The Advance Notice Bylaws Battleground

The advance notice bylaw, a corporate housekeeping tool with potentially powerful effects, has come under the spotlight in several recent Delaware cases. These cases provide sobering reminders of the importance of the advance notice bylaw itself as well as the need for careful drafting.

An article by David A. Katz and Laura A. McIntosh of law firm Wachtell, Lipton, Rosen& Katz outlines some of the recend trends in these cases. Two such cases decided by the Delaware Chancery Court in March and April of this year, the court interpreted language often found in advance notice bylaws to rule in favor of activist stockholders, and the Delaware Supreme Court recently affirmed the Chancery Court’s CNet decision without issuing a separate opinion, choosing to rely on the Chancery Court’s opinion. In light of these cases, companies must carefully review their own advance notice bylaws to ensure that they are up-to-date and written clearly to convey the intended meaning.

As a result, advance notice bylaws have emerged as an important battleground in the conflict between companies and activist stockholders. Our article describes the purpose, operation and functions of an advance notice bylaw and considers the CNet and Office Depot decisions. Against the backdrop of these cases and in light of the increasingly complicated mechanisms through which investors hold stock, the article also discusses important points that companies should consider when reviewing their advance notice bylaws and bringing them up to date.