Today Is a Very Sunny Day

Other redemption triggers that might be considered include: (1) occurrence of other specific events, e.g., the indemnity provisions having been invoked (which can happen even in the absence of a breach); or (2) the transfer of right of control of the Founders. On this last point, please note that, it would be common for Founders on China deals to control their interest in the Company through a special purpose vehicle (an “SPV”). Such SPVs can cause problems insofar as they may allow the Founders to sidestep the transfer restrictions under the Shareholders Agreement by transferring an indirect interest in the SPV. The ability to invoke redemption in such circumstances can create a significant disincentive to any buyer who might otherwise be interested in acquiring such shares. Other strategies to deal with this issue are to grant the Investor a call option to acquire all shares of the Company held by a Founder’s SPV in case of transfers of equity in the SPV, again rendering it unattractive to a buyer to purchase the SPV, or provide for control of the Company to shift to the Investor in connection with such an indirect transfer.

If the Investor is investing in a new company or a company where the management team may be less experienced, the Investor may want to procure the right to appoint a CFO. However, it is probably not wise to put too much reliance on the CFO as a form of downside protection. It is generally very easy for management to cut a CFO out of vital flows of information.