01:18067967.1

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE VAALCO ENERGY, INC. CONSOLIDATED STOCKHOLDER LITIGATION

) ) ) ) )

C.A. No. 11775-VCL

OPENING BRIEF IN OPPOSITION TO PLAINTIFFS’

MOTION FOR SUMMARY JUDGMENT AND IN SUPPORT OF

DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT

OF COUNSEL: Michael C. Holmes Andrew E. Jackson Cortney C. Thomas VINSON & ELKINS LLP Trammel Crow Center 2001 Ross Avenue, Suite 3700 Dallas, Texas 75201-2975 Dated: December 14, 2015

YOUNG CONAWAY STARGATT & TAYLOR, LLP Rolin P. Bissell (No. 4478) Kathaleen St. J. McCormick (No. 4579) Elisabeth S. Bradley (No. 5459) Benjamin M. Potts (No. 6007) Rodney Square 1000 North King Street Wilmington, Delaware 19801 (302) 571-6600 Counsel for Defendants Steven P. Guidry, Frederick W. Brazleton, O. Donaldson Chapoton, James B. Jennings, John J. Myers, Jr., Andrew L. Fawthrop, Steven J. Pully, and VAALCO Energy, Inc.

EFiled: Dec 14 2015 02:00PM EST Transaction ID 58293650

Case No. 11775-VCL

ii 01:18067967.1

TABLE OF CONTENTS

PRELIMINARY STATEMENT ............................................................................... 1

STATEMENT OF FACTS ........................................................................................ 6

I. VAALCO ......................................................................................................... 6

II. VAALCO’s 2009 Charter Amendment ........................................................... 6

III. VAALCO’s Board ........................................................................................... 9

IV. Events Leading to This Litigation .................................................................10

V. This Litigation ...............................................................................................13

ARGUMENT ...........................................................................................................14

I. The Charter and Bylaws Are Valid. ..............................................................14

A. To prevail on their claims, Plaintiffs must rebut the presumption that the Charter and Bylaws are valid. ...........................14

1. Delaware law promotes private ordering in the Charter and Bylaws unless contrary to Delaware statutory enactment or public policy. .......................................................15

2. Delaware courts construe charters and bylaws consistent with Delaware law, rather than striking them down. ................16

B. Plaintiffs cannot rebut the presumption that the Charter and Bylaws are valid. .................................................................................17

1. The Charter and Bylaws do not transgress a statutory enactment. .................................................................................18

2. The Charter and Bylaws do not transgress public policy. ........21

3. The legislative history further supports the validity of the Charter and Bylaws. ..................................................................26

II. Even if the Charter and Bylaws Are Invalid, Plaintiffs Are Not Entitled to the Relief They Seek. ...................................................................27

iii 01:18067967.1

A. For the Charter and Bylaws to be rewritten, Plaintiffs must demonstrate by clear and convincing evidence that the stockholders intended to strike the for-cause removal limitations. ...........................................................................................27

B. Plaintiffs cannot demonstrate by clear and convincing evidence that the VAALCO stockholders intended to eliminate the for-cause removal provisions. ...................................................................29

C. To the extent the Court rewrites the Charter and Bylaws, the Court should do so in a manner consistent with Delaware law and the stockholders’ intent. ................................................................30

D. Plaintiffs’ request for a declaratory judgment is premature and unripe. ..................................................................................................32

CONCLUSION ........................................................................................................35

iv 01:18067967.1

TABLE OF AUTHORITIES

Page(s)

CASES

Blades v. Wisehart, 2010 WL 4638603 (Del. Ch. Nov. 17, 2010) ............................................... 32, 33

Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013) .............................................................. 2, 14, 16, 30

C&J Energy Servs. v. City of Miami Gen. Emps.’ & Sanitation Emps.’ Ret. Trust, 107 A.3d 1049 (Del. 2014) ....................................................................... 27

In re Appraisal of Dell Inc., 2015 WL 4313206 (July 30, 2015) ..................................................................... 15

Hibbert v. Hollywood Park, Inc., 457 A.2d 339 (Del. 1983) ................................................................................... 16

Insituform of N. Am., Inc. v. Chandler, 534 A.2d 257 (Del. Ch. 1987) ............................................................................ 22

Jones Apparel Grp., Inc. v. Maxwell Shoe Co., Inc., 883 A.2d 837 (Del. Ch. 2004) ................................................2, 14, 15, 16, 19, 20

Lions Gate Entm’t Corp. v. Image Entm’t, Inc., 2006 WL 1668051 (Del. Ch. June 5, 2006) ........................................ 4, 25, 28, 29

Multi–Fineline Electronix, Inc. v. WBL Corp. Ltd., 2007 WL 431050 (Del. Ch. Jan. 10, 2007) ................................................... 33, 34

Nycal Corp. v. Angelicchio, 1993 WL 401874 (Del. Ch. Aug. 31, 1993) ....................................................... 23

Orenstein v. Kahn, 119 A. 444 (Del. 1922) ....................................................................................... 30

In re Paine Webber Ltd. P’ships, 1996 WL 535403 (Del. Ch. Sept. 17, 1996) ....................................................... 20

Rohe v. Reliance, 2000 WL 1038190 (Del. Ch. July 21, 2000) ...................................................... 23

v 01:18067967.1

Roven v. Cotter, 547 A.2d 603 (Del. Ch. 1988) ............................................................ 3, 21, 22, 26

State v. Hobson, 83 A.2d 846 (Del. 1951) ..................................................................................... 16

Sterling v. Mayflower Hotel Corp., 93 A.2d 107 (Del. 1952) ..................................................................................... 16

Stroud v. Grace, 1990 WL 176803 (Del. Ch. Nov. 1, 1990), aff’d in part, rev’d in part, 606 A.2d 75 (Del. 1992) ..................................................................................... 19

Stroud v. Grace, 606 A.2d 75 (Del. 1992) ..................................................................................... 19

Stroud v. Milliken Enters., Inc., 552 A.2d 476 (Del. 1989) ................................................................................... 33

In re Toys “R” Us, Inc. S’holders Litig., 877 A.2d 975 (Del. Ch. 2005) ............................................................................ 27

Waggoner v. Laster, 581 A.2d 1127 (Del. 1990) ................................................................................. 28

XI Specialty Ins. Co. v. WMI Liquidating Trust, 93 A.3d 1208 (Del. 2014) ................................................................................... 33

STATUTES

8 Del. C. § 102(b)(1) ................................................................................ 2, 15, 19, 20

8 Del. C. § 109(b) ..................................................................................... 2, 15, 19, 20

8 Del. C. § 141(d) ......................................................................................... 18, 24, 25

8 Del. C. § 141(k)(1) .................................................................................... 17, 20, 25

OTHER AUTHORITIES

David A. Drexler et al., Delaware Corp. Law and Practice § 13.01[8] n.80 (2014) .................................................................................................................. 24

15 Richard A. Lord, Williston on Contracts § 45:6 (4th ed. 2012) ......................... 30

vi 01:18067967.1

Official Comment to the 1974 amendment to § 141(k), reprinted in 2 R. Franklin Balotti & Jesse A. Finkelstein, Del. Law of Corps. & Bus. Orgs., IV-14 (3d ed. 2014) .................................................................................. 26

01:18067967.1

Defendants VAALCO Energy, Inc. (“VAALCO” or the “Company”) and its

current board members, Steven P. Guidry, Frederick W. Brazleton, O. Donaldson

Chapoton, LLB, James B. Jennings, John J. Myers, Jr., Andrew L. Fawthrop,

Steven J. Pully (with VAALCO, “Defendants”), respectfully submit this Opening

Brief in Opposition to the Motion for Summary Judgment of Plaintiffs Vladimir

Gusinsky Living Trust and George Shapiro (“Plaintiffs”) and in support of

Defendants’ Cross-Motion for Summary Judgment.

