Drag Along Right. Notwithstanding any other provision hereof, if any Holder has not exercised its Tag-Along Right with respect to the maximum number of Holder’s Shares for which such Holder is permitted (pursuant to Section 2(b)(ii)(B) above) to exercise such Tag-Along Right in respect of a Third Party Sale, then, upon the demand of any Selling Fortress Entity participating in such Third Party Sale (in each such entity’s sole discretion), such Holder shall sell to the respective Third Party the number of whole Holder’s Shares (rounded upwards or downwards, as applicable), whether or not the restrictions on Transfer of Common Stock have lapsed, equal to the product of (x) the total number of Holder’s Shares held by such Holder on the date of the Drag-Along Notice (as defined below) and (y) the Third Party Sale Percentage, at the same price and on the same terms and conditions as such Selling Fortress Entity has agreed to with such Third Party; provided, however, that each such Holder shall not be permitted to sell any unvested Holder’s Shares (provided that the Company may, in its sole discretion, accelerate the vesting of any unvested Holder’s Shares); provided further that such Selling Fortress Entity shall use its reasonable, good faith efforts to provide that (A) the only representation and warranty which such Holder shall be required to make in connection with the Third Party Sale is a representation and warranty with respect to such Holder’s own ownership of the Holder’s Shares to be sold by it and its ability to convey title thereto free and clear of liens, encumbrances and adverse claims and (B) the liability of such Holder with respect to any representation and warranty made in connection with the Third Party Sale is the several liability of such Holder (and not joint with any other person) and that such liability is limited to the amount of proceeds actually received by such Holder in the Third Party Sale; provided further, that a Holder shall not be obligated to participate in any Third Party Sale pursuant to this Section 2(b)(iii) unless such Holder is provided an opinion of counsel to the effect that the Third Party Sale is not in violation of applicable federal and state securities or other laws or, if such Holder is not provided with an opinion with respect to the matters contemplated by this proviso, each Selling Fortress Entity who has delivered a Drag-Along Notice to such Holder shall indemnify such Holder for any such violation. If the Third Party Sale is ...
Drag Along Right. In the event the Manager approves a sale or other disposition of all of the interests in the Company, then, upon notice of the sale or other disposition, each Member shall execute such documents or instruments as may be requested by the Manager to effectuate such sale or other disposition and shall otherwise cooperate with the Manager. The following rules shall apply to any such sale or other disposition: (i) each Investor Member shall represent that he, she, or it owns his or its Shares free and clear of all liens and other encumbrances, that he, she, or it has the power to enter into the transaction, and whether he, she, or it is a U.S. person, but shall not be required to make any other representations or warranties; (ii) each Investor Member shall grant to the Manager a power of attorney to act on behalf of such Investor Member in connection with such sale or other disposition; and (iii) each Investor Member shall receive, as consideration for such sale or other disposition, the same amount he, she, or it would have received had all or substantially all of the assets of the Company been sold and the net proceeds distributed in liquidation of the Company.
Drag Along Right. (a) If at any time one or more Stockholder(s) propose to transfer Shares representing over 50% of all then-outstanding shares of Common Stock to any Person, and, such Stockholder(s) (the "DRAG-ALONG RIGHTHOLDERS") have received a bona fide, arm's length offer from an Offeror to purchase (including a purchase by merger, consolidation or similar transaction) all of the outstanding Shares or all or substantially all of the assets of Parent, the Drag-Along Rightholders may send written notice (the "DRAG-ALONG NOTICE") to Parent and the other Stockholders (such other Stockholders, collectively, the "DRAG-ALONG SELLERS") notifying them they will be required to sell all (but not less than all) of their Shares in such sale. Upon receipt of a Drag-Along Notice, each Drag-Along Seller receiving such notice shall be obligated to (i) sell all of its Shares in the transaction (including a sale or merger, consolidation or similar transaction) contemplated by the Drag-Along Notice on the same terms and conditions as the Drag-Along Rightholders (including payment of its pro rata share of all costs associated with such transaction) and (ii) otherwise take all action (or refrain from taking certain actions) necessary to cause the consummation of such transaction, including not exercising any appraisal rights in connection therewith. Each Drag-Along Seller further agrees to take all actions (including executing documents) in connection with the consummation of the proposed transaction as may reasonably be requested of it by the Drag-Along Rightholders.
