As we have posted previously, whether a voting agreement, or so-called drag-along provision, can be successfully enforced to prevent common stockholders from seeking appraisal is an open question in the Delaware courts. And so it remains, even in the wake of Halpin v. Riverstone National, Inc., (Del. Ch. Feb. 26, 2015), in which the Court of Chancery faced the question of whether common shareholders can be charged with having waived their statutory appraisal rights in advance of the transaction under a drag-along provision. The drag-along provision at issue did not actually include a waiver of appraisal rights, and instead required the minority stockholders to vote in favor of a change-in-control transaction upon advance notice of the transaction. While in theory an agreement that forces a shareholder to vote in favor of a deal arguably leads to a waiver of appraisal rights insofar as such an agreement eliminates a stockholder’s opportunity to provide the requisite dissent from the proposed merger, it is also true that in order to be effective such an agreement would have to be in place prior to any vote on the transaction. In Halpin, the company did not invoke the drag-along provision until after the merger vote, so the Court avoided deciding the question of whether a waiver took place and instead held that as a matter of contract the minority stockholders were free to seek statutory appraisal of their shares. The minority shareholders obviously could not be forced to consent to a deal that had already occurred.
The Court did assume, without deciding the issue, that as a theoretical matter holders of common stock could indeed waive their appraisal rights by contract in advance of a transaction. But that assumption is simply that, an assumption, which as a legal matter was not decided and remains an open question of law. The Court also noted that, unlike common stockholders, it is well-established Delaware law that preferred stockholders may waive their appraisal rights. Indeed, we have previously posted here about the important differences between the appraisal rights of preferred and common stockholders, and Chancery once again acknowledged the unique nature of the preferreds’ appraisal rights.
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