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As part of most mergers and acquisitions transactions, in-house counsel spend an inordinate amount of time collating and disseminating information. At the heart of most of these transactions an in-house lawyer often will quarterback a negotiating team and may act as a liaison to an integration team. From the beginning of a transaction, these teams scream for information such as copies of confidential information memoranda, confidentiality agreements, due-diligence materials, draft board presentations and draft agreements. The in-house lawyer and his staff spend a great deal of time and effort providing this switchboard service by receiving, copying and distributing these documents. What if this entire service could be collapsed, organized and streamlined? The time savings on this administrative task alone would greatly increase the efficiency of the transaction process. With the advent of the Internet, a new tool is available to obtain these efficiencies. An extranet is an Internet site that only specified people who have permission can access. The extranet site looks like an intranet site where only the people within the group can access it, but unlike an intranet site, users outside a particular company or firm can access the site via the Internet. Thus, the site can be set up for an internal negotiating team of businesspeople and outside legal counsel, financial advisers, technical advisers and auditors. The extranet also can be accessed by the integration team. The site can be organized with a set of folders much like those on a hard drive or network. These might include folders for confidentiality agreements, due-diligence materials, draft agreements, final signed agreements and closing documents. Documents then can be uploaded and copied into the folders and accessed by anyone on the team who has permission. Documents that are not in digital format can be scanned into portable document format (PDF) or tag image file format (TIFF) files and posted. Extranets can manage the information flow of a transaction by providing the following functions: • A common set of files allowing those analyzing, negotiating and implementing a specific transaction to access those files easily from anywhere they have Internet access; • A record of the transaction and the documents that formed the basis of the transaction, including those due-diligence documents that were reviewed, various internal analyses and memoranda, and the transaction and closing documents; and • A library and knowledge management tool for those who integrate the acquired business. CONFIDENTIALITY CONCERNS In addition to extranet password access, there are several confidentiality concerns when using extranets. When using extranets, the administrator of the network where the data will reside will necessarily need to be aware of technical firewall and security issues to prevent unauthorized access to the extranet. Not every document should be widely disseminated within an organization through the extranet. Most extranet tools will selectively permit access to particular folders or even documents. Confidentiality agreements should be negotiated to permit use of the extranet as a storage device. Some confidentiality agreements prohibit copying of seller-provided materials. Similarly, such agreements often provide that a potential acquirer will destroy seller-provided materials and information if the acquirer chooses not to complete a transaction. A confidentiality agreement may permit the acquirer’s legal counsel to retain as evidence information the potential acquirer had access to. Application of these sorts of clauses to the extranet should be considered. Give careful consideration to which documents should be included in an extranet if a transaction is a hostile acquisition or an acquisition that could become the subject of litigation. Most documents in a transaction likely would be discoverable irrespective of whether they are posted on an extranet. However, once posted on an extranet, it will be difficult, as with any electronic storage, for the document to be removed under applicable document retention policies. As with e-mail or computer-generated draft documents that have multiple versions, it is difficult to maintain only the final version. The users of an extranet also should be mindful of which document retention policies are applicable to an extranet: those of the client, the firm or the third-party extranet provider. Use of extranets does not expand the number of documents that a seller will provide an acquirer; however, use of extranets may expand the number of people in an acquirer’s group who have access to the documents. Because of this, acquirers should give consideration to seller attempts to impute knowledge to the acquirer in an acquisition agreement. Clauses that purport to except from the seller’s representations and warranties documents delivered to the acquirer that are not specifically listed in a disclosure schedule should be anathema to the acquirer. Likewise, an acquirer should avoid clauses that impose on it the duty to inform the seller if the acquirer becomes aware of the inaccuracy of a representation and warranty. These sorts of clauses shift the burden of risk on the accuracy of the represented matters to the acquirer, and, in light of the increased access to information that an extranet provides, the intensity of this risk-shifting increases with these sorts of clauses. Daniel J. Churay is senior counsel at Fulbright & Jaworski’s Houston office. He advises clients in the areas of mergers and acquisitions, joint ventures, securities law, international transactions, compliance, corporate governance and corporate finance. He is formerly deputy general counsel and assistant secretary of Baker Hughes Inc., a NYSE-traded oilfield services firm with 2001 annual revenues of $5.4 billion. The opinions expressed in this article are solely those of Churay and do not represent the opinions of Fulbright & Jaworski or Baker Hughes.

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