Editors Note: Caroline Horton Rockafellow is a member of the law firm of Daniels Daniels & Verdonik, P.A.The year 2004 promises to be an exciting time in the technology sector. Corporate financing by investors appears to be on an upswing, and the news is full of announcements of new corporate transactions. So what should corporate management do now to ensure it is positioned to move quickly when the next big deal hits the table?

One important step is the organization and preparation of records and corporate documents in anticipation of a due diligence production request.

A request for due diligence production can send even the most successful of companies in to an internal frenzy. Any company that has been through a venture financing or a corporate acquisition is familiar with such a production request, which is generally one of the first steps in any corporate transaction and is a necessary event for any venture-financed entity

In current economic times, creating a successful deal may turn on the ability to close it quickly. It is not uncommon for a deal to fail to close because the funding was lost, management changed or the funding party’s goals and objectives were modified during the period while the deal dragged on. If a company requires time to pull together corporate documents, valuable time may be lost and the deal may ultimately die. Accordingly, a company that prepares for the due diligence process before a deal ever reaches the table, is much better positioned to quickly move through the initial stages and ultimately close the transaction.

Due Diligence Production

The compilation of corporate materials in response to a due diligence request, i.e., “due diligence production,” generally includes all corporate documents, financial documents and any other materials or agreements that reveal a true, accurate and complete picture of the corporate situation. A standard production request may include: incorporation documents, bylaws, board and shareholder minutes, corporate organizational charts, capitalization tables, shareholder lists, option holder lists, litigation information, regulatory compliance documents, security filings, employee contracts and information, nondisclosure and noncompetition agreements, property and equipment leases, asset lists, intellectual property information, financing information, tax filings and returns and all other material contracts. Obviously the list will vary from deal to deal and company to company, but the underlying issue is that any company anticipating a future transaction should be prepared to produce all of the above documents on very little notice.


The best way to be prepared is to be organized. Although this may sound straight forward, surprisingly few companies actually have the processes in place to produce timely due diligence production materials.

The first step in preparation is establishing administrative processes that encourage the coordination and tracking of all corporate documentation. All material contracts and corporate information should be stored in a central location and kept up to date. The corporate minute book, stock and option ledgers and all other corporate records should be periodically reviewed for accuracy and completeness. In addition, there should be a simple way to track that status and location of each contract and document. For example, it would be useful to maintain a database that notes not only the location of each material agreement, but also the company’s major obligations under such agreement, expiration dates, payment dates and any other relevant information.

Next, the company needs to have procedures in place to periodically review corporate documents to ensure all material contracts are complete and that the company is in compliance with all of its obligations under such agreements. This should be done on a consistent basis and should include a review of any pending obligations and verbal commitments not yet reduced to writing.

Finally, if any portion of the company’s assets includes intellectual property, the company should conduct periodic intellectual property audits to ensure that it has all necessary rights in and to its intellectual property assets, and that those assets are properly secured and maintained. There is nothing that will kill a deal faster than to have the due diligence process uncover defects in the title to a company’s intellectual property assets! Often these defects can be cured, but it requires time to reach resolution on such matters. If the problems are discovered before receipt of a due diligence production request, there may be time to correct the problems–when a deal is on the table, it is often too late.


It is never too early to prepare due diligence production. Although a particular request will vary from deal to deal, if the core corporate documents are prepared for production, it will reduce the necessary production time. An organized company might maintain an up to date due diligence binder that can be copied and distributed with very little notice, understanding that nonstandard items requested in any particular deal can be added later, as appropriate. It is also becoming more common for companies to maintain all material documents in electronic PDF form. Not only is this a more manageable format, but the time and costs required to produce a copy for distribution are minimal. Accordingly, companies that are moving to this format are finding that they can produce due diligence production materials in hours, rather than days or weeks. Regardless of the format or the administrative procedures, it is critical to have processes in place that will allow for the timely production of all core company due diligence materials.


It is never too early to be prepared for a due diligence production request. Companies that are organized, have the appropriate administrative procedures in place, consistently monitor and update records and are prepared to produce documents on a moments notice are in a much better position to conclude a deal in a timely manner. When time is of the essence, the ability to quickly produce due diligence materials may mean the difference between closing the deal or closing the company.

Daniels Daniels & Verdonik, P.A. has been serving the legal needs of entrepreneurial and high technology clients for more than 20 years. Caroline Horton Rockafellow is a licensed patent attorney who works primarily in the areas of technology deals and licensing. Questions or Comments can be sent to crockafellow@d2vlaw.com.