Restricts one party from acquiring stock, launching tender offers, or pursuing hostile takeover actions during confidential M&A discussions or due diligence.
High Complexity
What This Clause Does
A standstill provision is commonly included in NDAs used for potential mergers, acquisitions, or significant investment discussions. It prevents the party receiving confidential information (typically the potential acquirer) from using that information to launch an unsolicited or hostile acquisition attempt. The standstill restricts activities such as purchasing the target's stock, making tender offers, initiating proxy contests, or soliciting board representation without the target's consent.
Why This Clause Matters
Protection During Vulnerability: When a company shares sensitive financial and operational information during due diligence, it becomes vulnerable to hostile actions from the very party receiving the data. Standstills prevent this exploitation.
Board Fiduciary Duties: Target company boards have fiduciary duties to shareholders. Sharing sensitive information without standstill protection could be viewed as a breach of those duties.
Negotiating Leverage: Standstills ensure the target maintains negotiating leverage. Without one, the potential acquirer could threaten a hostile bid to extract better terms.
Orderly Process: In auction situations, standstills ensure all bidders compete on equal terms and prevent any single bidder from circumventing the process.
Strategic Optionality: For the target, standstills preserve the option to walk away from discussions without fear of immediate hostile action.
Legal Context
Standstill provisions are heavily negotiated in M&A transactions and have been the subject of significant Delaware case law. The 2013 In re Complete Genomics case highlighted "Don't Ask, Don't Waive" standstills that prevented bidders from even requesting a waiver, raising concerns about boards limiting shareholder value. Modern standstills typically include a "fall-away" provision that automatically terminates the standstill if the target announces a deal with another party. Courts generally enforce standstills as written, viewing them as sophisticated commercial terms between advised parties. However, overly broad standstills may conflict with board fiduciary duties, and courts may scrutinize standstills that appear designed to entrench management rather than protect shareholder interests.
Standstill
For a period of twelve (12) months from the date of this Agreement, the Receiving Party agrees that, without the prior written consent of the Company's Board of Directors, it will not:
(a) acquire, or offer or agree to acquire, any securities or assets of the Company;
(b) make any public announcement with respect to any proposal to acquire the Company or its securities; or
(c) solicit proxies or seek representation on the Company's Board of Directors.
This provision shall terminate automatically if the Company enters into a definitive agreement for a Change of Control transaction with a third party.
Basic Version: Simple standstill covering core restrictions with automatic fall-away. Suitable for preliminary discussions where the potential acquirer has significant negotiating leverage.
Standstill Restrictions
1. Restricted Activities. For a period of eighteen (18) months from the date of this Agreement (the "Standstill Period"), the Receiving Party agrees that neither it nor any of its affiliates, representatives, or agents will, directly or indirectly, without the prior written invitation or consent of the Company's Board of Directors:
(a) acquire, offer or propose to acquire, or agree to acquire, by purchase, tender offer, exchange offer, merger, or otherwise, any voting securities, assets, or businesses of the Company or any of its subsidiaries;
(b) seek or propose any merger, consolidation, business combination, recapitalization, restructuring, or other extraordinary transaction involving the Company or any of its subsidiaries;
(c) make any public announcement or disclosure with respect to any of the foregoing;
(d) form, join, or participate in any "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act) with respect to any voting securities of the Company;
(e) solicit proxies or consents with respect to any voting securities of the Company, or seek to advise or influence any person with respect to the voting of any voting securities of the Company;
(f) seek election to, or seek to place a representative on, the Company's Board of Directors, or seek the removal of any member of the Company's Board of Directors;
(g) make any request to amend or waive any provision of this section (it being understood that the Company's Board of Directors shall be free to consider any such request in its sole discretion); or
(h) take any action that would require the Company to make a public announcement regarding any of the foregoing.
2. Exceptions. The restrictions in this section shall not apply to:
(a) Discussions specifically invited in writing by the Company's Board of Directors;
(b) Confidential communications to the Company's Board of Directors regarding a potential transaction, provided such communications would not reasonably be expected to require public disclosure.
3. Fall-Away. The Standstill Period shall terminate automatically upon the earliest of:
(a) The Company entering into a definitive agreement providing for a Change of Control transaction;
(b) The public announcement by a third party of a tender or exchange offer for more than 50% of the Company's voting securities;
(c) The Company's Board of Directors recommending that shareholders accept a third party tender offer.
4. Remedies. The Receiving Party acknowledges that a breach of this section would cause irreparable harm to the Company and that monetary damages would be inadequate. Accordingly, the Company shall be entitled to specific performance and injunctive relief without the necessity of proving actual damages or posting bond.
Standard Version: Comprehensive standstill with detailed restricted activities, reasonable exceptions, and market-standard fall-away provisions. Appropriate for most M&A discussions.
