Erwin Krasnow, a respected Washington, D.C. communications attorney with Garvey Schubert Barer, and Doug Ferber of DEFcom Advisors have written a nuts-and-bolts article exclusively for RBR+TVBR on the closing process.
In this four-part series, Krasnow and Ferber 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.
Part Three provides tips on making the closing of the transaction easier. It focuses on conveyance documents, real property issues, and environmental concerns.
PART THREE
Conveyance Documents that Entail the Most Preparation Time
The closing of an asset acquisition requires quite different documents and instruments than a stock acquisition. Since one of the principal objectives of the closing is to transfer to the buyer the title in the assets, not surprisingly, different types of assets require different conveyance documents. The actual conveying documents usually cannot be delivered until the day of closing but are circulated and agreed upon in advance.
- Standard conveyance documents include (1) a Bill of Sale (typically used to transfer title to equipment inventory, hardware, spare parts, furniture, vehicles, and similar tangible personal property); (2) Assignments of the Purchased Assets, including intangibles, sales or advertising contracts (which typically assign to the buyer the seller’s rights under or in accounts receivables; in many cases the buyer acts as agent for the seller and collects the accounts receivable on the seller’s behalf), leases, security deposits or bonds; (3) an Assignment and Assumption Agreement to reflect the buyer’s agreement to assume contracts as specified in the Purchase Agreement (typically, these will include any obligations arising after the closing under contracts assumed by the buyer); and (4) an Assignment of Intellectual Property (such as trademarks, service marks, copyrights, URLs, and social media accounts).
- The transfer of ownership of a seller’s web site will require a determination of where the domain name is registered and the completion and filing of transfer forms with the entity with which the seller’s domain name is registered.
- Some contracts, such as software license agreements, leases for real or personal property, and network and syndication agreements, require the consent of the licensor or lessor to assignment. It is in the interest of both the buyer and seller to cooperate in obtaining the consents. Some contracts and leases contain language that makes the document assignable at the sole discretion of the other party. Consents under such contracts and leases may take considerable time and negotiation to complete, and therefore, should be sought early in the process.
- The title to motor vehicles usually is transferred by endorsing the relevant Certificate of Title issued by the appropriate state authority. These documents should be located early in the process of preparing for the closing. Replacement or duplicate Certificates of Title should be obtained for those missing. Endorsed Certificates of Title (with current odometer readings) may need to be delivered to the buyer.
Real Property: A “Lot” of Paperwork
Additional planning time is necessry where title to real property needs to be transferred by deed.
- The buyer will normally require the seller to execute and deliver at the closing a general or special warranty deed for each parcel of real property being transferred. The warranty deed will warrant against liens and encumbrances on the real property, except those liens and encumbrances previously approved by the buyer during its review of the title report and survey.
- Shortly after the execution of the asset purchase agreement, if not earlier, the seller should provide the buyer with copies of (1) any existing title policies and surveys and (2) any recorded exceptions or other title documents that are in seller’s possession.
- Attorneys or representatives of the buyer and the seller and a representative of the title company should have negotiated and resolved prior to the closing any outstanding title and survey issues (g., encroachments, liens, or judgments). The buyer will want an updated title report to confirm there are no new title issues. Also, the buyer might want to obtain extended title insurance coverage and also endorsements that ensure access and other rights to the property.
- If the seller has a mortgage or other lien on the property, the seller should assist the title company in obtaining payoff amounts and lien releases so that the mortgagee or other liens can be paid off at the closing and clear title can be delivered to the buyer.
- The seller will execute various affidavits, and each party or their respective representatives will issue a letter of instruction to the title company. At the closing, the title company will receive funds from the buyer and/or the seller to cover pro-rated property taxes, recordation fees and title insurance premiums, while the deed will be delivered to the title company and usually will be recorded on that or the next business day.
Pesky Environmental Issues
Environmental liabilities are like icebergs. A great deal that needs to be known about them is not immediately apparent, and what is unknown can be very dangerous.
- Where real property is being acquired, the buyer (or in some transactions, the seller) is likely to engage environmental consultants to inspect the property, including buildings or other improvements, to determine if there is any evidence of any environmental damage (g., from an underground storage tank) or hazard (e.g., presence of PCBs or crumbling insulation containing mold or asbestos), and if the operation complies with environmental laws (e.g., all necessary permits are on hand).
- Some states require that filings and inspections be made prior to the transfer of certain real property. In general, such requirements are intended to ensure that the buyer or seller corrects, or agrees to correct, any damage or hazardous conditions related to the property prior to transfer of title.
- At the closing, if permitted by applicable state law, the buyer and seller may enter into a side letter or agreement requiring that some portion of the purchase price be deposited with an escrow agent to secure the seller’s obligations to remediate any damage or hazardous condition. If this approach is taken, a hold-back escrow agreement among the buyer, seller and an escrow agent (perhaps a bank) will be prepared with instructions to the escrow agent governing the release of funds either to the seller (when the seller has completed the required remediation), to the buyer (to reimburse the buyer for all or a portion of its costs to remediate the damage or conditions), or both.
The fourth and final part of this series will address financing issues, dealing with lenders and third-party vendors and the wire transfer process.
Erwin Krasnow, of counsel with the law firm of Garvey Schubert Barer, is 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. Reach him at: [email protected]/
Doug Ferber began his career as an entry-level sales trainee for Bonneville International Corporation in 1984. After milestone assignments with Capital Cities/ABC and Interep National Radio Sales, Doug has brokered over 75 transactions with an aggregate value exceeding $450,000,000. In 2009, he founded DEFcom Advisors, LLC, a media financial consultancy company. Reach him at: [email protected]/
