Delaware Court Limits the Applicability of Advance Notice Bylaws
April 21, 2008
Recently, the Delaware Chancery Court has issued rulings in two cases limiting the applicability of advance notice bylaws. On April 14, 2008, the Delaware Chancery Court held that Office Depot’s advance notice bylaw did not apply in the context of an election contest and permitted Levitt Corp. to nominate two members to the board at the annual meeting. Office Depot’s advance notice bylaw provided that in order to be properly brought before the meeting, business must be (i) specified in the notice of the meeting, (ii) brought before the meeting by or at the direction of the board, or (iii) brought before the meeting by a stockholder in compliance with certain advance notice procedures. Levitt Corp. did not comply with the advance notice bylaw procedures for a stockholder proposal.
The court held that stockholder nominations were within the meaning of “business” governed by the advance notice bylaw. However, the court held that it was not necessary for Levitt Corp. to comply with the advance notice bylaw because Office Depot had already specified in the notice that the business of the meeting would include electing directors.
In a similar ruling, on March 13, 2008, the Delaware Chancery Court held that CNET Networks, Inc.’s advance notice bylaw applied only to proposals and nominations that are intended to be included in the company’s proxy materials pursuant to Rule 14a-8. Since Jana Master Fund, Ltd. intended to finance its own proxy solicitation and did not seek to have its proposals included in CNET’s proxy statement under Rule 14a-8, the court held that CNET’s advance notice bylaw did not apply.
In light of the Delaware Chancery Court’s narrow reading of advance notice bylaws in these cases, companies need to review their advance notice bylaws to confirm that they are drafted to apply to all stockholder proposals.
Levitt Corp. v. Office Depot, Inc. (CA No. 3622-VCN, April 14, 2008).
Jana Master Fund, Ltd. v. CNET Networks, Inc. (CA No. 3447-CC, March 13, 2008).
http://courts.state.de.us/opinions/(dfwlav45fuyajd554awwehbe)/download.aspx?ID=104050