The Oklahoma Bar Journal September 2023

currently designated as a point of contact (POC) and where a change in the POC designation requires the counterparty’s prior consent. TYPICAL CORPORATE LEGAL DILIGENCE ISSUES As mentioned above, the general corporate team is not only expected to serve as the “control center” in the legal diligence process but also to perform the typical corporate diligence. The following sections relate to certain typical subjects in general corporate diligence. General Corporate and Securities Documents This group of documents gener ally includes all documents related to the formation and governance of the seller’s business, as well as issuance of the company’s equity which, depending on the form of business entity ( e.g. , corporation, general partnership, limited part nership, limited liability company, etc.), typically includes the articles of incorporation, certificate of for mation, bylaws, stockholders agree ments, limited liability company agreements or operating agree ments, limited partnership agree ments, incentive stock option plans, options, warrants, stockholder resolutions and consents, Board of Directors resolutions and consents, board of managers resolutions and consents, foreign qualification records and other similar instru ments. Diligence teams for both the buyer and the seller need to carefully review these documents to understand the target company’s history, management structure and capitalization, which typically include the following issues: Organization. Typically, the first representation the seller needs to provide in a purchase

strategic transaction, the buyer is also concerned with successfully integrating the seller’s business resources into the buyer’s busi ness structure post-closing. From the seller’s perspective, the primary goal of the legal due diligence is to ensure proper and sufficient disclosure to avoid potential breaches of its repre sentations and warranties under the purchase agreement, as well as the proper performance of any required pre-closing actions, such as obtaining any necessary third party consents for the transaction. When making the diligence protocol, the seller counsel should at least look for the typical red flags that are often expected to be cov ered under a disclosure schedule. If a draft purchase agreement is available before the diligence starts, the seller diligence team is recom mended to review the draft pur chase agreement first, particularly the representations and warranties provisions, to make sure its review covers at least the particular items explicitly required by any disclo sure schedule, e.g. , commercial con tracts with noncompete covenants, pending litigations, etc. As for the buyer team, its review protocol should include not only the items that need to be disclosed under the purchase agreement but all other issues the client would want to know given its business needs. For example, if the buyer intends to lay off a certain key employee of the seller’s business post-closing, the buyer diligence team should not only review such employee’s employment agreement to identify potential legal risks associated with such planned layoff but also look out for material commercial contracts where such employee is

not properly uploaded to the VDR. The corporate team should inform the legal specialists of the diligence timeline as soon as possible and track the legal specialists’ diligence progress. As the specialists pro ceed with their diligence review, the corporate team is expected to consolidate and pass along the specialists’ supplemental diligence requests, comments and recom mendations and arrange direct discussions between the client or the counterparty and the applicable specialists as necessary. If a dili gence memorandum is required, the corporate team is responsible for collecting all diligence sum maries from the specialists and incorporating them properly into the final memorandum. In addition to generally coordi nating the communication between the client, the counterparty and the legal specialists, the corporate team is also expected to perform the typical “corporate diligence,” which typically includes the review and analysis of the general corpo rate and securities records, liens and litigation records and commer cial contracts. These subjects are discussed further below. What To Look For and Why The key to successful diligence is to understand what we are looking for, and the answer to that further requires us to understand why we are looking for certain information. Even though the buyer’s counsel and the seller’s counsel are reviewing the same documents, the buyer diligence and the seller diligence serve slightly different purposes. From the buyer’s perspective, the primary concern is identifying any potential risks the buyer may be exposed to post-closing; in a

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

22 | SEPTEMBER 2023

THE OKLAHOMA BAR JOURNAL