Post on 27-Mar-2015
Business Legal Checklist for Purchasing
A Digital Media Company
Using Videogame Developers & Publishers
As Case Studies
Due Diligence Issues/ChecklistWhat kind of company is being sold or bought?
• Developer of Videogame Software
• Publisher of Videogame Software
• One or the other or both?
Recent Interactive Entertainment &A Deals
Buy-Side – Represented Ubisoft Entertainment SA in its purchase of Driver from Reflections/Atari
Sell-Side – Represented Centerscore in its sale to Vivendi
Buy-Side – Represented D3P in its purchase of Vicious Cycle
Currently working on…
• Purchase of an MMO Publisher
• Purchase of an Online Background Music Provider
• Online Advertising Roll-up
• Online Music Company IPO
IP Due Diligence Checklist – What is the asset or asset base that is being sold or acquired?
• Type of Videogame Software Product
• Third Party Licensed Tools & Code
• Internally Developed Tools & Code Base
• External Development
• Console/PC/Internet/Wireless
• Open Source/Public Domain Software
• Software Development Processes
• Asset Buckets:
– Trade Secret
– Copyright
– Patent
– Trademark
Development Legal Documentation
• Inbound Technology or Content Licenses
– Change of control provisions• Consents needed or not
– Is Developer/Licensee in compliance with terms of inbound licenses?
– Open Source or Public Domain Software• i.e., has Developer created a situation where it has to share its work product
intentionally or inadvertently, because it has used open source or public domain software?
– Are there any major brand or content licenses?
Developer Legal Documentation (continued)
• Internal Development
– Have all employees and consultants signed confidentiality/invention assignment/work for hire agreements (i.e., do they own their website)?
– How has source code and technology processes been treated from a legal perspective?
• Trade Secret?
• Patent?
• Copyright?
– Are there any patent or copyright filings for the code or other technology?
Developer Legal Documentation (continued)
• External Development
– How are these relationships documented?
• What kind of development agreements exist?
• Who owns what?
• Work for Hire?
• License?
• Work for Hire & License?
• Milestone Schedules?
• Payment of Milestones who will pay for what pre/post acquisition?
Publisher ~ Licensor Considerations• How is the software product monetized?
– Direct to Consumer – Sales of Single User License Software
• Retail
• Web
• Via Third Parties
– B to B
• Direct to Business – Enterprise Licensing Issues & Considerations
• Value Added Resellers & Distributors
– Other
• OEM/Bundling
• Shareware
• Open Source/Service Model
• Services Only
Documentation of Distribution & Customer Relationships
– How are these distribution/customer relationships documented?
• Distribution Agreements such as with Web Portals, Brick & Mortar retailers such as Walmart, Telecom Carriers, Software Aggregators or Bundlers
• E-Commerce stores
• Internet Advertising Agreements
• VAR Agreements
• Software License Agreements
• End User License Agreements
• Service Agreements
– What will be the impact of a change of control on these legal relationships?
Personnel
• What is a software developer - Collection of talented programmers, designers, engineers, and managers
• What is a publisher of software – collection of developers,and then sales, business development, marketing, accounting, finance, service, ops management, and administrative people
– Who are they? Who are the key people? Whom do you want to retain?
– How are people tied into the company?
– How are the relationships papered?
• Employment Agreements
• Restricted Stock Agreements
• Stock Option Agreements
Personnel (continued)
– Whom do you want to keep?
– Whom to you want to get rid of or who wants to leave?
– What will happen with a change in control?
• Business
• Legally
Personnel (continued)• What are the objectives of the Buyer & Seller with respect
to the deal and after the closing?– What are the deal terms with respect to:
• Purchase price?
• Holdback?
• Earn Out?
– What will the key people that you want to retain get in their new employment agreements as far as compensation?
– What is the equity compensation component?
• Stock Options ISOs vs. Nonquals
• Restricted Stock
– What is the non-compete and what is the law of the jurisdiction in question with respect to non-competition and non-solicitation?
• California – non-competes are enforceable with respect to a shareholder the sale of a business but not otherwise?
Tax Issues
• What are the tax implications of the deal structure?
• Are there losses that can be used?
• How will the deal structure affect the acquirer's balance sheet and be tax advantaged for the seller (who doesn’t want capital gains)?
• What will the software transfer pricing scheme post acquisition?
– i.e., where does the acquirer want to put the asset so that it can use the software in a legitimate way vis a vis the acquirer's present transfer pricing scheme
• What will be the amortization scheme for the intellectual property acquired and which entity in the acquirer’s group will hold the intellectual property?
Deal Structure, Timing, & Typical Process
• Asset Purchase
• Stock Purchase
• Merger
• Stock, Cash Consideration, or Assumption of Debt or some combination thereof?
• Financing?
• What is the timing?
• What are the alternatives for the buyer and seller?
• LOI, Due Diligence, Definitive Agreement, Pre-Close Obligations (Consents & Employment Agreements), Close, Post Close Obligations