Supplemental Reading: Standstills

Standstills: Ventas, Celera, Complete Genomics, Ancestry.com

Form of Standstill Provision This provision would be a separately (often fiercely) negotiated provision often inserted into a Confidentiality Agreement. 9. [Unless approved in advance in writing by the board of directors of the Company, the Recipient agrees that neither it nor any of its Representatives acting on behalf of or in concert with the Recipient (or any of its Representatives) will, for a period of [___] year[s] after the date of this Agreement, directly or indirectly: (a) make any statement or proposal to the board of directors of any of the Company, any of the Companys Representatives or any of the Companys stockholders regarding, or make any public announcement, proposal or offer (including any solicitation of proxies as such terms are defined or used in Regulation 14A of the Securities Exchange Act of 1934, as amended) with respect to, or otherwise solicit, seek or offer to effect (including, for the avoidance of doubt, indirectly by means of communication with the press or media) (i) any business combination, merger, tender offer, exchange offer or similar transaction involving the Company or any of its subsidiaries, (ii) any restructuring, recapitalization, liquidation or similar transaction involving the Company or any of its subsidiaries, (iii) any acquisition of any of the Company's loans, debt securities, equity securities or assets, or rights or options to acquire interests in any of the Company's loans, debt securities, equity securities or assets, (iv) any proposal to seek representation on the board of directors of the Company or otherwise seek to control or influence the management, board of directors or policies of any of the Company, (v) any request or proposal to waive, terminate or amend the provisions of this Agreement or (vi) any proposal, arrangement or other statement that is inconsistent with the terms of this Agreement, including thisSection 9(a); (b) instigate, encourage or assist any third party (including forming a group with any such third party) to do, or enter into any discussions or agreements with any third party with respect to, any of the actions set forth in clause (a) above; (c) take any action which would reasonably be expected to require the Company or any of its affiliates to make a public announcement regarding any of the actions set forth in clause (a) above; or (d) acquire (or propose or agree to acquire), of record or beneficially, by purchase or otherwise, any loans, debt securities, equity securities or assets of the Company or any of its subsidiaries, or rights or options to acquire interests in any of the Company's loans, debt securities, equity securities or assets[, except that Recipient may beneficially own up to ___% of each class of the Companys outstanding loans, debt securities and equity securities and may own an amount in excess of such percentage solely to the extent resulting exclusively from actions taken by the Company]. [The foregoing restrictions shall not apply to any of the Recipient's Representatives effecting or recommending transactions in securities (A) in the ordinary course of its business as an investment advisor, broker, dealer in securities, market maker, specialist or block positioner and (B) not at the direction or request of the Recipient or any of its affiliates.] (e) Notwithstanding the foregoing provisions of this Section 9, the restrictions set forth in this Section 9 shall terminate and be of no further force and effect if the Company enters into a definitive agreement with respect to, or publicly announces that it plans to enter into, a transaction involving all or a controlling portion of the Companys equity securities or all or substantially all of the Company's assets (whether by merger, consolidation, business combination, tender or exchange offer, recapitalization, restructuring, sale, equity issuance or otherwise).]

Standstills: Ventas, Celera, Complete Genomics, Ancestry.com

Note on Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust (Ontario, Mar. 2007) Sunrise Senior Living Real Estate Investment Trust (Sunrise), a Toronto Stock Exchange listed company, put itself up for auction in November 2006. Seven parties, including Ventas Inc. and Health Care Property Investors Inc. (HCP), signed confidentiality agreements. The confidentiality agreements signed by Ventas and HCP contained standstill provisions prohibiting them from making a proposal to acquire securities or assets of Sunrise for 18 months without Sunrises prior written consent.1 Ultimately, the interested parties were winnowed to Ventas and HCP, and Ventas made a proposal to acquire Sunrises assets for $15 per unit. HCP did not submit a final bid. As a result, Ventas and Sunrise entered into an purchase agreement in January 2007 containing a no shop provision with a customary fiduciary out. Ventas was given matching rights should a superior proposal arise, failing which Sunrise could terminate the purchase agreement, subject to paying the 3.5% termination fee, and enter into an agreement with the new bidder. The purchase agreement also contained a provision, not expressly subject to the fiduciary out, that required Sunrise to not waive or fail to enforce the standstill provisions in any confidentiality agreements signed with third parties. The relevant provisions are excerpted below: 4.4 (1) Following the date hereof, Sunrise REIT shall not, directly or indirectly, through any trustee, officer, director, agent or Representative of Sunrise REIT or any of its Subsidiaries, and shall not permit any such Person to, (i) solicit, initiate, encourage or otherwise facilitate (including by way of furnishing information or entering into any form of agreement, arrangement or understanding or providing any other form of assistance) the initiation of any inquiries or proposals regarding, or other action that constitutes, or may reasonably be expected to lead to, an actual or potential Acquisition Proposal, (ii) participate in any discussions or negotiations in furtherance of such inquiries or proposals or regarding an actual or potential Acquisition Proposal or release any Person from, or fail to enforce, any confidentiality or standstill agreement or similar obligations to Sunrise REIT or any of its Subsidiaries, (emphasis added) (iii) approve, recommend or remain neutral with respect to, or propose publicly to approve, recommend or remain neutral with respect to, any Acquisition Proposal, or (v) withdraw, modify or qualify, or publicly propose to withdraw, modify or qualify, in any manner adverse to the Purchasers, the approval or recommendation of the Board (including any committee thereof) of this Agreement or the transactions contemplated hereby. (2) Notwithstanding anything contained in Section 4.4(1), until the Unitholder Approval, nothing shall prevent the Board from complying with Sunrise REIT's disclosure obligations under applicable Laws with regard to a bona fide written, unsolicited Acquisition Proposal or, following the receipt of any such Acquisition Proposal from a third party (that did not result from a breach of this Section 4.4), from furnishing or disclosing non-public information to such Person if and only to the extent that: (i) the Board believes in good faith (after consultation with its financial advisor and legal counsel) that such Acquisition Proposal if consummated could reasonably be expected to result in a Superior

