In a case of first impression, the Delaware Court of Chancery considered the validity of a shareholder proposed bylaw amendment that would cause the company’s annual meetings to be held in January of each year as opposed to August when the meetings have historically been held. The shareholder proposed the amendment in the midst of a takeover battle with the company. At the company’s 2010 annual meeting, the shareholder had successfully obtained all three board seats that were up for election on the company’s classified nine-member board. By moving the next annual meeting to January, the shareholder could attempt to add additional directors to the company’s board sooner than normal.

The company argued that the bylaw amendment was invalid because:

  1. the amendment constituted a change to the company’s bylaw provisions requiring a staggered board and therefore required a 67% vote to pass, as opposed to the majority vote it received
  2. the amendment was inconsistent with the provisions of the company’s certificate of incorporation providing for a staggered board
  3. the amendment violated the Delaware law provisions authorizing corporations to adopt staggered boards

The court found that the company’s bylaws and certificate of incorporation provided only that directors were to stand for reelection at annual meetings held at some point during the third year following the year of their election and therefore the directors that were elected in 2008 could have their terms expire at the January 2011 annual meeting. In addition, the bylaws and certificate of incorporation did not clearly provide that the company’s directors must serve a full three-year term. The Court also found that the bylaw amendment was valid under Delaware law.

Airgas, Inc. v. Air Products and Chemicals, Inc., C.A. No. 5817-CC (Del. Ch. Oct. 8, 2010)

The editors would like to thank the following contributor for her assistance with this issue of Securities & Financial News to Note:

Alexandra P. Lumpkin