Litigation: The efficacy of “don’t ask, don’t waive” standstill provisions
In late 2012, the Delaware Court of Chancery made two significant rulings on the efficacy of standstill provisions.
February 07, 2013 at 05:24 AM
5 minute read
The original version of this story was published on Law.com
In late 2012, the Delaware Court of Chancery made two significant rulings on the efficacy of standstill provisions. In In re Complete Genomics, Inc. Shareholder Litigation, Vice Chancellor J. Travis Laster analogized “don't ask, don't waive” standstills to “no-talk” provisions in merger agreements. No-talk provisions prohibit a target company and its board from discussing alternative transactions with third parties, and have been deemed impermissible by the Court of Chancery absent certain outs. Don't ask, don't waive provisions prevent potential bidders from requesting that the target company waive the terms of a standstill agreement to which the potential bidder agreed.
Complete Genomics, Inc., a life sciences company that developed a proprietary DNA sequencing process, decided to put itself up for sale. Hoping to protect its chief asset, Complete Genomics insisted that bidders sign confidentiality and standstill agreements before receiving access to information necessary for the potential bidders to undertake due diligence. Multiple potential bidders signed these contracts. After an auction, Complete Genomics agreed to a two-step tender offer and merger transaction with a U.S. subsidiary of a Chinese company.
The court found that, by agreeing to a standstill containing a don't ask, don't waive provision, the Complete Genomics board impermissibly limited its ability to discharge its ongoing statutory and fiduciary obligations to knowledgeably evaluate competing offers, disclose material information and make a meaningful merger recommendation to its stockholders. The court therefore issued a preliminary injunction enjoining Complete Genomics from enforcing the provision.
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