Significantly, however, the standstill provision in the Ventas confidentiality agreement differed from the HCP confidentiality agreement in that Ventas standstill provision terminated if a third party made a bid for Sunrise or if Sunrise entered into a purchase agreement with a third party. The HCP standstill contained no such limitation.
1

Standstills: Ventas, Celera, Complete Genomics, Ancestry.com Proposal2 (3) Notwithstanding anything contained in Section 4.4(1), until the Unitholder Approval, nothing shall prevent the Board from withdrawing or modifying, or proposing publicly to withdraw or modify its approval and recommendation of the transactions contemplated by this Agreement, or accepting, approving or recommending or entering into any agreement, understanding or arrangement providing for a bona fide written, unsolicited Acquisition Proposal (that did not result from a breach of this Section 4.4) ("Proposed Agreement") if and only to the extent that: (ii) the Board, believes in good faith (after consultation with its financial advisor and legal counsel) that such Acquisition Proposal constitutes a Superior Proposal and has promptly notified the Purchasers of such determination, (7) Sunrise REIT shall, as promptly as practicable, notify the Purchasers of any relevant details relating to any Acquisition Proposal. (8) Sunrise REIT shall (v) not amend, modify, waive or fail to enforce any of the standstill terms or other conditions included in any of the confidentiality agreements between Sunrise REIT and any third parties. (emphasis added)

Subsequently, HCP offered to acquire Sunrise for $18 per unit on terms identical to the Ventas/ Sunrise transaction, subject to its concluding an agreement with the management company of Sunrises properties. Sunrise did not immediately treat this proposal as a superior proposal because of the uncertainty created by this condition. The parties then made various applications to court, essentially to determine whether Sunrise could entertain the HCP offer.3 In holding that the Purchase Agreement requires Sunrise to enforce the HCP Standstill, precluding the higher bid, the Ontario Superior Court wrote: Sunrise REIT expressly and unambiguously agreed that it would not amend, modify, waive or fail to enforce any of the standstill terms or other conditions included in any of the confidentiality agreements

As defined in the Purchase Agreement: "Superior Proposal" means any unsolicited bona fide written Acquisition Proposal made by a third party that in the good faith determination of the Trustees, after consultation with its financial advisors and with outside counsel: (a) is reasonably capable of being completed without undue delay (b) [is fully financed]; and (c) would, if consummated in accordance with its terms, result in a transaction more favourable to Unitholders from a financial point of view than the transactions contemplated by this Agreement.
3 2

Summarizing the parties positions, the Court wrote: It is Ventas' position that as part of the auction process, a confidentiality agreement that included the Standstill Agreement was entered into by HCP and Sunrise REIT. Ventas played by the rules and won the auction. The benefits of winning the auction included a binding obligation on Sunrise REIT to enforce the HCP Standstill Agreement. . The rationale for deal protection devices such as the Standstill Agreement between Sunrise REIT and HCP is that, in a contested bidding situation, they encourage bidders to make their best bids. In any event, as set forth in the Purchase Agreement, Ventas states that ultimately it should be for the unitholders to decide which course to take. Sunrise REIT does not take the position that the Purchase Agreement is ambiguous. Rather, it submits that Sunrise REIT contracted for a fiduciary out mechanism in the Purchase Agreement and these provisions were a fundamental aspect of the commercial context of the process that was designed to maximize value for the unitholders.

Standstills: Ventas, Celera, Complete Genomics, Ancestry.com

between Sunrise REIT and any third parties. The standstill enforcement obligations are found in sections 4.4(1) and 4.4(8) of the Purchase Agreement. Sections 4.4(2) and 4.4(3) address Sunrise REIT's obligations with regard to "a bona fide written, unsolicited Acquisition Proposal (that did not result from a breach of this section 4.4)." Sections 4.4(2) and 4.4(3) are prefaced with the words "notwithstanding anything contained in section 4.4(1)." Sections 4.4(2) and (3) do not say "notwithstanding anything contained in section 4.4(1) or 4.4(8)." If it had been the parties' contractual intention to exempt the circumstances described in sections 4.4(2) and (3) from the operation of section 4.4(8), they could have so provided but they did not. Similarly, unlike sections 4.7 and 4.8 which commence with the words "notwithstanding any other term of the Agreement", sections 4.4(2) and 4.4(3) do not use this language. It also should be observed that 4.4(2) and 4.4(3) contemplate a bona fide Acquisition Proposal. Bona fide means acting or done in good faith; sincere, genuine. I agree with the submission of counsel for Ventas that a proposal made in breach of a contractual obligation not to make such a proposal cannot be considered to be bona fide. Sections 4.4(2) and 4.4(3) are not designed to address Acquisition Proposals that are not bona fide. So, for instance in this case, HCP is in breach of its Standstill Agreement and therefore HCP's proposals would not be encompassed by sections 4.4(2) and 4.4(3) because they could not be considered to be bona fide. Furthermore, sections 4.4(2) and 4.4(3) also contemplate an Acquisition Proposal from a third party that did not result from a breach of section 4.4. An Acquisition Proposal submitted in breach of a standstill agreement, to the extent it is considered by Sunrise REIT, would result from a breach of section 4.4. Again, in this case, sections 4.4(2) and 4.4(3) would be inapplicable on this ground as well. It seems to me that the clear scheme of this Purchase Agreement was ensure enforcement of standstill agreements that had been signed as part of the auction process. This strikes me as being objectively reasonable and was a form of protection afforded to the purchaser, Ventas. This was part of the package negotiated between it and Sunrise REIT. Ontario Superior Court of Justice, Mar. 6, 2007 CarswellOnt 1704, 29 B.L.R. (4th) 292, 56 R.P.R. (4th) 183

