Recent Delaware Law Developments Concerning No-Talk Provisions - From "Just Say No" to "Can't Say Yes"

© Copyright 2000, Mark A. Morton, Michael A. Pittenger, Matthew E. Fischer, Esqs.
All rights reserved

Published in the Spring issue of Deal Points, a newsletter published by the Negotiated Acquisitions Committee of the American Bar Association

Summary

Three recent Delaware Court of Chancery rulings, Phelps Dodge v. Cyprus/Asarco, ACE Ltd. v. Capital Re and In re IXC Comms., Inc., represent the Court's first efforts to address the validity of "no-talk" provisions in merger agreements.  In our view, those cases suggest that the Delaware courts will be critical of such provisions - whether in the context of a strategic, stock for stock merger or in the cash out merger context - if a third party presents a potentially more favorable alternative proposal and the "no-talk" handicaps the board's efforts to entertain, consider and respond to that proposal.

As fiduciary duty law in the merger and acquisition context evolved over the past decade, conventional wisdom held that a disinterested, independent board of directors had "the prerogative to resist a third party's unsolicited acquisition proposal or offer " in favor of a transaction negotiated by the board that did not involve a change of control.[2]  A trilogy of recent decisions of the Court of Chancery, however, has reinvigorated debate over the extent to which directors, consistent with their fiduciary duties, may effectively foreclose themselves from considering a future, potentially more favorable proposal by contractually committing to protect and "lock up" an existing strategic merger.  Thus, while the existing case law makes clear that in appropriate circumstances a target board may "just say no" to a hostile bidder,[3] the recent cases seem to suggest that the same target board "can't say yes" (at least not unequivocally) to a preferred strategic partner, except in extraordinary circumstances.

Phelps Dodge Corp. v. Cyprus Minerals Co./Asarco Inc.

The first decision,Phelps Dodge Corp. v. Cyprus Minerals Co./Asarco Inc. ("Phelps Dodge"),[4] addressed a hostile suitor's challenges to a so-called "no-talk" provision and a 6.3% termination fee.  Although a bench ruling - and one in which the Court ultimately declined to enjoin the challenged transaction - the Chancellor's comments regarding the "no-talk" provision[5] have called into question the validity of such provisions.  In addition, the Chancellor's observations regarding the termination fee have been interpreted as strong cautionary words against an over-aggressive approach to such fees.

Pursuant to the merger agreement, Cyprus Minerals and Asarco agreed that (i) the agreement would not include either a "fiduciary" or "superior offer" out allowing either company to terminate the agreement for a superior proposal, (ii) neither party would be permitted to negotiate with, or furnish information to, another bidder even though that bidder's proposal may be superior, (iii) the board of each company was permitted to withdraw its recommendation of the merger only if it determined, in good faith, based upon the advice of outside counsel, that a failure to do so would constitute a breach of the board's fiduciary duties.  Finally, pursuant to Section 251(c) of the Delaware General Corporation Law, the board of each company also agreed to submit the proposed merger to a stockholder vote even if the board later withdrew its recommendation of the merger.

Shortly after the announcement of the strategic Cyprus Minerals/Asarco merger, Phelps Dodge made an offer to acquire all of the shares of either or both of Cyprus and Asarco at an approximately 25% premium.  However, under the terms of the merger agreement's "no-talk" provision, Cyprus and Asarco maintained they were prohibited from discussing, or responding to, Phelps Dodge's proposal.  In response, Phelps Dodge increased its offer and sued both companies.

Phelps Dodge argued that the directors of both companies had acted without due care when they failed to comprehend that the "no-talk" provision would preclude them from considering even superior proposals.  Phelps Dodge further asserted that the directors' ability to withdraw their recommendation of the merger if their fiduciary duties so required was rendered meaningless because the directors effectively had precluded themselves from obtaining information necessary to make such a decision on a fully informed basis.  The directors responded by reminding the court that underParamount Communications, Inc. v. Time,[6] they had no obligation to consider superior proposals and therefore could not have contracted away any fiduciary duties.

