May 18, 2018

Advance Notice Bylaws: Xerox a “Warning Shot” on Nomination Deadlines?

As part of the brawl over the now-abandoned Xerox/Fuji deal, a New York Court enjoined Xerox from using its advance notice bylaw deadline to thwart shareholder Dawin Deason’s efforts to run a competing slate of directors at the company’s annual meeting. Now this Kirkland & Ellis memo says that the Court’s decision may have significant implications for other companies dealing with activist campaigns. Here’s what they’re concerned about:

Relying on a 1991 Delaware Chancery Court decision, the New York court ordered Xerox to waive the advance  notice deadline on the basis that a waiver is appropriate “when there is a material change in circumstances” after the nomination window closes. The court concluded that the board’s refusal to waive the nomination deadline “was without justification,” and that the directors “likely breached their fiduciary duty of loyalty” in doing so.

This decision requires attention from boards and transaction planners. Opportunistic activist shareholders or even hostile bidders may start searching for events after a company’s nomination deadline that could be argued  to be material as a means to force a re-opening of the nomination window. While the decision in this case was undoubtedly colored by the court’s broader decision relating to the Fuji transaction itself (it also issued a highly unusual preliminary injunction blocking the deal) and the Delaware case that the New York court cited has always been understood to involve extremely narrow situations, companies should consider the intersection of timelines for nomination deadlines, annual meeting dates and significant corporate announcements.

The cased relied upon in the New York decision is Hubbard v. Hollywood Park Realty Enterprises (Del. Ch.; 1/91). However, as the memo notes, the ability to use a change in circumstances to pry open a nomination deadline that had passed was intended to apply in very limited situations.  In that regard, Broc blogged a few years ago about a more recent Delaware decision holding that only a “radical shift in position, caused by the directors,” will allow the nomination deadline to be disregarded.

John Jenkins