   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE


GENUINE PARTS COMPANY,                    )
                                          )
                           Plaintiff,     )
                                          )
                v.                        )    C.A. No. 2018-0730-JRS
                                          )
ESSENDANT INC.,                           )
                                          )
                           Defendant.     )


                         MEMORANDUM OPINION

                        Date Submitted: June 7, 2019
                       Date Decided: September 9, 2019



Kenneth J. Nachbar, Esquire, William M. Lafferty, Esquire and Thomas P. Will,
Esquire of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware;
Richard T. Marooney, Esquire, Israel Dahan, Esquire and Peter Isajiw, Esquire of
King & Spalding LLP, New York, New York; and Jeremy M. Bylund, Esquire of
King & Spalding LLP, Washington, D.C., Attorneys for Plaintiff Genuine Parts
Company.

Gregory P. Williams, Esquire, Lisa A. Schmidt, Esquire, Matthew D. Perri, Esquire
and Angela Lam, Esquire of Richards, Layton & Finger, P.A., Wilmington,
Delaware and Matthew Solum, Esquire, Ian Spain, Esquire of Kirkland & Ellis LLP,
New York, New York, Attorneys for Defendant Essendant Inc.




SLIGHTS, Vice Chancellor
      Plaintiff, Genuine Parts Company (“GPC”), and Defendant, Essendant Inc.,

signed a Merger Agreement on April 12, 2018 (the “Agreement”). The transaction,

if consummated, would have combined two competitors in the office supply

wholesale business. Recognizing they could withstand the headwinds of increased

competition from e-commerce and other direct-to-consumer sellers better together

than apart, GPC and Essendant began discussing a business combination in the fall

of 2017.

      GPC was not Essendant’s only suitor, however. Shortly before GPC and

Essendant signed the Agreement, non-party, Sycamore Partners, expressed an

interest in acquiring Essendant.   The Essendant board of directors considered

Sycamore’s overture but said nothing about it to GPC. Five days after GPC and

Essendant signed their Agreement, Sycamore formally offered to acquire Essendant

allegedly at a premium to GPC’s offer. The Essendant board of directors rejected

Sycamore’s initial offer.   Undeterred, Sycamore sweetened the bid by giving

assurances that more would be offered if diligence justified an increased bid. This

time, the Essendant board determined Sycamore’s renewed offer likely would lead

to a better deal than the deal it had agreed to with GPC. After Sycamore completed

confirmatory diligence, Essendant terminated the Agreement, paid GPC the

termination fee as required by the Agreement and closed the deal with Sycamore.




                                        1
      The payment of the termination fee and closing of the Sycamore transaction

did not end the matter from GPC’s perspective. GPC maintained the termination fee

was neither an exclusive remedy nor an adequate remedy to compensate for its losses

following Essendant’s termination of the Agreement. Specifically, GPC alleged

Sycamore’s winning proposal was the result of Essendant’s material breaches of

several provisions of the Agreement intended to protect GPC’s interests—most

importantly, a non-solicitation provision. When Essendant disagreed and countered

that the termination fee was GPC’s exclusive remedy (whether adequate or not),

GPC brought this action for breach of the Agreement.

      Essendant now moves to dismiss GPC’s claims, arguing GPC’s claim of

breach fails because the Agreement is clear that the payment of the termination fee

is GPC’s exclusive remedy for Essendant’s termination of the Agreement.

As explained below, Essendant’s contract-based defense is not dispositive at the

pleading stage. Specifically, the Agreement does not clearly and unambiguously

provide that GPC’s remedy is limited to recovery of the termination fee in

circumstances where, as here, GPC has well-pled that Essendant breached the

Agreement’s non-solicitation provision.     Accordingly, Essendant’s motion to

dismiss must be denied.




                                        2
                           I. FACTUAL BACKGROUND

         I have drawn the facts from the allegations in the Complaint, documents

incorporated by reference or integral to the Complaint and judicially noticeable facts

available in public Securities and Exchange Commission filings.1 In resolving the

motion to dismiss, I accept as true the Complaint’s well-pled factual allegations and

draw all reasonable inferences in Plaintiff’s favor.2

     A. The Parties and Relevant Non-Parties

         Plaintiff, GPC, is a Georgia corporation that distributes wholesale supplies

and equipment for workspaces through S.P. Richards Co. (“SPR”), a “component”

of GPC.3 Defendant, Essendant, is a Delaware corporation and, like GPC, is a

wholesale distributor of workplace supplies and equipment.4 Non-party, Sycamore,

is a private-equity firm whose portfolio of companies includes the well-known office

supplies chain, Staples, Inc. (“Staples”).5



1
  Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (noting the
trial court may consider documents “incorporated by reference” or “integral” to the
complaint on a motion to dismiss); In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d
162, 170 (Del. 2006) (noting the trial court may take judicial notice of facts in SEC filings
that are “not subject to reasonable dispute”) (emphasis in original).
2
    Gen. Motors (Hughes) S’holder Litig., 897 A.2d at 168.
3
    Verified Compl. (“Compl.”) ¶ 9.
4
    Compl. ¶ 10.
5
    Compl. ¶ 4.