PRELIMINARY STATEMENT

In 2009, VAALCO amended its corporate charter (the “Charter”) to

eliminate its staggered board and establish a board elected annually. This

amendment (the “2009 Amendment”) altered Article V Section 2 of VAALCO’s

Charter, which had previously established a three-class, staggered board. The

2009 Amendment did not touch Article V Section 3 of VAALCO’s Charter, or the

corresponding provision in Article III Section 2 of VAALCO’s bylaws (the

“Bylaws”), which limit the removal of directors to “only for cause.” Through their

Motion for Summary Judgment, Plaintiffs seek to invalidate the removal for-cause

provisions of VAALCO’s Charter and Bylaws, contending that such provisions are

“in conflict” with Section 141(k) of the Delaware General Corporation Law (the

“DGCL”). In seeking invalidation, Plaintiffs raise an issue of first impression for

this Court: Does Section 141(k) affirmatively prohibit a Delaware corporation

2 01:18067967.1

from maintaining a previously adopted charter provision limiting director removal

to cause if that corporation ceases to have a staggered, classified board?

Plaintiffs assumed an onerous burden in seeking to invalidate VAALCO’s

Charter and Bylaws. Corporate stakeholders have great flexibility structuring

corporate governance provisions so long as they “are not contrary to the laws of

this State.” 8 Del. C. § 102(b)(1); see also 8 Del. C. § 109(b). Reflecting

Delaware’s “commitment to private ordering in the charter,” Jones Apparel Grp.,

Inc. v. Maxwell Shoe Co., Inc., 883 A.2d 837, 845 (Del. Ch. 2004), Delaware law

presumes corporate instruments to be valid, Boilermakers Local 154 Ret. Fund v.

Chevron Corp., 73 A.3d 934, 940 n.15 (Del. Ch. 2013). To rebut this presumption,

Plaintiffs must demonstrate that the challenged provisions are “contrary to the laws

of this State,” in that they “contravene . . . a mandatory rule of our corporate code

or common law.” Jones Apparel, 883 A.2d at 846.

Plaintiffs cannot meet the burden of demonstrating invalidity here. As an

initial matter, the for-cause removal provisions do not contravene any mandatory

law. Section 141(k) establishes a default rule only, and does not preclude an

unclassified board to be removable only for cause. In addition to VAALCO, it

appears that potentially 175 other public companies have taken advantage of the

flexibility inherent in Section 141(k) by establishing unclassified boards removable

only for cause.

3 01:18067967.1

Likewise, the removal for-cause provisions do not transgress, but rather are

consistent with, public policy. Because Delaware law permits removal only for

cause in the case of multi-year director terms, it follows that permitting removal

only for cause in the case of annual director terms does not transgress public

policy. Moreover, Delaware law allows the functional equivalent of VAALCO’s

board under Section 141(d) and 141(k)(1), which together expressly permit a non-

staggered board of one class of directors that is elected annually and removable

only for cause. There is no policy reason for permitting the directors of a single-

class board under 141(d) to be removable only for cause, but for not permitting the

directors of an unclassified board to be removable only for cause. Limiting

director removal only for cause helps “balance concerns for continuity and director

security against those of flexibility and accountability,” and is consistent with

Section 141(k)’s overarching purpose. Roven v. Cotter, 547 A.2d 603, 606 (Del.

Ch. 1988). This is as true for a board that is elected annually as it is for a staggered

board.

The legislative history of the DGCL further supports the validity of the

Charter and Bylaws. While Delaware common law and the DGCL have always

recognized an unfettered right of stockholders to remove directors for cause, the

right to remove directors without cause is a more recent development, and one

based on the goal of increasing private ordering.

4 01:18067967.1

Even assuming (arguendo) that the Charter and Bylaws are invalid,

Plaintiffs are not entitled to the relief they seek. Effectively, Plaintiffs seek

reformation of VAALCO’s Charter and Bylaws by asking this Court to allow the

2009 Amendment to stand but to strike the for-cause removal provisions. To

obtain such reformation, Plaintiffs must demonstrate that all present and past

VAALCO stockholders intended that the for-cause removal provisions not be

included in the Charter or Bylaws. The requested reformation is also subject to a

higher standard of proof, as Plaintiffs “must establish the need for the remedy by

clear and convincing evidence . . . .” Lions Gate Entm’t Corp. v. Image Entm’t,

Inc., 2006 WL 1668051, at *8 (Del. Ch. June 5, 2006). Plaintiffs cannot

demonstrate this need. In 2009, the overwhelming majority (93% of the votes cast)

of VAALCO’s stockholders manifested an intent to create directors who would be

subject to election annually but who could only be removed for cause. And, in the

six-plus years since the 2009 Amendment was approved, no stockholder has

sought to challenge or question the validity of this structure. This all shows that

the stockholders who voted in 2009 voted for a structure they intended.

Thus, if the Court were to determine that reformation is required, rather than

strike and re-write two stand-alone removal provisions in VAALCO’s Charter and

Bylaws, the Court should reform the governing documents in a manner that best

accomplishes the intent of the VAALCO stockholders by retaining the functional

5 01:18067967.1

equivalent of VAALCO’s current governance structure. The Court could

accomplish this end by replacing the word “classified” in the last sentence of

Article V Section 2 of the Charter (“the Board of Directors shall not be classified

and directors shall be elected at each annual meeting for a one-year term expiring

at the next annual meeting”) with the word “staggered,” effectively converting

VAALCO from an unclassified board elected annually removable only by cause to

a single-class “classified” board elected annually removable only by cause.

Another logical alternative to Plaintiffs’ proposed relief would be to hold that the

2009 Amendment itself is invalid and of no force and effect, thereby restoring

VAALCO’s Charter to its pre-2009 Amendment status.

