Delaware Court Provides Further Guidance on Enforceability of “Don’t Ask, Don’t Waive” Standstills

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On November 27, 2012, a bench ruling by Vice Chancellor J. Travis Laster of the Delaware Court of Chancery in In re Complete Genomics, Inc. Shareholder Litigation enjoined the enforcement of a “Don’t Ask, Don’t Waive” standstill forbidding a potential acquirer from asking the target company privately or publicly for a waiver of the standstill in order to make a competing offer. Following In re Complete Genomics, it can be expected that limitations on non-public requests for waivers will likely be viewed by Delaware Courts as violating a board’s fiduciary duties in contexts where Revlon applies.

In In re Complete Genomics, Inc., the Delaware Court viewed “Don’t Ask, Don’t Waive” agreements as resembling no-talk clauses, which were found to be in breach of a board’s fiduciary duties in Phelps Dodge Corporation v. Cyprus Amax3 and subsequent cases. In that case, the Court suggested the no-talk clause created “the legal equivalent of willful blindness, a blindness that may constitute a breach of a board’s duty of care,” since even “the decision not to negotiate…must be an informed one.”

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