                                              3
      B. GPC and Essendant Negotiate a Merger

          Facing increasing competition in the office supply market, Essendant and

GPC began discussing a combination of Essendant and SPR in the fall of 2017.6

They eventually agreed to a transaction whereby GPC would spin off SPR to merge

with Essendant.7 Following the merger, GPC shareholders would own 51% of

Essendant’s common stock and Essendant’s shareholders would own the

remainder.8 The parties memorialized the terms of their transaction in the

Agreement dated April 12, 2018.9

          The Agreement contained several protections for GPC, including a typical

“Non-Solicitation Provision” that prevented Essendant from pursuing a competing

transaction. Specifically, in Section 7.03(a), Essendant agreed not to:

          (i) solicit, initiate, or knowingly encourage (including by way of
          furnishing non-public information), or take any other action to
          knowingly facilitate, any inquiries or the making of any proposal or
          offer (including any proposal or offer to [Essendant’s] stockholders),
          with respect to any Competing [Essendant] Transaction; (ii) enter into,
          maintain, continue or otherwise engage or participate in any discussions
          or negotiations with any Person in furtherance of such inquiries or to
          obtain a proposal or offer with respect to a Competing [Essendant]
          Transaction; (iii) agree to, approve, endorse, recommend or
          consummate any Competing [Essendant] Transaction; (iv) enter into

6
    Compl. ¶¶ 14–15.
7
    Compl. ¶ 18.
8
    Id.
9
    Id.

                                             4
           any Competing [Essendant] Transaction Agreement; or (v) resolve,
           propose or agree, or authorize or permit any Representative, to do any
           of the foregoing.10

In the same section, Essendant also agreed to terminate any discussions concerning

competing transactions that had started prior to the execution of the Agreement. 11

           Notwithstanding Section 7.03(a), Section 7.03(c) allowed Essendant to

provide information to and have discussions with any “Person (or any of such

Person’s representatives) who has made a written, bona fide proposal or offer with

respect to a Competing [Essendant] Transaction that did not arise or result from any

material breach of Section 7.03(a).”12 To achieve the protection of Section 7.03(c),

Essendant’s board was first required to determine “in its good faith judgment . . .

that [the competing] proposal . . . constitutes, or is reasonably likely to lead to, a

Superior Proposal[.]”13 A Superior Proposal is one the Essendant board:



10
   Compl., Ex. A (“Agreement”) § 7.03(a). “Competing [Essendant] Transaction” includes
“(i) any merger, consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or other similar transaction involving [Essendant] or any of its
Subsidiaries, the assets of which constitute or represent more than 20% of the total revenue
or fair market value of the assets of [Essendant] and its Subsidiaries, taken as a whole . . . .”
Agreement A-2.
11
    Agreement § 7.03(a) (“[Essendant] shall . . . immediately cease and cause to be
terminated all existing discussions or negotiations with any Persons (other than GPC and
its Affiliates) conducted prior to the execution of this Agreement . . . with respect to a
Competing [Essendant] Transaction.”).
12
     Agreement § 7.03(c) (the “Superior Proposal Provision”).
13
     Id.

                                               5
         determines, in its good faith judgment, after consulting with a financial
         advisor of internationally recognized reputation and external legal
         counsel . . . to be (a) more favorable from a financial point of view, to
         the stockholders of [Essendant] than the Merger and (b) reasonably
         expected to be consummated.14
         Under Section 9.01(g), Essendant was permitted to terminate the Agreement

“to enter into a definitive agreement with respect to a Superior Proposal,” but only

“to the extent permitted by, and subject to the applicable terms and conditions of

Section 7.03(d)(ii)” and only “provided that prior to or substantially concurrently

with such termination, [Essendant] pays or causes to be paid to GPC the Termination

Fee.”15 Section 7.03(d)(ii), in turn, allows for termination of the Agreement to

pursue a Superior Proposal that “did not arise or result from any material breach” of

the Non-Solicitation Provision.16




14
   Agreement A-14–A-15. Before entering discussions with another offeror, Essendant
also agreed to notify GPC in writing at least three days before beginning any discussions
with or providing any information to the competing offeror and to obtain from the
competing offeror an “‘Acceptable Confidentiality Agreement’ (it being understood that
an Acceptable Confidentiality Agreement and any related agreements shall not include any
provision granting such Person exclusive rights to negotiate with [Essendant] or having the
effect of prohibiting [Essendant] from satisfying its obligations under this Agreement)[.]”
Agreement § 7.03(c). An “Acceptable Confidentiality Agreement” is one with terms
“no less favorable to [Essendant] than those in the aggregate contained in the
Confidentiality Agreement [with GPC].” Agreement A-1.
15
   Agreement § 9.01(g); see also Agreement A-13 (“‘Termination Fee’ means
$12,000,000.”).
16
     Agreement § 7.03(d)(ii).

