DealLawyers.com Blog

There’s been a renewed focus on advance notice bylaws in the wake of the Chancery Court’s decision in Kellner v. AIM Immunotech (Del. Ch.; 12/23) addressing a challenge to advance notice bylaw amendments. In addition to considering whether your advance notice bylaws trip any of the concerns in the Kellner decision, companies also need to consider recent litigation when determining whether to reject a stockholder nomination notice and how to interpret and apply advance notice bylaws. This 2023 Activism Recap from Mayer Brown lists these considerations, among others:

– Apply Bylaw Requirements Equitably and Avoid Subjectivity. The Court stated in AIM that bylaws that “are applied inequitably” will be struck down and that certain of AIM’s bylaws were “ripe for subjective interpretation by the Board” and therefore overreaching. In Ocean Power, the Court stated that “if a board could call a nomination notice deficient simply because it disagreed with opinions voiced by the nominating stockholder, rejection would be a foregone conclusion” and noted that, irrespective of any good intentions in ensuring that notices are accurate, dismissal of a notice based on perceived inaccuracy of opinion statements may be preclusive.

– Omission of Required Disclosure is Not Necessarily Grounds for Valid Rejection. The Court stated in AIM that it will examine whether a rejection of a nomination notice is fair by assessing whether any of the missing information is something directors and stockholders would justifiably want to know. The Court indicated that there could be instances where a nomination notice omits required disclosure and is therefore not compliant with the bylaws, but such omission might not be a valid basis for rejection if directors and stockholders would not justifiably want to know such omitted information.

– Depending on Timing, Companies Might Have to Provide a Complete List of Deficiencies and an Opportunity to Remedy. The Court noted in AIM that the dissident’s night-of nomination notice submission left no chance for the dissident to remedy any deficiencies pertaining to omitted information that a sensible director or stockholder would reasonably want to know. This suggests that if a dissident submits a non-compliant nomination notice with ample time prior to the nomination deadline, the Court might expect the company to identify such deficiencies to the dissident and provide them with the opportunity to re-submit rather than rejecting the nomination notice outright.

This view is further supported by the Court’s remarks in Ocean Power, wherein the dissident submitted a non-compliant nomination notice three weeks prior to the nomination deadline. There, the company continuously declined to provide the dissident with a complete list of deficiencies, which the Court indicated was akin to moving the goalposts and could be the board’s way of “sifting through the notice to dig up deficiencies,” including ones the Court considered to be “nitpicky.”

– Meredith Ervine