A Standstill agreement is a legal document that stops a party from pursuing certain rights and remedies. It is often used to facilitate negotiations between parties and to prevent one party from taking legal action while the negotiations are ongoing.
In Alberta, Standstill agreements are commonly used in the context of mergers and acquisitions, where two companies are contemplating a transaction. In this case, the target company may enter into a Standstill agreement with the potential purchaser, which will prevent the purchaser from acquiring any additional shares in the target company while negotiations are ongoing.
Standstill agreements often have a time limit, after which either party can terminate the agreement and pursue their rights and remedies. This time limit is usually negotiated between the parties and can range from a few weeks to several months.
The purpose of a Standstill agreement is to provide a period of time for both parties to assess the proposed transaction and determine if it is in their best interests to proceed. It also provides a period of stability and prevents one party from taking actions that could disrupt the negotiations.
In some cases, Standstill agreements can be used as a tool to gain negotiating leverage. For example, a potential purchaser may insist on a Standstill agreement as a condition of entering into negotiations, knowing that the target company cannot seek out alternative offers during the Standstill period.
While Standstill agreements can be beneficial in facilitating negotiations, they can also have downsides. For example, they can limit a party`s ability to take legal action if the negotiations do not result in a satisfactory outcome. They can also create challenges if one party decides to terminate the agreement and pursue their rights and remedies.
Overall, Standstill agreements are a useful tool in certain circumstances, and parties considering entering into negotiations should carefully consider whether a Standstill agreement is appropriate in their situation.