In an oral ruling, the court seized the opportunity to express strong doubts as to the validity of the "no-talk" and termination fee provisions of the merger agreement.  While acknowledging that the directors had no duty to negotiate with other bidders in connection with a strategic merger, the court noted that the decision not to negotiate still must be an informed one.  The court distinguished Paramount v. Time as a case in which the decision not to negotiate "was not claimed to be an uninformed one.  That is, Time's board had not ex ante bargained away its right to even become informed about whether or not to negotiate."[7]  The court went on to observe:

Now, here, despite the presence of publicly exchanged information, the no-talk provision has apparently prevented either Cyprus or Asarco from engaging in nonpublic dialogue with Phelps Dodge.  Now, this should not be understood to suggest that Cyprus or Asarco were legally required to or even should have negotiated, privately or otherwise, with Phelps Dodge.  It is to say, rather, that they simply should not have completely foreclosed the opportunity to do so, as this is the legal equivalent of willful blindness, a blindness that may constitute a breach of a board's duty of care; that is, the duty to take care to be informed of all material information reasonably available.[8]

Finally, although the court declined to address Phelps Dodge's claim that the termination fee was unduly coercive, the court did note that a "6.3 percent [termination fee] certainly seems to stretch the definition of range of reasonableness and probably stretches the definition beyond its breaking point."[9]  In the end, however, the court refused to enjoin the merger because it was unconvinced that irreparable injury would result if the injunction were not granted.

ACE Limited v. Capital Re Corp.

Hard on the heels of the Phelps Dodge decision came the Court of Chancery's far more expansive opinion in ACE Limited v. Capital Re Corp.[10]  The case involved a stock-for-stock merger agreement between ACE and Cap Re that included a "no-talk" provision that prohibited Cap Re from participating in third party discussions or negotiations unless the Cap Re board concluded in good faith, based on written legal advice, that not participating in such discussions was a breach of fiduciary duty.[11]  At the time the parties executed the merger agreement, ACE, which itself held 12.3% of Cap Re's outstanding stock, also had negotiated voting agreements with stockholders owning, in the aggregate, 33.5% of Cap Re's outstanding shares.  Those agreements obligated the Cap Re stockholders to support the merger "if the Capital Re board of directors did not terminate the Merger Agreement in accordance with its provisions."[12]  Thus, so long as the Cap Re board did not terminate the agreement, ACE was assured that the holders of approximately 46% of Cap Re's outstanding stock would vote for the merger.  That fact led the court to conclude that stockholder approval of the merger was a "virtual certainty."[13]

Following announcement of the merger, the price of ACE's stock dropped precipitously.  Nonetheless, absent termination of the agreement by Cap Re's board, stockholder approval of the transaction was almost certain due to the voting agreements.  After the price drop, Cap Re received an all-cash bid from XL Capital Ltd. that exceeded the value of the ACE transaction.  Cap Re's board convened an emergency meeting, at which the company's counsel provided written advice that entering into discussions with XL was "consistent with" - as opposed to "required by" - the board's fiduciary duties.  After considering the advice, the Cap Re board determined to speak with XL, which thereafter raised its bid.  The Cap Re board then determined that the XL bid was superior to the ACE merger and advised ACE that it intended to terminate the merger agreement unless ACE matched or topped XL's offer.  Although maintaining that Cap Re was not permitted to terminate the Agreement, ACE responded with a higher offer.  XL promptly raised its bid again and Cap Re again advised ACE of its intention to terminate the merger agreement unless ACE submitted a higher bid.

Rather than raising its offer, ACE sued seeking to enjoin Cap Re from terminating the agreement.  Ace's primary argument was that Cap Re was prohibited in the first instance from entering into discussions with XL unless the directors received written advice from counsel stating that their fiduciary duties "required" discussions with XL.  Because Cap Re's board did not receive such written advice, ACE asserted that Cap Re had breached the agreement by entering into discussions with XL.

