plaintiffs’ focus on the Delaware fundamental policy of allowing
stockholders to remove board members is misplaced. A Delaware court has
concluded that governance documents could not divest a stockholder of the right to
remove directors for cause, see Rohe v. Reliance, 2000 WL 1038190, at *1 (Del.
Ch. July 21, 2000), but no Delaware court has directly held that stockholders’
ability to remove directors without cause is a mandatory right of stockholders that
stockholders themselves cannot opt out of through charter or bylaw provisions.12
12 In Rohe, the plaintiffs, seeking to be restored to board seats in an action under 8 Del. C. § 225, argued that they were improperly removed “for cause” because the stockholders “by failing to provide for a removal process in any of the Instruments, meant to foreclose removals . . . .” Id. at *12 (emphasis added). The Court “refused to interpret the relevant instruments in a manner that would disenfranchise the . . . stockholders in the absence of clear evidence that such a restriction on stockholder action was intended” and denied the plaintiffs’ claim. Id. at *1. In dicta, in Nycal Corp. v. Angelicchio, 1993 WL 401874, at *3 (Del. Ch. Aug. 31, 1993), another action under 8 Del. C. § 225, the Court described Section 141(k) as “guarantee[ing] the right of a majority of shareholders to remove directors with or without cause.” But, Nycal did not address the validity of a charter or bylaw expressly providing for an unclassified board, elected annually and removable only for cause. Rather, in Nycal, the court analyzed whether a governance agreement executed by certain stockholders, officers, and directors, eliminated the ability of stockholders to remove certain directors without first permitting those directors to name their replacements. Id. The plaintiffs in Nycal did not dispute the stockholders’ ability to remove them from office under the default provisions of 141(k). Id.
24 01:18067967.1
In fact, such a public policy would make no sense as the shareholders already
retain the right to remove any director without cause annually at the Annual
Meeting. As a policy matter, there are good reasons for Delaware law to allow
charter provisions precluding stockholders from removing non-staggered boards
without cause outside the annual meeting—it is expensive and highly disruptive to
a company’s operations and management to defend against a removal action.
Protecting a small-cap company with limited resources like VAALCO against a
disruptive and expensive removal action without cause cannot be against public
policy.
b. The Charter and Bylaw provisions cannot be against public policy because Delaware law allows an equivalent situation.
An unclassified board removable only for cause cannot transgress Delaware
public policy for the additional reasons that such a board is the functional
equivalent of a board permitted under the plain language of Sections 141(d) and
141(k)(1): a non-staggered board of one class of directors that is elected annually
and removable only for cause. Section 141(d) allows a corporation to have a non-
staggered board of one class of directors that is elected annually.13 Section 141(d)
13 See also David A. Drexler et al., Delaware Corp. Law and Practice § 13.01[8] n.80 (2014) (noting that “Section 141(d) also provides expressly for a classified board consisting of but one class, which is something of a contradiction in terms.”).
25 01:18067967.1
states in pertinent part: “The directors of any corporation organized under this
chapter may . . . be divided into 1, 2 or 3 classes . . . .” 8 Del. C. § 141(d)
(emphasis added). Removal of directors of this single-class board by default is
limited to removal for cause under Section 141(k)(1), which provides: “(1) Unless
the certificate of incorporation otherwise provides, in the case of a corporation
whose board is classified as provided in subsection (d) of this section, stockholders
may effect such removal only for cause . . . .” 8 Del. C. § 141(k). Section
141(k)(1) applies to any board that is classified as provided by Section 141(d); it is
not limited to staggered boards having 2 or 3 classes. Thus, the DGCL permits a
corporation to have a single class of directors, elected annually, but removable
only for cause.14
There is no policy reason for deeming a board elected annually removable
only for cause to be “invalid” simply because it is called “unclassified,” while
deeming a functionally indistinguishable board “valid” because it is called
“classified.”
14 Cf. Lions Gate, 2006 WL 1668051, at *5 (“[A] provision establishing a classified board does not necessarily create a board in which directors serve staggered three-year terms.”).