                                            6
         In Section 9.02, the parties agreed “there shall be no liability . . . on the part

of any Party” following a “valid termination” of the Agreement, except that the

parties are not “relieve[d]” of liability for fraud or “Willful Breach[es]” committed

prior to termination.17 As for the Termination Fee, Section 9.03(e) provides that

payment of the fee is GPC’s exclusive remedy for termination if Essendant pays the

fee “in accordance with” Section 9.03:

         notwithstanding anything in this Agreement to the contrary (including
         Section 9.02), in the event that the Termination Fee is paid in
         accordance with this Section 9.03, the payment of the Termination Fee
         shall be the sole and exclusive remedy of GPC . . . and in no event will
         GPC or any other such Person seek to recover any other money
         damages or seek any other remedy based on a claim in law or
         equity . . . .18

      C. Sycamore Enters the Picture
         Prior to executing the Agreement, Essendant assured GPC it had no interest

in merging with anyone else and that no other entity was interested in a transaction

with Essendant.19 But according to GPC, Sycamore, on behalf of Staples, had




17
  The Agreement defines “Willful Breach” as “a breach of, or failure to perform any of
the covenants or other agreements contained in this Agreement, that is a consequence of
an act or failure to act by the breaching party . . . with actual knowledge that such Person’s
act or failure to act would, or would reasonably be expected to, result in or constitute a
breach of or failure of performance under the Agreement.” Agreement A-13.
18
  Agreement § 9.03(e). The parties agree the version of the Agreement attached to the
Complaint incorrectly identifies Section 9.03(e) as Section 9.03(h).
19
     Compl. ¶ 17.

                                              7
expressed interest in acquiring Essendant on April 9, 2018, just three days before the

execution of the Agreement.20 Essendant’s board addressed Sycamore’s pre-signing

overture in a meeting held the day before executing the Agreement but said nothing

of it to GPC until May 31, 2018.21

         On April 17, 2018, Sycamore formally offered to acquire Essendant’s stock

for $11.50 per share. After considering this initial proposal on April 24, 2018,

Essendant’s board determined the offer was unlikely to lead to a Superior Proposal

as defined in the Agreement.22 On April 25, Essendant filed its quarterly earnings

release and 10-Q, neither of which mentioned Sycamore’s proposal.23 Two days

later, on April 27, ten days after receiving it, Essendant informed GPC of

Sycamore’s proposal.24

         To any outsider and to GPC, there were no signs that Essendant might

terminate the Agreement. Indeed, a slide deck for Essendant’s quarterly earnings




20
     Compl. ¶ 28.
21
     Compl. ¶¶ 28–29.
22
     Compl. ¶ 29.
23
     Compl. ¶ 31.
24
     Compl. ¶ 32.

                                          8
call included a discussion of how the GPC transaction would “further enhance[]

Essendant’s strategy.”25

      D. Essendant Entertains Sycamore’s Second Proposal
         According to GPC, when Essendant rejected Sycamore’s April 17 proposal,

the Essendant board conveyed to Sycamore that it would be open to receiving a

revised offer.26 On April 29, Sycamore obliged and submitted a “renewed” proposal

to acquire Essendant’s stock for $11.50 per share—the same price per share it

offered on April 17.27 This time, however, Essendant’s board concluded Sycamore’s

renewed offer was reasonably likely to lead to a Superior Proposal because

Sycamore indicated it might make a higher bid upon receiving non-public

information.28 Essendant’s board notified GPC of its determination on May 4.29

         Three days later, on May 7, GPC advised Essendant that, in its view,

Sycamore’s second proposal did not constitute and would not lead to a Superior

Proposal and warned Essendant that continued negotiations with Sycamore would




25
     Compl. ¶ 31.
26
     Compl. ¶ 33.
27
     Compl. ¶ 34.
28
     Compl. ¶ 35.
29
     Compl. ¶¶ 34–35.

                                         9
violate the Agreement’s Non-Solicitation Provision.30 As support for its position,

GPC pointed to a preliminary discounted cash flow analysis that suggested implied

share prices for Essendant resulting from the Sycamore proposal were significantly

lower than the share prices expected to result from the SPR merger.31 GPC also

observed that antitrust regulators were unlikely to approve a transaction with

Sycamore because its proposal would be viewed as an attempt to protect Sycamore’s

investment in Staples against the impact of a merger between SPR and Essendant.32

Despite its objection to the Sycamore proposal, GPC concluded its response with an

offer to pay Essendant’s shareholders an additional $4 per share in the form of a

contingent value right.33

           While GPC’s revised proposal was pending, Sycamore disclosed on a

Schedule 13D, dated May 16, 2018, that it had acquired beneficial ownership of

9.9% of Essendant’s outstanding shares. By May 21, its stake had increased to

11.16%.34       According to GPC, Essendant and Sycamore’s deliberate effort to

conceal Sycamore’s offers to the market allowed Sycamore to acquire a substantial



30
     Compl. ¶ 35.
31
     Id.
32
     Id.
33
     Compl. ¶ 36.
34
     Compl. ¶¶ 37–38.

                                         10
position in Essendant from “unsuspecting shareholders who were not aware of the

competing offer[s].”35 This, coupled with the fact that Essendant did not require