The court ruled that the actions of the Cap Re board did not constitute a breach of the merger agreement.  The most reasonable interpretation of the merger agreement, according to the court, left it up to the directors to decide, in "good faith," whether their fiduciary duties required them to enter discussions with XL.  The court then explored the consequences of adopting Ace's interpretation of the merger agreement.  ACE contended that it had bargained for language prohibiting Cap Re's board from entering into any discussions with other bidders unless the board was advised by counsel in writing that it was required to do so.  The court recognized that the agreement was potentially susceptible to that interpretation but concluded that such a reading would likely render the "no-talk" provision invalid.

In so concluding, the court picked up where Phelps Dodge had left off and expressed strong doubts about the validity of "no-talk" clauses, but at the same time seemingly reaffirming the proper purpose often served by more traditional forms of "no-shop" clauses:

It is one thing for a board of directors to agree not to play footsie with other potential bidders or to stir up an auction.  That type of restriction is perfectly understandable, if not necessary, if good faith business transactions are to be encouraged.  It is quite another thing for a board of directors to enter into a merger agreement that precludes the board from considering any other offers unless a lawyer is willing to sign an opinion indicating that his client board is "required" to consider that offer in the less than precise corporate law context of a merger agreement that does not implicate Revlon but may preclude other transactions in a manner that raises eyebrows under Unocal.  Such a contractual commitment is particularly suspect when a failure to consider other offers guarantees the consummation of the original transaction, however more valuable an alternative transaction may be and however less valuable the original transaction may have become since the merger agreement was signed.[14]

According to the court, a board's decision to approve a "no-talk" provision in such circumstances would involve "an abdication by the board of its duty to determine what its own fiduciary obligations require at precisely the time in the life of the company when the board's own judgment is most important."[15]  The court held that "where the board is making a critical decision affecting stockholder ownership and voting rights, it is especially important that it negotiate with care and retain sufficient flexibility to ensure that the stockholders are not unfairly coerced into accepting a less than optimal exchange for their shares."[16]

The court ultimately denied Ace's motion seeking to enjoin Cap Re from terminating the agreement, based predominantly on its finding that ACE was unlikely to succeed on the merits.

In re IXC Communications, Inc.

The third of the recent trilogy of Delaware Court of Chancery decisions to consider the propriety of "no-talk" provisions in the context of strategic mergers is In re IXC Communications, Inc.,[17] which was decided two days after ACE Limited.  In IXC, the plaintiff stockholders sought to preliminarily enjoin the pending stockholder vote on a proposed merger of IXC with Cincinnati Bell, Inc., ("CBI"), as well as the enforcement of certain provisions of the merger agreement.  In rejecting plaintiffs' application, Vice Chancellor Steele appears to have viewed the use of "no-talk" provisions in the strategic merger context more positively than Chancellor Chandler did in Phelps Dodge and Vice Chancellor Strine did in ACE Limited.  Indeed, Vice Chancellor Steele stated that such provisions "are common in merger agreements and do not imply some automatic breach of fiduciary duty."[18]

After contacting various parties, IXC agreed to merge with CBI in a stock-for-stock merger pursuant to which IXC's stockholders would receive 2 shares of CBI and CBI would be the surviving entity.  In connection with the merger, IXC gave CBI the right, under certain circumstances, to purchase 19.9% of IXC's stock and agreed to include certain no-talk and termination provisions in the merger agreement.  CBI also negotiated a side deal with General Electric Pension Trust ("GEPT"), IXC's largest stockholder.  CBI agreed to purchase half of GEPT's IXC holdings for $50 per share and GEPT agreed to vote its remaining shares in favor of the merger.

