The Oklahoma Bar Journal September 2023

particular areas of concern for all parties involved. It is imperative for transaction attorneys to under stand their client’s business and legal needs before designing a diligence plan with the proper level of complexity and coverage.

the diligence team should add supplemental diligence requests accordingly. Also, even under a normal commercial contract, the counterparty may be granted a security interest in the seller’s assets, whether or not a UCC financing statement has been filed. In such a situation, such security interest should be dis closed and flagged, even though it is not included in any lien search report. Litigation. Any litigation or adverse action involving the seller is a red flag to the buyer. A typical lien search includes searches of litigation records as well. Whether or not a litigation is closed, the diligence team should review the key diligence records – e.g. , the complaint, the answer, any set tlement agreement and any key judgment issued by the court – to determine whether the buyer is at any risk of exposure to such litigation if the transaction closes. If there is any ongoing litigation or adverse action involving the seller, the diligence team should actively track the litigation pro cess and provide corresponding risk mitigation strategies accord ingly. If any litigation is being threatened against the seller, the diligence team should thoroughly understand the circumstances that may lead to future litigation and take necessary remedial actions as early as possible. At the end of the day, there is not one legal due diligence plan that suits all M&A transac tions. The scope and the depth of the legal due diligence pro cess depends on the structure of the transaction, the industry of the transaction parties and the SUMMARY

lien searches over the seller’s business, which are performed based on the seller’s business name(s) and location(s). That is why it is critical for the diligence team to identify any “doing business as” (DBA) names or former names of the seller based on its corporate records and the seller’s state of organization, principal business office and all other office locations. Depending on the specific situa tion, the lien search may be lim ited to the seller’s official business name and its state of organization. However, frequently the lien search also expands to the seller’s DBA names and former names and all countries, states and counties where the seller has any physical location or conducts any business. The primary source of liens and encumbrances under the Uniform Commercial Code (UCC) typically comes from the seller’s financing agreements and capital leases. For the indebtedness and liens the parties intend to termi nate before closing, the diligence team should particularly look out for prepayment options and penalties. For the indebtedness and liens the parties intend to continue post-closing, which typically includes capital leases, the diligence team should look out for all red flags in the same way it reviews other commercial contracts. Normally, the lien search result should match the debt records provided by the seller. However, mismatches may happen under various circumstances, and the diligence team needs to look out for such mismatches. For exam ple, the lien search report may reference certain capital leases or financing agreements the seller omitted to provide, in which case

ABOUT THE AUTHOR

Tiantian Chen is an associate at Hartzog Conger Cason. Her practices focus on mergers and acquisitions

and private equity transactions. Ms. Chen practices in Texas only and is not licensed in Oklahoma.

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.

26 | SEPTEMBER 2023

THE OKLAHOMA BAR JOURNAL