Sycamore to enter into an Acceptable Confidentiality Agreement per the Agreement

(with a standstill provision),36 allowed Sycamore to gain “an unfair advantage and

materially increased the risk that Sycamore would be able to undermine Essendant’s

merger with SPR.”37

      E. Essendant Terminates the Agreement
         On May 31, 2018, Essendant revised a draft SEC Form S-4 to reflect its

April 9 contact with Sycamore.38 The next day, Essendant’s board rejected GPC’s

proposed contingent value right.39 After several additional months of negotiations

with Sycamore, Essendant announced on September 10, 2018, that it had accepted

Sycamore’s bid, which had been increased to $12.80 per share.40 Essendant’s stock




35
     Compl. ¶ 41.
36
     Compl. ¶ 25.
37
     Compl. ¶¶ 38, 40.
38
     Compl. ¶¶ 4, 28.
39
     Compl. ¶ 36.
40
     Compl. ¶ 43.

                                        11
price closed at $12.84 that day, down from $14.25 the day before.41 It continued to

drop the following day, closing at $12.65 on September 11.42

           Upon termination of the Agreement on September 14, 2018, Essendant paid,

and GPC accepted, the $12 million Termination Fee.43 Essendant informed GPC

that it had determined Sycamore’s proposal was superior after discovering, among

other information, documents from Essendant employees indicating that GPC was

considered an Essendant competitor, thereby increasing the antitrust risks associated

with the SPR merger.44 According to GPC, the parties expected these kinds of



41
     Id.
42
  Id. One week after Essendant announced it had accepted Sycamore’s proposal,
Essendant’s largest shareholder, Pzena Investment Management LLC (“PIM”), stated in a
13D filing that it intended to oppose the merger. PIM maintained that Sycamore’s offer of
$12.80 per share was neither superior to GPC’s offer nor an adequate valuation of
Essendant independent of the GPC transaction. Id.

43
  GPC, Annual Report (Form 10-K) at F-30 (Feb. 25, 2019) (“On September 14, 2018, the
definitive agreement with Essendant was terminated by Essendant, so that Essendant could
enter into a merger agreement with another party. Concurrently with the termination, the
Company received a termination fee of $12,000,000.”); GPC, Quarterly Report (Form 10-
Q) at 13–14 (Oct. 22, 2018) (same); Transmittal Aff. of Arthur R. Bookout
(“Bookout Aff.”) (D.I. 10), Ex. 5 at 21 (October 18, 2018 Q3 Earnings Call) (“Essendant’s
Board of Directors determined that the competing acquisition proposal from Staples was a
superior proposal as defined in the merger agreement. While we disagree with this
determination, the SPR and Essendant merger agreement was terminated and GPC was
paid a $12 million termination fee.”); GPC, Current Report (Form 8-K) (Sept. 11, 2018)
(“GPC anticipates that the Merger Agreement will terminate at the end of the three-day
match period. Upon termination of the Merger Agreement, Essendant will be required to
pay a termination fee to GPC in the amount of $12 million.”).
44
     Compl. ¶ 44.

                                           12
documents to surface and anticipated the transaction would receive antitrust

approval anyway, particularly given the positive feedback from customers and

antitrust enforcement agencies.45

      F. Procedural Posture

           GPC filed its Complaint on October 10, 2018, alleging breach of contract for

Essendant’s engagement in ongoing discussions with Sycamore, its termination of

the Agreement based on an inferior proposal, its failure to require Sycamore to enter

a confidentiality agreement with terms at least as restrictive as those in GPC’s

confidentiality agreement and, finally, its failure to exercise reasonable best efforts

to close the merger with SPR. Defendant moved to dismiss on November 5, 2019,

under Rule 12(b)(6), on grounds that the Termination Fee is the sole remedy under

the Agreement and GPC has failed adequately to plead breach of contract.46

                                     II. ANALYSIS

           In considering a motion to dismiss under Court of Chancery Rule 12(b)(6),

the Court applies a well-settled standard:

           (i) all well-pleaded factual allegations are accepted as true; (ii) even
           vague allegations are ‘well-pleaded’ if they give the opposing party
           notice of the claim; (iii) the Court must draw all reasonable inferences
           in favor of the non-moving party; and (iv) dismissal is inappropriate



45
     Id.
46
     D.I. 5.

                                             13
         unless the plaintiff would not be entitled to recover under any
         reasonably conceivable set of circumstances susceptible of proof.47

         Generally, the Court may address issues involving contract interpretation on

a motion to dismiss “[w]hen the language of a contract is plain and unambiguous.”48

In this regard, the parties’ disagreement as to the meaning or proper construction of

contract provisions does not render the contract ambiguous.49 Rather, ambiguity

arises only “when the provisions in controversy are reasonably or fairly susceptible

to different interpretations or may have two or more different meanings.”50

      A. GPC Has Adequately Pled the Termination Fee Is Not the Exclusive
         Remedy for Termination
         As is typical in disputes arising from complex integrated contracts, the parties’

competing constructions of the Agreement beckon a whistle-stop tour through

several of its interconnected provisions. Most important to Defendant’s motion is

Section 9.03(e), which provides, in part, “notwithstanding anything in this

Agreement to the contrary (including Section 9.02), in the event the Termination Fee

is paid in accordance with this Section 9.03, the payment of the Termination Fee



47
     Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citations omitted).
48
     Capital Corp. v. GC Sun Hldgs., L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006).