26 01:18067967.1
3. The legislative history further supports the validity of the Charter and Bylaws.
The history of Section 141(k) further supports the proposition that the
Charter and Bylaws are consistent with Delaware law and policy. Unlike
“principles of management, election, and classification,” which “date back to the
very inception of the [DGCL], . . . the issue of removal of directors is only of
recent statutory origin.” Roven, 547 A.2d at 605. Although “Delaware courts have
always recognized the inherent power of stockholders to remove a director for
cause[,] . . . [t]he more troublesome [question] was whether a director could be
removed without cause.” Id. (emphasis added). In 1974, Section 141(k) was
added to the DGCL in recognition that “Delaware was in the minority of states
having no specific statute governing the circumstances under, and the procedure by
which, removal of a director or the entire board could be effected.” Official
Comment to the 1974 amendment to § 141(k), reprinted in 2 R. Franklin Balotti &
Jesse A. Finkelstein, Del. Law of Corps. & Bus. Orgs., IV-14 (3d ed. . Thus, under
the new Section 141(k), it was clearly permissible for stockholders to remove
directors “with or without cause.” Just as nothing in the text of Section 141(k)
provides that the flexibility offered by 102(b)(1) and 109(b) is foreclosed, nothing
in the official comment reflects that “without cause” is an unalterable right.
Accordingly, the broad freedom for private ordering that is afforded by the DGCL
need not and should not be circumscribed.
27 01:18067967.1
II. Even if the Charter and Bylaws Are Invalid, Plaintiffs Are Not Entitled to the Relief They Seek.
Should the Court accept Plaintiffs’ argument that the 2009 Amendment to
de-classify the Board is inconsistent with the Charter and Bylaws’ for-cause
removal limitation, and therefore invalid, the remedy for which Plaintiffs advocate
does not follow. Plaintiffs urge this Court to declare only the for-cause removal
provisions invalid, thus rewriting the governance instruments by severing and
striking those provisions, but leaving the rest of those instruments’ provisions as is.
In short, Plaintiffs seek not only a declaration but also reformation.
A. For the Charter and Bylaws to be rewritten, Plaintiffs must
demonstrate by clear and convincing evidence that the
stockholders intended to strike the for-cause removal limitations.
This Court is reticent to blue-pencil contractual agreements generally, and
should be cautious in altering the contractual arrangement with VAALCO’s
current stockholders that the Charter and Bylaws represent. See C&J Energy
Servs. v. City of Miami Gen. Emps.’ & Sanitation Emps.’ Ret. Trust, 107 A.3d
1049, 1054 (Del. 2014) (holding that the trial court’s reformation of a merger
agreement prior to a fully developed trial record was not an appropriate exercise of
equitable authority); In re Toys “R” Us, Inc. S’holders Litig., 877 A.2d 975, 1022-
23 (Del. Ch. 2005) (refusing to strike down or “blue-pencil” provisions in a merger
agreement before trial). This Court’s careful and restrained approach is
particularly advisable here, where potentially 175 other corporations have
28 01:18067967.1
governance provisions similar to those challenged by Plaintiffs. See Compendium
of Corporate Instruments.
Reflecting the judicial reluctance to blue-pencil agreements, the standard for
reforming a contract is generally onerous, and is an especially onerous standard for
a plaintiff to meet when seeking reformation of a corporate instrument. “When
reformation is applied to a certificate of incorporation and by strong analogy to a
corporation’s bylaws, Waggoner suggests two additional requirements: ‘(i) it must
be clear that all present and past shareholders intended [the] provisions to be
included within the certificate or bylaws, and (ii) there must not be any intervening
third party interest.’” Lions Gate, 2006 WL 1668051, at *8 (quoting Waggoner v.
Laster, 581 A.2d 1127, 1135 (Del. 1990)). There is no evidence that stockholders
or the Board intended for the “only for cause” language to not be retained in the
Charter and Bylaws following the 2009 Amendment. Plaintiffs’ request for
reformation is also subject to a higher standard of proof. “A party seeking
reformation must establish the need for the remedy by clear and convincing
evidence[.]” Lions Gate Entm’t Corp., 2006 WL 1668051, at *8 (citing Interactive
Corp. (a/k/a USA Interactive) v. Vivendi Universal, S.A., 2004 WL 1572932 (Del.
Ch. July 6, 2004)). “The standard requires proof higher than mere preponderance,
but lower than proof beyond a reasonable doubt.” Id. (citing Cerberus Int’l, Ltd.
v. Apollo Mgmt., L.P., 794 A.2d 1141, 1151 (Del. 2002)). “It requires evidence that
29 01:18067967.1
would cause the trier of fact to believe that the truth of the factual contention is
highly probable.” Id.
