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Advance Notice Bylaws: 'If It Ain't Broke, Don't Fix It!'
In two recent decisions, the Delaware Court of Chancery found advance notice bylaws to be ineffective in preventing stockholders from nominating alternative director candidates without providing the requisite advance notice, indicating that any ambiguities in these bylaws will be construed against the corporation and in favor of activist stockholders.
Two recent decisions have placed Delaware corporations on notice that they must carefully examine their advance notice bylaws, lest they find themselves subject to the default rule under Delaware law which allows stockholders, without warning, to nominate director candidates and raise other proposals at an annual meeting. In Jana Master Fund, Ltd v. CNET Networks, Inc., C.A. No. 3447-CC (Del. Ch. Mar. 13, 2008), aff'd No. 140, 2008 (Del. May 13, 2008), the Court of Chancery declared CNET's advance notice bylaw inapplicable to Jana's stockholder proposals submitted as part of its effort to take control of a majority of CNET's board of directors. In Levitt Corp. v. Office Depot, Inc., C.A. No. 3622-VCN (Del. Ch. Apr. 14, 2008), the Court of Chancery upheld Levitt's right to nominate directors without advance notice, even though Office Depot's bylaws regulate the conduct of business at stockholders meetings by, among other things, requiring advance notice of stockholder proposals. Despite this victory, Levitt has dropped its proxy contest.
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