 See NBC Universal, Inc. v. Paxson Commc’ns Corp., 2005 WL 1038997, at *5 (Del. Ch.
49

Apr. 29, 2005).
50
  Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196
(Del. 1992) (internal citation omitted).

                                             14
shall be the sole and exclusive remedy of GPC[.]”51 Essendant terminated the

Agreement under Section 9.01(g); therefore, it purported to pay the Termination Fee

“in accordance with” Section 9.03(a)(ii).52

         As noted, Section 9.03(a)(ii) contemplates termination of the Agreement

“pursuant to” Section 9.01(g), meaning “in conformity with” that provision. 53

Section 9.01(g) permits Essendant to terminate the Agreement “to enter into a

definitive agreement with respect to a Superior Proposal to the extent permitted by,

and subject to the applicable terms and conditions of, Section 7.03(d)(ii)[.]”54

Section 7.03(d)(ii), in turn, allows for termination under Section 9.01(g)

if, “in response to the receipt of an offer or proposal with respect to a Competing

[Essendant] Transaction that did not arise from any material breach of

Section 7.03(a), the [Essendant] Board determines in its good faith judgment . . . that


51
     Agreement § 9.03(e) (emphasis supplied).
52
   Agreement § 9.03(a)(ii) (“If [Essendant] terminates this Agreement pursuant to
Section 9.01(g), then, prior to or substantially concurrently with [Essendant’s] notice of []
termination, [Essendant] shall pay or cause to be paid to GPC the Termination Fee in cash
in immediately available funds[.]”). I note the phrase “in accordance with” can, and
therefore must, be interpreted per its “ordinary meaning.” PharmAthene, Inc. v. SIGA
Tech., Inc., 2008 WL 151855, at *12 (Del. Ch. Jan. 16, 2008). “In accordance with” means
“in a way that agrees with or follows something, such as a rule or request.” In accordance
with, MERRIAM-WEBSTER (last visited Sept. 4, 2019), https://www.merriam-
webster.com/dictionary/in%20accordance%20with.
53
 Pursuant to, MERRIAM-WEBSTER (last visited Sept. 4, 2019), https://www.merriam-
webster.com/dictionary/pursuant%20to.
54
     Agreement § 9.01(g).

                                             15
such offer or proposal constitutes a Superior Proposal[.]”55 Finally, Section 7.03(a)

contains the Non-Solicitation Provision.56

         GPC argues that for Section 9.03(e)’s “sole and exclusive” language to apply,

Essendant must follow the contractually-sequenced path outlined above. That is,

Essendant must pay the Termination Fee “in accordance with Section 9.03,” which

requires terminating “pursuant to Section 9.01(g),” which entails meeting the

requirements of Section 7.03(d)(ii).57 Finally, GPC argues, Section 7.03(d)(ii)

allows for termination only in response to a competing transaction that: (i) did not

arise from a material breach of 7.03(a), and (ii) the Essendant board properly

determined to constitute a Superior Proposal.

         Essendant argues GPC’s construction attaches layers to Section 9.03(e)’s

exclusive remedy provision that are not justified by its clear and unambiguous terms.

By Essendant’s lights, once GPC accepted the Termination Fee, it may not recover

beyond that fee because it has acknowledged the fee was paid “in accordance” with

Section 9.03 as required by Section 9.03(e). In this regard, Essendant does not take

issue with GPC that Section 9.03(e) applies only to the extent Essendant has




55
     Agreement § 7.03(d)(ii).
56
     Agreement § 7.03(a).
57
     Agreement § 9.03(e).

                                           16
complied with Section 9.03(a)(ii), Section 9.01(g) and its related provisions.58 But

Essendant insists that GPC’s acceptance of the Termination Fee precludes any

argument that Essendant somehow failed to act “in accordance with” those

provisions.

         In support of its position, Essendant cites Cirrus Holding Co. v. Cirrus

Industries, Inc., where this court determined on a motion for preliminary injunction

that a losing bidder was unlikely to get specific performance beyond the termination

fee based on an argument that the target company breached a stock purchase

agreement.59 The court rested its conclusion, in part, on “unusually stringent

provisions making receipt of [the termination fee] exclusive of other legal or

equitable remedies.”60 As Essendant points out, the language of the exclusive

remedy provision at issue in Cirrus (Section 11.5) was quite similar to

Section 9.03(e) in the Agreement:




58
   Oral Arg. on Def.’s Mot. to Dismiss Tr. (“Tr.”) 18:9–15 (Q: “[S]o you are then not
necessarily disputing their construction that would say that the liability limiting provisions
in 9.02 or 9.03[] apply only in circumstances where there has been compliance with
9.01(g)? You’re not disputing that? A: Correct, Your Honor.”; Tr. 19:1–8 (“So in 9.03(e)
it says ‘paid in accordance with this Section 9.03.’ That’s it. I’m not disputing that
‘in accordance with’ gets down to each of those levels, so we then get talking about whether
each of those was met. Just as you said, Your Honor, I’m saying that plaintiff has said,
‘The termination was effective, the fee was owed, it was paid; therefore, we’re done.’”).
59
     794 A.2d 1191 (Del. Ch. 2001).
60
     Id. at 1194.

