Notice of Stockholder Meeting Required to Enforce Advance Notice Bylaws
Advance notice bylaws, requiring stockholders to give a corporation timely notice of their nominees to the board before a stockholder meeting for the election of directors, are a proper corporate governance tool. The purpose of advance notice bylaws for board nominations is to give a corporation sufficient time to vet the board nominees, their backgrounds, and qualifications prior to the stockholder meeting. Advance notice bylaws are frequently the subject of stockholder-corporation disputes during proxy season when stockholder annual meetings to elect directors often occur. To avoid irreparable harm to stockholders from the loss of the opportunity to vote on a board nominee, the Delaware Court of Chancery will enjoin a stockholder meeting for the election of directors if a corporation rejects the board nominee of a stockholder, who has complied with the advance notice bylaw for such nominations. While untimely notice of a proposed nominee to the board is a proper basis for a corporation to reject the nominee under an advance notice bylaw, a corporation must first have given proper notice of the stockholder meeting. The Delaware Supreme Court recently had the opportunity to address whether a stockholder had timely provided notice of its board nominees to a corporation after receiving notice of the stockholder meeting under an advance notice bylaw.
In Hill International v. Opportunity Partners L.P., C.A. No. 305, 2015, ___ A.3d ___ (Del. July 2, 2015), the Delaware Supreme Court held that the plaintiff stockholder, Opportunity Partners L.P., had given timely notice of its board nominees under the defendant Hill International Inc.'s advance notice bylaw for nominations to the board. In Hill, the Supreme Court affirmed the judgment of the Court of Chancery, which had enjoined the conduct of any business at Hill's annual meeting, other than to adjourn or reschedule the meeting for at least three weeks, and directed Hill to allow Opportunity Partners to present its board nominees at the rescheduled annual meeting.
On April 30, 2014, Hill filed a proxy statement with the U.S. Securities and Exchange Commission, providing public notice that it anticipated holding its annual meeting "on or about June 10, 2015." On April 13, 2015, Opportunity Partners gave notice to Hill of its intent to present two nominees for election to the board at Hill's 2015 annual meeting. Hill rejected Opportunity Partners' April 13 notice because it did not contain information about the director nominees as required by Hill's advance notice bylaw for board nominations. On April 30, Hill filed a definitive proxy statement with the SEC, announcing publicly that its annual meeting would be held at "9 a.m. on Tuesday, June 9, 2015." Subsequently, on May 7, Opportunity Partners notified Hill a second time of its intent to present the same two nominees for election to the board at Hill's annual meeting. Hill also rejected Opportunity Partners' May 7 notice, but this time, its rejection was on the grounds that Opportunity Partners did not meet the time limitations for giving notice of its nominees under Hill's advance notice bylaw.
Pursuant to Hill's advance notice bylaw for board nominations, a stockholder must give written notice of its board nominees to the secretary of the corporation within a 30-day window between 60 and 90 days before the date of Hill's annual meeting. But if the "notice or prior public disclosure of the date of the meeting is given or made to stockholders" less than 70 days before the date of the meeting, then the stockholder notice of its board nominees must be given to the corporation within 10 days from the date of the notice or public disclosure "of the date of the meeting."
Timely Notice under Advance Notice Bylaw
In an expedited appeal, the Delaware Supreme Court determined that the operative date for determining the time within which Opportunity Partners was required to give notice of its board nominees to the corporation was Hill's April 30 public announcement of the actual date on which its 2015 annual meeting was scheduled to be held. The Supreme Court first explained that bylaws are a part of the contract among directors, officers and stockholders under the Delaware General Corporation Law, and thus, its rules of contract interpretation were applicable to guide its interpretation of Hill's bylaws. If the language of the bylaw is clear and unambiguous, the Supreme Court will enforce the language in accordance with its plain meaning without determining or searching for the parties' intent. If the language of the bylaw is, however, unclear, the Supreme Court will "resolve any doubt in favor of the stockholder's electoral rights."
Here, the Supreme Court found that the plain meaning of notice or public disclosure of "the date of the meeting" in Hill's advance notice bylaw for board nominations meant a specific date, not a range of possible days, on which Hill's annual meeting could be held. Hence, Hill's April 30, 2014, public notice that it anticipated holding its annual meeting "on or about June 10, 2015," which disclosure merely referred to an approximate timeframe or a targeted range of dates, was insufficient to trigger the time within which Opportunity Partners was required to give notice of its board nominees under Hill's advance notice bylaw. The Supreme Court ruled that Hill's April 30, 2015, proxy statement was the first time that Hill provided notice or public disclosure of the actual date, June 9, on which its annual meeting was scheduled to be held. Since the April 30 notice or public disclosure of the date of the annual meeting was made less than 70 days before the annual meeting would be held on June 9, Opportunity Partners' May 7 notice to Hill of its board nominees complied with the 10-day time period, running from the April 30 disclosure of the actual date of the meeting, to give timely notice of its nominees under Hill's advance notice bylaw.
Advance notice bylaws for board nominations are a proper corporate governance tool to give corporations sufficient time to consider nominees' qualifications for board service. A stockholder's failure to meet the time limitations in an advance notice bylaw may prevent consideration of its board nominees at a stockholder meeting. But to effectively enforce such time limitations, a corporation must first have given notice of the actual date of the stockholder meeting in strict compliance with the advance notice bylaw. The failure to give proper notice of the actual date of the meeting may result in the enjoining of the annual meeting to permit the stockholder the opportunity to conduct a fair proxy contest and then present its nominees at a rescheduled annual meeting.