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Dec. 8 — An investor has filed a class action alleging that certain VAALCO Energy Inc. bylaw and charter provisions unlawfully deprive shareholders of the right to remove directors without cause.
In a Dec. 7 complaint filed in the Delaware Chancery Court, plaintiff-investor George Shapiro said the provisions—which state that directors can be removed only for cause—violate Delaware law. The investor alleged, among other claims, that the company's board breached its fiduciary duties by invoking the provision in response to shareholder consent solicitations.
“Like the right to elect directors, Delaware law considers the right to remove directors a fundamental element of stockholder authority,” the complaint stated. “The Charter Removal Provision unlawfully restricts the specific and fundamental stockholder authority granted by the [Delaware General Corporation Law], and is therefore void and unenforceable.”
A VAALCO representative didn't immediately respond to a request for comment.
The dispute stems from a battle for control of VAALCO's board.
Last month, a block of investors led by Group 42 Inc. gave notice of its intent to solicit the consent of other stockholders to remove four VAALCO directors without cause. The group collectively owns 11.1 percent of the company's common stock.
In response, VAALCO Nov. 16 informed the investor group that its notice was deficient because under the company's certificate of incorporation, duly elected board members can only be removed from office for cause.
The company also proposed convening a special meeting to let stockholders vote on the proposal contained within the consent solicitation, including the removal proposal.
In a Nov. 23 press release announcing that it had filed preliminary proxy materials with the Securities and Exchange Commission to hold the special meeting in January, the company said such charter provisions are common. Specifically, the company said that 1,301 Delaware corporations, including 248 companies that don't have a staggered board, have the charter provisions.
“No Delaware case has ever held invalid a charter provision requiring cause to remove directors from office,” VAALCO's release stated. “Therefore, as fiduciaries of the Company, the Board cannot ignore, waive or amend the clear language in its current Charter without stockholder approval.”
Shapiro's lawsuit seeks, among other relief, a declaratory judgment rendering the provisions at issue invalid. The plaintiff also alleged that the board misled stockholders about the validity of the provisions.
The investor claimed that under DGCL Section 141(k), a majority of stockholders can vote to remove directors without cause unless the corporation has a classified board or cumulative voting.
“Delaware recognizes that stockholders’ right to remove directors without cause is inalienable except in the two specific scenarios specified, neither of which applies to VAALCO,” the complaint stated. “Nonetheless, instead of invalidating the unlawful Charter Removal Provision (or at least electing to disregard it), the Board invoked it in a bad faith act of entrenchment.”
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