                                             17
           In the event the Cirrus Termination fee is paid to Purchaser pursuant to
           Section 11.3, such payment shall be the exclusive remedy at law of
           Purchaser, and Purchaser shall not be entitled to any further or other
           rights, claims or remedies at law all of which further rights, claims and
           remedies Purchaser irrevocably waives . . . .61

Where Cirrus departs from this case, however, is in the language of the provisions

incorporated by reference in that agreement’s termination fee provision.

To terminate “pursuant to Section 11.3,” the termination notice had to be effective

under Section 11.1.7, which, in turn, was satisfied “if Cirrus consummates an

Alternative Transaction.”62 That the language in Section 11.1.7 was otherwise

unconditional was important to Vice Chancellor Lamb’s decision. Indeed, the court

rejected plaintiff’s argument that the court “should read into Section 11.1.7 words to

the effect that any Alternative Transaction that is the predicate for a notice of

termination under that section did not result from a breach of the SPA and,

in particular, the lock-up provisions of Section 7.3.1.”63

           In contrast to the language in Section 11.1.7, the Agreement’s comparable

provision, Section 9.01(g), provides that Essendant may terminate “to enter into a

definitive agreement with respect to a Superior Proposal to the extent permitted by




61
     Id. at 1202.
62
     Id.
63
     Id. at 1204 (emphasis in original).

                                              18
and subject to the applicable terms and conditions of, Section 7.03(d)(ii)[.]”64

In other words, Section 9.01(g) contains, in essence, the condition that Cirrus found

was missing in the comparable provision at issue there. Thus, while Section 9.03(e)

appears at first glance to dictate the same result as in Cirrus, a comparison of the

related provisions makes clear that, unlike in Cirrus, there is room in Section 9.03(e)

for GPC to argue that the exclusive remedy provision does not apply because:

(i) there was no Superior Proposal;65 and, if there was one, (ii) it resulted from a

material breach of the Agreement.66 This is the only reasonable construction of the

operative terms of the Agreement.

      B. GPC Has Not Waived Its Breach of Contract Claim

           Notwithstanding the language of the Agreement, Essendant argues GPC has

agreed the termination was valid based primarily on GPC’s public statements and

SEC filings near the time of the termination.67 GPC responds that Essendant’s

payment of the Termination Fee reflects, at best, Essendant’s belief in its position

that the termination was valid. On the other hand, GPC’s acceptance of the fee to


64
     Agreement § 9.01(g) (emphasis supplied).
65
     Id.
66
     Agreement § 7.03(d)(ii).
67
  GPC, Annual Report (Form 10-K) at F-30 (Feb. 25, 2019); GPC, Quarterly Report
(Form 10-Q) at 13–14 (Oct. 22, 2018); Bookout Aff., Ex. 5 at 21; GPC, Current Report
(Form 8-K) (Sept. 11, 2018).

                                            19
which it is unquestionably entitled is nothing more than that—acceptance of a

payment owed without waiver of its claim that more is owed. On this point, GPC

cites to NACCO Industries, Inc. v. Applica Inc., where a losing bidder placed its

termination fee in escrow and then brought claims against the target for breach of

the merger agreement.68          The court found the plaintiff’s acceptance of the

termination fee did not preclude its breach of contract claims but may limit plaintiff’s

future recovery:

          [i]n terms of any reliance-based recovery, [plaintiff] will have to
          contend with its receipt of a bargained-for $4 million termination fee
          and $2 million in expense reimbursement. But as is customary in
          merger agreements, [defendant’s] right to terminate the [merger
          agreement] . . . and pay the fees without further liability depended on
          [defendant] complying with its obligations . . . including the No-Shop
          and Prompt Notice Clauses . . . . It is far from clear at this stage that
          NACCO is bound contractually or factually to the termination fee and
          expense reimbursement as a measure of recovery.69

While it is true the parties in NACCO had not agreed to an exclusive remedy

provision in their merger agreement, I have determined Section 9.03(e)

(the exclusive remedy provision) requires compliance with Section 9.03(a)(ii) and

Section 7.03(d)(ii) (describing the circumstances where Essendant could accept a

Superior Proposal), which, in turn, requires compliance with 7.03(a) (the Non-




68
     NACCO Indus., Inc. v. Applica Inc., 997 A.2d. 1 (Del. Ch. 2009).
69
     Id. at 19.

                                             20
Solicitation Provision). With this in mind, I find NACCO’s observations with

respect to the forsaken bidder’s right to pursue recovery beyond the termination fee

instructive.

