Chancery Enjoins Standstill Agreement That Bars Topping Bid

Professor Paul Regan provides a scholarly analysis of a recent transcript ruling in In re Complete Genomics, Inc. Shareholder Litigation, Del. Ch., Consol. C.A. No. 7888-VCL (Nov. 27, 2012), that enjoined a “don’t ask, don’t waive” provision in a standstill agreement that would have the effect, for example, of barring a topping bid. The good professor’s summary begins as follows:

In a telephonic ruling announced earlier this week in In re Complete Genomics, Inc. Shareholder Litigation, Dec. Ch., Consol. C.A. No. 7888-VCL (Nov. 27, 2012), Vice Chancellor J. Travis Laster preliminarily enjoined Complete Genomics, Inc. from enforcing a standstill agreement containing a potentially problematic “don’t ask, don’t waive” provision. This provision purported to contractually preclude the other party to the standstill agreement (identified in the hearing only as “Party J”) from making a request — either publicly or privately — to the board of Genomics that the company waive the restrictions in the standstill that otherwise prevented Party J from making an acquisition proposal for Genomics. Thus under the “don’t ask” terms of the standstill, even a polite request by Party J to Genomics for permission to make a topping bid for Genomics would itself be a breach a contract in violation of Party J’s promise not to ask for such a waiver…

Supplement: Tom Bayliss, a leading Delaware corporate litigator, provides a thorough discussion of a prior ruling in the case on DealLawyers.com here.