Ultimately, the best indicator of stockholders’ present intent is a vote of the

stockholders themselves. The VAALCO Board has called a special meeting of

stockholders for January 5, 2016, so that VAALCO’s stockholders can, in effect,

reform the Charter using the means the Charter itself provides. This stockholder

vote may either affirm the stockholders’ desire to allow only for-cause removal or

moot this dispute by expressing a contrary intent. Thus, even if the Court were to

determine that the Charter and Bylaws are invalid, it may wish to wait for the

results of that vote before deciding the issue of how the Charter should be

judicially reformed. Prior to the stockholders’ vote, Plaintiffs’ request for a

declaratory judgment may also be unnecessary, and thus premature and unripe.

6 01:18067967.1

For all of these reasons, as set forth more fully below, Defendants

respectfully request that the Court deny Plaintiffs’ Motion for Summary Judgment

in its entirety, and grant Defendants’ Motion for Summary Judgment seeking a

declaration that VAALCO’s Charter and Bylaws are valid.

STATEMENT OF FACTS1

I. VAALCO

VAALCO is a Houston, Texas-based independent energy company

principally engaged in the acquisition, exploration, development and production of

crude oil and natural gas. Ex. 8, VAALCO Energy, Inc., Annual Report (Form 10-

K) at 6 (March 16, 2015). VAALCO’s business activities are primarily focused on

West Africa. Id.

II. VAALCO’s 2009 Charter Amendment

The parties’ dispute in this case stems from the 2009 Amendment to

VAALCO’s Charter. See Ex. 1, VAALCO Energy, Inc., Quarterly Report (Form

10-Q) (Nov. 10, 2014), Exhibit 3.1 (Amendment to Restated Certificate of

Incorporation (June 3, 2009)). This amendment arose, at least in part, from a

proxy contest with Nanes Balkany Partners, which sought the declassification of

VAALCO’s staggered Board of Directors. Ex. 3, Nanes Delorme Partners I LP,

1 Citations are to the Exhibits (cited as “Ex.”) attached to the Transmittal Affidavit of Benjamin M. Potts filed with this brief and to docketed pleadings, cited by docket (“Dkt.”) number.

7 01:18067967.1

General Statement of Acquisition of Beneficial Ownership (Schedule 13D) at Ex.

99.2 (March 12, 2008). On May 23, 2008, as part of an agreement to settle the

proxy contest, VAALCO’s Board of Directors (the “Board”) agreed to recommend

and submit a resolution for approval by its stockholders at the 2009 Annual

Meeting of Stockholders to declassify the Board. Ex. 4, VAALCO Energy, Inc.,

Additional Proxy Soliciting Materials (Form DEFA14A) (May 27, 2008).

The Board submitted the matter to a vote by VAALCO’s stockholders at the

Company’s Annual Meeting held on June 3, 2009. Ex. 5, VAALCO Energy, Inc.,

Definitive Proxy Statement (Schedule 14A) at 24 & Ex. A (Apr. 7, 2009). The

proposed amendment to the Charter stated that “Section 2 of Article Five of the

Corporation’s Restated Certificate of Incorporation” would be amended if the

proposed amendment was approved by the stockholders. Id. The proposed

amendment did not suggest changes to any other section of the Charter or any

section of the Bylaws. Id. The amendment expressly altered only Section 2 of the

Charter—Section 3, which provides that directors “may be removed from office

only for cause,” was not altered in any respect. See Ex. 1, VAALCO Energy, Inc.,

Quarterly Report (Form 10-Q) (Nov. 10, 2014), Exhibit 3.1 (Restated Certificate of

Incorporation (Sept. 15, 1997) and Amendment to Restated Certificate of

Incorporation (June 3, 2009)) (cited as “Charter”)), Art. V, § 3.

8 01:18067967.1

The amendment passed by approximately 93% of the votes cast. See Ex. 6,

VAALCO Energy, Inc., Quarterly Report (Form 10-Q) at 26 (Aug. 10, 2009). The

same day, the Board approved the amended Charter. See Ex. 1 (Amendment to

Restated Certificate of Incorporation (June 3, 2009)).

As amended, Article V of the Charter provides:

Section 2. Number, Election and Terms of Directors. . . . Until the date of the 2010 annual meeting of stockholders, the directors . . . shall be classified, with respect to the time for which they severally hold office, into three classes, each as nearly equal in number as possible. From and after the date of the 2010 annual meeting of stockholders, the Board of Directors shall not be classified and directors shall be elected at each annual meeting for a one-year term expiring at the next annual meeting.

Section 3. Removal of Directors. Subject to the rights of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, any director may be removed from office only for cause.

Charter, Art. V.

Article III of the Bylaws mirrors the language of the Charter:

Section 2. . . . Subject to the rights of any class or series of stock having preference over the common stock as to dividends or upon liquidation to elect additional directors under specified circumstances, any director may be removed from office only for cause.

9 01:18067967.1

Ex. 2, VAALCO Energy, Inc., Amended and Restated Bylaws at Art. III (Aug. 19,

2013), included in Exhibit 3.1 to Current Report (Form 8-K) (Sept. 23, 2013) (cited

hereinafter as “Bylaws”).

VAALCO’s resulting structure—a de-staggered board and “for cause”

removal—is also employed by many other Delaware corporations. It appears as if

at least 175 other Delaware corporations have de-staggered boards and restrict

director removal to “cause” in their organizational documents. See Compendium

of Corporate Instruments filed contemporaneously herewith. 2

III. VAALCO’s Board

Beginning with the 2010 Annual Meeting of the Company, the Board began

serving one-year terms that expired at the next annual meeting. Ex. 1, Charter, Art.

V, § 2. The current board consists of seven members: Steven Guidry, Frederick

Brazleton, O. Donaldson Chapoton, Andrew Fawthrop, James Jennings, John

Myers, and Steven Pully.3 Each of these board members, with the exception of Mr.

Pully, was re-elected to the Board at the June 3, 2015 Annual Meeting. See Ex. 9,

VAALCO Energy, Inc., Current Report (Form 8-K) (June 9, 2015). Mr. Pully was 2 The Compendium may not complete as it was based on preliminary and expedited review of publicly available charters and bylaws of Delaware corporations. 3 Two of these directors—Messrs. Brazleton and Chapoton—served on the Board when the 2009 Amendment was recommended and voted upon. Ex. 5, VAALCO Energy, Inc., Definitive Proxy Statement (Schedule 14A) at 5 (Apr. 7, 2009); Ex. 7, VAALCO Energy, Inc., Annual Report (Form 10-K) at 44 (Mar. 16, 2010).

10 01:18067967.1

appointed by the current Board to serve as a member until the next annual meeting

of stockholders in 2016 in accordance with the Bylaws.4 Ex. 10, VAALCO

Energy, Inc., Current Report (Form 8-K) (Aug. 5, 2015). Each of these seven

board seats will be up for election at VAALCO’s 2016 annual meeting. Charter,

Art. V, § 2.

IV. Events Leading to This Litigation

More than six years passed since the 2009 Amendment before anyone

challenged the validity of the removal “for cause” provision included in

VAALCO’s Charter and Bylaws. The reason this lawsuit is being pursued now

stems from an ongoing attempt of activist stockholders to obtain control of the

Company. Understanding that attempt is necessary to understand the context in

which this lawsuit has been brought.