Upholding the decision, the Ontario Court of Appeal wrote: [A]n important purpose of this part of the Purchase Agreement is to ensure the enforcement of standstill agreements entered into by previous players in the auction process. The negotiating context demonstrates that Ventas has been skillful in protecting its own position with respect to competition and standstills unlike the HCPI Standstill, the Ventas/Sunrise Standstill Agreement expired at the conclusion of the auction and it is objectively reasonable, given this background, that it would seek protection against competition from those who were unsuccessful in the auction, particularly its principle competitor. From Sunrise's perspective, the safety valve lies in the unitholders' meeting. If the unitholders believe that there is a more favourable offer available one worth the risk of rejecting the Ventas proposal they may well vote to reject the Ventas proposal at their meeting on March 30. [HCP] placed great emphasis on the sanctity of the fiduciary out mechanism in acquisition agreements of this nature. There is no doubt that the directors of a corporation that is the target of a takeover bid have a fiduciary obligation to take steps to maximize shareholder (or unitholder) value in the process. That is the genesis of the "fiduciary out" clauses in situations such as the case at hand. They enable directors or trustees to comply with their fiduciary obligations by ensuring that they are not precluded from considering other bona fide offers that are more favourable financially to the shareholders or unitholders than the bid in hand.

Standstills: Ventas, Celera, Complete Genomics, Ancestry.com

It is not necessary nor would it be wise, in my view to go as far as HCPI suggests this court might go, and adopt the principle gleaned from some American authorities, that the target vendor can place no limits on the directors' right to consider superior offers and that any provision to the contrary is invalid and unenforceable: see Paramount Communcations Inc. v. QVC Network Inc., 637 A.2d 34 (U.S. Del. Super. 1994), and ACE Ltd. v. Capital Re Corp., 747 A.2d 95 (U.S. Del. Ch. 1999) at 105. That is not what happened in this case. The Trustees did not contract away their fiduciary obligations. Rather, they complied with them by setting up an auction process, in consultation with their professional advisers, that was designed to maximize the unit price obtained for Sunrise's assets, in a fashion resembling a "shotgun" clause, by requiring bidders to come up with their best price in the second round, subject to a fiduciary out clause that allowed them to consider superior offers from anyone save only those who had bound themselves by a Standstill Agreement in the auction process not to make such a bid. In this case, that turned out to be only HCPI. An auction process is well-accepted as being one although only one "appropriate mechanism to ensure that the board of a target company acts in a neutral manner to achieve the best value reasonably available to shareholders in the circumstances" [citations omitted]. Here, the trustees, acting reasonably and on professional advice, formed the view that an auction process was the best way to maximize value, and conducted such an auction to the point where they attracted a successful bidder. This is not a case where the Trustees were unable to judge the adequacy of the bid. They had dealt with seven prospective purchasers in the course of the two auction rounds, and had received preliminary proposals. Ventas's $15.00-per-unit price represented a 35.8% increase over the market price of the Units on the date the auction closed. I do not think the Trustees can be said to have failed in the exercise of their fiduciary obligations to their unitholders in these circumstances simply by agreeing in the Purchase Agreement to preclude earlier bidders, who had bound themselves under Standstill Agreements not to do so, from coming in after the auction was concluded and the "successful" bidder had showed its cards and attempting to "top up" that bid. It is well accepted that "where an agreement admits of two possible constructions, one of which renders the agreement lawful and the other of which renders it unlawful, courts will give preference to the former interpretation." Advancing this principle, the appellants argue that we should be loathe to adopt an interpretation of the Purchase Agreement that is inconsistent with overarching fiduciary obligations. While I accept the principle put forward, however, I do not think it applies in the context of this case for the reasons outlined above. The interpretation given to the Purchase Agreement by the application judge is not inconsistent with the Trustee's fiduciary obligation to maximize unitholder value. Indeed, it is consistent with that obligation. Ontario Court of Appeal, Mar. 23, 2007. 2007 CarswellOnt 1705, 222 O.A.C. 102, 29 B.L.R. (4th) 312, 56 R.P.R. (4th) 163, 85 O.R. (3d) 254

Aftermath: Sunrise was obligated to enforce the standstill with HCP, despite the apparent superiority of the HCP proposal. Ultimately, however, Ventas increased its offer to $16.50 per unit, the Sunrise unitholders approved the transaction, and the sale was completed in April 2007.

