DealLawyers.com Blog

September 9, 2016

Advance Notice Bylaws & “Placeholder” Nominees

Most advance notice bylaws establish a deadline of between 60 – 120 days before an annual meeting for director nominations – and prescribe detailed informational requirements that must be complied with by any shareholder nominee.  This Kirkland & Ellis memo describes an activist hedge fund’s recent attempt to skirt those provisions through the use of “placeholder” nominees.  Here’s what the hedge fund did:

With an impending deadline for nominations under the bylaws, the hedge fund announced that it would nominate 10 of its own employees to stand for election. These nominees were described as “placeholders” until the fund could identify qualified candidates ahead of the annual meeting. The hedge fund’s nominees, if elected, would commit to resign immediately following their election and replace themselves with the qualified independent candidates that are identified in the intervening months.

The hedge fund’s use of placeholders has not been tested in court – but companies should include language in their advance notice bylaws requiring a shareholder nominee to represent that the individual currently intends to serve out their full term if elected.

John Jenkins