The Delaware Court of Chancery’s recent oral ruling in In re Vaalco Energy Stockholder Litigation, C.A. No. 11775-VCL, resulted in an order granting partial summary judgment invalidating certain provisions in Vaalco Energy Inc.’s certificate of incorporation and bylaws that prevented a director’s removal without cause because Vaalco’s organizational documents lacked a classified board or cumulative voting provision. The ruling has left more than 175 public Delaware corporations and countless private Delaware corporations with invalid provisions in their organizational documents.

In 2009, Vaalco’s certificate of incorporation was amended to declassify its board of directors without modifying the provisions in its certificate of incorporation and bylaws that permitted the removal of directors only for cause. After the price of Vaalco’s stock declined significantly during a one-year period, a group of stockholders that owned 11.1 percent of Vaalco’s capital stock commenced a consent solicitation to remove without cause and replace four members of Vaalco’s board of directors. Vaalco informed the group of stockholders that, pursuant to the plain language of the certificate of incorporation and bylaws, Vaalco’s directors could not be removed without cause. Thereafter, two stockholders filed lawsuits against Vaalco to determine the validity of the only-for-cause director removal provisions in Vaalco’s organizational documents.

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