B. Plaintiffs cannot demonstrate by clear and convincing evidence
that the VAALCO stockholders intended to eliminate the for-
cause removal provisions.
Plaintiffs cannot point to clear and convincing evidence to support the
reformation they seek here. The for-cause removal limitations and the de-
classified board provisions are interdependent rights. The 2009 Amendment only
altered Section 2 of the Charter. The 2009 Amendment retained, in its entirety, the
immediately succeeding provision of Section 3 entitled “Removal of Directors,”
that provides in the first sentence: “any director may be removed from office only
for cause,” and defines “for cause” removal. Ex. 1, Charter, Art. V, § 3. Plaintiffs
seek to strike Section 3 and the corresponding Bylaw provision in their entirety.
Plaintiffs have not presented clear and convincing evidence, however, that at the
time of the 2009 Amendment, VAALCO’s stockholders and Board intended an
unclassified board elected annually without the for-cause removal provision. On
the contrary, the fact that the Board and stockholders voted for the 2009
Amendment demonstrates that they wanted both.
The reformation Plaintiffs seek is also undermined by the absence of
severability or survival clauses in the Charter. The Charter does not state that if
one of the provisions of the Charter is invalidated, all the other provisions survive.
30 01:18067967.1
The absence of this clause suggests an intention that the Charter not be blue-
penciled. See Orenstein v. Kahn, 119 A. 444, 445 (Del. 1922) (in deciding
whether a contract is severable, “the essential question is to ascertain the intention
of the parties”); 15 Richard A. Lord, Williston on Contracts § 45:6 (4th ed. 2012)
(“The parties’ intent to enter into a divisible contract may be expressed in the
contract directly, through a so-called ‘severability clause’. . . .”).
C. To the extent the Court rewrites the Charter and Bylaws, the
Court should do so in a manner consistent with Delaware law and
the stockholders’ intent.
Were the Court to determine that reformation is required, the Court should
do so in a manner that best accomplishes the intent of VAALCO’s stockholders by
retaining the functional equivalent of VAALCO’s current governance structure.
As discussed above, Delaware courts will construe charters and bylaws in a
manner consistent with the law rather than strike the provisions entirely, thereby
applying the same rules used to interpret statutes and contracts. See Boilermakers,
73 A.3d at 948. The language of the Charter and the Bylaws makes clear that the
stockholders and the Board intended that directors would be subject to annual
elections but who could only be removed for cause. The stockholders manifested
this intent by voting overwhelmingly in favor of the 2009 Amendment that
instituted this structure. Moreover, in the six-plus years since the 2009
Amendment was approved, no stockholder of VAALCO, including the activist
31 01:18067967.1
stockholder whose proxy contest led to the 2009 Amendment, has sought to
challenge or question the validity of this structure, which is further evidence that
the stockholders who voted in 2009 voted for a structure they intended.
This Court could reform these provisions by replacing a single word in the
last sentence of Article V, Section 2 of the Charter (“the Board of Directors shall
not be classified and directors shall be elected at each annual meeting for a one-
year term expiring at the next annual meeting”). By replacing the word
“classified” with the word “staggered” in the last sentence of Article V Section 2
of the Charter, the Court would effectively convert VAALCO from an unclassified
board elected annually removable only by cause to a single-class “classified” board
elected annually removable only by cause. This solution would honor both the
intent expressed by the adoption of the 2009 Amendment and the fact no
VAALCO stockholder has challenged the 2009 Amendments in the six-and-a-half
years since its adoption. It would also avoid disrupting the governance of
VAALCO’s Board and potentially 175 other Delaware corporations that have
similar governance provisions.
Moreover, should the Court determine that the Charter is invalid, another
logical alternative to Plaintiffs’ proposed relief would be to hold that the 2009
Amendment itself is invalid and of no force and effect, thereby restoring
VAALCO’s Charter to its pre-2009 Amendment state—providing for a staggered
32 01:18067967.1
board removable only for cause. Cf. Blades v. Wisehart, 2010 WL 4638603, at *12
(Del. Ch. Nov. 17, 2010) (finding stock split void and restoring corporation to
capital structure in place prior to split).
