Perfection of Delaware Appraisal Rights

Perfection of Delaware Appraisal Rights

The following is a general summary of § 262 of the DGCL. The rights and obligations of stockholders and companies will vary depending upon the circumstances of the particular merger. The appraisal process under § 262 of the DGCL, however, generally proceeds as follows.

A company must give notice of the availability of appraisal rights, as applicable, to its stockholders at least 20 days prior to a stockholder vote on the merger. The notice must include a copy of DGCL § 262 for the stockholders to review. A dissenting stockholder who desires to exercise appraisal rights must (a) not vote in favor of the adoption of the merger agreement and (b) deliver a written demand for appraisal to the company before the vote is taken. Neither voting (in person or by proxy) against, abstaining from voting on or failing to vote on the proposal to adopt the merger agreement is sufficient to constitute a demand for appraisal within the meaning of DGCL § 262. Further, the dissenting stockholder must continuously hold the shares of record from the date of making the demand through the effective time of the applicable merger in order to maintain appraisal rights. Within 10 days of the effective date of the merger, the surviving company must notify all stockholders who properly delivered an appraisal demand that the merger has become effective. An appraisal proceeding may be commenced within 120 days after the effective time of the merger by either the surviving company or any dissenting stockholder, who has properly demanded appraisal and otherwise complied with the requirements of § 262, with the filing a petition in the Delaware Court of Chancery demanding a determination of the value of the shares held by all stockholders who have properly demanded appraisal.

After a hearing on the petition, the Delaware Court of Chancery will determine which dissenting stockholders are entitled to appraisal rights, and will appraise the shares owned by those dissenting stockholders, determining the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest to be paid, if any. Unless the Delaware Court of Chancery in its discretion determines otherwise, interest from the effective date of the merger through the date of payment of the judgment will be compounded quarterly and accrue at 5% over the Federal Reserve discount rate (including any surcharges).

The cost of the appraisal proceeding may be determined by the Delaware Court of Chancery and charged upon the parties as the court deems equitable. Upon application of a stockholder, the Delaware Court of Chancery may order that all or a portion of the expenses incurred by such stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys' fees and the fees and expenses of experts, be charged pro rata against the value of all shares entitled to appraisal.

Notwithstanding the preceding, within 60 days of the effective time of the merger, any stockholder who has demanded appraisal and who has not commenced an appraisal proceeding or joined a proceeding as a named party, will have the right to withdraw the demand for appraisal and to accept the applicable merger consideration. After this period, a dissenting stockholder may withdraw the demand for appraisal only with the consent of the surviving company. If no petition for appraisal is filed with the Delaware Court of Chancery within 120 days after the effective time of the merger, the dissenting stockholders' rights to appraisal cease and all stockholders become entitled only to merger consideration in exchange for their shares.

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