Prevents a potential acquirer from making hostile acquisition moves during and after confidential M&A discussions. A critical protection for target companies in deal negotiations.
A standstill provision is a clause commonly found in M&A confidentiality agreements that prevents the potential acquirer (often called the "bidder" or "prospective buyer") from taking aggressive actions against the target company. These restrictions typically last for a defined period, often 12-24 months.
The core idea is simple: if a target company is going to share sensitive business information with a potential acquirer, it wants protection against that party using the information to launch a hostile takeover, accumulate shares on the open market, or pressure the board through proxy contests.
Standstill provisions are almost exclusively used in M&A contexts. They are rarely appropriate for ordinary business NDAs covering vendor relationships, partnerships, or employment matters.
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Why This Clause Matters
Target Company Protection: Without a standstill, a potential acquirer could use confidential information to time a hostile bid, identify weaknesses, or approach shareholders directly.
Board Fiduciary Duties: Target company boards have duties to shareholders; accepting a standstill may limit their ability to respond to competing bids or changed circumstances.
Negotiating Leverage: Standstills are heavily negotiated because they significantly impact the dynamics of any potential transaction.
Fall-Away Provisions: Many standstills include "fall-away" triggers that release the bidder from restrictions if certain events occur (like a third-party bid).
Delaware Law Considerations: Delaware courts have scrutinized standstill provisions, particularly "don't ask, don't waive" provisions that prevent bidders from requesting waivers.
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What Standstills Typically Prohibit
Share Acquisitions: Buying shares of the target company or derivatives based on target shares.
Tender/Exchange Offers: Launching a public offer to buy shares directly from shareholders.
Proxy Contests: Soliciting shareholder votes to replace the board or change company policies.
Group Formation: Joining with other parties to take any of these actions collectively.
Public Announcements: Publicly announcing intentions to acquire or making proposals that would require public disclosure.
Board/Management Contact: Approaching directors, officers, or employees to encourage a transaction.
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Clause Versions
Standstill
During the period commencing on the date hereof and ending on the earlier of (a) the first anniversary of the date hereof, or (b) the termination of this Agreement in accordance with its terms (the "Standstill Period"), the Receiving Party agrees that, without the prior written consent of the Board of Directors of the Disclosing Party, neither it nor any of its Representatives will, directly or indirectly:
(i) acquire, offer to acquire, or agree to acquire, by purchase or otherwise, any voting securities or direct or indirect rights to acquire any voting securities of the Disclosing Party, or any securities convertible into or exchangeable for such voting securities;
(ii) make, or in any way participate in, any solicitation of proxies or consents with respect to any voting securities of the Disclosing Party, or seek to advise or influence any person with respect to the voting of any such securities;
(iii) make any public announcement with respect to, or submit to the Disclosing Party or any of its Representatives, any proposal or offer relating to any merger, consolidation, business combination, tender or exchange offer, recapitalization, restructuring, or other extraordinary transaction involving the Disclosing Party;
(iv) form, join, or in any way participate in a "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to any voting securities of the Disclosing Party; or
(v) request the Disclosing Party or any of its Representatives to amend or waive any provision of this paragraph.
Notwithstanding the foregoing, the restrictions set forth in this paragraph shall automatically terminate and be of no further force or effect upon the earliest to occur of: (A) the Disclosing Party entering into a definitive agreement with any third party providing for a merger, acquisition, or similar transaction; (B) the Disclosing Party publicly announcing that it is exploring strategic alternatives or has initiated a process to solicit acquisition proposals; or (C) any third party commencing a tender or exchange offer for voting securities of the Disclosing Party representing more than 25% of the outstanding shares.
Note: This balanced version includes typical standstill restrictions with reasonable fall-away provisions that release the bidder if the target pursues other strategic options or receives third-party bids. The one-year term is standard.