D. Plaintiffs’ request for a declaratory judgment is premature and
unripe.
Plaintiffs’ request for a declaratory judgment may also be unnecessary, and
thus premature and unripe. The Activist Stockholders’ consent solicitation has not
come to a conclusion, and it is possible that the VAALCO Board will never be
presented with the Removal Proposal. The Company and the Activists may reach
a settlement. Lastly, mindful that the best indicator of stockholder intent is a vote
of the stockholders themselves, VAALCO’s Board has convened a special meeting
for January 5, 2016, the same date as the end-date of the Activist Stockholders’
consent solicitation, to allow VAALCO’s stockholders to reform the Charter using
the means the Charter itself provides.15 This vote may either affirm the
stockholders’ desire to retain only for-cause removal or demonstrate the contrary,
and thereby moot this issue. Thus, even if the Court were to determine that the
Charter is invalid, it may wish to wait for the results of that vote before deciding
the issue of how the Charter should be judicially reformed.
15 See Ex. 1, Charter, Art. V, § 5 (requiring 66 2/3 % of the voting power to accomplish Charter amendments).
33 01:18067967.1
The occurrence of any one of these potential events will eliminate a live
dispute about the Charter and Bylaws and the need for this Court to act.
A dispute is not ripe where the claim is based on “‘uncertain and contingent
events’” that may not occur, or where “‘future events may obviate the need’ for
judicial intervention.” Id. at 1217–18 (citations omitted); see also XI Specialty Ins.
Co. v. WMI Liquidating Trust, 93 A.3d 1208, 1217–18 (Del. 2014) (citing Stroud
v. Milliken Enters., Inc., 552 A.2d 476, 480 (Del. 1989)). This principle is
sometimes expressed in terms of the adage that Delaware courts do not render
advisory or hypothetical opinions. Stroud v. Milliken Enters., Inc., 552 A.2d 476,
480 (Del. 1989). In Multi–Fineline Electronix, Inc. v. WBL Corp. Ltd., 2007 WL
431050 (Del. Ch. Jan.10, 2007), the independent directors of a Delaware
corporation sought declaratory relief against the company’s controlling stockholder
to enforce what the corporation claimed was the controlling stockholder’s fiduciary
duty to vote against a proposed transaction. The Court noted that an action is not
ripe for adjudication when it is “‘contingent . . . [and requires] the occurrence of
some future event before the action’s factual predicate is complete.’” Id. at *8
(citation omitted). The Court found that the plaintiff’s request for declaratory
relief lacked the element of concreteness because the plaintiff’s factual allegations
were conclusory in supposing that the controlling stockholder would, in fact, vote
in favor of the proposed transaction. Id. The Court held that the claim for
34 01:18067967.1
declaratory relief was not ripe because “it is literally impossible to predict whether
or not [the controlling stockholder] will vote for or against the [proposed
transaction].” Id. Here, there is no reason to predict what the stockholders may or
may not do with their vote and superimpose a perhaps unnecessary judicial
resolution.
35 01:18067967.1
CONCLUSION
For all the foregoing reasons, Defendants respectfully request that the Court
grant their Motion for Summary Judgment , deny Plaintiffs’ Motion for Summary
Judgment, and enter a declaratory judgment in favor of Defendants that VAALCO
Energy Inc.’s Charter and Bylaws are valid and enforceable.
OF COUNSEL: Michael C. Holmes Andrew E. Jackson Cortney C. Thomas VINSON & ELKINS LLP Trammel Crow Center 2001 Ross Avenue, Suite 3700 Dallas, Texas 75201-2975 Dated: December 14, 2015
YOUNG CONAWAY STARGATT & TAYLOR, LLP /s/ Rolin P. Bissell Rolin P. Bissell (No. 4478) Kathaleen St. J. McCormick (No. 4579) Elisabeth S. Bradley (No. 5459) Benjamin M. Potts (No. 6007) Rodney Square 1000 North King Street Wilmington, Delaware 19801 (302) 571-6600 Counsel for Defendants Steven P. Guidry, Frederick W. Brazleton, O. Donaldson Chapoton, James B. Jennings, John J. Myers, Jr., Andrew L. Fawthrop, Steven J. Pully, and VAALCO Energy, Inc.