Often, in the course of performing due diligence regarding a company's standing and financial status, you'll have to provide access to confidential information. Access to that information could give the recipient an unfair advantage when investing or divesting in your company.
In such a case, you can use a Confidentiality and Stand Still Agreement to ensure the information is safe from being revealed to third parties. It also helps prevent the receiving party from using the information for personal gain or taking other hostile actions against your interests.
A Confidentiality and Stand Still Agreement is a legally binding document that protects proprietary or confidential information shared between two individuals or organizations. In addition to protecting the information from being distributed, this agreement also delays specific actions the receiving party can take.
Often, this sort of agreement is used to protect information disclosed to a person or organization when reviewing a proposed business transaction. It effectively protects the information disclosed and stops the information from being used to solicit employees or trade-in the revealing party's securities.
By including standstill provisions in confidentiality agreements, you can protect your organization from hostile actions resulting from information disclosure, such as a takeover of voting securities. However, the Confidentiality and Stand Still Agreement can also apply to other measures, such as not soliciting or engaging in acquisitions with other parties.
A Confidentiality and Stand Still Agreement protects a potential deal from being soured by disclosing information.
Depending on your state, a Confidentiality and Stand Still Agreement may also be known as:
Confidentiality and Stand Still Agreements are primarily used by organizations involved in evaluating a proposed business transaction. The responsibility for drafting a Confidentiality and Stand Still Agreement falls on the party revealing information.
Typically, when mergers and acquisitions are negotiated, a Confidentiality and Stand Still Agreement effectively stops the process of a potential hostile takeover if a deal can't be reached that's amenable to both sides. Therefore, any business entity engaged in disclosing proprietary information that may lead to their voting stocks' purchase or sale needs a Confidentiality and Stand Still Agreement.
Companies subjected to pressure from aggressive bidders are well-advised to pay close attention to how this agreement is composed. A good Confidentiality and Stand Still Agreement is an excellent way to stall unsolicited approaches and give you more control over future negotiations.
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A Confidentiality and Stand Still Agreement needs to be signed by the disclosing party and the receiving party or their authorized officers. If the signatures are witnessed, the witnesses should also sign the agreement. A Confidentiality and Stand Still Agreement does not need to be notarized to be enforceable.
However, notarizing the signatures on your Confidentiality and Stand Still Agreement is a way to ensure no one challenges them later and firmly establishes the document's validity.
Once signed, distribute a copy of the Confidentiality and Stand Still Agreement to each of the signatories. Each should keep a copy in their respective personal records.
Periodically, it's beneficial for both parties to review the terms of the agreement. The receiving party may come into contact with information not protected in the original agreement, or the disclosing party may not need to protect certain information anymore.
A Confidentiality and Stand Still Agreement can refer to sensitive financial information. Both parties are encouraged to keep the documents in a secure location with limited access.
It depends on the parties involved. Typically, the receiving party will want to keep this period as short as possible. Common shareholders may also pressure the disclosing party to keep this period as short as possible to avoid limiting their potential returns in a merger or acquisition. As the disclosing party, more time gives you more flexibility to negotiate.
It’s useful to describe exactly what is not considered confidential information but some information will be excluded even if it is not expressly described as such. This includes information already known in the industry, information gained through independent research, information rightfully gained from documents disclosed by a government agency, etc.
As a legally binding agreement, any violation of the Confidentiality and Stand Still Agreement gives the disclosing party the right to enforce the document in any legal way, such as suing for damages. Often, the agreement will include remedies and penalties in case of a breach and those will likely determine the course of action to deal with the violation.
Not exactly, but you can make certain disclosures contingent on the signing of a Confidentiality and Stand Still Agreement. Both parties are considered to be entering the agreement in good faith and would be completely invalidated if either party is coerced into participating.
It’s not uncommon for agreements of any kind to include provisions that are later found to be unenforceable. However, this doesn’t mean the entire agreement falls through. A severability clause protects all the remaining provisions in the agreement if any is ultimately unlawful or unenforceable.
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