Plaintiffs contended that the IXC Board breached its duty of care by, inter alia, driving away all suitors other than CBI and agreeing to no-talk and termination fee provisions and stock option agreements.  Plaintiffs also asserted that the Board breached its duty of loyalty by facilitating CBI's side deal with GEPT, which plaintiffs claimed constituted an illegal vote-buying arrangement.

Seizing on Chancellor Chandler's criticism of "no-talk" provisions in Phelps Dodge, plaintiffs also argued that the board's approval of the "no-talk" provision in the IXC-CBI merger agreement (which prior to the Court's consideration had been amended by the parties to permit IXC to consider "superior proposals") evidenced a pattern of "willful blindness" by the directors in violation of their duty of care.[19]  The court rejected that contention:

[T]he assertion that the board "willfully blinded" itself by approving the now defunct "no-talk" provision in the Merger Agreement is unpersuasive, particularly considering how late in the process this provision came.  Provisions such as these are common in merger agreements and do not imply some automatic breach of fiduciary duty.[20]

To the contrary, the Court observed, it was "comfortable concluding that the IXC board met its duty of care" where six months had passed between the board's announcement that it had hired an investment banker, where the record reflected no third party interest in the company during the three months before the announcement of the IXC/CBI merger and where the merger agreement included a "fiduciary out" that allowed the board to consider a superior proposal.  For these reasons, the Court concluded that plaintiffs had not demonstrated a reasonable likelihood of success on their claims for breaches of the duties of care and loyalty.

As to plaintiffs' claim that the CBI-GEPT side agreement constituted an illegal vote-buying scheme, the Court noted that under Schreiber v. Carney,[21] vote-buying arrangements are not illegal per se.  Rather, such arrangements are only illegal if they defraud or disenfranchise other stockholders.  Plaintiffs, however, did not contend that the GEPT deal defrauded other stockholders.  They argued only that knowledge of the total number of outstanding shares committed to vote for the merger would cause the remaining holders of IXC's stock to believe that their vote would be meaningless.  The court noted that the facts of the case made that conclusion "illogical" because the holders of a majority of IXC's stock were still in a position to avoid the allegedly onerous effect of the vote-buying transaction by voting against the merger.

Finally, with respect to plaintiffs' challenges to the termination fee and stock options, the court noted that it was nearly impossible to evaluate those provisions independently of the merger agreement because the fees were "likely part of a careful balance of consideration from each side and the result of a give and take process."[22]  The court held that enhanced judicial scrutiny was not applicable because the termination fee, the stock option agreement, and the non-solicitation provisions were not "defensive mechanisms instituted to respond to a perceived threat to a potential acquiror."[23]  Thus, the court concluded that "[i]n the absence of a showing of disloyalty or lack of care in agreeing to the termination fee those provisions are reviewable as business judgments and are, thus, granted deference."[24]

Conclusions

In some respects, the Court's decisions in Phelps Dodge, Ace and IXC may appear difficult to reconcile.[25]  Over time, of course, the development of a body of jurisprudence in this area will, in all likelihood, resolve many of the current ambiguities and seeming inconsistencies.  In advance of that clarification, however, some preliminary conclusions still seem appropriate:

Caveat Emptor - The recent decisions in this area suggest that the Court has concluded that certain deal protection measures may be inherently suspect.[26]  Certainly, the Court's position on these issues is still evolving[27] and, pending definitive guidance from the Delaware courts, buyer's counsel would be wise to exercise some restraint when negotiating certain deal protections.  Otherwise, the buyer may risk having carefully negotiated provisions invalidated by a court that concludes the provisions have too tightly tied the hands of the target board.  As the Court in Ace observed, if a "superior proposal out [is] to mean anything, the board must be free to explore such a proposal in good faith."  If the provision "comes close to self-disablement by the board," the court is likely to "take a dim view of the restrictions that tend to produce such a result."[28]  Put another way, if the parties agree that it is appropriate for the target to have a "superior offer out" or a "fiduciary out" with respect to either termination of the merger agreement or changing the target board's recommendation, then certain types of provisions that may tend to impair the target board's ability to utilize such an "out" could be viewed as rendering the "out" illusory.[29]

