Noted attorney Erwin Krasnow of Garvey Schubert Barer and Doug Ferber of DEFcom Advisors have written a series of nuts-and-bolts articles exclusively for RBR+TVBR over the years on what can go wrong at the closing and how to ensure that the closing is completed on the scheduled date.
As the 2023 NAB Show concludes, Ferber, today with Tieline, and Krasnow, now retired, remain widely remembered by brokers, attorneys and executives in attendance at the Las Vegas conference for their contributions.
In recognition of their past efforts, we are pleased to present this classic Media Information Bureau column penned by Krasnow and Ferber from May 29, 2019. They discuss how to make the closing of a broadcast deal less stressful. They provide practical suggestions on avoiding events and issues that may result in the rescheduling of the closing, or worse, terminating the transaction.
This article focuses on maximizing the use of technology, and identifying long lead-time documents and actions that warrant special attention.
By Erwin Krasnow and Doug Ferber
Maximize Technology
Take advantage of technology when preparing for the closing. Maximizing the use of technology will minimize the likelihood of delays.
- Consider setting up an electronic or virtual data room (VDR) using a secure website that can be accessed only by a special password. The secure server enables the website to be protected against anyone other than those logging in with the correct usernames and passwords. When transmitting emails or documents containing sensitive information, avoid open Wi-Fi networks and use encrypted emails.
- Where possible, use the Internet to obtain closing documents ranging from good standing certificates to business licenses and permits.
- Consider using electronic signatures for some closing documents: Adobe Acrobat allows for electronic signatures that verify that the sender is the owner of the software. Keep in mind that some documents, such as financing and real property documents, will require original signatures.
- Prepare closing documents in an electronic file format, ideally in an on-line shared file location. Make sure it’s easy to sort through the information and that backup is provided to allow the parties to review the necessary detail. The documents should be in a secure format.
- Assemble an electronic version of the closing binder in the form of a CD-ROM or a USB thumb drive.
The entire process will be more efficient if, in addition to a VDR, each of the parties to the transaction has 24/7 access to e-mail on a smartphone. Everyone should have the tools to make the exchange of files easy.
- Both the seller and the buyer should update their software in preparation for closing the transaction so as to be able to open documents coming from diverse sources.
- Be sure to have Adobe Acrobat to open PDF files. We recommend that you use the full Acrobat edition. While anyone can open Acrobat files for free with Adobe Acrobat Reader, they cannot edit them without the paid version.
- Before sending large MS Word or other files, verify that they are not too large to be sent from your server or to be received by the recipient’s server. The file size depends on the email server; the capacity ranges between 10 and 25 MB.
Use technology both at the start of and after the closing of the transaction. Video conferencing software such as Skype and FaceTime enable the seller and the buyer to have face-to-face conversations. In addition to in-person communication, consider using e-mails in advance of closing and shortly after the closing to make quick, individual introductions to employees, vendors and (perhaps) competitors. The seller might consider using e-mails or a brief streaming video to explain why it sold the station and to express confidence in the buyer. The buyer might in turn use e-mails, the station’s website and social media tools to make smooth introductions to advertisers and vendors.
In-Person Versus Virtual Closings
Historically, closings occurred in person with the seller and the buyer, with each’s legal representatives present. It is now a common practice to complete closings without an in-person meeting – many closings take place remotely with buyers in one city, their lenders in another city, the sellers in yet another city, and their respective attorneys in yet another city. In-person closings still occur often in transactions involving the purchase of real estate, where certain documents are required to be signed in person.
Virtual closings are the predominant form of closing broadcast station transactions. Closing remotely is more efficient and cost-effective. Virtual closings require more advanced planning. They are handled by the email exchange of scanned signed documents, with an original hard copy of signed documents to follow by regular or express mail or other overnight delivery services. Since it is likely that the parties will not be in the same room to sign documents, we recommend that the closing documents include a provision clarifying that they may be signed in counterparts.
Long Lead-Time Items: Timing Is Everything
Plan ahead. It takes more time to complete some pre-closing preparations than others. Documents that must be executed and delivered at the closing should be prepared and circulated well in advance. The checklist should highlight any long lead times so that they can be dealt with early on in the process.
- Expect that completion of a survey of real property may take as long as three to four weeks, depending on such variables as the kind of activities conducted on the property (g., history of hazardous materials on the property or prior environmental damage), weather and the size and location of the real property parcel.
- Obtaining a title report for the property and negotiating and resolving any outstanding title or survey issues (g., encroachments, liens, judgments, etc.) will take time. The process of obtaining title insurance should be initiated as soon as possible after signing the asset purchase agreement. Be aware that the title insurance company might discover a defect that must be addressed before it would be willing to issue a policy that will be acceptable to the buyer. See John M. Pelkey, “Six Steps for Avoiding Unwanted Delays in Closing a Transaction,” RBR+TVBR, May 16, 2012.
- Schedule delivery of environmental and/or engineering inspection reports at least 20 days before the closing to allow for sufficient time to review the inspection reports, to negotiate the terms of any needed remediation and to cure the problem.
- Allow sufficient time for the seller to obtain estoppel certificates from the contracting parties stating that the leases or other contracts are in full force and effect, and that there are no modifications, defaults, riders, oral agreements or side agreements affecting the documents.
- Keep in mind that obtaining the consent of third parties to the assignment to the buyer of contracts or leases can take several days to several weeks or more. Early on in closing preparations (i.e., during the due diligence process) seller’s leases and contracts should be reviewed to determine whether consent to assignment to the buyer is required. Don’t wait until the last minute to get third-party consents – there is always the possibility that the third-party will be out of town or on vacation on the closing date.
- Some asset purchase agreements distinguish between material contracts and leases that must be assigned as a condition of closing, and contracts and leases in which the seller must exercise only its best efforts. When a tower lease is being assigned, a high priority should be placed on procuring the consent of the landlord.
- In some transactions, the seller is required to obtain and deliver to the buyer at the closing, UCC, judgment, and state and federal tax lien reports, in order to facilitate the termination of any security interests and the discharge of any liens. UCC termination statements and payoff letters should be ready for signing on the closing date. In some states, the seller must obtain a certificate from the appropriate tax authority showing that no taxes are owed. These requirements have the potential to prevent closing the transaction in a timely manner.
Erwin Krasnow is the now-retired of counsel with the law firm today known as Foster Garvey (formerly Garvey Schubert Barer). He was Washington counsel to the Media Financial Management Association and former general counsel of the National Association of Broadcasters. He has represented sellers and buyers of broadcasting, cable, tower and telecommunications properties in transactions totaling in excess of $21 billion.
Doug Ferber since May 2022 has served as VP of Sales for the Americas at Australia-based Tieline: The Codec Company.
