The question of whether voting agreements, or so-called drag-along provisions, in stockholder agreements can be used to prevent a dissenter from exercising appraisal rights has not been tested in the courts. Such clauses are often included in stockholders agreements to secure advance shareholder consent to such corporate actions as a sale of the company. Prospective buyers tend to look favorably upon drag-along provisions because they offer the prospect of supportive votes favoring the acquisition, with the added hope that the drag-along rights may be sufficient to quash any appraisal rights that the shareholder might otherwise be inclined to exercise.
Interestingly, we are not aware of any case in Delaware or New York that has decided whether a drag-along clause can be enforced to effectively waive appraisal rights on the part of the shareholder being dragged along to consent to the deal. Absent a specific waiver of appraisal rights, it is difficult to imagine that a chancery judge will be inclined to sweep them aside, and yet there is no guiding precedent to inform that decision. Some academic commentary has speculated that common shareholders who have agreed to vote their shares as directed by drag-along provisions may lose their right to appraisal, which is generally available only to shareholders who vote against the transaction. See Brian Broughman & Jesse M. Fried, Carrots & Sticks: How VCs Induce Entrepreneurial Teams to Sell Startups, 98 Cornell Law Review 1319, 1331, n. 50 (2013). But again, no court has yet accepted or rejected this notion. While courts are indeed inclined to appraise preferred stock as a matter of pure contract law based on a clear and unambiguous provision in the company’s certificate of designation, it remains to be seen whether the courts will likewise deem a common stockholder to have waived her appraisal rights by virtue of a voting agreement or drag-along clause in a stockholder agreement, especially where that waiver has not been made explicitly in the contract itself.
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