Hindsight is 20/20 Vision - It is probably not coincidental that the Court of Chancery elected to express significant reservations about "no-talk" provisions in the Phelps Dodge andAce decisions, both of which involved a third party bidder with an arguably superior proposal, while it adopted a more forgiving tone when considering the appropriateness of a "no-talk" provision, stock option agreements and termination fees in IXC, a case in which no third party bidder had appeared on the scene.  Just as the most careful driver cannot predict all that may lurk around the next bend, even a diligent, seemingly well-informed board that has considered a host of alternatives may fail to appreciate all of the possible and reasonably available opportunities for the corporation.  Experience informs us that it is all too common for such opportunities to come to light only after a board announces a strategic transaction.  The Court's decisions in both Ace and IXC expressly recognize that there are at least limited circumstances in which a board may agree to a "no-talk" provision that would preclude the board from considering a more favorable proposal.  Nonetheless, it may be extremely difficult (although not necessarily impossible) for a board to explain the wisdom of a "no-talk" provision if post-execution developments reveal the existence of a superior proposal that had not surfaced at the time the agreement was signed.  In view of the inherent limitations associated with "no-talk" provisions and the Court's criticisms in PhelpsDodge and Ace , one may reasonably ask when, if ever, a target board's decision to accept a "no-talk" provision (either without meaningful "fiduciary outs" or when coupled with significant lock-up agreements) will prove, in hindsight, to have been a wise decision.[30]

An Informed Decision? - In Phelps Dodge, the Court observed that "no-talk" provisions are "troubling precisely because they prevent the board from meeting its duty to make an informed judgment with respect to even considering whether to negotiate with a third party."  However, the Court's statement, to some extent, begs the question.  Under the terms of the Cyprus/Asarco merger agreement, neither board was permitted to terminate the agreement in favor of a superior proposal, but the boards werepermitted to change or withdraw their recommendation of the merger (as permitted by the 1998 amendment to Section 251(c) of the DGCL).  Thus, the boards' exante decisions not to communicate or negotiate necessarily prevented each board from reaching an informed decision with respect to whether to continue to recommend the Cyprus/Asarco merger.  While the transcript of the Court's oral ruling does not expressly address this point (perhaps a result of the nature of the decision - an oral ruling in expedited litigation), it is clear from Phelps Dodge's complaint and briefs that the issue was argued to the Court.[31]  For example, Phelps Dodge's complaint stated:

[W]hile the Merger Agreement makes the gracious concession of supposedly permitting the directors to change or withdraw their recommendation of the Asarco Cyprus Merger, it renders that right meaningless.  A director cannot make an informed decision about the merits of a proposed transaction - or, equally important, the relative merits of two strategic alternatives - without the ability to communicate freely with interested parties.  This Court has never sanctioned what this Merger Agreement purports to do:  require directors to keep their eyes wide shut.[32]

Many commentators have accurately characterized the Phelps Dodge decision as a "duty of care" case.  Importantly, however, it may be the first Delaware decision to recognize the bifurcated nature of the board's duty to be informed in circumstances where it has reserved the ability to modify or withdraw its recommendation.  Initially, when a board considers ex ante whether (and the extent to which) it will retain the ability to negotiate with third party bidders in the future, it must consider all material information available to it at that time.  Second, in exercising its ongoing duty to assess whether its recommendation remains appropriate in view of changed circumstances, a board should consider all material information available to it at that later time.  The board, of course, should consider ex ante that circumstances could change - e.g., the board could be faced in the future with a previously unsuspected and potentially superior alternative transaction.  It thus should seek to ensure that it retains the contractually flexibility to become fully informed with respect to those changed circumstances.  Thus, any "no-talk" or "no-shop" provision that effectively impedes the board's future ability to consider and evaluate potentially superior alternative transactions and the impact that such transactions could have on its recommendation would be, in our view, suspect.Phelps Dodge and Ace suggest that such provisions will be enforceable, if at all, only in extraordinary circumstances.  At the same time, those cases, together with IXC, reconfirm that no shop provisions containing meaningful outs that do not preclude a board from continuing to assess its recommendation on a fully informed basis serve a salutary purpose and should generally be enforceable.

