A standstill agreement is a legal document that is used in business transactions to temporarily halt certain activities between two parties. This type of agreement is also referred to as a “non-action” pact or “no-shop” agreement. It is often used during mergers and acquisitions or in situations where a company is being sold or acquired.
The purpose of a standstill agreement is to provide the parties involved with a window of time to negotiate and assess the potential transaction more thoroughly, without the threat of interference from third parties. It is designed to prevent either party from taking any action that could involve a breach of confidentiality, competitive advantage, or other sensitive information related to the deal.
The agreement typically includes specific terms and conditions that both parties must adhere to, such as a time frame for the standstill period, limitations on conducting business with competitors, and restrictions on soliciting employees or customers of the other party.
A standstill agreement may also include provisions related to the conduct of due diligence, which is the process of reviewing and verifying the financial, legal, and operational information of the other party involved in the transaction. The agreement may dictate which documents can be shared during due diligence, and may also require the parties to keep all information strictly confidential.
In the context of mergers and acquisitions, a standstill agreement is often used as protection for the target company. The target company may agree to not seek out other buyers during the standstill period, in exchange for the acquiring company`s promise to negotiate in good faith and pay a reasonable price for the acquisition.
The terms of a standstill agreement may vary depending on the specific transaction and the parties involved. It is important to have a clear understanding of the purpose and expectations of the agreement before signing on the dotted line.
In summary, a standstill agreement is a legal document used to temporarily halt certain activities between two parties involved in a business transaction. It is typically used in mergers and acquisitions and is designed to provide a window of time for negotiation and assessment without the threat of interference from third parties. The agreement includes specific terms and conditions that both parties must adhere to, and is an important tool for protecting sensitive information and ensuring a fair and reasonable transaction.