[Revised July 24, 2010 to (1) revise the meaning of Closing so that it means the same thing as Effective Time, (2) eliminate the defined term Effective Time, and (3) create the defined term Filing Date.]
In this February 2010 blog post I said that the word closing is ambiguous:
Does closing mean the moment a transaction is consummated? Or does it refer to the process leading up to that moment, with contracts being finalized and signed, opinions being issued, and funds being sent whizzing through the banking system? I suggest that it means both—in other words, closing is an example of lexical ambiguity.
This didn’t generate a lot of excitement among readers, but I’ve been thinking it over, and I decided that for purposes of my forthcoming booklet “The Structure of M&A Contracts” I had to propose how to resolve the ambiguity.
So of course, I turned to EDGAR. Below is an extract of a merger agreement recently filed on EDGAR. It’s entirely standard, and for that reason I didn’t see any need to redact identifying information. (Hi, Oppenheimer Wolff & Donnelly!)
SECTION 1.02 Closing. The closing of the Merger (the “Closing”) will take place at 10:00 a.m., Minneapolis, Minnesota time, on the date (the “Closing Date”) that is the second Business Day after the satisfaction or waiver (subject to applicable Law) of the conditions set forth in Article VI (excluding conditions that, by their terms, are to be satisfied on the Closing Date but subject to the satisfaction or waiver of such conditions), unless another time or date is agreed to in writing by the parties hereto. The Closing shall be held at the offices of Oppenheimer Wolff & Donnelly LLP, Plaza VII, Suite 3300, 45 South Seventh Street, Minneapolis, Minnesota 55402, unless another place is agreed to in writing by the parties hereto.
SECTION 1.03 Effective Time. Subject to the provisions of this Agreement, as soon as practicable on the Closing Date, the parties shall prepare and execute a certificate of merger (the “Certificate of Merger“) in accordance with the relevant provisions of the DGCL, and the Surviving Corporation shall file the same with the Secretary of State of the State of Delaware. The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware or at such subsequent time or date as Parent and the Company shall agree and specify in the Certificate of Merger (the “Effective Time“).
Here’s my version:
1.2 Certificate of Merger. On the second Business Day after satisfaction or waiver of the conditions stated in article 6, excluding conditions that, by their terms, are to be satisfied immediately before the Closing but subject to satisfaction or waiver of those conditions (that date, the “Filing Date“), the parties shall cause to be filed with the secretary of state of the state of Delaware a certificate of merger that reflects the Merger and complies with the DGCL (the “Certificate of Merger“).
1.3 Closing. The Merger will become effective when the Certificate of Merger is filed with the secretary of state of the state of Delaware, unless by agreement of the parties a later date for effectiveness of the Merger is specified in the Certificate of Merger, in which case the Merger will become effective on that date (the moment the Merger becomes effective, the “Closing“).
1.4 Meeting on Filing Date. The parties shall meet at 10:00 a.m., Minneapolis time, on the Filing Date at the offices of Oppenheimer Wolff & Donnelly LLP, Plaza VII, Suite 3300, 45 South Seventh Street, Minneapolis, Minnesota, to handle any outstanding matters relating to the Closing.
I made many minor changes so that this language would comply with MSCD, but the principal fix is that I gave the defined term Closing a lexical definition, so as to resolve the ambiguity. Usually, I’d have it mean consummation of the transaction. But in the case of a merger, you have to take into account that the certificate of merger might state that the merger is to be effective at some later time. Making that change required significant restructuring.
Closing could mean instead the time spent hanging around a conference room dealing with closing formalities. But that’s not a helpful concept. And because the representations lead-in should refer to the representations as being made at signing and at closing, and because the bringdown condition refers to accuracy of representations at closing, it’s best to consider the closing a moment in time rather than a period of several hours with an indefinite beginning and end.
I eliminated the defined term Closing Date. The day in question might not actually be the date the merger closes, either because for whatever reason the parties ended up not filing the certificate of merger on that date or because the certificate of merger provides for later effectiveness, so using the term Closing Date for that day could be misleading. By inventing a new defined term I’m doubtless provoking the gods of inertia, but what the heck.
I’m finding M&A contracts to be chock full of standard language that is ripe for scrutiny and, often enough, a significant overhaul. When creating a new M&A template, you can go to the knacker’s yard, get some old nags, throw them in the meat grinder, and see what comes out. Or you can build it from the ground up, subjecting every usage, every piece of logic, to withering scrutiny.
By the way, my version is, as usual, significantly shorter—187 words as opposed to the 230 words of the original.
I expect to tinker with my language, and you’ll probably be able to offer improvements. Heck, I’m open to having missed some crucial issue.
2 thoughts on “Revisiting the Meaning of “Closing””
What phrase will you use to refer to the completion of the transactions contemplated in the agreement? Do you think you wil be able to re-write those references so that they are just references to time (i.e. the Closing as you have redefined it)?
Chris: In any transaction other than a merger, you could define "Closing" to mean consummation of the transaction. But because the certificate of merger might provide that the merger will be effective other than at filing, you need two defined terms, one to mark when the representations have to be accurate (Closing) and one for when the merger is effective (Effective Time).
But if someone wants to argue that accuracy of conditions should be measured when the merger is effective, whenever that might be, I'm all ears.