Opinion ID: 2402127
Heading Depth: 1
Heading Rank: 10

Heading: Stockholder Rights Statutory

Text: The Court of Chancery held that, while each stockholder of record of United Artists at the time of the Merger was entitled to statutory appraisal rights under Del.Code Ann. tit. 8, § 262 in connection with the Merger, the same cannot be said for Warrantholders, like the plaintiffs: As a result of effecting a § 253 merger, United Artists  as the surviving company  exposed itself to the risk that some of its common stockholders would opt to forsake the merger consideration in favor of pursing a possibly higher (or possibly lower) fair value award under § 262. But this was a risk that the General Assembly imposed on United Artists and other companies effecting § 253 mergers, solely as to actual stockholders. Holders of unexercised warrants are not stockholders within the meaning of § 262 and do not have rights under that statute. [21] The Court of Chancery properly held that a statutory appraisal remedy is a narrow statutory right that is available only to stockholders. [22] A warrantholder is not a stockholder. Warrantholders have paid for an option. They have a choice: whether to take an investment risk or not. A warrantholder only becomes a shareholder by investing something of value that meets the exercise terms of the warrant. [23] The United States Supreme Court has recognized that a warrantholder's rights are wholly contractual and that a warrantholder `does not become a stockholder, by his contract, in equity any more than at law.' [24] Just like convertible debentures  the holders of which are also not stockholders  the convertibility feature of warrants does not impart stockholder status unless and until the warrant is converted. [25] In fact, Section 10 of these Warrants expressly provides that Warrantholders shall not have or exercise any rights by virtue hereof as a stockholder of the Company. [26] A warrantholder is only entitled to the rights of a shareholder  including statutory appraisal rights  after they make an investment in the corporation in accordance with the terms of the warrant and thereby expose themselves to the risks that are incident to stock ownership. If these plaintiffs wanted to possess all of the statutory rights accorded to stockholders of a Delaware corporation  including the right to seek an appraisal in the context of a short-form merger  they would have had to exercise their Warrants and pay United Artists $10 per share. These Warrantholders did not take that economic risk. Therefore, the Court of Chancery properly determined that the Warrantholders relegated themselves to the protections afforded them by the Warrants, which do not include a silent, interstitial right to a remedy akin to statutory appraisal, but lacking the key trade-off inherent in that legislative remedy, the required eschewal of the merger consideration. [27]