The Role and Importance of Stockholder Support Agreements (SSAs)

In the world of business transactions, particularly mergers and acquisitions (M&A), various legal agreements are crucial in ensuring the smooth execution of the proposed plans. One such agreement is the Stockholder Support Agreement (SSA). This document outlines the terms and conditions under which a significant shareholder, often referred to as the ‘Holder’, commits to supporting a proposed M&A transaction.

I. Key Provisions in an SSA

An SSA contains several key provisions that set out the responsibilities and obligations of the Holder. While these can vary depending on the specifics of the transaction, there are some common features:

1. Support for the M&A Transaction: The Holder agrees to vote in favor of the proposed M&A transaction, as well as any related transactions. This commitment represents a significant show of support for the proposal.

2. Opposition to Competing Proposals: The Holder also agrees to vote against any competing proposals or actions that could potentially delay or interfere with the planned M&A transaction.
   Restrictions on Transfer of Shares: Typically, the SSA restricts the Holder from transferring or encumbering their shares during the voting period without prior consent. This is to prevent any potential disruptions to the voting process.

3. Right of the Purchaser in case of Non-Compliance: The agreement often grants the Purchaser the right to vote the Holder’s shares if the Holder does not comply with the terms of the agreement.

4. Permitted Transfers: Certain transfers of shares may be permitted under the SSA, such as transfers to family members, affiliates, or as required by law.

5. Notification of Changes: The Holder is usually required to notify the Purchaser and the company being acquired of any changes in ownership or voting control of the shares.

6. Provision of Information: The Holder may be obligated to provide certain requested information for inclusion in the registration statement or other regulatory filings.

7. Restrictions on Public Statements: The SSA often includes a provision that prohibits the Holder from making public statements about the M&A transaction without prior approval from the parties involved.

II. Importance of the Stockholder Support Agreement

1. The SSA plays a vital role in ensuring the successful execution of a proposed M&A transaction. It ensures that major shareholders are committed to supporting the transaction and discourages actions that could disrupt the process.

2. The agreement also helps to manage the potential risks associated with a major business transaction. By outlining the responsibilities and obligations of the Holder, it provides a clear framework for their involvement in the process.

3. In essence, the SSA is a binding commitment from key stakeholders, providing a measure of certainty and stability in what can often be a complex and uncertain process. In doing so, it contributes significantly to the potential success of a M&A transaction.

III. Here are some additional points to consider when drafting or negotiating an SSA:

1. The scope of the agreement should be clearly defined, including the specific transaction that is being supported.

2. The agreement should be binding on all relevant shareholders, including those who may acquire shares after the agreement is signed.

3. The agreement should be enforceable, including provisions for liquidated damages in the event of a breach.

4. The agreement should be tailored to the specific circumstances of the transaction, including the size and complexity of the company, the number of shareholders involved, and the regulatory environment.

By carefully considering these factors, companies can ensure that their SSAs are effective in supporting their M&A transactions.

Posted from SLPRO Z