Can the sponsor force a platform investor into a sale, and can the investor join one?
Applied Digital may drag all members into a sale of a majority of the common units, unless it is a defaulting member. In a forced sale a special sale committee may drag instead. Macquarie can be dragged only if it sells everything for cash or highly liquid securities worth at least its liquidation preference, plus fair value for any other common units. Members get at least 20 days’ notice, and a dragged seller’s indemnity is several, not joint, and capped at its proceeds. Macquarie may tag along if another member sells more than 20% of its common units; Macquarie’s own sales carry no tag. For in-house teams: a drag floor at the liquidation preference is what makes a sponsor-led exit acceptable to a preferred investor.
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What the filed contracts say
Contract
What the filed wording says
APLD HPC TopCo 2 LLC agreement
The sponsor may drag all members into a sale of a majority of the common units, unless it is in default; a special sale committee may drag in a forced sale.
APLD HPC TopCo 2 LLC agreement
The investor can be dragged only if it sells everything for cash or highly liquid securities worth at least its liquidation preference.
APLD HPC TopCo 2 LLC agreement
At least 20 days’ notice before the sale closes.
APLD HPC TopCo 2 LLC agreement
A dragged seller’s indemnity is several, not joint, and capped at its gross proceeds.
APLD HPC TopCo 2 LLC agreement
The investor may tag along if another member sells more than 20% of its common units; its own sales carry no tag.
The filed wording
7.08 Drag-Along Rights. (a) If, at any time and from time to time after the Effective Date, a Sale of the Company pursuant to which a majority of the then outstanding Common Units are to be sold (a “Drag-Along Sale”) to a Third Party Purchaser is proposed (i) by APLD Holdings (provided, that APLD Holdings is not then a Defaulting Member), or (ii) in connection with a Forced Sale Transaction pursuant to Section 7.11, by the Special Sale Committee (each, an “Initiating Drag-Along Party”), then the Initiating Drag-Along Party may require all of the Members (each, a “Drag-Along Seller” and collectively, the “Drag-Along Sellers”) to participate in such Drag-Along Sale in accordance with and subject to this Section 7.08. Notwithstanding the foregoing or anything to the contrary in this Agreement, the Initiating Drag-Along Party may only require the Macquarie Investor to participate in a Drag-Along Sale if the Drag-Along Sale shall result, except as may result from the application of Section 7.14, in the sale of all of the Membership Interest then held by the Macquarie Investor for consideration in cash and/or Highly Liquid Securities, which amount of cash, together with the Fair Market Value of such Highly Liquid Securities, if any, as of the closing of the Drag-Along Sale, equal to, in the aggregate, no less than (i) with respect to the Preferred Units and the Corresponding Common Units, the Liquidation Preference Amount; and (ii) with respect to all Common Units (other than the Corresponding Common Units) held by the Macquarie Investor, if any, the Fair Market Value of such Common Unit as of the closing of the Drag-Along Sale. … In order for an Initiating Drag-Along Party to exercise the Drag-Along Right pursuant to this Section 7.08, the Initiating Drag-Along Party shall, at least twenty (20) days prior to the closing of the Drag-Along Sale … (i) any indemnification obligation of any Drag-Along Seller in connection with the Drag-Along Sale shall be (x) several and not joint, (y) limited to the gross proceeds received by such Drag-Along Seller in the Drag-Along Sale
APLD HPC TopCo 2 amended and restated LLC agreement (Macquarie preferred units, Applied Digital common units), section 7.08(a) and (b) · Applied Digital 8-K, Exhibit 10.2
Each extract is quoted from the contract as filed with the SEC, checked against the filed text when it was added; “…” marks words left out. Filers redact commercial terms, so a [***] or [*] is the filer's, not ours. The summaries describe the wording, not how a court would read it, and each contract's defined terms and other clauses can change the effect. General information drawn from public filings. It is not legal advice on any transaction, and using this page does not create a lawyer-client relationship. Views are personal.
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