This post is from James Morphy of Sullivan & Cromwell LLP. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.
In a decision issued on March 13, 2008, the Delaware Chancery Court in JANA Master Fund, Ltd. v. CNET Networks, Inc. held that CNET’s advance notice bylaw applied only to shareholder proposals that are sought to be included in the company’s proxy materials pursuant to Rule 14a-8 under the Securities and Exchange Act of 1934, as amended, and therefore did not apply to independently financed shareholder proxy solicitations. The decision is based upon the somewhat unusual wording of the CNET advance notice bylaw, the relevant portion of which is quoted below. Chancellor Chandler cited three principal reasons based on the specific language for limiting the bylaw’s applicability: (i) the language that “any stockholder…may seek to transact other corporate business at the annual meeting” does not make sense outside of the context of Rule 14a-8 because shareholders using their own proxy materials do not need management approval; (ii) the bylaw’s deadline for shareholder notice to the company is tied to the mailing date of the company’s prior year’s proxy materials, as is the deadline under Rule 14a-8 and unlike most advance notice bylaws; and (iii) in the Court’s view, most importantly, the final sentence of the bylaw (which states that “such notice must also comply with any applicable federal securities law establishing the circumstances under which [CNET] is required to include the proposal in its proxy statement…”) makes it clear that the scope of the bylaw is limited to proposals that shareholders seek to have included in the company’s proxy materials.
A memorandum summarizing the decision is available here.
