Closing Room Management
Best Practice Summary

Agendas or Closing Checklists

The agenda is a great tool for tracking the progress and status of all closing documents and is extracted from the primary transaction document such as the Asset Purchase Agreement, Stock Purchase Agreement or Agreement and Plan of Merger. It will list:

• The primary transaction document.
• Any amendments to the primary transaction document.
• Ancillary documents to the primary transaction agreement such as employment agreements, non-competition agreements, escrow agreements and any other agreement that is key to closing the transaction.
• Closing certificates including officer's certificates and secretary's certificates.
• Certified charter documents and good standing certificates for each company involved in the transaction.
• Third party consents (if any).
• State filings (if any, i.e. certificate of merger).
• UCC-1 or UCC-3 financing statement filings (if any).
• Stock transfers, stock certificates and cross receipts.
• Wire transfer instructions and escrow arrangements.
• Regulatory approvals, if necessary including pre-merger notifications.
• Legal opinions.
• Credit transaction information if the transaction is a leveraged buy-out.
  
  
  Sample Closing Agenda

Good Standing Certificates

Good standing certificates are issued by secretaries of state where the entity is formed and/or qualified and certify that parties to the transaction, whether they are corporations, limited partnerships or limited liability companies, exist in the target state and have paid all fees and made all necessary filings as of the date of the certificate.

A "long form" good standing certificate is only issued in the jurisdiction of organization (the "domestic state") and will include either a list of the officers and directors or a list of the formation documents and amendments on file at the secretary of state's office, as you request. The latter is important since it provides evidence that the certified copy of the charter provided at the closing is a complete package. Some states may refer to this certificate as a legal existence certificate or a subsistence certificate.

As soon as possible, each of your client's companies on the closing agenda should be checked to assure they are in good standing in the state in which they are incorporated as well as each state in which they are qualified. Checking status before the certificates are actually needed provides time to cure problems if any, such as preparing and filing annual reports. Status may be checked by either:

Director and Stockholder Consents
Stockholders' consent will generally include authorization for entering into the primary transaction, approval of the major transaction documents and amending or restating the company's charter, if applicable. The directors may approve resolutions to:

• Recommend the approval of the primary transaction to the stockholders and authorize officers to execute and deliver the documents.
  
  
• Authorize the corporation to enter into any ancillary agreements to the primary agreement, such as escrow agreements, employment or non-competition agreements, or other documents necessary to consummate the agreements between the parties.
  
  
• Issue or redeem stock, warrants or options issuance (as applicable).
  
  
• Elect or remove directors and/or officers (as applicable).
  
  
• Authorize the execution, delivery and filing of the merger certificate, charter amendment or other applicable filing to be made with the secretary of state, as necessary.
  
  
• General authorization for officers to act.

Receipts or Cross Receipts
Receipts are drafted in connection with transactions in order to confirm that a certain party has received the assets connected with the transaction. Cross receipts confirm receipt of both parties. For instance, one party may be receiving cash in exchange for stock in a company. The cross receipt will reference both transactions.

Sample Cross Receipt

Additional information regarding closing certificates may be found at LeapLaw's Closing Certificates Best Practice Summary.

Preclear State Filings
State filings such as merger certificates or charter amendments effecting changes to authorized stock, may be necessary as part of the transaction or a closing condition. When state filings are part of the transaction it is best practice to pre-clear the documents prior to the closing date to assure that when closing time arrives, the document will be accepted without a hitch. Rejected documents can severely impact the closing and possibly inhibit the ability to close entirely. At the very least, they are embarrassing.

However, pre-clearance is not available in all states. Where pre-clearance is not available, service companies can be useful by offering their expertise in reviewing the document prior to filing. Service company reviews offer no guarantee of acceptance by the applicable secretary of state, but their expert comments often are very pertinent and can make the difference between an accepted and rejected filing.

Fees
Service companies may advance filing fees. However, sometimes amendments to increase authorized stock can be very costly and beyond what a service company is willing to advance. It is important to verify the required filing fees in advance to assure that either the service company will front the fees or appropriate wire transfer arrangements have been made so that the filing is accepted at the necessary time.

Default Filing Times
Most secretaries of state will assign a default effective time such as 9 a.m. if an alternative time is not specified. Certain transactions may require that the effective time of the filing be later than the default time of 9 a.m. In these instances, a specified effective date and time can usually be provided in the filing document and specified to the service company.

Expedited Filings
Some closings demand that a merger certificate or amendment to the charter be effectively filed before funds are wired. The secretary of state's office your filing in may or may not offer the necessary expedited services. If expedited filing services will be required it is important to determine the need for such services ahead of time and make appropriate arrangements with your preferred service company prior to closing day to assure the expeditious filing methods are used.

In Delaware, expedited service is available. For a $500 service fee the state will turn the document around in two hours after its receipt of the document. This translates into a 3-hour turn around time when considering the fax is sent to the service company who then processes it with the state. Within 3 hours, a certified copy of the filing will usually be received. You should verify this with the service company you're using to do the filing.

