A recent opinion from the Delaware Court of Chancery raised, but left unanswered, the question of whether common stockholders may contractually waive their statutory rights to an appraisal of shares by the court following a short-form merger. In Halpin v. Riverstone National, C.A. No. 9796-VCG (Del. Ch. Feb. 26, 2015), the defendant corporation, Riverstone National Inc., had five minority common stockholders, all of whom entered into a stockholders’ agreement that contained a so-called “drag-along” provision. This provision required them to vote or tender their shares in favor of any change-in-control transaction supported by Riverstone’s 91 percent majority stockholder. Because the majority stockholder had the ability to effect a short-form merger under Section 253 of the Delaware General Corporation Law, no vote was required, and the minority stockholders’ sole remedy was appraisal of their shares by the Chancery Court under Section 262.
However, Section 262 affords appraisal rights only to stockholders who do not accept the merger consideration and do not vote in favor of the merger. If the minority stockholders could be compelled to participate or vote in favor of the merger, they would be unable to exercise statutory appraisal rights. The sole purpose of the “drag-along” provision was to indirectly cause a waiver of the minority’s statutory appraisal rights. The provision applied when Riverstone “propose[d] to enter into” a merger or other change-in-control transaction and required Riverstone to give notice 10 days in advance of the date on which stockholders would be required to vote or tender their shares.