Standstills: Ventas, Celera, Complete Genomics, Ancestry.com

Note on In Re Celera Corporation Shareholder Litigation, C.A. No. 6304-VCP, Mar. 23, 2012 In March 2011, Quest Diagnostics Inc. and Celera Corp. entered into a merger agreement providing for the acquisition of Celera by a subsidiary of Quest for approximately $680 million. The acquisition agreement resulted from a bidding process conduct in which Celeras financial advisors had contacted nine potential bidders, five of which (Illumina, Inverness, Lab Corp., Qiagen, and Quest) performed at least some measure of due diligence. In exchange for access to diligence information, all five of these companies entered into confidentiality agreements. The confidentiality agreements contained standstill provisions that expressly prohibited them from making offers for Celera shares without an express invitation from the Board. The standstill provisions also contained a provision preventing the signing parties from asking the Board to waive this restriction, a so-called Dont Ask, Dont Waive Standstill Provision. When Quest emerged from this process as the winning bidder, the resulting acquisition was structured as a front-end tender offer, followed by a second-step squeeze-out merger. The merger agreement contained several deal-protection measures, including a break-up fee of about 3.5% of the total deal value and a no-shop provision requiring Celera to terminate any existing discussions with, and not to solicit competing offers from, potential bidders other than Quest. When the merger was challenged in shareholder litigation, plaintiffs argued that the combination of the noshop provision with the Dont Ask Dont Waive standstill was particularly onerous because it prevented Celeras board from entering into discussions with those most likely competing bidders. The litigation was ultimately settled for non-monetary consideration including: (1) reduction of the termination fee (from $23.45 million to $15.6 million), modification of the No Solicitation Provision to invite competing offers from the potential bidders subject to the Dont-Ask-Dont Waive Standstills, (3) a seven day extension of the tender offer; and (4) additional disclosures about the transaction process and financial analysis. In approving the settlement (and plaintiffs attorneys fees of $1.3 million), the court noted:

In waiving the Dont-Ask-Dont-Waive Standstills, Defendants invited back to the bargaining table the four bidders arguably most likely to make a superior offer (because they already had performed some due diligence and perhaps could evaluate more quickly whether to make a competitive offer) Similarly, [l]owering a termination fee reduces the barrier to making a superior offer in the first place and increases the amount of the superior offers consideration that would go directly to shareholders. Lastly, extending the closing date of the tender offer afforded potential bidders more time to conduct due diligence and consider whether to make a competing bid. I also note that, as to a handful of the Plaintiffs claims, the therapeutic deal changes may represent the maximum relief that Plaintiffs could have obtained. For example, Plaintiffs may have been able to show that the combined potency of the Dont-Ask-Dont-Waive Standstills and the No Solicitation Provision was problematic. The terms of the Dont-Ask-Dont-Waive Standstills restricted the potential bidder from, among other things, acquiring, offering to acquire, or soliciting proxies of Celera securities in any manner (including by assisting others to do any of the same) without the Companys express written invitation. Furthermore, the affected bidders had agreed not to request the Company (or its directors, officers, employees or agents), directly or indirectly, to amend or waive any provision of [the relevant standstill terms] (including this sentence). Viewed in isolation, these Dont-Ask-Dont-Waive Standstills arguably foster legitimate objectives, ensuring that confidential information is not misused, establishing

Standstills: Ventas, Celera, Complete Genomics, Ancestry.com

rules of the game that promote an orderly auction, and giving the corporation leverage to extract concessions from the parties who seek to make a bid.4 Similarly, the No Solicitation Provision, viewed in isolation, appears legitimate; although it prevented the Company from contacting potentially interested parties, including the previously identified parties, it also contained a fiduciary out permitting the Board to waive the Dont-Ask-Dont-Waive Standstills if strict compliance with the Merger Agreement would violate the Boards fiduciary duty to maximize shareholder value. Taken together, however, the Dont-Ask-Dont-Waive Standstills and No Solicitation Provision are more problematic. [The Delaware Supreme] Court has stressed the importance of the board being adequately informed in negotiating a sale of control: The need for adequate information is central to the enlightened evaluation of a transaction that a board must make. 5 Here, the Dont-Ask-Dont-Waive Standstills block at least a handful of once-interested parties from informing the Board of their willingness to bid (including indirectly by asking a third party, such as an investment bank, to do so on their behalf), and the No Solicitation Provision blocks the Board from inquiring further into those parties interest. Thus, Plaintiffs have at least a colorable argument that these constraints collectively operate to ensure an informational vacuum. Moreover, the increased risk that the Board would outright lack adequate information arguably emasculates whatever protections the No Solicitation Provisions fiduciary out otherwise could have provided. Once resigned to a measure of willful blindness, the Board would lack the information to determine whether continued compliance with the Merger Agreement would violate its fiduciary duty to consider superior offers. Contracting into such a state conceivably could constitute a breach of fiduciary duty. 6 To be clear, I do not find, either in the circumstances of this case or generally, that provisions expressly barring a restricted party from seeking a waiver of a standstill necessarily are unenforceable. Such a ruling should be made, if ever, only on the merits of an appropriately developed record, especially because those provisions may be relatively common.7 Rather, based on the issues it redresses, I find this aspect of the settlement consideration to be valuable. Had Plaintiffs succeeded on this claim, the likely remedy would have been an injunction against enforcing the Standstill agreements.8 Therefore, Defendants agreement to waive voluntarily those problematic contractual provisions mooted Plaintiffs claims in this regard. Similarly, to the extent that Plaintiffs complained of a deficient or disloyal market check, the likely remedy would have been limited injunctive relief, long enough to recreate an active market check but without blocking the deal and sending the parties back to the drawing board.9 Where a company has been exposed to the market and potential transactions shopped for some time, even as egregious case of process defects probably would have led to an injunction of only twenty days or so.10 Furthermore, where no rival bidder has made its presence known, preliminary injunctive relief may be completely illusory.11

