Suppose a business has a line of credit when it already has a long-term loan from a bank. This line of credit includes an agreement or subordination clause as part of the loan supporting documents. In the event of a default, the long-term lender is initially entitled to assets; The Equity Line lender has a second right. A status quo agreement can be reached between governments for better governance. A status quo agreement may be included in the language associated with a confidentiality agreement that a potential bidder must sign for a business before they can view a company`s due diligence documents. The inclusion of this clause in the agreement prevents the bidder from carrying out hostile acquisition activities as a result of a friendly sales contract. In other areas of activity, a status quo agreement can be virtually any agreement between the parties, in which both parties agree to discontinue the case for a specified period of time. This may include an agreement to defer payments to help a company in difficult market conditions, agreements to stop the production of a product, agreements between governments or many other types of agreements. The agreement is particularly important as the bidder has had access to the confidential financial information of the entity concerned. A status quo agreement is a contract that contains provisions governing how a bidder in a company can buy, sell or vote shares of the target company.
A status quo agreement can effectively paralyze or stop the hostile takeover process if the parties are unable to negotiate a friendly agreement. A status quo agreement tends to favour the existing management team over the rights of shareholders who would otherwise benefit from a takeover offer that would increase the value of their shares. A status quo agreement is an agreement between a potential acquirer and a target entity that limits the purchaser`s ability to increase its interest in the target company. The agreement can be used to terminate a hostile acquisition attempt, usually at the price of a cash payment to the potential purchaser, which involves a surtax buyback of the shares already held by the purchaser. Or the target company may grant a seat on the purchaser`s board of directors in exchange for the absence of an increase in its holdings. During the status quo period, a new agreement is negotiated, which generally changes the original loan repayment plan. This option is used as an alternative to bankruptcy or enforced execution if the borrower cannot repay the loan. The status quo agreement allows the lender to save some value from the loan.
In the event of forced execution, the lender must receive nothing. By working with the borrower, the lender can improve its chances of repaying some of the outstanding debt. In 2019, video game distributor GameStop signed a status quo agreement with a group of investors who wanted changes in corporate governance, believing that the company had intrinsic value when the share price reflected. A status quo agreement can be reached between a lender and a borrower. It gives the borrower time to restructure its debts. On the other hand, the lender provides for a certain moratorium on the payment of interest or principal loans. A status quo agreement can be used as a form of defence of a hostile takeover when a target company receives a commitment from a hostile bidder to limit the amount of shares it buys or holds in the target company. By committing to the promise of the potential acquirer, the target company saves more time to set up new takeover defenses. In many cases, the target company promises in return to repurchase the equity holdings of the potential purchaser for the purpose of an increase.