           As in NACCO, I see no basis to conclude that GPC’s acceptance of the

Termination Fee precludes it from pursuing breach of contract claims as a matter of

law.70 Essendant does not cite any provision of the Agreement that prevents GPC

from both accepting the Termination Fee and pursuing its breach of contract claims.

On the contrary, Essendant concedes that Section 9.03(e) does not apply if the

Termination Fee was not paid “in accordance with Section 9.03.” As discussed

above,       GPC    has   well-pled   the   chain   of   provisions,   beginning   with

Section 9.03(a)(ii), that provide a path to argue Essendant’s material breach of the

Non-Solicitation Provision and its failure to comply with the Superior Proposal

Provision amount to failures to pay the fee in accordance with Section 9.03. As Vice

Chancellor Laster noted in NACCO, GPC’s acceptance of the Termination Fee may

present factual and legal issues for its damages claim,71 but at this stage, GPC has

adequately pled facts that allow a reasonable inference that GPC’s acceptance of the




70
     Id.
71
     Id.

                                            21
Termination Fee does not prevent it from pursuing damages caused by Essendant’s

termination after an alleged breach of contract.

     C. GPC States a Claim for Breach of Contract

       Having determined that Essendant’s payment, and GPC’s acceptance, of the

Termination Fee does not prohibit GPC from recovering on its breach claim, I turn

to whether GPC has adequately pled a claim for material breach of Section 7.03(a)

of the Agreement.72 For reasons explained below, I find that it has.

        “A ‘material breach’ is a failure to do something that is so fundamental to a

contract that the failure to perform that obligation defeats the essential purpose of

the contract or makes it impossible for the other party to perform under the

contract.”73 According to Essendant, GPC has not alleged Essendant failed to do

something so fundamental to the Agreement that it defeated the purpose of the

Agreement. I disagree. It is reasonable to infer that a fundamental purpose of the

Agreement, from GPC’s perspective, was lawfully to secure GPC’s exclusive ability

to merge with Essendant. Indeed, GPC alleges Essendant’s representations that it



72
   GPC has also alleged that Essendant breached the Superior Proposal Provision and the
reasonable best efforts provision and failed to execute an Acceptable Confidentiality
Agreement with Sycamore. Because I find GPC has adequately pled a material breach of
the Non-Solicitation Provision, I need not and do not address Plaintiff’s remaining
allegations of breach at this stage.
73
  eCommerce Indus., Inc. v. MWA Intelligence, Inc., 2013 WL 5621678, at *13 (Del. Ch.
Sept. 30, 2013).

                                          22
had no interest in a merger partner other than SPR and that no other party was

interested in a transaction with Essendant were critical to GPC’s decision to move

forward with the merger.74 The Non-Solicitation Provision, which is broadly worded

to prohibit Essendant from “directly or indirectly” soliciting, would conceivably be

material to achieving that purpose.75

         Essendant correctly points out that its board had a duty “to secure the best

value reasonably available to stockholders.”76 “As part of this duty, directors cannot

be precluded by the terms of an overly restrictive ‘no-shop’ provision from all

consideration of possible better transactions.”77               But no-shop provisions

“are common in merger agreements and do not imply some automatic breach of

fiduciary duty.”78 And Essendant does not argue the Non-Solicitation Provision at




74
     Compl. ¶ 17.
75
   Eagle Force Hldgs., LLC v. Campbell, 2018 WL 2351326, at *16 (Del. May 24, 2018)
(“What [contract] terms are material is determined on a case-by-case basis, depending on
the subject matter of the agreement and on the contemporaneous evidence of what terms
the parties considered essential.”). See also Matthew v. Laudamiel, 2012 WL 2580572,
at *10 (Del. Ch. June 29, 2012) (noting that issues of “materiality” in the breach of contract
context raise “predominantly questions of fact” that are not appropriate for summary
disposition) (citing Branson v. Exide Elecs. Corp., 645 A.2d 568 (Del. 1994)).
76
     Paramount Commc’ns Inc. v. QVC Network Inc., 637 A.2d 34, 37 (Del. 1994).
77
     Cirrus, 794 A.2d at 1207.
78
  In re IXC Commc’ns, Inc. v. Cincinnati Bell, Inc., 1999 WL 1009174, at *6 (Del. Ch.
Oct. 27, 1999).

                                             23
issue here is overly restrictive. Nor could it, as Section 7.03(c) acknowledges and

preserves the board’s fiduciary obligations by expressly allowing the board to enter

discussions regarding a competing transaction as long as the transaction “did not

arise or result from a material breach of Section 7.03(a).”79 Nothing about this

provision suggests that it is unenforceable as a matter of Delaware fiduciary law.

         I turn next to whether GPC has adequately alleged facts that support a

reasonably conceivable claim of breach of the Non-Solicitation Provision.