Preparing for the Closing

Signature Pages
It is important to check with a responsible attorney to determine how many original signature pages will be required for the closing binders. Usually each party to the transaction and counsel for each party will receive original copies of the closing binders. Additional original copies may also be necessary. Once it is determined how many original signature pages will be necessary, be sure to make the appropriate number of copies and place the appropriate number of copies in each closing folder.

Signature pages of the ancillary documents may need to be sent (Federal Express, fax or hand delivery) to clients for signature. If drafting will continue, it is best to create a page break between the body of the document and the signature page. This allows for additional drafting and tweaking of the document without requiring officers, directors and/or stockholders to re-sign.

Suppressing the doc id and page number on the signature page is good practice since it assures that the signature page does not conflict with advanced version doc ids that will be contained in the body of the document or will have a page number that is out of sequence. Inserting a key such as [escrow agreement] in 8 pt. font in the right hand footer makes for easy identification of each signature page when they are returned.

Preparing Folders and Labels
Once the attorneys have completed a few revisions of the agenda is in final form and transaction documents are starting to take shape, closing folders should be prepared to aid in status tracking and staying organized. It's usually time to prepare labels for manila folders for each entry on the agenda or checklist. To run a great closing room, all items on the closing agenda should be numbered and the numbers should be included (either typed on the label or penciled in manually so that changes may be made if necessary) on the folder labels. Once the folders are prepared, keeping them in a series of redwell binders (also labeled on the outside left-hand corner) works very well until time to formally set them up in the closing room.

As documents are delivered to you from outside or inside your firm, they can be dropped into the folders at your desk for easy tracking, access and retrieval. Keeping a copy of the most up-to-date agenda at the front of the first red well and constantly revising it to accurately reflect the current status of the documents enables you to provide quick answers to any inquiring deal team member.

Preparing the Closing Room

Setting up the Closing Room
Make a tracking agenda by labeling and highlighting it "[Your Name] Tracking Agenda" at the top. This agenda is used to track all activity and note all missing items or reminders regarding items on the closing table.

Place all of the folders in metal collators, two folders to a slot with alternating tabs for easy viewing (unless another method is preferred). Place a few copies of the latest closing agenda at the front of the line of folders for visitors' reference. As soon as the folders are in place you need to:

Make it a priority to return folders and documents back to their place immediately. Letting a brief hectic moment overwhelm you can be disastrous if a document or folder is misplaced or lost. Making a rule to return each document or folder to its place immediately, no matter what other pressures are occurring, decreases the likelihood of misplacing a document.

Best Practice Tip: When making copies or getting signatures, take the entire folder, rather than extracting the document from its folder. This makes it much easier and quicker to return it to its correct place on the closing table.

Post-Closing

Before compiling the closing binder, the following steps should be taken.

Minute Book Maintenance
All originals of the following documents should be placed in the minute book or stock records book. Copies should be made for the closing binder:

• Minutes and consents of directors and stockholders
• Amendments to the bylaws (if any)
• Merger certificates and/or amendments to the charter
• Resignations of officers and/or directors
• Stock Subscription Agreements
• Stock receipts and/or certificates
• Canceled stock certificates
• Option and/or warrant receipts
• Canceled option and/or warrant receipts
  

  Note: Any company merged out of existence in the transaction should reflect the dissolved status by inserting the merger certificate in the front of its minute book. As soon as practicable, the minute book should be sent to storage to avoid any confusion.

State Filings

Charter
Name changes or other charter amendments need to be filed with the appropriate secretary of state if they have not already been filed.

Assignment of Trademarks or Service Marks or Trademark Security Agreement: Assignments of trademarks or service marks or Trademark Security Agreements need to be filed online with the U.S. Patent Trademark Office.

Financing Statements
Financing statements (a/k/a UCC filings) must be immediately filed with the appropriate official.

Closing Binder

Closing Index
Create a closing index for the closing binder by revising the closing agenda. Basically, the status/responsibility column is changed to a tab number reference column and each entry is numbered to correspond with the numeric tabs that will be inserted between each item in the closing binder.

Original Closing Binder
One original closing binder should be prepared that contains original copies of all documents. Once this binder is prepared and approved by the appropriate members of the deal team, it may be sent to the copier for the appropriate numbers of copies to be distributed.

Copies returned need to have the original signature pages inserted thereby creating remaining original copies. The original binder that was copied should be maintained by the law firm in the client's central file.

There may be copies of post-closing documents that are waiting to be produced by the other side or to be received (i.e. a tax good standing certificate may remain outstanding). Rather than holding up the completion and distribution of the binders, upon the responsible attorney's approval a pocket part may be inserted in the binder. The pocket part holds a place for the document to be inserted once the long-awaited document arrives.

Excerpt from Legal Assistant Today,
"Managing a Great Closing Room", September/October 2001

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