In re Inc. Shareholder Litigation: Delaware Court of Chancery Rules That “Don’t Ask, Don’t Waive” Standstills Are Not Per Se Unenforceable, but Their Use and Effect Should Be Disclosed to Shareholders

Sullivan & Cromwell LLP - January 9, 2013

Two weeks after Vice Chancellor Laster’s bench ruling in In re Complete Genomics enjoining the enforcement of a so-called “Don’t Ask, Don’t Waive” provision in a confidentiality agreement, Chancellor Leo E. Strine, Jr. of the Delaware Court of Chancery made clear in a transcript bench ruling in In re that there is no per se rule in Delaware against the use of “Don’t Ask, Don’t Waive” provisions. In its bench ruling, which the Court stressed “are limited rulings,” necessarily “time-pressured,” and therefore “shouldn’t make broad law,” the Court:

  • Emphasized that because of the potency of “Don’t Ask, Don’t Waive” provisions, a target board would need to establish a clear record that it consciously and carefully employed the provision to maximize the target’s sale price; and
  • Ruled that the use and effect of “Don’t Ask, Don’t Waive” provisions are material to shareholders in determining how to vote on a proposed merger and thus should be publicly disclosed, especially where the restrictions potentially account for why no superior offers have been made.

In its bench ruling, the Court also held that the financial advisor’s expression of doubt in its ability to provide a fairness opinion based on management’s projections prepared in anticipation of a sale process, which arguably precipitated revisions to those projections, was a material fact that should be disclosed to shareholders.