Notes:

1. Mark A. Morton, Michael A. Pittenger and Matthew E. Fischer are partners with the law firm of Potter Anderson & Corroon LLP.  The views and opinions expressed herein are those of the authors and do not necessarily represent those of Potter Anderson & Corroon LLP or its clients.

2. In re Santa Fe Pacific Shareholders Litig., C.A. No. 13587, Jacob, V.C. (Del. Ch. May 31, 1995) (quoting Paramount Communications, Inc. v. QVC Network, Inc., 637 A.2d 34, 43, n. 13 (1994)), aff'd in part, rev'd in part on other grounds, 669 A.2d 59, 71 (Del. 1995).

3. See Paramount Communications, Inc. v. Time Inc., 571 A.2d 1140 (Del. 1989); Moore Corp. v. Wallace Computer Servs., Inc., 907 F. Supp. 1545 (D. Del. 1995).

4. C.A. No. 17398, Chandler, C. (Del. Ch. Sept. 27, 1999) (Bench ruling).

5. Typically, "no-shop" clauses prevent a target company from shopping the existing deal (or soliciting a new deal) but permit the board to furnish certain information in the event a third party bidder makes a qualifying bid (some agreements simply require an acquisition proposal, while other agreements require a superior proposal or a proposal reasonably likely to lead to a superior proposal).  In Phelps Dodge, however, the Merger Agreement prevented both Asarco and Cyprus (and their directors, officers, employees and representatives) from participating in any negotiations regarding any alternative acquisition proposal - even if that proposal was demonstrably superior to the original merger.  In addition, the parties were not permitted to terminate the merger agreement in favor of a superior proposal.

6. 571 A.2d 1140 (Del. 1990).

7. Phelps Dodge Corp. v. Cyprus Minerals Co./Asarco Inc, C.A. No. 17398, Chandler, C. (Del. Ch. Sept. 27, 1999) (Bench ruling), Tr. at 4.

8. Id., Tr. at 4-5.

9. Id., Tr. at 5.

10. C.A. No. 17988, Strine, V.C. (Del. Ch. Oct. 25, 1999).

11. By contrast, in Phelps Dodge, the Cyprus/Asarco merger agreement did not include a similar "fiduciary out" to the "no talk" clause.

12. ACE Ltd. v. Capital Re Corp., C.A. No. 17488, Strine, V.C. (Del. Ch. Oct. 25, 1999), mem. op. at 3 (emphasis in original).

13. See id., mem. Op. at 4.

14. Id., mem. Op at 25-26.

15. Id., mem. Op at 26.  The court recognized that there may exist "limited circumstances" in which a board "could prudently place itself in the position of not being able to entertain and consider a superior proposal to a transaction dependent on a stockholder vote."  Id., mem. Op. at 27.  One such circumstance, the court surmised, might arise if a board has actively canvassed the market, negotiated with several bidders in a competitive environment, and believes that the "no-talk" provision is necessary to close the deal - facts that were not present in the case before the court. Id., mem. Op. at 27 n.36.

16. Id., mem. Op. at 31-32.

17. C.A. No. 17334, Steele V.C. (Del. Ch. Oct. 27 1999).

18. In re IXC Communications, Inc., C.A. No. 17334, Steele, V.C. (Del. Ch. Oct. 27, 1999), mem. Op at 14.

19. Id.

20. Id., mem. Op. at 14.

21. 447 A.2d 17 (Del. Ch. 1982).

