USA Law and Practice Contributed by: D. Scott Bennett, Nicholas A. Dorsey, Virginia M. Anderson and Ellen H. Park, Cravath, Swaine & Moore LLP
held by the holders of a majority of each individ - ual series of convertible preferred stock or by the holders of a majority of all convertible preferred stock voting together as a single class. Special director approval rights require that spe - cific board actions be approved by the compa - ny’s board of directors, whereby the vote must include the director(s) designated by the pre - ferred stockholders. Actions customarily subject to special director approval include: • incurrences of certain types of indebtedness; • hiring, terminating or changing compensation of executive officers; • sales of material technology or intellectual property; and • entry into material corporate strategic rela - tionships. Other Considerations Growth companies also maintain a regular dia - logue with their lead investors and often lever - age their expertise inside and outside the board room. Advice and input provided by investors can help inform the direction and priorities of management and can also vary by sector. Ven - ture capital funds in the USA that focus on bio - tech/life sciences companies, for example, are typically “industry players” that can offer signifi - cant expertise. 3.7 Contractual Protection Transaction documentation in the USA includes a fairly standardised set of representations and warranties as a result of the widespread use of NVCA forms. Growth companies provide a robust set of cus - tomary representations and warranties relating
to, among other things, proper organisation, due authorisation of the transactions, capitalisation, government consents and filings, litigation and other liabilities, IP, material contracts, property, financial statements, tax matters, employee matters, insurance, Committee on Foreign Investment in the United States (CFIUS)-related matters, and valid issuance of shares. Some - times, industry-specific representations are also included. Investors also provide a limited set of custom - ary representations and warranties that are pri - marily designed to help ensure the company’s securities are being sold with a proper exemp - tion from US securities law registration, including representations with regard to “accredited inves- tor” status, sufficient disclosure of information, and purchasing of shares for the investor’s own account. Closing of a financing is typically conditioned on the accuracy of the representations and warran - ties, compliance with any pre-closing covenants, execution of other investment documents (such as the voting agreement and investors’ rights agreement), and sometimes delivery of an opin - ion of company counsel. Pre-closing covenants and other undertakings typically only appear when regulatory approval is required, such as CFIUS or antitrust approval. In the event that closing conditions are not satisfied by one of the parties (eg, if a party breaches its representations or fails to satisfy its pre-closing obligations), the non-breaching party is not required to close the transaction. The non-breaching party may also sue for dam - ages, with monetary damages being the most typical remedy. In the event that the transaction does close, representations and warranties typi - cally survive the closing, and the non-breaching
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