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Jana Master Fund, Ltd. v. CNET Networks, Inc., C. A. No. 3447 (Del. Ch. March 13, 2008) (C. Chandler)

March 13, 2008

The Court of Chancery held that Article II, Section 3 of defendant CNET Network’s (“CNET”) bylaws was inapplicable to the nominations and proposals plaintiff JANA Master Fund (“JANA”) sought to independently put forth at the annual meeting of CNET shareholders. JANA, an investment fund owning approximately 11% of CNET’s outstanding common stock, sought to replace two current CNET directors as well as expand the size of the CNET board by three additional members in order to gain majority control. After CNET, asserting that JANA had failed to state a proper purpose under the CNET bylaws, refused to grant JANA’s request for books and records under Section 220 as part of JANA’s independent proxy solicitation efforts, JANA filed a complaint with the Court of Chancery seeking a declaration construing the bylaw provision cited by CNET as applying only to those shareholder proposals seeking placement on CNET’s own proxy materials under Rule 14a-8 of the federal securities laws and, thus, being inapplicable to JANA’s own independent, self-funded proxy solicitation efforts. CNET argued that Article II, Section 3 of the company bylaws allowed shareholders to make any sort of proposal or director nomination only after beneficially owning at least $1000 of common stock for at least one year prior to the date of the annual meeting, thus precluding JANA from making its nominations after only acquiring its CNET shares in October 2007. The Court disagreed with CNET’s interpretation and found the bylaw provision to apply only to those shareholder proposals falling under Rule 14a-8. The Court first noted that the “may seek” language of the bylaw provision suggested that a shareholder must seek permission or approval from the company prior to making such a proposal. Because Rule 14a-8 proposals are the only ones requiring company approval, the Court found such language to insinuate that the bylaw provision’s scope was limited to Rule 14a-8 proposals. The Court next observed that the bylaw provision established its deadline for notice by reference to the date on which CNET must send out its own proxy materials to shareholders, further suggesting that the provision only applied to Rule 14a-8 proposals. Finally, the Court found that the final sentence of the bylaw provision expressly grafted onto it the requirements contained in Rule 14a-8. With those requirements far exceeding the default rules under Delaware law, allowing the bylaw provision to apply to anything other than Rule 14a-8 proposals would cut against the Court’s rules of construction favoring the free exercise of shareholders’ electoral rights.

The full opinion is available here