Comprehensive Standstill and Non-Interference
1. Absolute Standstill. For a period of twenty-four (24) months from the date of this Agreement (the "Standstill Period"), the Receiving Party absolutely and unconditionally agrees that neither it nor any of its controlled affiliates, portfolio companies, financing sources, representatives, agents, or any person acting in concert with it will, directly or indirectly, alone or with others:
(a) Acquisition Activities:
(i) acquire, or offer, propose, seek, or agree to acquire, ownership (including beneficial ownership as defined in Rule 13d-3 under the Exchange Act) of any voting securities, debt securities, or assets of the Company or any of its subsidiaries;
(ii) tender any securities into any tender or exchange offer made by any third party;
(iii) enter into any discussions, negotiations, agreements, or understandings with any third party regarding a potential acquisition of the Company;
(b) Governance Activities:
(i) solicit proxies or consents, become a participant in any election contest or consent solicitation, or seek to advise, encourage, or influence any person with respect to voting any securities of the Company;
(ii) seek election or appointment to, or representation on, the Board of Directors, or seek removal of any director;
(iii) call or seek to call any meeting of shareholders;
(iv) submit any shareholder proposal or nomination for the Board of Directors;
(c) Group Activities:
(i) form, join, or participate in any "group" within the meaning of Section 13(d)(3) of the Exchange Act;
(ii) deposit any securities in any voting trust or similar arrangement;
(iii) grant any proxy with respect to any securities (other than to the Company);
(iv) finance, advise, assist, or encourage any third party to do any of the foregoing;
(d) Public Activities:
(i) make any public statement or disclosure regarding any of the foregoing;
(ii) make any public statement questioning or criticizing the Company's management, Board, or business strategy;
(iii) request publicly or privately that the Company amend or waive this provision.
2. Don't Ask, Don't Waive. The Receiving Party agrees not to request that the Company or its Board of Directors amend or waive any provision of this section, and the Company shall have no obligation to consider any such request if made.
3. No Fall-Away. The restrictions in this section shall remain in full force and effect for the entire Standstill Period regardless of:
(a) Any announcement or consummation of a transaction with a third party;
(b) Any change in the Company's Board of Directors or management;
(c) Any material change in the Company's business or financial condition;
(d) Any other event or circumstance.
4. Extension for Breach. If the Receiving Party breaches any provision of this section, the Standstill Period shall automatically extend for an additional twelve (12) months from the date such breach is cured or enjoined.
5. Acknowledgment. The Receiving Party acknowledges that:
(a) The restrictions herein are reasonable and necessary to protect the Company's legitimate interests;
(b) The Company would not have entered into this Agreement or disclosed Confidential Information without these protections;
(c) The Receiving Party has had opportunity to consult with counsel and negotiated these terms at arm's length.
Warning - Highly Restrictive: This version includes "Don't Ask, Don't Waive" language and no fall-away provisions, which may conflict with board fiduciary duties and have been criticized by Delaware courts. Potential acquirers should push for fall-away provisions and the ability to request waivers.
1
Always Negotiate Fall-Away Provisions: If you are the potential acquirer, insist on fall-away provisions that terminate the standstill if the target announces a deal with a third party. Without this, you may be locked out while a competitor acquires the company.
2
Resist "Don't Ask, Don't Waive": Post-Complete Genomics, many practitioners view DADW provisions skeptically. Push for the right to privately request a waiver, even if the board retains discretion to decline.
3
Negotiate Duration Based on Information Sensitivity: A 6-month standstill may be appropriate for preliminary discussions; 12-18 months is more common for deep due diligence. Resist 24+ month periods unless truly warranted.
4
Carve Out Private Communications: Ensure the standstill permits confidential communications to the board about potential transactions. Prohibiting all private communication may be unworkable.
5
Address Existing Holdings: If the potential acquirer already owns some stock, clarify that the standstill does not require divestiture and permits voting existing shares normally.
6
Consider Mutual Standstill: In some situations, both parties may want protection. If the target is also a potential acquirer, negotiate for mutual standstill obligations.
No Fall-Away Provision
A standstill without fall-away locks you out even if the target sells to a competitor. This eliminates your ability to make a superior proposal and may allow the target to extract value from your due diligence while selling to someone else.
"Don't Ask, Don't Waive" Language
DADW provisions prevent you from even requesting a waiver, eliminating any opportunity to propose a superior transaction. Delaware courts have expressed concerns about these provisions potentially conflicting with board fiduciary duties.
Excessively Long Duration
Standstill periods beyond 18-24 months are unusual and may unduly restrict your strategic options. The duration should be proportionate to the level of confidential information shared.
Restrictions on Portfolio Companies or Affiliates
If you are a private equity firm, restrictions extending to all portfolio companies may inadvertently restrict unrelated entities. Negotiate for limitations to "controlled affiliates" acting at your direction.
Automatic Extension for "Breach"
Provisions automatically extending the standstill for alleged breaches create uncertainty and potential for abuse. The target could claim minor technical violations to extend the restriction indefinitely.