October 11, 2010
In a case of first impression, the Delaware Court of Chancery considered the validity of a stockholder-proposed bylaw amendment causing a corporation’s annual meeting to be held each year in the month of January, as opposed to the month of August, when the corporation’s annual meetings had historically been held. The bylaw was adopted in the context of defendant Air Products and Chemicals, Inc.’s takeover battle with Airgas, Inc.; it would result in Airgas’s 2011 annual meeting being held in January 2011, barely four months after its 2010 annual meeting. Since Airgas currently has a classified board, the bylaw would enable Air Products, sooner than normal, to seek to add directors to Airgas’s board (in addition to the three it had elected at the 2010 annual meeting).
The parties also disputed whether the bylaw was subject to the ordinary voting standard (majority of a quorum) or the supermajority provision applicable to bylaws “inconsistent” with the classified board provision, which provided that directors in each class would serve for a term expiring “at the annual meeting held in the third year following the year of their election.” Air Products argued that one class of Airgas directors had served their full terms because the 2011 annual meeting would be held in the “third year” after 2008.
Interpreting ambiguities in the words “annual” and “year” in favor of stockholders’ electoral rights, the Court held that the bylaw amendment was valid under Delaware statutory and case law. That is, the word “annual” (for example, in the phrase “annual meeting”) means only “occurring once each year,” and not “separated by approximately 365 days.” Delaware law prescribes no minimum time that must elapse between annual meetings of a Delaware corporation—only a maximum time. Similarly, the word “year,” which was undefined in Airgas’s charter or bylaws, did not refer specifically to a fiscal year, and could include a calendar year. Therefore, the directors’ full terms needed only to run to the 2011 annual meeting, which could be held in January 2011. The Court noted that its holding could have been different if Airgas had specified a term of office for its directors, had defined the words “annual” or “year” or had required minimum durational intervals between meetings. The Court also held that the bylaw amendment was not inconsistent with Airgas’s classified board provision and was therefore validly adopted under the ordinary “majority of a quorum” voting standard.
Airgas has issued a statement that it intends to appeal the Court’s decision.