See more samples of Drag Along Right
Drag Along Right: Everything you need to know
Drag Along Rights is a clause that gives the majority shareholders the power to enforce upon the minority shareholders and ensure that they join in the sale of the company. The cost, terms, and conditions given by the majority shareholders to minority shareholders must be the same as any seller.
If majority shareholders are looking for a smooth and profitable exit of the company and that sale is being blocked by the minority shareholders, then the majority shareholders can use this right to force them to accept the terms and conditions of the sale of the company.
The potential buyer who is going to make the purchase might want the full authority of the control of the company, which makes it imperative that both, the majority shareholders and the minority shareholders, agree to finalize the transaction to make the sale.
If it does not happen and minority shareholders do not agree to the sale, then majority shareholders can use this provision of Drag Along Rights to bend the minority shareholders to their will and complete the translation.
In this, the minority shareholders get the same benefits as the majority shareholders. Although the cause or provision is made to give supreme power to the majority shareholders over the minority shareholders, the benefits are extended to all three, the majority shareholders, the minority shareholders and the buyer too.
- Features of Drag Along Rights
- Why use Drag Along Rights?
- How to Trigger Drag Along Rights?
- Benefits of Drag Along Rights
- Disadvantages of Drag Along Rights
- Things to Keep in Mind While Negotiating Drag Along Rights
- Specific Provisions of Drag Along Rights
- An Example of Drag Along Rights
Features of Drag Along Rights
Some features of this clause are explained below. Have a look to understand this provision better for its application.
- To sell the company and for the transfer or change of ownership and shares, the majority shareholders have to sell their part of shares and the shares held by the majority section. For this, the majority shareholders force the minority shareholders to sell their shares as well to complete the transaction.
- The same price, terms, and conditions are offered to both the majority shareholders and the minority shareholders.
- This clause enables the buyer to get the full authority of the company in one go.
Why use Drag Along Rights?
Reasons to use the Drag Along Rights are as follows:
- The majority shareholders can get the sale done without being hindered by the minority shareholders.
- The buyers will not have to worry about the minority shareholders of the company because this clause will forfeit their bond with the company.
- Although this clause is a big benefit for the majority shareholders, the minority shareholders also get the same benefits as the majority shareholders.
- The majority shareholders are protected by this clause. It is extremely useful when a potential buyer is looking for total control over the company, that is, to remove the minority shareholders.
How to Trigger Drag Along Rights?
Without some significant steps, this clause cannot be moved into action by the majority shareholders for the sale of the company.
- Sales transactions: A considerable sale of assets, mergers, acquisitions, sale of a company's securities has the potential to trigger the Drag Along Rights.
- Transfer of ownership: Due to any type and mode of sale, if the ownership is transferred to someone else or a big change is seen in majority shareholders then, it can also trigger the Drag Along Rights. For a majority shareholder of the company, the percentage of shares is between 51% to 75%.
- No support by the minority shareholders: If the minority shareholders do not agree to the sale of the company, then the Drag Along Rights is triggered by the majority shareholders to force them to accept the terms and conditions of the sale.
Benefits of Drag Along Rights
Every clause is beneficial for at least one party. Some advantages of Drag Along Rights are given below.
- The majority shareholders consider it as a boon, and with the help of this provision, they can ensure a major profit and easy exit from the company without being blocked by the minority shareholders.
- Negotiation and deals are done between the majority shareholders and the potential buyers. The majority shareholders do not have to worry about any additional confirmation.
- The minority shareholders also profit from Drag Along Rights. They get the same benefits, profit percentage, terms and conditions as the majority shareholders. They might also get some extra benefits that are normally unattainable to them.
Disadvantages of Drag Along Rights
There is a minor disadvantage for the minority shareholders is that they are forced to make the sale despite being against it. They might get all the benefits and the same terms and conditions as the majority shareholder, but they are denied the right to choose and are forced to agree if the majority shareholders have already made up their mind to carry on the sale transaction.
Things to Keep in Mind While Negotiating Drag Along Rights
There are certain things a person should keep in mind while negotiating the deal and enforcing the Drag Along Rights.
- Price: For the minority shareholders, the minimum price level must be ensured to avoid the Drag Along Rights clause. The minority shareholders should place a method to verify that they are getting a fair value for their shares in case of non-cash consideration.
- Representation: While the majority shareholders are entitled to give any sort of representation and warranties, the minority shareholders are not required for any sort of representation that the majority shareholders agreed for.
