Two recent judgments have been rendered by prominent judges of the Delaware Chancery Court – In re: Complete Genomics, Inc. Shareholder Litigation (Vice-Chancellor La vice) and In re: Ancestry.com Inc. Shareholder Litigation (Chancellor Strine) – have challenged the application of the so-called “Don`t ask, don`t waive” status quo clauses in confidentiality agreements for business processes and, in one case, requested the application of the standstill clauses known as “Don`t ask, don`t waive”. While we do not believe that these provisions are not applicable per se in Delaware, target companies must apply these provisions carefully to ensure that they stand up to judicial review. For planned mergers and acquisitions of listed companies, the target company often asks the potential acquirer to enter into a standstill agreement that protects the public objective from unwanted acquisition attempts by the potential acquirer. Standstill agreements provide the target company and its board of directors with different levels of protection and stability in order to implement an orderly sales process. These standstill agreements are usually part of the confidentiality agreement entered into by the parties prior to the exchange of proprietary and non-public information for the purposes of the student`s due diligence investigations. The justification for requesting a status quo agreement from the target company is simple – the goal is for the process to be consensual and the terms to be mutually agreed. Therefore, before providing confidential information about its activities and activities, and before the potential acquirer commits to entering into a final acquisition agreement, the intended acquirer wishes to ensure that the potential acquirer does not use the confidential information to make a hostile offer of the objective if the parties do not reach a mutual agreement on the terms of sale. In other industries, a standstill agreement can be virtually any agreement between the parties, in which both parties agree to discontinue the case for a specified period of time.
It can be an agreement to defer planned payments in order to help a company overcome difficult market conditions, agreements, stop production of a product, agreements between governments or many other types of agreements. A standstill agreement can be used as a form of defense against a hostile acquisition when a target company obtains a promise from an unwelcoming bidder to limit the amount of shares the bidder buys or holds in the target company. By recovering the promise of the potential buyer, the target company will gain more time to set up other acquisition defenses. In many cases, the target company promises to buy back with a premium the stock of shares of the potential acquirer in the target company. Genomics. In the field of genomics, Vice Chancellor Vice Complete Genomics, Inc. of the application of a “Don`t ask, don`t waive” provision in a confidentiality agreement with a bidder in connection with its merger with BGI-Shenzhen.  In other cases, Chancellor Strine`s warning that there is no per-se rule against the “Don`t ask, don`t waive” status quo provisions taken after genomics should be respected in other cases, and the specific facts in genomics will give the courts the opportunity to do what they deem right. As with other issues in the merger process, we believe the courts will consider the extent to which the agreement was originally reached, the number of potential buyers, and the extent to which shareholders have committed to supporting the transaction.  In addition, the courts will take into consideration the quality of the procedure and the information made available to the tenderer bound by the standstill clause “Do not ask, do not renounce” and which may be excluded from the continuation of the offer as soon as a merger contract with another party is signed. The arguments in favour of a “do not ask, do not give up” provision will be strongest in cases where an excluded purchaser has been offered a full and fair opportunity to make its best offer before the objective has reached a final agreement.
. . .