In May 2015, Group 42, Inc. (“Group 42”) made its initial investment in the

Company, and in June 2015, Bradley L. Radoff and his related entities made their

initial investment in the Company (collectively, the “Activist Stockholders”). Ex.

14, Group 42, Inc. Definitive Proxy Statement (Form DEFC14A) at 4 (Dec. 4,

2015) (hereinafter “Group 42 Proxy”); see also Ex. 15, List of Olshan 2015

4 The Bylaws provide that when any Board vacancy arises prior to an annual meeting, the current Board members may fill the seat by a majority vote. Directors who fill such vacancies serve a term that expires at the next annual meeting. Ex. 2, Bylaws, Art. III, § 2.

11 01:18067967.1

Activist Campaigns. Group 42 is a San Antonio, Texas-based holding company

that “provides proprietary wellbore cleanup and specialty stimulation chemicals” to

the energy industry. Ex. 16, Group 42 Homepage, http://www.group-42.com/ (last

visited Dec. 11, 2015). Bradley Radoff is a private, “activist” investor based in

Houston, Texas. Ex. 12, Group 42 and Bradley Radoff Comment on VAALCO

Third Quarter Earnings (Nov. 11, 2015); Ex. 11, Group 42, Radoff to solicit

consents to replace Vaalco board members (Nov. 9, 2015). Shortly after making

an initial investment in the Company, the Activist Stockholders began making

demands for, among other things, board representation and an issuer tender offer to

repurchase stock at a premium. Ex. 14. Group 42 Proxy at 4. The Company had

several meetings with the Activist Stockholders throughout June and July 2015,

offering them one board seat but rejecting their other demands. Id.

On September 25, 2015, without giving the Company any advance notice,

the Activist Stockholders filed their initial Schedule 13D, disclosing the formation

of a group and a combined ownership of 11.1%. Id. at 5. On September 26, 2015,

the Board adopted a stockholder rights plan, which is triggered at 10% beneficial

ownership and is designed to ensure that, among other objectives, the Activist

Stockholders will not acquire control or negative control of the Company without

the payment of a control premium to the stockholders of VAALCO. Id. The

Board also amended the Bylaws to, among other objectives, clarify certain

12 01:18067967.1

corporate governance procedures of the Company.5 Id. Immediately following the

public announcement of these actions, VAALCO’s Chief Executive Officer, Mr.

Steve Guidry, reached out to the Activist Stockholders and offered to meet and

discuss their concerns. Id. This overture was ignored. Id.

Instead, on October 5, 2015, the Activist Stockholders sent a public letter to

the Board stating that they were prepared to take measures to make changes to the

Board’s composition. Ex. 14, Group 42 Proxy at 5. Again, the Company reached

out several times to the Activist Stockholders and offered to meet, but to no avail.

Id. On November 6, 2015, the Activist Stockholders delivered notice to the

Company (the “Notice”) of its intent to undertake a solicitation of stockholder

consents and initiated its consent solicitation by filing a preliminary consent

solicitation statement, which included a proposal to replace four Board members

without cause (the “Removal Proposal”). Id. The Company responded on

November 16, 2015, by notifying the Activist Stockholders that the Notice was

deficient because, among other reasons, the Removal Proposal was contrary to the

Company’s Charter and was thus not a proper matter for stockholder action. Id.

The Company explained that the Board is not in a position to ignore the clear

language of the Charter or unilaterally amend the Charter without stockholder

5 This amendment did not affect Article III Section 2 of the Bylaws.

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approval in the absence of any case law to the contrary. Ex. 13, VAALCO Energy,

Inc., Current Report (Form 8-K) at Ex. 99.1 (Nov. 16, 2015).

On the same date, in an attempt to avoid unnecessary and costly litigation,

the Company offered to call a special meeting for the purpose of voting on a

proposal to amend the Company’s Charter and Bylaws to provide stockholders

with the power to remove directors without cause, as well as on all of the proposals

contained in the Activist Stockholders’ consent solicitation, including the Removal

Proposal. Ex. 14. Group 42 Proxy at 5. The Activist Stockholders, however,

rejected this offer. Id.

Still, the Board decided to let the stockholders decide the matter. On

November 23, 2015, the Company filed a preliminary proxy statement for a special

meeting (the “Special Meeting”) to be held on January 5, 2016 for the purpose of

affording stockholders the opportunity to amend the Company’s Charter and to

vote on the proposals contained in the Activist Stockholders’ consent solicitation.

Id. at 7. The two sides subsequently traded settlement proposals with no success.

V. This Litigation

On December 7, 2015, The Vladmir Gusinsky Living Trust and George

Shapiro filed the two instant lawsuits against VAALCO. These cases relate solely

to the issues being pursued by the Activist Stockholders. The parties have agreed

to the consolidation of these two matters. See Dkt. 4, 5. The parties have also

14 01:18067967.1

agreed to resolve the narrow legal issue of per se validity on whether Article V

Section 2 of the Charter and Article V Section 3 of the Charter can co-exist

through expedited proceedings on cross-motions for summary judgment. See

Dkt. 6, 7.

ARGUMENT

I. The Charter and Bylaws Are Valid.

A. To prevail on their claims, Plaintiffs must rebut the presumption

that the Charter and Bylaws are valid.

Charter and bylaw provisions of Delaware corporations are presumed to be

valid. Boilermakers, 73 A.3d at 940 n.15 (citing Frantz Mfg. Co. v. EAC Indus.,

501 A.2d 401, 407 (Del. 1985) and Stroud v. Grace, 606 A.2d 75, 96 (Del. 1992)

(citations omitted)). Thus, Plaintiffs took on “the stringent task of showing that the

[governing instruments] cannot operate validly in any conceivable circumstance”

by challenging the facial validity of the Charter and Bylaws. Boilermakers, 73

A.3d at 940 n.16, 949 n.54 (citing Frantz, 501 A.2d at 407). The high standard

Plaintiffs must meet to show the facial invalidity of the Charter and Bylaws reflects

the Delaware courts’ practice of following the bedrock policy that the DGCL is a

broad and enabling statute. Jones Apparel, 883 A.2d at 846–46.

15 01:18067967.1

1. Delaware law promotes private ordering in the Charter and Bylaws unless contrary to Delaware statutory enactment or public policy.