In re Topps Shareholders Litig., 926 A.2d 58, 91 (Del. Ch. 2007). Paramount Commcns Inc. v. QVC Network Inc., 637 A.2d 34, 44 (Del. 1994) (quoting Barken, 567 A.2d at 1287). 6 See QVC, 637 A.2d at 51 (To the extent that a contract, or a provision thereof, purports to require a board to act or not act in such a fashion as to limit the exercise of fiduciary duties, it is invalid and unenforceable.); ACE Ltd. V. Capital Re Corp., 747 A.2d 95, 106 (Del. Ch. 1999) (finding no solicitation provision pernicious where it arguably required an abdication of the board of its duty to determine what its own fiduciary obligations require); see also In re RehabCare Gp., Inc. Sholder Litig., C.A. No. 6197-VCL, tr. At 46 (Del. Ch. Sept. 8, 2011) (expressing doubt that dont-ask-dont-waive standstills are ever going to hold up if its actually litigated, particularly after Topps). 7 See 1 Arthur Fleischer, Jr. & Alexander R. Sussman, Takeover Defense: Mergers & Acquisitions 8.04[A], at 8-21 (6th ed., rev. vol. 2012). 8 See In re Topps, 926 A.2d at 92 (enjoining shareholder vote on merger until target waived standstill agreement used improperly). 9 In re Del Monte Foods Co. Sholders Litig., 25 A3d 813, 841 (Del., Ch. 2011) [hereinafter Del Monte I] (enjoining transaction for twenty days due to substantial process defects and banker conflicts). 10 See id. 11 See In re El Paso Corp. Sholder Litig., 2912 WL 653845, at *11 (Del. Ch. Feb. 29, 2012) (declining to enjoin transaction despite likelihood of success on the merits because no rival bid for [the target] exists); see also id. At
5 4

Standstills: Ventas, Celera, Complete Genomics, Ancestry.com

Although post-closing damages still may be available if preliminary injunctive relief is only limited in nature or denied altogether, the alleged process violations here, as discussed further infra, were significantly less severe than in Del Monte or El Paso. Hence, the one-week extension arguably obtained all the relief that was likely. In Re Celera Corporation Shareholder Litigation, Civ. No. 6304-VCP, at 51-55.

Note on In re Complete Genomics, Inc. Shareholder Litigation, C.A. No. 7888-VCL (Transcript, Nov. 27, 2012). In a set of bench rulings issued in November 2012, the Delaware Court of Chancery temporarily enjoined a merger between Complete Genomics, Inc. and BGI-Shenzhen pending corrective disclosure regarding, among other things, BGIs willingness to employ Genomics current CEO and let him operate Genomics as an independent entity under BGI ownership. The Court further enjoined Genomics from enforcing a confidentiality agreement with a third-party bidder that contained a Dont Ask, Dont Waive standstill provision. The Court also sharply criticized a provision restricting the Genomics boards ability to change its recommendation. Genomics is a Delaware corporation headquartered in California that has developed a unique DNA sequencing technology. Its products generate significant revenues, but the company faces severe financial distress. As a result, in June 2012, Genomics publicly announced that it was pursuing strategic alternatives and contacted 42 parties that might be interested in an equity investment, a strategic partnership, or an acquisition. Of these 42 parties, nine parties signed confidentiality agreements, four of which contained standstill agreements that prohibited the potential bidder from making any public request to be released from the standstill agreement. The number of parties interested in bidding, however, dwindled to eight by the time the Genomics board asked for nonbinding proposals, with six parties proposing equity investments and two proposing transactions. Genomics pursued discussions with all parties, but focused on the two parties proposing transactions. Upon the withdrawal of one of those parties after being refused exclusivity by the Genomics board, BGI emerged as the sole remaining bidder. In September 2012, the Genomics board approved a merger agreement where Genomics would be acquired by BGI in a two-step transaction. In the first step, an acquisition subsidiary of BGI will launch a tender offer for Genomics shares at $3.15 per share in cash and, if a majority of the shares are tendered, the parties will effect a second-step merger for the same consideration. The $3.15 share price reflects a 54% per share premium over the stock price the day before the public announcement that Genomics was exploring strategic alternatives. Moreover, BGI further agreed to provide $30 million in bridge financing until closing of the merger. The merger agreement contained a variety of deal protections, including a 4.8% break-up fee (and if a topping bidder emerged, BGI could convert the bridge loan into shares of Genomics and also participate in the higher topping price), a prohibition on terminating the merger agreement to accept a superior proposal and restrictions on the Genomics boards ability to change its recommendation of the merger agreement or waiving any standstill agreements. Hence, short of a breach by BGI or an injunction order by a court, the only out of the merger agreement for Genomics was if the offer was not completed by the Outside Date.12 In its Nov 9 ruling, the Court (Vice Chancellor Laster) declined to enjoin the deal protection provisions, although it did call into question the ability of the board to restrict its ability to change its recommendation. If stockholders can reject the transaction and maintain the status quo, then the transaction is not coercive. There may be negative consequences to continuing with the status quo, but neither the existence of those negative consequences nor accurate disclosures about them constitutes wrongful coercion.

*11 n.56 (Although it is true that the absence of a pre-signing market check and the presence of strong deal protections may explain the absence of a competing bid, . . . [i]n the era in which Revlon was decided, bidders wishing to disrupt transactions actually made their presence known and litigated to achieve their objectives.). 12 Set as December 14, 2012 with the possibility of a 90 day extension if any condition to the offer is not met.