Standstill
For a period of eighteen (18) months from the date hereof (the "Standstill Period"), the Receiving Party agrees that, without the prior written invitation of the Board of Directors of the Disclosing Party (which may be withheld, conditioned, or delayed in the Board's sole discretion), neither it nor any of its affiliates, associates, Representatives, or any person acting on their behalf will, directly or indirectly:
(i) acquire, offer to acquire, or agree to acquire, by purchase, tender offer, or otherwise, any equity securities (or options, warrants, or other rights to acquire equity securities) of the Disclosing Party or any of its subsidiaries, or any assets representing 5% or more of the consolidated assets of the Disclosing Party;
(ii) propose, seek, or offer to effect, or announce any intention to propose, seek, or offer to effect, any merger, consolidation, share exchange, business combination, recapitalization, restructuring, liquidation, dissolution, or other extraordinary transaction involving the Disclosing Party or any of its subsidiaries or their respective securities or assets;
(iii) make, or in any way participate in, directly or indirectly, any solicitation of proxies or consents, or seek to advise, encourage, or influence any person with respect to the voting of any securities of the Disclosing Party;
(iv) form, join, or participate in a "group" (as defined under Section 13(d)(3) of the Exchange Act) with respect to any securities of the Disclosing Party;
(v) otherwise act, alone or in concert with others, to seek representation on or to control or influence the management, Board of Directors, or policies of the Disclosing Party;
(vi) disclose any intention, plan, or arrangement prohibited by, or inconsistent with, the foregoing;
(vii) advise, assist, encourage, or enter into any discussions or arrangements with any third party to do any of the foregoing; or
(viii) request the Disclosing Party or any of its Representatives to amend or waive any provision of this paragraph, or take any action that would reasonably be expected to require the Disclosing Party to make a public announcement regarding the possibility of any transaction.
The Receiving Party acknowledges that monetary damages would be inadequate for any breach of this paragraph and that the Disclosing Party shall be entitled to specific performance and injunctive relief as remedies for any such breach without proof of actual damages.
Why this favors the target: Longer 18-month term, no automatic fall-away provisions, explicit "don't ask, don't waive" restriction, covers affiliates and associates, and includes a waiver acknowledgment for injunctive relief. This is a very protective standstill.
Limited Standstill
During the period ending on the earlier of (a) six (6) months from the date hereof, or (b) the occurrence of any Termination Event (the "Standstill Period"), the Receiving Party agrees that, without the prior written consent of the Disclosing Party (such consent not to be unreasonably withheld or delayed), it will not, directly:
(i) commence a tender or exchange offer for voting securities of the Disclosing Party; or
(ii) publicly announce an unsolicited proposal to acquire the Disclosing Party.
For purposes of this paragraph, "Termination Event" means any of the following: (A) the Disclosing Party or any of its affiliates entering into discussions with any third party regarding a potential acquisition, merger, or similar transaction; (B) the Disclosing Party engaging any investment bank, financial advisor, or similar party to explore strategic alternatives; (C) any third party publicly proposing, announcing, or commencing an acquisition transaction involving the Disclosing Party; (D) the Disclosing Party publicly announcing any recapitalization, extraordinary dividend, or material asset sale; (E) any material adverse change in the business, financial condition, or prospects of the Disclosing Party; or (F) the Disclosing Party failing to engage in good faith negotiations with the Receiving Party regarding a potential transaction.
Nothing in this paragraph shall restrict the Receiving Party from: (1) making confidential proposals or inquiries to the Board of Directors of the Disclosing Party; (2) acquiring voting securities through ordinary course market purchases not exceeding 5% of outstanding shares; (3) communicating with shareholders or their representatives in a non-public manner; or (4) requesting waivers or amendments of this provision.
The Receiving Party may request a waiver of any provision of this paragraph, and the Disclosing Party agrees to promptly consider any such request in good faith and respond within five (5) business days.
Warning - This favors the bidder: Short 6-month term, extensive fall-away triggers, limited restrictions (only blocks public hostile moves), allows confidential approaches and share purchases, and no "don't ask, don't waive" provision. Provides minimal protection to the target.
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Key Considerations
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Duration Matters: Standstill periods typically range from 6 months to 2 years. Longer periods favor the target; shorter periods favor the bidder. 12-18 months is typical for friendly M&A discussions.
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Fall-Away Provisions Are Critical: These provisions automatically release the bidder from standstill restrictions if specified events occur. Bidders should insist on fall-aways; targets should limit them.
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"Don't Ask, Don't Waive" Scrutiny: Delaware courts have examined provisions that prohibit bidders from requesting standstill waivers. Consider whether this restriction is appropriate given fiduciary duty concerns.
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Scope of Restrictions: Carefully review what is prohibited. Does it cover only public hostile actions, or also private approaches to the board? Are share purchases permitted?
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Covered Parties: Review whether the standstill applies only to the bidder itself, or extends to affiliates, representatives, and "groups" formed with third parties.