If you`re familiar with legal terms, you may have heard of a standstill agreement. This type of agreement is often used in business transactions or mergers and acquisitions to temporarily pause any actions that could have a negative impact on the deal.
An example standstill agreement can help you understand how this legal tool works. Let`s say that Company A is interested in acquiring Company B. Before any deal can be made, Company A may want to conduct due diligence to ensure that the acquisition is a smart investment. However, if news of the potential acquisition leaks to the public, Company B`s stock price could soar, making the deal much more expensive.
To prevent this scenario, Company A may offer Company B a standstill agreement. This agreement would require Company B to refrain from taking any actions that could affect the deal, such as entering into other acquisition discussions with different companies or increasing its stock price through publicity. In exchange, Company A may agree to compensate Company B during the standstill period or to provide some other benefit.
An example standstill agreement may include the following provisions:
– A term stating the length of the standstill period, typically several months or less
– A provision requiring Company B to notify Company A of any inquiries or offers related to an alternative transaction
– A covenant that Company B will not release any non-public information related to the potential acquisition
– A requirement that Company A compensate Company B for any expenses incurred during the standstill period
– An agreement that any breach of the standstill agreement would result in damages or other penalties
Ultimately, a standstill agreement is a valuable tool for companies involved in complex business transactions. By pausing any potentially disruptive actions, both parties can focus on conducting due diligence and negotiating a mutually beneficial deal. An example standstill agreement can help ensure that both parties understand the terms and benefits of this type of agreement.