Standstills: Ventas, Celera, Complete Genomics, Ancestry.com

Here, the board worked diligently to give Genomics stockholders an option. Reid and the directors believed that without a transaction, Genomics was and still is headed for bankruptcy. The board explored financing options, then all strategic alternatives, in an effort to provide stockholders with an opportunity to receive value for their shares. If stockholders do not like the options the board secured and would like to take their chances with the status quo, then they can decline to tender. The merger agreement does not require the payment of a termination fee if stockholders simply decline to tender and the minimum condition is not met by the outside date. The merger agreement only requires the payment of a termination fee if the minimum condition is not met by the outside date and a topping bid has emerged, or the board has failed to maintain its recommendation in favor of the merger agreement, or Genomics has breached the merger agreement. As a result, Genomics can freely choose the status quo without penalty. The fact that they may face bankruptcy under those circumstances does not make the merger agreement coercive. That situation, in fact, represents the business reality, i.e., the status quo that Genomics stockholders currently face. The merger agreement also is not preclusive. As Revlon teaches, deal protection measures are wrongfully preclusive if they effectively preclude bidders from competing with the favored bidder. Here, a competing bidder could commit publicly to a tender offer for any and all of Genomics' shares to be followed by a back -end merger at the same offered price. It's the same type of public commitment that a controller makes when they initiate a Siliconix process. Because of that ability, there is a realistic path for stockholders to receive an alternative bid. I am now going to turn to the recommendation limitations. The plaintiffs have also challenged Sections 5.3(d), (e) and (f) of the merger agreement, which place extensive limitations on the board's ability to provide Genomics' stockholders with a current merger recommendation. In substance, these sections attempt to restrict the board's ability to change its recommendation with the types of conditions and procedures frequently and historically used to regulate a target's contractual ability to terminate a merger agreement and accept a superior proposal. Contractual transplants of this variety are fraught with peril. So long as a board of directors validly enters into the merger agreement in the first place, no-shop and related termination rights are measured at the time of decision and subsequently governed by contract. The carve -out from a target board's obligation to recommend a merger agreement raises issues that are fundamentally different because it implicates duties to target stockholders to communicate truthfully. Unlike in the no-shop and termination outs, fiduciary duty law in this context can't be overridden by contract. There are an awful lot of issues lurking in the provision that the plaintiffs have challenged. If you want an example of the types of issues that are here, you need look no further than some of the authorities that I cited in Compellent. Particularly, you can review the two pieces by John F. Johnson entitled, "A Rubeophobic Delaware Counsel Marks Up Fiduciary Out Forms, Parts I and II." As I said at the outset, no one currently contends that there's presently any need for or desire on the part of the board to change its recommendation. Rather than delve into these issues on the basis of a facial challenge, I'm going to deny the application but condition that denial on the plaintiffs receiving prompt notice from Genomics if the board considers whether it should change its recommendation. That's if it considers it regardless of whether the board believes it could do so under the contract. There are certain situations where those could be different things. The existence and imposition of this condition will permit any actual dispute, any actual concrete dispute as opposed to sort of a law review hypothetical question, to be truly litigated on the facts.

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Standstills: Ventas, Celera, Complete Genomics, Ancestry.com

Nov. 9, 2012 Transcript at 13-19. When it subsequently discovered, however, that at least one potential bidder had entered into a standstill agreement that prevented the bidder from publicly or privately requesting that Genomics waive or amend its terms a so-called Dont Ask, Don't Waive standstill the Court enjoined Genomics from enforcing the standstill agreement. In its November 27 ruling, the Court held: In my view, a Dont-Ask-Dont-Waive Standstill resembles a bidder-specific no-talk clause. In Phelps Dodge Corporation v. Cyprus Amax, Chancellor Chandler considered whether a target board had breached its fiduciary duties by entering into a merger agreement containing a no-talk provision. Unlike a traditional no-shop clause, which permits a target board to communicate with acquirers under limited circumstances, a no-talk clause and here Im quoting from the Chancellor "not only prevents a party from soliciting superior offers or providing information to third parties, but also from talking to or holding discussions with third parties. Thats from Page 4 of the transcript. The Chancellor concluded that there was a reasonable probability that for the target board to have agreed to such a provision violated its ongoing and again, Im quoting duty to take care to be informed of all material information reasonably available. Thats from Page 2 of the transcript. This was because the target boards agreement to disable itself from engaging in a dialogue with potential acquirer under any circumstances whatsoever was the legal equivalent of willful blindness. Subsequent Delaware decisions have endorsed the Phelps Dodge analysis. Vice Chancellor Lamb, my predecessor, did so in the Cirrus Holdings case. Quoting from that decision, directors cannot willfully blind themselves to opportunities that are presented to them, thus limiting the reach of no talk provisions. Then-Vice Chancellor Strine likewise cited Phelps Dodge with approval in his ACE Ltd. V. Capital Re case. In holding that the no-talk provision comprised the target boards ongoing obligation to remain informed, Chancellor Chandler in Phelps Dodge focused on the targets ability to decide whether to negotiate with third parties and whether the provision impermissibly prevented the board from meeting its duty to make an informed judgment with respect to even considering whether to negotiate with a third party. Thats from Page 1 of the transcript. As Chancellor Chandler noted, a board doesnt necessarily have an obligation to negotiate. That, of course, has been confirmed by this Delaware Supreme Court in Gantler v. Stevens. It was also what Chancellor Allen held in the TW Services case. Regardless, a board does have an ongoing statutory and fiduciary obligation to provide a current, candid and accurate merger recommendation. A board has an ongoing fiduciary obligation to review and update its recommendation. Thats clear from the original Van Gorkom decision. It was the explicit holding of Vice Chancellor Noble in the Frontier Oil Corp. v. Holly Corp. decision Im going to quote from that Revisiting the commitment to recommend the Merger was not merely something that the Merger Agreement allowed the Board to do; it was the duty of the Board to review the transaction to confirm that a favorable recommendation would continue to be consistent with the fiduciary duties. Maintaining a current and candid merger recommendation is part of the directors duty of disclosure. For that, you can see the Berkshire Realty Company case from 2002 in which the following was stated: If the board, in the exercise of its business judgment, determined that liquidation -- which was the decision at issue was not in the best interests of . . . its stockholders, it could not have recommended a liquidation without violating its fiduciary duty to the stockholders. Put simply, Delaware law requires that a board of directors give a meaningful, current recommendation to stockholders regarding the advisability of a merger including, if necessary, recommending against the merger as a result of subsequent events. There, Im paraphrasing from and would refer you to Frank Balotti and Gil Sparks article titled Deal-Protection Measures and the Merger Recommendation, and particularly page 476. Chancellor Allen made the same comment in his 2000 Business Lawyer article where he pointed out, A board may not suggest or imply that it is recommending the merger to the shareholders if in fact its members have concluded privately that the deal is not now in the best interest of the shareholders.