Mere inconsistencies between the Charter or Bylaws and the law will not

lead to facial invalidation. Rather, the Charter and Bylaw provisions will only be

invalidated if they are contrary to Delaware law. “Delaware’s corporate statute is

widely regarded as the most flexible in the nation because it leaves the parties to

the corporate contract (managers and stockholders) with great leeway to structure

their relations . . . .” Id. at 845.6

Delaware’s “commitment to private ordering in the charter,” id. at 845, is

embodied in Sections 102(b)(1) and 109(b) of the DGCL, which establish great

flexibility for stockholders in drafting governing documents to effect their

purposes so long as they “are not contrary to the laws of this State.” 8 Del. C. §

102(b)(1); see also 8 Del. C. § 109(b) (“The bylaws may contain any provision, not

inconsistent with law or with the certificate of incorporation, relating to the

business of the corporation, the conduct of its affairs, and its rights or powers or

the rights or powers of its stockholders, directors, officers or employees.”). To be

“contrary to the laws of this State,” a provision must be “contrary to this State’s

6 See also In re Appraisal of Dell Inc., 2015 WL 4313206, at *13 (July 30, 2015) (“The significant role played by the Delaware courts stems from the fact that . . . the DGCL has not been viewed traditionally as a comprehensive code, but rather as a broadly enabling statute that leaves ample room for private ordering and interpretation.”).

16 01:18067967.1

public policy, in the sense that it clashes with fundamental policy priorities that

clearly emerge from the DGCL or our common law or corporations.” Jones

Apparel, 883 A.2d at 843 (discussing Sterling v. Mayflower Hotel Corp., 93 A.2d

107, 118 (Del. 1952)); see also Sterling, 93 A.2d at 118 (“[T]he stockholders of a

Delaware corporation may by contract embody in the charter a provision departing

from the rules of the common law, provided that it does not transgress a statutory

enactment or a public policy settled by the common law or implicit in the General

Corporation Law itself.”); Jones Apparel, 883 A.2d at 846 (stating that a Delaware

court will “only invalidate a certificate provision if it ‘transgress[es]’—i.e., vitiates

or contravenes—a mandatory rule of our corporate code or common law”). Thus,

Delaware courts interpret this language narrowly, and their approach in finding

provisions to be invalid is a “cautious one.” Id. at 843, 845.

2. Delaware courts construe charters and bylaws consistent with Delaware law, rather than striking them down.

Delaware courts will construe charters and bylaws in a manner consistent

with the law rather than invalidating the charter or bylaws, thereby applying the

same rules used to interpret statutes and contracts. See Boilermakers, 73 A.3d at

948 (citing cases); Hibbert v. Hollywood Park, Inc., 457 A.2d 339, 342–43 (Del.

1983) (noting that “the rules which are used to interpret statutes, contracts, and

other written instruments are applicable when construing corporate charters and

bylaws”); State v. Hobson, 83 A.2d 846, 851 (Del. 1951) (“Even if the Delaware

17 01:18067967.1

statute, read literally, were susceptible of the construction which defendant urges,

it would be our duty to reject that construction, since we are required, as between

two possible constructions, to adopt the one which will uphold its validity.”). Put

differently, if a conceivable reading of the Charter or Bylaws exists that will permit

them to survive, each survives.

Based on these principles, Plaintiffs cannot meet their stringent burden of

rebutting the presumed validity of VAALCO’s Charter and Bylaws.

B. Plaintiffs cannot rebut the presumption that the Charter and

Bylaws are valid.

Through their motion for summary judgment, Plaintiffs attack the facial

validity of Article V Section 3 of the Charter and Article III Section 2 of the

Bylaws on the basis that they are “in conflict” with Section 141(k) of the DGCL.

Complaint at ¶¶ 1, 28. Each of these challenged provisions states, in relevant part:

“any director may be removed from office only for cause.” Ex. 1, Charter, Art. V,

§ 3; Ex. 2, Bylaws, Art. III, § 2 (emphasis added). Plaintiffs do not—because they

cannot—contend that this language, standing alone, is invalid. In fact, the DGCL

expressly permits board members to be removable only for cause. 8 Del. C.

§ 141(k)(1). Instead, Plaintiffs argue that these provisions are invalid because

Article V Section 2 of VAALCO’s Charter provides that the VAALCO board

18 01:18067967.1

“shall not be classified.”7 Thus, under Plaintiffs’ theory, the co-existence of these

two provisions—the removal only for cause and the unclassified board—makes

them invalid. In other words, Plaintiffs contend that Section 141(k) prohibits a

non-staggered board with annual elections from being removable only for cause.

They are wrong.

1. The Charter and Bylaws do not transgress a statutory enactment.

As discussed above, the Charter and Bylaw provisions will only be

invalidated if they contravene Delaware law, i.e., transgress a Delaware statute or

public policy. An unclassified board removable only for cause is not contrary to a

Delaware statute. In fact, Sections 141(k) and 102(b)(1) together authorize an

unclassified board removable only for cause.

a. Section 141(k) is not a mandatory provision of Delaware law.

Section 141(k) states in part:

(k) Any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except as follows: . . . .

7 This provision is also clearly permissible under the DGCL. See 8 Del. C. § 141(d).

19 01:18067967.1

8 Del. C. § 141(k) (emphasis added). This prefatory language is permissive, not

mandatory, in identifying two means through which a stockholder “may” remove a

director—“with or without cause.” Section 102(b)(1) states:

(b) . . . [T]he certificate of incorporation may also contain . . . (1) [a]ny provision for the management of the business and for the conduct of the affairs of the corporation, and any provision creating, defining, limiting and regulating the powers of the corporation, the directors, and the stockholders . . . .

Thus, the DGCL authorizes a charter provision limiting the manner in which a

stockholder may remove a director. Cf. Stroud v. Grace, 1990 WL 176803, at *12

(Del. Ch. Nov. 1, 1990), aff’d in part, rev’d in part, 606 A.2d 75 (Del. 1992).8

Despite Plaintiffs’ arguments to the contrary, Section 141(k) does not

expressly preclude a corporation with an unclassified board from having a for-

cause removal provision in its charter. Cf. Stroud, 1990 WL 176803, at *12

(concluding that a charter provision requiring a 75% stockholder vote to approve

issuance of stock was “not ‘contrary to’ 8 Del. C. § 161 because that section does

not prohibit charter limitations upon the authority of a Board to issue stock”);

Jones Apparel, 883 A.2d at 850 (explaining that the Stroud Court concluded that

8 Section 109(b) similarly authorizes “any provision, not inconsistent with law or with the certificate of incorporation, relating to . . . the rights or powers of its stockholders . . . .” 8 Del.C. § 109(b). In the absence of “bylaw excluder” language appearing in the general provision of Section 141(k), Article III of the Bylaws, which mirrors the language of the Charter, also is consistent with law. Jones Apparel, 883 A.2d at 848.

20 01:18067967.1

Section 102(b)(1) “authorized the charter provision because § 161 did not contain

any language stating that the powers granted in it could not be altered by a

certificate provision”).9 And, no Court has held that Section 141(k) precludes such

a provision in a Delaware corporation’s charter.