22. In re IXC, mem. Op. at 22.

23. Id., mem. Op. at 23.  This holding contrasts with the view express by Vice Chancellor Strine in ACE Limited to the effect that similar provisions of the Capital Re-ACE merger agreement implicated some of the policy concerns underlying the Unocal standard of review.  See ACE Limited, mem. Op. at 30-31.

24. In re IXC, mem. Op. at 23.

25. For example, it may be difficult to reconcile the Court's statement in IXC that "[n]either the termination fee, the stock option agreements nor the no-solicitation provisions are defensive mechanisms instituted to respond to a perceived threat to a potential acquiror" with the Court's suggestion in Ace that a "no-talk" provision, coupled with stockholder agreements that locked up the support of a significant block of stock, might implicate "some of the policy concerns that animate the UNOCAL standard of review."

26. In this regard, it is worth noting that in its decisions in both Phelps Dodge and Ace, the Court offered a more expansive examination of the issues than the legal question at issue demanded.  In Phelps Dodge, for example, the Court's finding that there was no irreparable harm would have allowed the Court to avoid any discussion of the merits of the "no-talk" provision at issue in that case.  The Court instead elected to criticize (rather harshly) both the "no-talk" provision and the size of the termination fee.  Similarly, in Ace, although the Court could have confined its discussion to a rather narrow legal question, the Court engaged in an extensive discussion regarding the appropriateness of certain deal protection mechanisms in a non-change of control context and the extent to which such deal protections may preclude the consideration - by either the board or the stockholders - of a superior proposal.

27. In a recent presentation to members of the Task Force on Public Companies, the Chancellor of the Court of Chancery observed that the Court's jurisprudence does not evolve in a vacuum; rather, the Court remains keenly aware of the corporate bar's reaction to the Court's actions.  That observation offers an interesting insight into the recent decisions discussed herein.  One wonders whether the decisions are a response to prior "reactions" of the bar (i.e. increasingly tighter lock ups), an invitation for a reaction of the bar moving forward (do the cases clarify or confuse the law?), or both.

28. Ace, mem. Op. at 28.

29. The most evident examples include "no talk" provisions similar to the one addressed in Phelps Dodge.  One can imagine, however, situations in which a Delaware court might hold to be unenforceable other types of provisions typically found in "no-shop" clauses, including provisions requiring prior notice to the buyer before entering into discussions or providing information to a third party and provisions requiring that a third party sign a confidentiality agreement before the target provides any non-public information.  Even seemingly innocuous procedural provisions such as those could, in some circumstances, sufficiently impair a target board's ability to inform itself adequately with regard to the continuing propriety of its recommendation such that a Delaware court may have difficulty enforcing them in a particular case.  That, of course, does not suggest that such procedural provisions would be perse invalid or even that counsel should reconsider including such provisions in no shop clauses as the general rule.

30. The Court's strongest criticism was, of course, reserved for the "no-talk" provision in Phelps Dodge, which provision failed to include any "fiduciary outs."  The Court also offered, however, significant criticism of the proffered narrow reading of the "no-talk" provision at issue in Ace.  In Ace, while the "no-shop" included a "fiduciary out" to the prohibition against discussions, negotiations and providing information and a "fiduciary out" that permitted the board to terminate for a "Superior Proposal," the plaintiff argued that the "fiduciary out" should be read narrowly to rendered it inapplicable unless legal counsel opined that the board was required to consider another proposal.  The proffered narrow reading, coupled with stockholder agreements that locked up nearly a statistical majority of the stockholder vote, was enough to prompt the Court's criticism of the provision.

31. See, e.g., Plaintiff's Opening Brief in Support of Their Motion for Preliminary Injunction filed September 21, 1999, C. A. No. 17398, at 41-42 (Dkt. 34).

32. See paragraph 2 of the Complaint for Declaratory and Injunctive Relief filed by Phelps Dodge filed on August 27. 1999 (Dkt. 1)