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What these decisions and these authorities show is that the board has an ongoing statutory and fiduciary obligation with respect to the merger recommendation. So regardless of whether a no-talk provision, as in Phelps Dodge, or a Dont Ask, Dont Waive provision here, would create problems for the decision to negotiate, and certainly Phelps Dodge holds that it would, those provisions interfere with the target ability to determine whether to change its merger recommendation because they absolutely preclude the flow of incoming information to the board. So in my view, by analogy to Phelps Dodge, a Dont Ask, Dont Waive Standstill is impermissible because it has the same disabling effect as the no-talk clause, although on a bidder-specific basis. By agreeing to this provision, the Genomics board impermissibly limited its ongoing statutory and fiduciary obligations to properly evaluate a competing offer, disclose material information, and make a meaningful merger recommendation to its stockholders. With respect to the Dont Ask, Dont Waive Standstill provision, therefore, the plaintiffs have established a reasonable probability of success on the merits that that provision represents a promise by a fiduciary to violate its fiduciary duty, or represents a promise that tends to induce such a violation. Thats from Section 193 of the Restatement of Contracts. I would note as an aside that to the extent that people focus on the fact that at the tender offer stage of a two-step merger, the recommendation is really something that flows from federal law rather than Delaware law, I would refer you to the Matador Capital Management Corporation v. BRC Holdings case in which Vice Chancellor Lamb, my predecessor, held that in a two-step acquisition governed by a merger agreement, the same principals apply to the front-end recommendation as they do to the statutory merger recommendation. More recently, in the Orchid Cellmark decision, Vice Chancellor Noble observed that in a twostep merger, tendering, of course, is a substitute for the shareholder vote. That likewise indicates that the merger recommendation provisions and obligations flow through in this context. And then there is a whole long line of decisions starting with the transcript ruling by Vice Chancellor Lamb in Peapod, rolling through Glassman and Andra v. Blount, and more recently, I have cited it in CNX and in the original I shouldnt say original because that harkens to 1986 but in the Revlon decision that I wrote a couple years ago, noting that when you have a two-step transaction, fiduciary obligations apply to a two-step thats entered into by agreement to the same degree that they apply to the one-step. So the fact that were now at a stage where the recommendation is a product of a 14D-9 rather than technically a product of 251 doesnt change the fiduciary analysis. In terms of the issue of irreparable harm, I think for purposes of the Dont Ask, Dont Waive Standstill, its met. We just dont know and we would never be able to know unless Party J decides to cavalierly breach its own promise whether Party J would ever want to make some type of bid or other acquisition proposal. Yes, it would be nice to say confidently, as Mr. Aronstam does, that this is a low likelihood event. Unfortunately, time-bound mortals arent able to see the future. We can make probabilistic predictions but we cant know. This is a provision that flat-out prohibits, analogously to a bidder-specific no-talk clause, incoming information from that bidder under any circumstances. So just as that type of provision would create a situation that cant be remedied, likewise, here, I think that type of situation creates a situation that cant be remedied. Nov. 27, 2012 Transcript at 14-20.

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In re Ancestry.com Consolidated Shareholders Litigation, Del. Ch. No. 7988 (Strine), Dec. 17, 2012. In October 2012, Permira, a private-equity firm, agreed to pay $32 per share to acquire Ancestry.com, a 41% premium over the companys pre-sale closing price. Permira outbid TPG Capital and Providence Equity Partners in the sale process. Investors, however, challenged the transaction, arguing among other things that (1) Timothy Sullivan, Ancestrys CEO, along with other company officials and Ancestrys financial advisor, Qatalyst Partners, improperly favored Permiras bid; (2) inadequate disclosure; and (3) the inclusion, in the transaction, of a DontAsk-Dont Waive standstill provision. After reviewing the pre-trial record, Chancellor Strine remained unconvinced of the allegations of improper motivations underlying the sale process. He nevertheless found evidence of defective disclosure. With regard to the Dont-Ask-Dont Waive standstill, Strine reasoned as follows: Now I'll get to the emerging issue of December of 2012. Who would have thunk that this would be the no-ask, no-waiver month. On that issue, I think that the plaintiffs have a reasonable probability of success around the disclosure point. I think the plaintiffs actually had a reasonable probability of success on the substance of the thing. And let me be clear about why I think that is and why I do not. I'm giving you a bench ruling. Bench rulings are limited rulings. They're time-pressured ones. So when you're time pressured, you should be very careful about making broad pronouncements of law for the obviously reason that you've been time pressured, and the reflection of time might allow you to make a more sensible ruling. [Additionally, when] you give a bench ruling and you're dealing with a particular situation. Per se rulings where judges invalidate contractual provisions across the bar are exceedingly rare in Delaware, and they should be. It's inconsistent with the model of our law. This Court is a court of equity, and ... it's usually for the Legislature to determine when something is per se unlawful. It's not for the Court. Now, sometimes people do something that's totally inconsistent with the statute. That's not the Court making up a law. That's the Court saying, That provision violates a statute. I know of no statute, I know of nothing, that says that these provisions are per se invalid. And I don't think there has been a prior ruling of the Court to that effect. I know people have read a bench opinion that way. I think there was a lot going on in that case. Again, there is a role that bench opinions play, and I don't think it's to make per se rules. And the Celera case expressly went out of its way to say it's not making a per se rule. I think what Genomics and Celera both say, though, is Woah, this is a pretty potent provision. And precisely because of this Schnell overlay, the equitable overlay of the law, directors need to use these things consistently with their fiduciary duties, and they better be darn careful about them. Because they're often used in cases like this which are governed by Revlon and the board's obligation to try to get the highest value. And that obligation comes from the obvious reality that the board is saying to the stockholders, You should give up your continuing investment in the company right now for a sum certain. Which means that the directors are supposed to make sure that they've done everything reasonable to make sure that that