Based on the lack of any clear language to the contrary and the permissive

language in Section 141(k), Section 141(k) is not a mandatory provision.10

9 See also Jones Apparel, 883 A.2d at 847 (rejecting an argument that a certificate provision overriding an “unqualified grant of board authority in the specific statute” would “render[] that provision contrary to law”). Cf. also In re Paine Webber Ltd. P’ships, 1996 WL 535403, at *5 (Del. Ch. Sept. 17, 1996) (“This Court has enforced a stockholders’ agreement that expands the rights of the contracting stockholders to obtain a stockholder list beyond those rights conferred by § 220. Such an agreement was recognized as creating ‘additional [enforceable] rights beyond those created by § 220.’”) (citing Ostrow v. Bonney Forge Corp., 1994 WL 114807, at *10 (Del. Ch. Apr. 6, 1994)). 10 The “except as follows” language appearing in Section 141(k) does not convert this general default rule into the mandatory rule for which plaintiffs advocate. Instead, the logical interpretation is that the enumerated exceptions set a different default in the particular circumstances identified, and with respect to Section 141(k)(1), the default—that directors are removable only for cause—is made more difficult to alter by requiring that a provision ordering otherwise must be included in the certificate of incorporation rather than in the bylaws. See Jones Apparel, 883 A.2d 837, 848 (Del. Ch. 2004) (explaining that the “more obvious and rational meaning for . . . . use of the words ‘unless otherwise provided in the certificate of incorporation’ can be read as a ‘bylaw excluder,’ in the sense that those words make clear that the specific grant of authority in that particular statute is one that can be varied only by charter and therefore indisputably not one that can be altered by a § 109(b) bylaw”).

21 01:18067967.1

b. The organizational documents of numerous Delaware corporations with unclassified boards have a “for cause” removal provision.

As an external indicator that the challenged provisions are not contrary to

Delaware law, numerous corporations have provisions similar to those challenged

by plaintiffs. In fact, based on a review of charters and bylaws of Delaware

corporations, VAALCO has identified potentially 175 other companies that have

such provisions. See Compendium of Corporate Instruments filed

contemporaneously herewith. Although numerous other Delaware corporations

have provisions similar to those at issue here, no Delaware court has previously

determined that governance documents creating an unclassified board removable

only for cause are invalid. Plaintiffs would have this Court effectively rewrite the

charters and bylaws of each of these 175 other companies.

2. The Charter and Bylaws do not transgress public policy.

VAALCO’s Charter and Bylaw provisions also do not violate the public

policy of Delaware. In fact, there is no policy reason for deeming a board elected

annually and removable only for cause to be “invalid.”

a. The Charter and Bylaws are consistent with Delaware public policy.

Consistent with the recognized purpose of Section 141(k), removal “only for

cause” provisions help achieve continuity and limit disruption between annual

meetings while nevertheless promoting accountability among directors. Roven 547

22 01:18067967.1

A.2d at 606 (explaining, in the context of affirming stockholders’ rights to provide

in the charter for removal without cause of directors of classified boards, Section

141(k)’s overarching purpose was to reserve for stockholders “the ultimate

decision of how they will balance concerns for continuity and director security

against those of flexibility and accountability”). For-cause removal limitations can

also prove a valuable means to protect the rights of minority stockholders. See

Insituform of N. Am., Inc. v. Chandler, 534 A.2d 257, 266–67 (Del. Ch. 1987).

The typical “staggered” classified board prevents stockholders from

removing a classified board member without cause for a period of three years. In

contrast, VAALCO’s stockholders are prevented from removing directors without

cause only for a period of only one year under VAALCO’s organizational

documents. Under VAALCO’s Charter and Bylaws, VAALCO’s directors must

go through the election process each year to continue in their position.

Rather than only having two polar positions—a staggered board removable

only for cause and a de-staggered board removable without cause—Delaware law

provides that corporations may allow for a middle ground in their Charter and

Bylaws. Having such a middle ground—in effect, allowing stockholders to have a

de-staggered board, but one that cannot be removed between yearly elections

except for cause—is consistent with Delaware corporation law and policy.11

11 See Roven, 547 A.2d at 606.

23 01:18067967.1

Because Delaware policy allows removal of directors serving multi-year terms

only for cause, there can be no policy concerns raised by directors elected annually

removable only for cause.

Plaintiffs’ focus on the Delaware fundamental policy of allowing

stockholders to remove board members is misplaced. A Delaware court has

concluded that governance documents could not divest a stockholder of the right to

remove directors for cause, see Rohe v. Reliance, 2000 WL 1038190, at *1 (Del.

Ch. July 21, 2000), but no Delaware court has directly held that stockholders’

ability to remove directors without cause is a mandatory right of stockholders that

stockholders themselves cannot opt out of through charter or bylaw provisions.12

12 In Rohe, the plaintiffs, seeking to be restored to board seats in an action under 8 Del. C. § 225, argued that they were improperly removed “for cause” because the stockholders “by failing to provide for a removal process in any of the Instruments, meant to foreclose removals . . . .” Id. at *12 (emphasis added). The Court “refused to interpret the relevant instruments in a manner that would disenfranchise the . . . stockholders in the absence of clear evidence that such a restriction on stockholder action was intended” and denied the plaintiffs’ claim. Id. at *1. In dicta, in Nycal Corp. v. Angelicchio, 1993 WL 401874, at *3 (Del. Ch. Aug. 31, 1993), another action under 8 Del. C. § 225, the Court described Section 141(k) as “guarantee[ing] the right of a majority of shareholders to remove directors with or without cause.” But, Nycal did not address the validity of a charter or bylaw expressly providing for an unclassified board, elected annually and removable only for cause. Rather, in Nycal, the court analyzed whether a governance agreement executed by certain stockholders, officers, and directors, eliminated the ability of stockholders to remove certain directors without first permitting those directors to name their replacements. Id. The plaintiffs in Nycal did not dispute the stockholders’ ability to remove them from office under the default provisions of 141(k). Id.

24 01:18067967.1

In fact, such a public policy would make no sense as the shareholders already

retain the right to remove any director without cause annually at the Annual

Meeting. As a policy matter, there are good reasons for Delaware law to allow

charter provisions precluding stockholders from removing non-staggered boards

without cause outside the annual meeting—it is expensive and highly disruptive to

a company’s operations and management to defend against a removal action.

Protecting a small-cap company with limited resources like VAALCO against a

disruptive and expensive removal action without cause cannot be against public

policy.

b. The Charter and Bylaw provisions cannot be against public policy because Delaware law allows an equivalent situation.

An unclassified board removable only for cause cannot transgress Delaware

public policy for the additional reasons that such a board is the functional

equivalent of a board permitted under the plain language of Sections 141(d) and

141(k)(1): a non-staggered board of one class of directors that is elected annually

and removable only for cause. Section 141(d) allows a corporation to have a non-

staggered board of one class of directors that is elected annually.13 Section 141(d)

13 See also David A. Drexler et al., Delaware Corp. Law and Practice § 13.01[8] n.80 (2014) (noting that “Section 141(d) also provides expressly for a classified board consisting of but one class, which is something of a contradiction in terms.”).

