16 Apr What Is Standstill Agreements
A standstill agreement is a form of anti-takeover measure. Common shareholders tend to reject standstill agreements because they limit their potential return on an acquisition. Please contact one of the author`s lawyers or a member of Woods Rogers` business and corporate group to determine if a status quo agreement might be appropriate for your business. A standstill agreement protects a company from exposure to an aggressive takeover or activist investor. It also gives the target company the advantage of having more control over the transaction by limiting the bidder`s ability to buy or sell the company`s shares or initiate proxy contests. A standstill agreement may also take place between a lending party and a borrowing party where the lending party does not require timely interest or principal payments to give the borrowing party the opportunity to revise its obligations. In the banking sector, a status quo agreement can allow the borrower to pause the repayment of the loan and ask him to comply with certain guidelines. During the standstill period, an exclusivity contract is negotiated, which ultimately changes the actual debt repayment schedule. It can be used as a substitute for bankruptcy if the borrowing party is unable to repay the loan.
This standstill agreement allows the lender to collect a certain amount of debt. The lender cannot recover anything in the event of foreclosure. If the lender deals with the borrower, he or she may have a better chance of repaying the outstanding loan. A standstill agreement can be included in the standard language associated with a confidentiality agreement that a potential bidder must sign for a company before being allowed to view a company`s due diligence documents. By including this clause in the contract, the bidder is prevented from engaging in hostile acquisition activities after the failure of an amicable purchase contract. A status quo agreement can be used between a lender and a borrower. This gives the borrower time to restructure their liabilities. On the other hand, the lender provides for a moratorium on the payment of interest or principal on the loan. This cooperation agreement does not release the parties from their obligations. Instead, he recognizes the economic challenges of the time and formalizes an agreement between the two companies that they want to preserve the business relationship through turbulence. These agreements can avoid disputes due to breaches of contract and preserve important relationships.
In other areas of activity, a standstill agreement can be virtually any agreement between the parties in which both agree to suspend the case for a period of time. This could be an agreement to defer payments intended to help a company survive difficult market conditions, agreements to stop producing a product, agreements between governments, or many other types of agreements. A status quo agreement may also exist between a lender and a borrower if the lender stops charging a planned payment of interest or principal on a loan to give the borrower time to restructure its liabilities. A status quo agreement is an agreement that preserves the status quo. This is an agreement between the target and the bidder that prevents the bidder from submitting a bid to purchase the target company without first obtaining the bidder`s consent. It may be included as a provision in the confidentiality agreement and will be executed prior to receipt of due diligence documents. A standstill agreement aims to prevent hostile bids and provides a possible remedy in the event that the bidder uses confidential information to make a hostile bid in cases where the parties cannot reach an amicable agreement on the terms of sale. A standstill agreement provides a target company with different levels of protection and stability in the event of a hostile takeover and promotes an orderly sales process. It is an agreement between the parties not to take further action. A standstill agreement is an agreement between a potential acquirer and a target company that limits the acquirer`s ability to increase its stake in the target company.
The agreement can be used to terminate a hostile takeover attempt, usually at the price of a cash payment to the potential acquirer, which includes a repurchase of shares already held by the acquirer at a premium. Or the target company can grant the acquirer a seat on the board of directors if it does not increase its stakes. Last week, the American Bar Association released a model status quo agreement specifically tailored to the COVID-19 pandemic. One of the unique provisions of the model agreement states that the parties support each other in securing new funding so that the parties can refer to the standstill agreement in loan applications or financing discussions. As many organizations seek to mobilize new government and private funds, this support can encourage lenders and encourage the provision of capital. A status quo agreement between a bank and a borrower works in the same way as the one above. It stops the contractual repayment plan for a stressed borrower and sets certain conditions for the borrower. A standstill agreement is a kind of anti-takeover measure. Specifically, it is a contract that decides how an overbidder of an organization can buy, sell or vote shares of the target unit. If organizations are unable to negotiate a friendly deal, a status quo agreement can completely stop the hostile takeover.
A standstill agreement can be used as a form of defense against a hostile takeover when a target company receives a commitment from a hostile bidder to limit the amount of shares the offeror buys or holds in the target company. By soliciting the promise of the potential buyer, the target company saves more time to build other takeover defenses. In many cases, the target company promises in return to buy back the shares of the potential acquirer of the target company at a premium. In general, standstill agreements can be used to suspend a transaction for a period of time. For example, a lender and borrower may agree to suspend debt payments for a certain period of time. A standstill agreement can practically be an agreement between the parties in which both decide to suspend a particular case for a period of time. It can be an agreement to defer scheduled payments to help a customer overcome difficult market conditions. They may also be agreements to interrupt the production of a product. A company under pressure from an aggressive bidder or activist investor will find a status quo agreement useful to mitigate the undesirable approach. The agreement gives the target company more control over the transaction process by requiring the bidder or investor to have the opportunity to buy or sell the company`s shares or launch proxy contests. Another type of standstill agreement occurs when two or more parties agree not to deal with other parties in a particular case for a certain period of time.
For example, when negotiating a merger or acquisition, the target buyer and potential buyers may agree not to seek out or participate in acquisitions with other parties. The agreement increases incentives for the parties to invest in negotiations and due diligence, while respecting their own potential activities. Standstill agreements are also used to suspend the usual limitation period for making a claim in court.  In particular, a standstill agreement does not have to freeze the relationship in its entirety, and the parties may negotiate and draft the terms of the agreement so that certain obligations or services continue to exist during the standstill period. For example, a debtor may continue to make partial payments to the creditor during the standstill period, or a creditor may continue to provide services. For example, Glencore plc, a Swiss-based commodity trader, and a US-based agricultural commodities trader called Bunge Ltd are part of the standstill agreement. Glencore pursued an informal strategy to acquire Bunge in May 2017. And gradually, the two companies followed the standstill agreement so as not to allow Glencore plc to acquire shares or make a formal elastic offer until a later schedule.
The term standstill agreement refers to various forms of agreements that companies may enter into to delay actions that might otherwise take place. A recent example of two companies that have signed such an agreement is Glencore plc, a Swiss-based commodity trader, and Bunge Ltd., an agricultural commodities trader in the United States. In May 2017, Glencore took an informal approach to buying rubber bands. Soon after, the parties agreed to a standstill agreement that prevents Glencore from collecting shares or making a formal offer of rubber band until a later date. A standstill agreement tends to privilege the existing management team over the rights of shareholders, who might otherwise benefit from a buyback offer that increases the value of their shares. .