Airgas, Inc. v. Air Products & Chemicals, Inc.

Supreme Court of Delaware · 2010 · Corporations

Corporationsclassified boardscharter and bylaw interpretationstockholder voting rightsDGCL § 141(d)DGCL § 109(b)DGCL § 211staggered board

Facts

Air Products launched a tender offer for Airgas and, as part of a proxy contest, proposed a bylaw requiring Airgas's 2011 annual meeting to be held in January 2011, only four months after the September 15, 2010 annual meeting. Airgas had a nine-member staggered board and had historically held annual meetings roughly twelve months apart in late summer or early fall. Airgas's charter stated that directors elected at each annual meeting would serve until 'the annual meeting of stockholders held in the third year following the year of their election,' and the charter required a 67% vote to adopt any bylaw inconsistent with the staggered-board provision. Only 45.8% of the shares entitled to vote supported the January Bylaw, which would shorten incumbent directors' terms by eight months.

Issue

Whether a stockholder-adopted bylaw requiring Airgas to hold its next annual meeting four months after the prior one was valid under Delaware law and Airgas's charter. More specifically, did the charter language providing that directors serve until the annual meeting held in the third year following their election permit such a compressed meeting schedule, or did it require approximately three-year terms?

Rule

When charter language governing a staggered board is ambiguous, Delaware courts may consider extrinsic evidence to determine the parties' intended meaning. Under DGCL § 141(d), charter language providing that directors serve until the annual meeting held in the third year following their election is properly understood to confer three-year terms; therefore, a bylaw that materially shortens those terms is inconsistent with the charter and invalid, and if it effectively ends directors' service early, it may also amount to a de facto removal requiring any charter-specified supermajority vote.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lakefront Packaging, a Delaware corporation headquartered in Chicago, has a three-class board. Its charter states that directors elected at each annual meeting serve until "the annual meeting of stockholders held in the third year following the year of their election." After a proxy fight, stockholders adopt a bylaw requiring the next annual meeting to occur five months after the last one, which would cut the current class's service short by about seven months.

If the corporation challenges the bylaw, how should a Delaware court most likely rule?

Explanation. The majority held that the annual-meeting formulation is ambiguous, but overwhelming extrinsic evidence shows it is commonly understood to mean three-year staggered terms. A bylaw that materially truncates those terms is inconsistent with the charter and invalid. The court rejected the view that merely landing in the third calendar year is enough, and it did not require the charter to use the exact phrase "three-year term."