is important, since a request for an IP assignment after an employee’s hire date
usually requires new consideration.
Lastly, all patents claimed by a company should be backed by assignments
to the company, whether the inventors
are still company employees or whether
the patents were acquired in an acquisition. Patent assignment documentation
is complex and usually must be filed
with the U. S. Patent and Trademark Office (PTO). Competent patent counsel
should be asked to look for and help fix
any apparent gaps.
Counsel should ask the client for a list of all
names, marks, and slogans currently
in use and then independently check
them against the company’s website,
advertising, and packaging. Reconcile
any discrepancies and then, at a minimum, run the list through the PTO’s
Trademark Electronic Search System
(TESS), Google, and other online resources to see which are registered,
which are not, and which ones might be
in conflict with other marks.
This process often reveals the need
for additional trademark registrations.
In some cases, it may also identify
potential conflicts that need to be ad-
dressed with third parties or worked
around. It’s generally easier to negoti-
ate a “coexistence agreement” with a
third party well before trying to close a
financing or other transaction.
STEP 2: CHECKING THE
DATA ROOM AGAINST A
DUE DILIGENCE REQUEST
Once the client’s most obvious documentation gaps have been identified
and corrected and the data room is
looking complete, it’s time to kick the
tires even harder.
Hopefully the data room was organized with at least passing reference
to a proper due diligence request list.
At this point, checking the data room
more closely against one is certain to
turn up additional issues.
Missing documents are likely to
be increasingly more esoteric than
during the initial scavenger hunt.
They might include missing ISO audit reports, wage and hour compliance analyses, open source software
schedules, and product design history files.
As noted earlier, due diligence requests usually include irrelevant requests. But counsel and client should
not confuse irrelevant requests with
requests that are simply annoying or
difficult. In bigger deals, acquirers are
particularly stubborn about requiring
very hard-to-produce documentation,
especially if they want to ratchet up payment holdbacks or escrow requirements.
STEP 3: DRAFTING A
SCHEDULE OF EXCEPTIONS
The third and final step for checking the
completeness of a data room and flush-
ing out potential deal issues is to mock
up a Schedule of Exceptions, also called
a “Disclosure Schedule.”
A Schedule of Exceptions details all of
a company’s warts: every active litigation
matter, loan covenant violation, regu-
latory blemish, property lien, security
interest granted, alleged IP violation, de-
linquent large customer account, and so
on. Most also include definitive lists of as-
sets, leased or owned properties, lists of
patents, trademarks and copyrights, and
other key items.
To understand how a Schedule of
Exceptions is written, it is necessary to
briefly consider some other concepts.
Purchase and Sale Agreements. The
main document in every financing or sale
deal is a Stock Purchase and Sale Agreement (PSA), Asset Purchase and Sale
Agreement (APA), or a similarly named
document. In addition to outlining transaction terms, a proper PSA or APA will
contain many pages of “representations
Representations and Warranties.
Find a PSA or APA from a large deal and
read through its “Seller’s/Company’s
Representations and Warranties.” As you
read, highlight any statement you can’t
say for sure is supported by documents
in the data room, along with any other
statements that touch on a potential
“skeleton” in the client company’s closet.
After reading through a full set of representations and warranties, you will see
their close relationship to the Schedule of
INCLUDE A HIGHER