Christopher B. Chuff is an Associate at Pepper Hamilton LLP. This post is based on a recent Pepper memorandum by Mr. Chuff, Matthew Greenberg, Joanna Cline, and Taylor Bartholomew. This post is part of the Delaware law series; links to other posts in the series are available here.
In a recent opinion, the Delaware Court of Chancery, for the first time, held that contractual provisions in stockholder agreements barring common stockholders from exercising their statutory appraisal rights are enforceable as a matter of law, so long as the stockholders voluntarily signed the stockholder agreement in return for consideration, such as investment in the company. The decision, Manti Holdings LLC v. Authentix Acquisition Co., C.A. No. 2017-0887-SG, holds that appraisal waivers do not violate section 151(a) of the Delaware General Corporation Law (DGCL) and, in so doing, brings additional certainty to private equity and venture capital investors whose investments include drag-along rights with appraisal waivers.
Background and Analysis
In 2008, Authentix Acquisition Co. and its stockholders entered into a stockholder agreement to facilitate the investment of a group of investors, collectively referred to in the opinion as the Carlyle Group. The stockholder agreement provided for drag-along rights, which required the stockholders to consent to a sale of Authentix (whether by merger or stock sale) if such a sale was approved by the holders of at least 50 percent of Authentix stock. The stockholder agreement also required the stockholders, including the plaintiffs, to refrain from exercising any appraisal rights in connection with such a sale.