- Type of consideration: Two types of consideration can be seen, cash and non-cash consideration. This clause can be applicable for both types of considerations. In case of non-cash consideration, the minority shareholders can resist the deal and even be forced to exchange their shares from a different company in which exit might prove a little more difficult.
Specific Provisions of Drag Along Rights
There are some special provisions for the Drag Along Rights that are explained below in detail.
- The potential buyer should be ready to give up more than 51% to make a better deal.
- The minority shareholders are provided with a limited period to step up and purchase the shares of the majority shareholders.
- The minority shareholders have to make a matching and enticing offer. The offer must be at least the minimum agreed price.
One can find the provision or the clause of Drag Along Rights in the Articles of Association or a Shareholder Agreement.
An Example of Drag Along Rights
Bristol-Myers Squibb Company and Celgene Corporation
Bristol-Myers Squibb had taken up Celgene Corporation in the year 2019 through a merger agreement. The cost to acquire Celgene was approximately $74 billion. Bristol-Myers Squibb had agreed to a cash and stock transaction in which it had taken up over 69% of total shares, reducing the shares of Celgene to just 31%. In this case. The minority shareholders were not given any type of special provisions and were offered just $50 for each of the Celgene shares they owned.
The minority shareholders were forced to agree with the deal between Celgene Corporation and Bristol-Myers Squibb. They were not given any special provisions, which are usually required in such cases. The shares of the Celgene corporation were removed from the official register of the stock exchange. In this case, the Drag Along rights could have played a more significant role for the minority shareholders.
Drag along rights are special rights that majority shareholders of a company hold. Using this, they can ensure a deal goes smoothly with not much fuss. With the right provisions, this clause is beneficial to both the majority and minority shareholders along with the buyers in case of an acquisition.
More Samples of Drag Along Right
Drag Along Right. In the event the holders of a majority of the Company’s voting capital stock then outstanding (the “Majority Shareholders”) determine to sell or otherwise dispose of all or substantially all of the assets of the Company or all or fifty percent (50%) or more of the capital stock of the Company to any Person (other than an Affiliate of the Company or any of the Majority Shareholders), or to cause the Company to merge with or into or consolidate with any Person (other than an Affiliate of the Company or any of the Majority Shareholders) (in each case, the “Buyer”) in a bona fide negotiated transaction (a “Sale”), each Holder of Shares issued under the Plan, shall be obligated to and shall upon the written request of the Majority Shareholders: (a) sell, transfer and deliver, or cause to be sold, transferred and delivered, to the Buyer, his or her Shares issued under the Plan that are then presently held by such Holder or that will be issued as a result of any such transaction on substantially the same terms applicable to the Majority Shareholders (with appropriate adjustments to reflect the conversion of convertible securities, the redemption of redeemable securities and the exercise of exercisable securities as well as the relative preferences and priorities of preferred stock); and (b) execute and deliver such instruments of conveyance and transfer and take such other action, including voting such Shares in favor of any Sale proposed by the Majority Shareholders and executing any purchase agreements, merger agreements, indemnity agreements, escrow agreements or related documents as the Majority Shareholders or the Buyer may reasonably require in order to carry out the terms and provisions of this Section 10.2.
Drag Along Right. (a) No later than ten (10) days prior to the closing of a Drag-Along Sale or an Approved Sale, the Holder shall exercise the Applicable Drag Percentage of this Option; provided, however, that (x) in the event the Applicable Drag Percentage of this Option is greater than the vested portion of this Option at such time, then the Holder shall exercise the entire vested portion of this Option and (y) if the exercise price and any required withholding taxes with respect to the portion of the Option required to be exercised hereunder is greater than the sale price for the underlying Class A Common Units, then such portion of the Option shall not be exercised, shall be counted towards the Applicable Drag Percentage and shall be cancelled with no consideration received therefor. The Class A Common Units acquired pursuant to this Option shall be subject to the provisions of the Partnership Agreement. “
Drag Along Right. In the event of the occurrence of a Corporate Transaction, the Company shall have the right to require the Recipient to sell, transfer, exchange or otherwise dispose of the Restricted Shares as part of the Corporate Transaction, notwithstanding that the Recipient did not approve the Corporate Transaction and/or did not otherwise consent to the sale, transfer, exchange or other disposition of Recipient's securities in accordance with the terms of the Corporate Transaction (the "Drag-Along Right"). For purposes of facilitating the obligation to transfer set forth in this Section 7, the Company, in its sole discretion, may require the Recipient, at the Company's cost, to deliver the share certificates representing the Restricted Shares with a stock power executed by the Recipient in blank, to the Secretary of the Company or the Company's designee, to hold the Restricted Shares and the stock power in escrow and to take all such actions and to effectuate all transfers or releases as are in accordance with the terms of this Section 7. The Restricted Shares may be held in escrow so long as they are subject to the terms of this Section 7. The Recipient hereby irrevocably constitutes and appoints the Secretary of the Company, with full power of substitution, as Recipient's true and lawful attorney to act as escrow holder for the Recipient under this Section 7 and any amendments to it. The power of attorney hereby granted is irrevocable and shall be deemed to be coupled with an interest, and it shall survive the termination, death, disability, or, if the Recipient is an entity, the dissolution of the Recipient.