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price is as high as possible, that they give the stockholders full information about it, and when the stockholders vote, they know the risks. So here we get a provision, and I'm not prepared to rule out that they can't be used for valuemaximizing purposes. But the value-maximizing purpose has to be to allow the seller as a well-motivated seller to use it as a gavel, to impress upon the people that it has brought into the process the fact that the process is meaningful; that if you're creating an auction, there is really an end to the auction for those who participate. And therefore, you should bid your fullest because if you win, you have the confidence of knowing you actually won that auction at least against the other people in the process. That's what I understand the additional part of this no-ask part of the waiver provision is. Not talking about the standstill itself, which gives the board the ability to control what happens with an offer. We're talking about the ability for someone to even ask for a waiver. And it's on this idea of we've identified the most likely potential bidders. In advance of any deal protections inhibiting them from making a bid, we're bringing them in. We think they're the most likely. We recognize that other people may come forward, and they'll be subject to different rules. But how do we, in a public company context, get these most likely bidders to actually put their full bid on the table rather than hold something in reserve? We can use this tool to gain credibility so that those final-round bidders know the winner is the winner, at least as to them. That's what I understand the argument is around these things, in that you're running an auction. I'm not prepared to rule that out. I don't think the judges of this Court should be ruling that out. That sounds like if you want to say per se invalidity, that sounds like something for the Legislature to decide. But we do have an inescapable obligation to do what is the core job of this Court, which is to do that equitable overlay. Which is if you're going to use a powerful tool like that, are you using it consistently with your fiduciary duties, not just of loyalty, but of care? And I think the plaintiffs here ... have pretty obviously shown that this board was not informed about the potency of this clause. The CEO was not aware of it. It's not even clear the banker was aware of it. ... None of the board seems to be aware of this. The only way it has value as an auction gavel is if it has the meaning I've just described. It was not used as an auction gavel. And when Permira was signed up, Permira did not demand an assignment of it. And the board and its advisors did not waive it in order to facilitate those bidders which had signed up the standstills being able to make a superior proposal. I think that probabilistically is a violation of the duty of care. I think what's more important is that I'm not prepared to allow this to go to a vote without the stockholders being told about that. I think... they should know about this. ... [A]t least when the electorate votes --if these things are going to be used, and they're used for a gavel, then the electorate should know that with respect to the comfort they should take in the ability to make a superior proposal, they should understand that there is a segment of the market where that segment cannot take advantage of that; that the board made the cost/benefit trade-off that the best way to get the value was to draw the highest bid out from those people while they were in the process; that in order to do that, it had to incur the cost of giving to the winner the right to enforce it. But what you as a stockholder know is, We invited these people in on the front end. That's how we tried to maximize value. You still have

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the ability of somebody we didn't test the market with coming in, but you shouldn't assume that these other people can come in. That's if it's actually been assigned. What's harder to explain is if the winning bidder didn't ask for the assignment, how it is that the seller --I admit I wouldn't do it until I signed the definitive acquisition agreement with Permira. I don't want to tip Permira, but I would have had you guys sign first. And then the nanosecond after you didn't sign, I would have sent a letter to all those people and said, We're waiving the sentence in your standstill that says, Blank has hereby waived. The remainder remains in force and effect. Which then makes clear to all of them that if they wish to ask for a waiver in order to make a superior proposal, that they are legally allowed to do that. That makes sense. That took this litigation for that to occur. And so I think the plaintiffs have a point that there was --frankly, this was not used in a probabilistic way, in my view, in keeping with the duty of care that's required of directors during a Revlon process. ... I think that this was a process that had a lot of vibrancy and integrity to it, probabilistically. I think they tried to kick the tires. I think that they were trying to get these buyers to pay as full a price as possible. They were trying to create a competitive dynamic. Given that and given the ability of stockholders to vote for themselves, I'm disinclined to take it out of their hands. If someone has the courage of his or her convictions and doesn't want to accept it, then they should vote no. And a lot of times, these deals --I don't know whether there is an appraisal cap. But even if people are going to tell me that Spectrum has a lot of votes and Sullivan has a lot of votes, if the bulk of the remaining electorate says, We don't like this stinky deal; we believe everybody in America wants another genealogy tree and is going to want to know how Norwegian they are or how Irish or how Belgian or how Kenyan they are, they can protect themselves. I think given the market test that was done here, I'm poorly positioned to take that risk for them, and I'm not prepared to do so. And I think that is what separates out the absence of having a bidder on the table. That's a very powerful dynamic, and it's one that this Court has to consider for the best interests of stockholders. That said, the stockholders should vote knowing the material facts. And I've identified two ... flaws. And I believe that my balance of the harms calculus only works if the electorate in fact has that full information. And so... I'm going to enjoin the deal subject to those disclosures being promptly made. Dec. 17, 2012

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