Limitations on Pre-CFIUS Approval Exercise of Rights

The Committee on Foreign Investment in the United States (“CFIUS”) reviews certain foreign investment transactions before a deal is allowed to close for national security reasons. If a deal involves foreign entities, the domestic party may have to submit certain information about the deal to CFIUS. An application without issues will be approved within 30 days. If there are complications, up to 60 more days may be added.

Before CFIUS approval, the Company does not want Investors to make certain changes to the Company. Substantial changes will complicate an upcoming or pending CFIUS application. The term sheet lists actions that an Investor cannot do prior to CFIUS approval, including:

  • Make any important matter or personnel decisions for the Company; and
  • Access or affect the use/development/sale of certain private Company information and technology.

Any of these rights that an Investor will have in the future is put on pause pending CFIUS approval and may be resumed once approval has been received. If there is any chance that a Company may have foreign investment transactions in the future, this clause should be added so it does not cause complications later.

Term Sheet Language: Notwithstanding anything to the contrary contained in the Transaction Agreements, Investors and the Company agree that as of and following the initial Closing and until the CFIUS clearance is received, Investors shall not obtain (i) “control” (as defined in Section 721 of the Defense Production Act, as amended, including all implementing regulations thereof (the “DPA”)) of the Company, including the power to determine, direct or decide any important matters for the Company; (ii) access to any material nonpublic technical information (as defined in the DPA) in the possession of the Company; (iii) membership or observer rights on the Board of Directors of the Company or the right to nominate an individual to a position on the Board of Directors of the Company; or (iv) any involvement (other than through voting of shares) in substantive decision-making of the Company regarding (x) the use, development, acquisition, or release of any of the Company’s “critical technologies” (as defined in the DPA); (y) the use, development, acquisition, safekeeping, or release of “sensitive personal data” (as defined in the DPA) of U.S. citizens maintained or collected by the Company, or (z) the management, operation, manufacture, or supply of “covered investment critical infrastructure” (as defined in the DPA). To the extent that any term in the Transaction Agreements would grant any of these rights, (i)-(iv) to Investors, that term shall have no effect until such time as the CFIUS clearance is received.]