According to GPC, it has pled facts from which the Court may reasonably infer “a

wrongful and furtive pattern of contacts and cooperation that breached and

undermined the entire Merger Agreement,” including the occurrence of post-signing

discussions in which Essendant conveyed to Sycamore that a revised offer would be

accepted:80

       Sycamore’s pre-Agreement execution call on April 9;

       the Essendant board’s discussion of the call on April 11;

       Sycamore’s subsequent offer on April 17;

       Essendant’s “quiet rejection” of the first offer on April 24;

       Sycamore’s “revised offer” on April 29 that was allegedly equivalent to
        Sycamore’s first offer but suddenly was deemed likely to lead to a Superior
        Proposal;


79
     Agreement § 7.03(c).
80
     PAB at 27 n.8 (citing NACCO, 997 A.2d at 17).

                                            24
       Essendant’s delay in informing GPC of the April 9 call until May 31;

       Sycamore’s permissive confidentiality agreement that was not signed until
        three months after Sycamore’s revised offer.81
         Essendant argues that none of these facts support GPC’s allegation that

Essendant conveyed to Sycamore that it would consider a revised offer. Rather,

Essendant notes a rejection of an offer always implies that, if a better offer follows,

then it will be considered. Thus, an explicit statement to that effect from the board

would no more breach the Non-Solicitation Provision than would a statement,

“Wednesday follows Tuesday.”82 In other words, even if the board’s rejection of

Sycamore’s April 17 offer came with an explicit statement that a better offer would

be considered, no material breach occurred because the board provided no new

information to the mix. If, on the other hand, Essendant’s board informed Sycamore

that a cash deal was preferred to a stock deal, for example, and Sycamore used that

information to enhance its second proposal, then a material breach would have

occurred. Essendant also points out that GPC has failed to allege any facts that

would support an inference that Essendant favored a deal with Sycamore over one

with GPC.83


81
     PAB at 34. See also Compl. ¶¶ 33–34, 38, 43, 48.
82
     Tr. 23.
83
  See NACCO, 997 A.2d at 17 (noting that the target’s “senior management feared they
would lose their jobs following a strategic deal [with NACCO]”).

                                            25
         I agree with Essendant that none of GPC’s allegations, standing alone, would

support a claim that Essendant breached the Non-Solicitation Provision. Taking a

cue from the court in NACCO,84 however, I am satisfied GPC has adequately alleged

enough in total from which I can infer that Essendant, at least indirectly, encouraged

or facilitated a proposal with respect to a competing transaction.

         Essendant engaged with Sycamore before executing the Agreement and then

received a call from Sycamore with a proposal soon after. Thus, Sycamore was not

a pop-up bidder that the Essendant board was required to engage with post-signing.

It had expressed its interest in acquiring Essendant to Essendant’s board before the

board committed to GPC. The Non-Solicitation Provision specifically requires

Essendant to “immediately cease and cause to be terminated all existing discussions

or negotiations with any [p]ersons . . . with respect to a Competing [Essendant]

transaction.”85     GPC alleges that, in violation of this obligation, “Essendant

conveyed to Sycamore that it would be open to receiving a revised offer from

Sycamore” after it signed up with GPC.86            Whether this statement—that the



84
   See NACCO, 997 A.2d at 17 (“I recognize that each of the allegations in the Complaint,
when viewed separately and in isolation, can be minimized . . . . My task at the pleadings
stage, however, is not to weigh competing inferences but rather to draw reasonable
inferences in favor of the plaintiff.”).
85
     Agreement § 7.03(a)(v).
86
     Compl. ¶ 33.

                                           26
Essendant board would be open to receiving a revised offer—proves factually to be

accurate or whether it contextually represents a direct or indirect solicitation of a

proposal, remains to be seen.87 For now, the allegation supports a pleading stage

inference of breach of Section 7.03(a).88

         An even stronger circumstantial inference of breach arises from the pled fact

that Essendant rejected Sycamore’s first proposal only to deem essentially the same

offer a Superior Proposal shortly after.89 GPC has alleged the only distinction

between the proposals was Sycamore’s suggestion that it would increase its offer

upon review of Essendant’s non-public information.          This allegation, in turn,

implicates GPC’s allegations that Essendant breached the Agreement by providing

Sycamore access to confidential information on terms that were less “restrictive

[than] those contained in the confidentiality agreement between Essendant and

GPC.”90 These allegations allow a reasonable inference that Essendant’s board

“directly or indirectly” shared its preferences or inclinations with Sycamore, thereby




87
     Tr. 23.
88
   Savor, 812 A.2d at 896–97; Compl. ¶ 1 (alleging that Essendant “encouraged . . . an
inferior bid from Staples”).
89
     Compl. ¶¶ 34–35.
90
     Compl. ¶ 40.

                                            27
encouraging it to resubmit its offer with a slight alteration so the board could

“properly” begin competing negotiations.91

                             III. CONCLUSION

      For the foregoing reasons, Defendant’s motion to dismiss is DENIED.

      IT IS SO ORDERED.




91
  Agreement § 7.03(c); Pl.’s Answering. Br. in Opp’n to Def.’s Mot. to Dismiss at 43
(D.I. 15).

                                        28
