Tag-Along Provision Operating Agreement

Notwithstanding any authorized transfer or other provision of the LLC Agreement, any transfer — or payment — that would result in the LLC being treated as a corporation for U.S. federal income tax purposes is generally prohibited if the LLC is treated as a partnership for U.S. federal income tax purposes. Towing provisions (sometimes referred to as squeeze-out provisions) allow one or more partners holding a majority stake in the company (majority members) to compel the remaining members (minority members) to sell to an unrelated third party. Minority members must sell their shares to the buyer at the same price and under the same conditions as the majority. This provision prevents any future situation in which a minority shareholder might, in one way or another, be able to undermine the sale of an undertaking already approved by the majority shareholder or by a collective majority of existing shareholders. Nor does it leave shares of the acquired company in the hands of former shareholders. Tag Along rights aim to protect minority members from the inherent vulnerability of non-dominant participation. They prevent members of the majority from “paying” regardless of minority members. Unlike Drag-Along rights, which typically improve the market capacity of the majority member`s shares, Tag Along rights can impair market capacity by making it more difficult to sell at exit. In this agreement, celgene shares were discounted. Minority shareholders were required to comply with the terms of the transaction and were not entitled to special consideration. If Celgene`s shares hadn`t been discounted, the Drag Along and Tag Along rights could have become an additional factor.

In some situations such as this, majority shareholders may trade special share securities under an alternative class structure that may not be available to minority shareholders due to the impact of sleight of hand. In some cases, towing rights may be more popular in agreements with private companies. . . .

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