Drag Along Right. In the event that each of (i) the holders of a majority of the shares of Common Stock, (ii) the holders of a majority of the shares of Common Stock then issued or issuable upon conversion of the shares of Preferred Stock and (iii) the Board of Directors approve a Deemed Liquidation Event, then each Holder and Key Holder hereby agrees to vote (in person, by proxy or by action by written consent, as applicable) all shares of capital stock of the Company now or hereafter directly or indirectly owned of record or beneficially by such Holder or Key Holder in favor of, and adopt, such Deemed Liquidation Event and to execute and deliver all related documentation and take such other action in support of the Deemed Liquidation Event as shall reasonably be requested by the Company in order to carry out the terms and provision of this Section 2.3, including without limitation executing and delivering instruments of conveyance and transfer, and any purchase agreement, merger agreement, indemnity agreement, escrow agreement, consent, waiver, governmental filing, share certificates duly endorsed for transfer (free and clear of impermissible liens, claims and encumbrances) and any similar or related documents (“Drag Along Sale”). The obligation of any party to participate in a Drag-Along Sale pursuant to this Section shall not apply to a Deemed Liquidation Event, where the other party involved in such transaction is an affiliate or stockholder holding more than 10% of the voting power of the Company.
Drag Along Right. (i) As used in this Agreement, the term “
Drag Along Right. At any time (i) prior to the fifth (5th) anniversary of the date hereof with regard to a Transfer of Units with respect to which a Member may not unreasonably withhold its Consent pursuant to Section 6.01(a), or (ii) after the fifth (5th) anniversary with regard to any Transfer of Units, if XXXX receives a bona fide offer from an independent third party to Transfer all, but not less than all, of its Units to a purchaser which is not an Affiliate of XXXX in a single, arm’s length transaction, or in a series of related arm’s length transactions, through the sale of Units, or a merger, consolidation or other similar corporate reorganization of the Company (the “Drag-Along Sale”), then XXXX shall provide written notice to NHI and the other Members at least thirty (30) days prior to the date of such proposed Transfer (the “Drag-Along Notice”), which shall specify the identity of the prospective purchaser and the material terms and conditions of such proposed Transfer and the amount and type of consideration to be paid in respect thereof. The Drag-Along Notice shall also constitute the Proposed Sale Notice pursuant to Section 6.06(b). If NHI does not provide a Purchase Notice to XXXX as provided in Section 6.06(c), then XXXX may at its option, require all of the other Members of the Company, including NHI, to Transfer all, but not less than all, of their respective Units to such purchaser on the same terms and conditions offered to XXXX; provided, however, that the gross proceeds of the Drag-Along Sale, less the aggregate reasonable and customary expenses of the Company incurred in connection therewith, shall be shared by the Members in the same manner as if all of the assets of the Company were sold for such sale price and the proceeds of such sale were distributed to the Members in accordance with Section 4.02 (and the same power of attorney contained in Section 6.06(e) shall apply with respect to any Drag-Along Sale).
Drag Along Right. If the Investors at any time propose that the Company consummate (or commit to consummate), in one transaction or a series of related transactions, a Change of Control (as defined in the Plan), the Optionee’s Issued Shares of Stock (including for this purpose all of such Optionee’s or his or her Permitted Transferee’s Issued Shares of Stock that presently or as a result of any such transaction may be acquired upon the exercise of options (following the payment of the exercise price therefor)) shall be subject to the drag-along rights set forth in Section 2.4 of the Stockholders’ Agreement.
