Delaware Court Of Chancery Clarifies The Enforceability Of ‘Don’t Ask, Don’t Waive’ Provisions In Standstill Agreements

by Pepper Hamilton LLP
Contact

On December 17, 2012, in In re Ancestry.com Inc. S’holder Litig., C.A. No. 7988-VS (Del. Ch. Dec. 17, 2012), the Delaware Court of Chancery issued a bench ruling addressing a recent decision enjoining enforcement of a “Don’t Ask, Don’t Waive” provision in a standstill/confidentiality agreement. The Court of Chancery clarified that there is no per se rule prohibiting “Don’t Ask, Don’t Waive” provisions. The Court of Chancery stated it is a court of equity and that enforceability of such provisions will be judged according to the circumstances of each case, including whether the board of directors purposefully employed such provisions as part of a plan to maximize shareholder value during the sales process.

On November 27, 2012, in In re Complete Genomics, Inc. S’holders Litig., C.A. No. 7888-VCL (Del. Ch. Nov. 27, 2012), the Court of Chancery enjoined enforcement of a “Don’t Ask, Don’t Waive” provision that forbade private requests for a waiver of the standstill restrictions. The court held that the board’s decision to engage in a change-in-control transaction resulted in “an ongoing statutory and fiduciary obligation to provide a current, candid and accurate merger recommendation.” The court explained that “Don’t Ask, Don’t Waive” provisions hinder the board’s ability to meet this obligation because they prevent the “flow of incoming information” to the target corporation’s board.

In response to this ruling, in our December 19, 2012 Corporate and Securities Alert, “‘Don’t Ask, Don’t Waive’ Provision of Standstill Agreement Forbidding Private Requests for Waiver Enjoined by Delaware Court of Chancery,” we advised that under proper circumstances “Don’t Ask, Don’t Waive” standstill provisions remain effective tools for a corporation’s board of directors to promote an effective sales process and may be still be employed without subjecting a board of directors to breach of fiduciary duty liability. The Court of Chancery’s ruling in In re Ancestry.com Inc. S’holder Litig. confirms that “Don’t Ask, Don’t Waive” may indeed be used to maximize value for shareholders. The court explained that a company that has put itself up for sale and solicited potential bidders may use such provisions to design a sales process that encourages potential acquirers to submit their highest bid before the target enters into a binding agreement with another bidder.

The court did caution, however, that “Don’t Ask, Don’t Waive” provisions are “potent” mechanisms and will be subject to close judicial scrutiny. The court explained that the board of directors must act on an informed basis and ensure that the “Don’t Ask, Don’t Waive” provisions are employed in a manner likely to maximize shareholder value. Accordingly, boards of directors, when utilizing “Don’t Ask, Don’t Waive” provisions, especially in cases in which the board’s Revlon duties are triggered, must carefully evaluate the use of these provisions as part of an overall plan to increase bids during an auction process to maximize shareholder value during the sales process. Boards must make sure not to merely include the provisions among an assortment of deal protection devices without specifically considering the sale process as a whole that the company has undertaken and specifically how the provisions will help maximize shareholder value during the sales process. In connection with fulfilling their fiduciary duties, boards should be apprised from the outset of a transaction of the approach to be taken with confidentiality and standstill provisions to protect against issues arising after an agreement has been signed and another party makes a bid.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pepper Hamilton LLP | Attorney Advertising

Written by:

Pepper Hamilton LLP
Contact
more
less

Pepper Hamilton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!