A standstill agreement is a contract that contains provisions governing how a bidder of a company can buy, sell or vote shares of the target company. A standstill agreement can effectively delay or stop the hostile takeover process if the parties cannot negotiate a friendly agreement. A company pressured by an aggressive bidder or activist investor believes that a standstill agreement is useful in weakening the unsolicited approach. The deal gives the target company greater control over the deal process, by imposing on the offeror or investor the ability to buy or sell the company`s shares or launch proxy competitions. A standstill rule is usually only included in an NDA if the seller is a limited company. The standstill provisions limit the buyer`s acquisition of securities or other rights of the seller, participation in obtaining voting powers over the seller`s securities, and other similar activities with respect to the seller`s securities. These provisions are intended to protect the seller of the public limited company from a hostile buyer after the failure of the negotiations. The impasse can be achieved by an explicit provision or by limiting the backdoor to the use of confidential information only for the negotiated transaction. Sellers of public limited companies may also consider including recognition of buyer`s insider trading restrictions in accordance with federal securities laws.
Two recent cases in Delaware remind us of important provisions in confidentiality agreements entered into in connection with potential acquisitions. A status quo agreement is a form of anti-opacity measure. In 2019, video game distributor GameStop signed a standstill agreement with a group of investors who wanted changes in the company`s governance, believing the company had an intrinsic value greater than what the share price reflected. The first clause is the “standstill clause”, which effectively prohibits any party from making an offer or acquisition hostile to the other party and, in particular, prohibiting the use of confidential information for that purpose. This clause is typical of a certification body in which listed companies participate. However, even in the absence of the clause, the court may read it in the certification body on the basis of the other conditions of the certification body and the previous operations of the parties. To Martin Marietta Materials, Inc. . . .