In re Complete Genomics, Inc. Shareholder Litigation: Delaware Chancery Court Enjoins “Don’t Ask, Don’t Waive” Standstill Provision and Conditionally Denies Injunction on Deal Protections

Sullivan & Cromwell LLP - November 30, 2012
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In In re Complete Genomics, Inc. Shareholder Litigation, the Delaware Chancery Court (Laster, VC.), in two transcript rulings on November 9 and November 27:

  • refused to enjoin a merger agreement between Complete Genomics, Inc. (“Genomics”) and BGI-Shenzhen (“BGI”) for its absence of a termination right in the event of a superior proposal and accompanying break-fee and no-shop provisions; the Court found that the plaintiffs had failed to establish a reasonable probability of success on their claim that the provisions are coercive or preclusive to stockholders;
  • preliminarily enjoined Genomics from enforcing the so-called “Don’t Ask, Don’t Waive” provision of a standstill/confidentiality agreement Genomics entered into with a potential bidder, finding that the plaintiffs established a reasonable probability of success on their claim that the provision violated the directors’ fiduciary duty of care insofar as it impermissibly limited the Board’s obligation to evaluate potentially competing offers and determine whether it could continue to recommend the BGI merger to stockholders;
  • conditionally declined to enjoin (on the basis of unripeness) the merger agreement’s procedural restrictions affecting the Genomics Board’s right to change its recommendation of the BGI transaction to stockholders; the Court requires Genomics to provide the stockholder plaintiffs with prompt notice if its Board in the future considers whether it should change its recommendation;
  • conditionally declined to enjoin the “no waiver” covenant in the merger agreement that restricts Genomics from waiving any standstills in the confidentiality agreements it signed with potential bidders (having enjoined the one “Don’t Ask, Don’t Waive” provision in the offending confidentiality agreement); the Court requires Genomics to provide the stockholder plaintiffs with prompt notice if a bidder privately seeks a waiver of its standstill with Genomics;
  • granted a limited disclosure injunction to clarify public disclosure about the terms of the BGI merger agreement regarding the calculation of the outside date that triggered Genomics’ unilateral termination right.