25 01:18067967.1

states in pertinent part: “The directors of any corporation organized under this

chapter may . . . be divided into 1, 2 or 3 classes . . . .” 8 Del. C. § 141(d)

(emphasis added). Removal of directors of this single-class board by default is

limited to removal for cause under Section 141(k)(1), which provides: “(1) Unless

the certificate of incorporation otherwise provides, in the case of a corporation

whose board is classified as provided in subsection (d) of this section, stockholders

may effect such removal only for cause . . . .” 8 Del. C. § 141(k). Section

141(k)(1) applies to any board that is classified as provided by Section 141(d); it is

not limited to staggered boards having 2 or 3 classes. Thus, the DGCL permits a

corporation to have a single class of directors, elected annually, but removable

only for cause.14

There is no policy reason for deeming a board elected annually removable

only for cause to be “invalid” simply because it is called “unclassified,” while

deeming a functionally indistinguishable board “valid” because it is called

“classified.”

14 Cf. Lions Gate, 2006 WL 1668051, at *5 (“[A] provision establishing a classified board does not necessarily create a board in which directors serve staggered three-year terms.”).

26 01:18067967.1

3. The legislative history further supports the validity of the Charter and Bylaws.

The history of Section 141(k) further supports the proposition that the

Charter and Bylaws are consistent with Delaware law and policy. Unlike

“principles of management, election, and classification,” which “date back to the

very inception of the [DGCL], . . . the issue of removal of directors is only of

recent statutory origin.” Roven, 547 A.2d at 605. Although “Delaware courts have

always recognized the inherent power of stockholders to remove a director for

cause[,] . . . [t]he more troublesome [question] was whether a director could be

removed without cause.” Id. (emphasis added). In 1974, Section 141(k) was

added to the DGCL in recognition that “Delaware was in the minority of states

having no specific statute governing the circumstances under, and the procedure by

which, removal of a director or the entire board could be effected.” Official

Comment to the 1974 amendment to § 141(k), reprinted in 2 R. Franklin Balotti &

Jesse A. Finkelstein, Del. Law of Corps. & Bus. Orgs., IV-14 (3d ed. . Thus, under

the new Section 141(k), it was clearly permissible for stockholders to remove

directors “with or without cause.” Just as nothing in the text of Section 141(k)

provides that the flexibility offered by 102(b)(1) and 109(b) is foreclosed, nothing

in the official comment reflects that “without cause” is an unalterable right.

Accordingly, the broad freedom for private ordering that is afforded by the DGCL

need not and should not be circumscribed.

27 01:18067967.1

II. Even if the Charter and Bylaws Are Invalid, Plaintiffs Are Not Entitled to the Relief They Seek.

Should the Court accept Plaintiffs’ argument that the 2009 Amendment to

de-classify the Board is inconsistent with the Charter and Bylaws’ for-cause

removal limitation, and therefore invalid, the remedy for which Plaintiffs advocate

does not follow. Plaintiffs urge this Court to declare only the for-cause removal

provisions invalid, thus rewriting the governance instruments by severing and

striking those provisions, but leaving the rest of those instruments’ provisions as is.

In short, Plaintiffs seek not only a declaration but also reformation.

A. For the Charter and Bylaws to be rewritten, Plaintiffs must

demonstrate by clear and convincing evidence that the

stockholders intended to strike the for-cause removal limitations.

This Court is reticent to blue-pencil contractual agreements generally, and

should be cautious in altering the contractual arrangement with VAALCO’s

current stockholders that the Charter and Bylaws represent. See C&J Energy

Servs. v. City of Miami Gen. Emps.’ & Sanitation Emps.’ Ret. Trust, 107 A.3d

1049, 1054 (Del. 2014) (holding that the trial court’s reformation of a merger

agreement prior to a fully developed trial record was not an appropriate exercise of

equitable authority); In re Toys “R” Us, Inc. S’holders Litig., 877 A.2d 975, 1022-

23 (Del. Ch. 2005) (refusing to strike down or “blue-pencil” provisions in a merger

agreement before trial). This Court’s careful and restrained approach is

particularly advisable here, where potentially 175 other corporations have

28 01:18067967.1

governance provisions similar to those challenged by Plaintiffs. See Compendium

of Corporate Instruments.

Reflecting the judicial reluctance to blue-pencil agreements, the standard for

reforming a contract is generally onerous, and is an especially onerous standard for

a plaintiff to meet when seeking reformation of a corporate instrument. “When

reformation is applied to a certificate of incorporation and by strong analogy to a

corporation’s bylaws, Waggoner suggests two additional requirements: ‘(i) it must

be clear that all present and past shareholders intended [the] provisions to be

included within the certificate or bylaws, and (ii) there must not be any intervening

third party interest.’” Lions Gate, 2006 WL 1668051, at *8 (quoting Waggoner v.

Laster, 581 A.2d 1127, 1135 (Del. 1990)). There is no evidence that stockholders

or the Board intended for the “only for cause” language to not be retained in the

Charter and Bylaws following the 2009 Amendment. Plaintiffs’ request for

reformation is also subject to a higher standard of proof. “A party seeking

reformation must establish the need for the remedy by clear and convincing

evidence[.]” Lions Gate Entm’t Corp., 2006 WL 1668051, at *8 (citing Interactive

Corp. (a/k/a USA Interactive) v. Vivendi Universal, S.A., 2004 WL 1572932 (Del.

Ch. July 6, 2004)). “The standard requires proof higher than mere preponderance,

but lower than proof beyond a reasonable doubt.” Id. (citing Cerberus Int’l, Ltd.

v. Apollo Mgmt., L.P., 794 A.2d 1141, 1151 (Del. 2002)). “It requires evidence that

29 01:18067967.1

would cause the trier of fact to believe that the truth of the factual contention is

highly probable.” Id.

B. Plaintiffs cannot demonstrate by clear and convincing evidence

that the VAALCO stockholders intended to eliminate the for-

cause removal provisions.

Plaintiffs cannot point to clear and convincing evidence to support the

reformation they seek here. The for-cause removal limitations and the de-

classified board provisions are interdependent rights. The 2009 Amendment only

altered Section 2 of the Charter. The 2009 Amendment retained, in its entirety, the

immediately succeeding provision of Section 3 entitled “Removal of Directors,”

that provides in the first sentence: “any director may be removed from office only

for cause,” and defines “for cause” removal. Ex. 1, Charter, Art. V, § 3. Plaintiffs

seek to strike Section 3 and the corresponding Bylaw provision in their entirety.

Plaintiffs have not presented clear and convincing evidence, however, that at the

time of the 2009 Amendment, VAALCO’s stockholders and Board intended an

unclassified board elected annually without the for-cause removal provision. On

the contrary, the fact that the Board and stockholders voted for the 2009

Amendment demonstrates that they wanted both.

The reformation Plaintiffs seek is also undermined by the absence of

severability or survival clauses in the Charter. The Charter does not state that if

one of the provisions of the Charter is invalidated, all the other provisions survive.

