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Define Standstill Agreement

A standstill agreement, also known as a non-action agreement, is a legal document that parties involved in a particular business transaction or potential deal may agree to. This agreement prohibits the parties from pursuing hostile takeover attempts or engaging in other activities that could potentially impact the viability or success of the merger or acquisition.

In essence, a standstill agreement freezes the status quo, preventing the parties from taking any actions that could change the circumstances of the deal. It is typically signed by the acquirer and the target company, and it outlines the terms and conditions designed to protect the interest of both parties.

These agreements usually have specific timelines and expiration dates. The language used in a standstill agreement is critical, as it outlines the extent of the agreement, the limitations on specific actions, and the consequences of any breach of the agreement.

A standstill agreement typically includes provisions that limit the hostile takeover techniques that an acquiring company may use to gain control of the targeted company. For example, it may prevent the acquirer from buying additional shares of stock in the company, prohibiting them from going over a specific percentage ownership threshold.

Standstill agreements can be mutual or one-sided, depending on the deal`s circumstances. Mutual agreements are usually signed when both parties are actively seeking to merge and have similar business interests, while one-sided agreements are typically signed when one party is trying to acquire another and wants to ensure that the targeted company stays viable.

Standstill agreements may be beneficial to both parties. By agreeing to freeze the status quo, the target company may lessen the risk of damaging hostile takeover attempts, while the acquirer can get a closer look at the target company`s operations and financial performance while the agreement is in place.

In conclusion, a standstill agreement is a legal document that serves to freeze the status quo between companies involved in a potential business transaction. It typically outlines the terms and conditions that protect both parties` interests, and it is critical in preventing hostile takeover attempts or other activities that could impact the deal`s success. An experienced legal team should draft and review these agreements to ensure that the language used accurately represents the parties` intentions and expectations.