The Oklahoma Bar Journal September 2023

of incorporation may also require approval by most of its voting stockholders. If so, resolutions or written consent should be obtained from both the board and the voting stockholders to ensure that the transaction is properly autho rized. Because the seller’s corpo rate governance documents may or may not be properly drafted or updated, the diligence team should also perform proper state law review and analysis to ensure the level of consent required for the contemplated transaction. Foreign qualifications. Frequently, a seller may conduct business in multiple jurisdictions, including other countries, and both the buyer and the seller should ensure that the seller is properly qualified to transact business in all such jurisdictions where its business operations require so. To the extent the seller is qualified in foreign jurisdictions, the diligence team should also review the seller’s qualification records and ensure it is in good standing in each such jurisdiction. For example, if the seller’s qualification in a foreign jurisdiction is revoked due to its failure to file required annual reports, remedial actions should be taken promptly, and proper disclo sures should be made under the purchase agreement. seller’s commercial contracts is usually the most time-consuming part of the diligence process. The diligence team should carefully design a summary table (which is frequently called a matrix) so that each contract is properly summarized based on the key diligence issues. A sample com mercial contract matrix is included Commercial Contracts Due diligence review of the

and the capitalization table, to determine the total amount of authorized securities of the com pany; whether such authorized amount has been adjusted; whether any new categories or classes of securities have been authorized and issued; the current equity holders that own the company’s equities; anyone who holds an option, warrant, convertible note or other right to acquire the compa ny’s equities in the future; whether all the issued and outstanding equities have been properly autho rized; whether any equity holders’ equities have been redeemed or repurchased; which classes of equi ties are voting equities and which are nonvoting equities; etc. Transaction authority. Both the buyer and the seller diligence teams should carefully review the seller’s corporate gover nance documents to determine the proper corporate resolution or consent required to approve the underlying transaction. For example, the seller’s bylaws may require approval by the Board of Directors, while the seller’s articles

agreement is that its business entity is duly organized, validly existing and in good standing. Verifying such representation requires careful review of the seller’s formation and govern ing documents, including any amendments thereto, where the diligence team should look out for the seller’s date and state of organization, entity type, whether the seller has changed its name, state of organization, whether it has converted into a different type of business entity, merged into or with another entity, whether the seller has any subsidiaries and affiliates, whether the seller is in good standing in its state of organization and each jurisdiction where it is qualified to transact business, etc. Capitalization. In any equity transaction, one of the most important representations made by the seller is the proper issuance and ownership of its equities. The diligence team should carefully review the seller’s formation and governing documents, including any equity issuance documents

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

SEPTEMBER 2023 | 23

THE OKLAHOMA BAR JOURNAL