30 01:18067967.1

The absence of this clause suggests an intention that the Charter not be blue-

penciled. See Orenstein v. Kahn, 119 A. 444, 445 (Del. 1922) (in deciding

whether a contract is severable, “the essential question is to ascertain the intention

of the parties”); 15 Richard A. Lord, Williston on Contracts § 45:6 (4th ed. 2012)

(“The parties’ intent to enter into a divisible contract may be expressed in the

contract directly, through a so-called ‘severability clause’. . . .”).

C. To the extent the Court rewrites the Charter and Bylaws, the

Court should do so in a manner consistent with Delaware law and

the stockholders’ intent.

Were the Court to determine that reformation is required, the Court should

do so in a manner that best accomplishes the intent of VAALCO’s stockholders by

retaining the functional equivalent of VAALCO’s current governance structure.

As discussed above, Delaware courts will construe charters and bylaws in a

manner consistent with the law rather than strike the provisions entirely, thereby

applying the same rules used to interpret statutes and contracts. See Boilermakers,

73 A.3d at 948. The language of the Charter and the Bylaws makes clear that the

stockholders and the Board intended that directors would be subject to annual

elections but who could only be removed for cause. The stockholders manifested

this intent by voting overwhelmingly in favor of the 2009 Amendment that

instituted this structure. Moreover, in the six-plus years since the 2009

Amendment was approved, no stockholder of VAALCO, including the activist

31 01:18067967.1

stockholder whose proxy contest led to the 2009 Amendment, has sought to

challenge or question the validity of this structure, which is further evidence that

the stockholders who voted in 2009 voted for a structure they intended.

This Court could reform these provisions by replacing a single word in the

last sentence of Article V, Section 2 of the Charter (“the Board of Directors shall

not be classified and directors shall be elected at each annual meeting for a one-

year term expiring at the next annual meeting”). By replacing the word

“classified” with the word “staggered” in the last sentence of Article V Section 2

of the Charter, the Court would effectively convert VAALCO from an unclassified

board elected annually removable only by cause to a single-class “classified” board

elected annually removable only by cause. This solution would honor both the

intent expressed by the adoption of the 2009 Amendment and the fact no

VAALCO stockholder has challenged the 2009 Amendments in the six-and-a-half

years since its adoption. It would also avoid disrupting the governance of

VAALCO’s Board and potentially 175 other Delaware corporations that have

similar governance provisions.

Moreover, should the Court determine that the Charter is invalid, another

logical alternative to Plaintiffs’ proposed relief would be to hold that the 2009

Amendment itself is invalid and of no force and effect, thereby restoring

VAALCO’s Charter to its pre-2009 Amendment state—providing for a staggered

32 01:18067967.1

board removable only for cause. Cf. Blades v. Wisehart, 2010 WL 4638603, at *12

(Del. Ch. Nov. 17, 2010) (finding stock split void and restoring corporation to

capital structure in place prior to split).

D. Plaintiffs’ request for a declaratory judgment is premature and

unripe.

Plaintiffs’ request for a declaratory judgment may also be unnecessary, and

thus premature and unripe. The Activist Stockholders’ consent solicitation has not

come to a conclusion, and it is possible that the VAALCO Board will never be

presented with the Removal Proposal. The Company and the Activists may reach

a settlement. Lastly, mindful that the best indicator of stockholder intent is a vote

of the stockholders themselves, VAALCO’s Board has convened a special meeting

for January 5, 2016, the same date as the end-date of the Activist Stockholders’

consent solicitation, to allow VAALCO’s stockholders to reform the Charter using

the means the Charter itself provides.15 This vote may either affirm the

stockholders’ desire to retain only for-cause removal or demonstrate the contrary,

and thereby moot this issue. Thus, even if the Court were to determine that the

Charter is invalid, it may wish to wait for the results of that vote before deciding

the issue of how the Charter should be judicially reformed.

15 See Ex. 1, Charter, Art. V, § 5 (requiring 66 2/3 % of the voting power to accomplish Charter amendments).

33 01:18067967.1

The occurrence of any one of these potential events will eliminate a live

dispute about the Charter and Bylaws and the need for this Court to act.

A dispute is not ripe where the claim is based on “‘uncertain and contingent

events’” that may not occur, or where “‘future events may obviate the need’ for

judicial intervention.” Id. at 1217–18 (citations omitted); see also XI Specialty Ins.

Co. v. WMI Liquidating Trust, 93 A.3d 1208, 1217–18 (Del. 2014) (citing Stroud

v. Milliken Enters., Inc., 552 A.2d 476, 480 (Del. 1989)). This principle is

sometimes expressed in terms of the adage that Delaware courts do not render

advisory or hypothetical opinions. Stroud v. Milliken Enters., Inc., 552 A.2d 476,

480 (Del. 1989). In Multi–Fineline Electronix, Inc. v. WBL Corp. Ltd., 2007 WL

431050 (Del. Ch. Jan.10, 2007), the independent directors of a Delaware

corporation sought declaratory relief against the company’s controlling stockholder

to enforce what the corporation claimed was the controlling stockholder’s fiduciary

duty to vote against a proposed transaction. The Court noted that an action is not

ripe for adjudication when it is “‘contingent . . . [and requires] the occurrence of

some future event before the action’s factual predicate is complete.’” Id. at *8

(citation omitted). The Court found that the plaintiff’s request for declaratory

relief lacked the element of concreteness because the plaintiff’s factual allegations

were conclusory in supposing that the controlling stockholder would, in fact, vote

in favor of the proposed transaction. Id. The Court held that the claim for

34 01:18067967.1

declaratory relief was not ripe because “it is literally impossible to predict whether

or not [the controlling stockholder] will vote for or against the [proposed

transaction].” Id. Here, there is no reason to predict what the stockholders may or

may not do with their vote and superimpose a perhaps unnecessary judicial

resolution.

35 01:18067967.1

CONCLUSION

For all the foregoing reasons, Defendants respectfully request that the Court

grant their Motion for Summary Judgment , deny Plaintiffs’ Motion for Summary

Judgment, and enter a declaratory judgment in favor of Defendants that VAALCO

Energy Inc.’s Charter and Bylaws are valid and enforceable.

OF COUNSEL: Michael C. Holmes Andrew E. Jackson Cortney C. Thomas VINSON & ELKINS LLP Trammel Crow Center 2001 Ross Avenue, Suite 3700 Dallas, Texas 75201-2975 Dated: December 14, 2015

YOUNG CONAWAY STARGATT & TAYLOR, LLP /s/ Rolin P. Bissell Rolin P. Bissell (No. 4478) Kathaleen St. J. McCormick (No. 4579) Elisabeth S. Bradley (No. 5459) Benjamin M. Potts (No. 6007) Rodney Square 1000 North King Street Wilmington, Delaware 19801 (302) 571-6600 Counsel for Defendants Steven P. Guidry, Frederick W. Brazleton, O. Donaldson Chapoton, James B. Jennings, John J. Myers, Jr., Andrew L. Fawthrop, Steven J. Pully, and VAALCO Energy, Inc.