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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Federal Communications Commission Washington, D.C. 20554 In reply refer to: 1800B2-mg May 15, 1998 Released: May 15, 1998 CERTIFIED MAIL -- RETURN RECEIPT REQUESTED Palm Beach Radio Broadcasting, Inc. 701 Northpoint Parkway Suite 500 West Palm Beach, Florida 33407 Dear Licensee: This letter constitutes a Notice of Apparent Liability for a forfeiture in the amount of $18,500 issued pursuant to Section 503(b) of the Communications Act of 1934, as amended (47 U.S.C.  503(b))(the "Act"), under authority delegated to the Chief, Mass Media Bureau by 47 C.F.R.  0.283. This action results from a Commission inquiry into agreements between Palm Beach Radio Broadcasting, Inc. ("PBR") and American Radio Systems Corporation ("ARSC") concerning the acquisition of PBR's stations in the West Palm Beach, Florida area as well as the operation and control of these stations. Our inquiry included an informal staff request for information on these matters, to which PBR and ARSC filed a joint response on March 4, 1998. The joint response was supplemented on April 2, 1998. BACKGROUND In 1995, ARSC entered into asset purchase agreements with the licensees of the following stations in the West Palm Beach area: WPBZ(FM), Indiantown, Florida; WSTU(AM), Stuart, Florida; and WMBX(FM), Jensen Beach, Florida. ARSC subsequently assigned its rights to purchase these stations to PBR. PBR then filed assignment applications in order to acquire the stations, which were granted by the Commission staff. The application for WPBZ(FM) was granted on April 27, 1995 and the applications for WSTU(AM) and WMBX(FM) were granted on January 18, 1996. PBR consummated the acquisition of WPBZ(FM) on July 1, 1995. The acquisitions of WSTU(AM) and WMBX(FM) were consummated on March 15, 1996. PBR entered into financing agreements with ARSC in connection with its acquisition of these stations. The financing included two note purchase agreements: the first, for WPBZ(FM), was executed on June 30, 1995; the second, for WSTU(AM) and WMBX(FM), was executed on March 15, 1996. The financing agreements between ARSC and PBR included options which would permit ARSC to acquire the stations. In addition, ARSC had the right to a reasonable opportunity to review and approve PBR's annual budgets, as well as the right to review changes in the senior management of the stations, which could not be implemented without ARSC's approval. Security, stock pledge and shareholder agreements were also executed at the same time as the note purchase agreements. However, the financing agreements related to PBR's acquisition of the West Palm Beach stations were not timely filed with the Commission, although the provisions of 47 C.F.R.  73.3613 required PBR to make these filings. When PBR acquired WPBZ(FM) in July 1995, the station's studios and offices were relocated to space in West Palm Beach that was leased from ARSC. The offices and studios for one of ARSC's West Palm Beach stations were also at this location. In addition, ARSC's sales staff sold advertising time for WPBZ(FM) under the terms of a joint sales agreement, which was in place from July 1, 1995 until October 31, 1996. When PBR acquired WSTU(AM) and WMBX(FM) on March 15, 1996, the stations initially had separate offices and studios in Stuart, Florida. However, in August 1996, ARSC moved its West Palm Beach stations to new studio and office facilities, located at the Northpoint complex in West Palm Beach ("Northpoint"). WPBZ(FM) moved to Northpoint at the same time, to space leased from ARSC. In February 1997, WMBX(FM)'s operations were also moved to Northpoint. WSTU(AM) was not relocated to Northpoint; PBR had sold the station to a party unrelated to ARSC in November 1996. ARSC and PBR concede that ARSC's involvement in the operation of PBR's West Palm Beach stations resulted in an unauthorized transfer of control. However, ARSC and PBR state that in beginning in late August and September 1997, steps were taken to separate the operations of their respective stations at Northpoint and to ensure that PBR is in control of its stations, in accordance with the requirements of the Act and the Commission's rules. DISCUSSION We have reviewed the entire record before us, including the joint filings made by PBR and ARSC. As discussed in more detail below, we find no intent to deceive, and thus no substantial and material question of fact concerning misrepresentation or lack of candor based on PBR's failure to disclose the financing agreements between PBR and ARSC in assignment applications related to PBR's acquisition of WPBZ(FM), WSTU(AM), and WPBZ(FM). However, it appears that PBR violated the provisions of 47 C.F.R.  73.3613 by failing to timely file documents related to these financing agreements. Moreover, it appears that PBR abdicated control of its West Palm Beach stations to ARSC, in violation of the provisions of Section 310(d) of the Act and Section 73.3540(a) of the Commission's rules, 47 C.F.R.  73.3540(a). Nevertheless, we do not believe that these violations put in issue PBR's basic qualifications to be or remain a Commission licensee. Instead, we have determined that PBR's misconduct justifies a forfeiture in the amount of $18,500 for the apparent violations of Section 310(d) of the Act, and for the apparent violations of 47 C.F.R.  73.3540(a) and 47 C.F.R.  73.3613(b) of the Commission's rules. Failure to Disclose and File Contracts Affecting Ownership The application for the assignment of a broadcast license, FCC Form 314, includes questions that require the disclosure of certain financing agreements. Specifically, Section II, Question 15 of FCC Form 314 asks whether there are any documents, instruments, contracts or understandings relating to ownership or future ownership rights in the station assigned or in the stock of the licensee, including options. Question 16, Section II, FCC Form 314 requests information concerning the pledge of stock as security for loans. The financing agreements between PBR and ARSC included both options and stock pledges. In the assignment applications that PBR filed in order to acquire the licenses of WPBZ(FM), WSTU(AM) and WMBX(FM), PBR answered Question 15 in the negative, indicating that there were no such agreements as to future ownership. PBR answered Question 16 by indicating that it did not apply, and thus that there was no pledge of stock as security for any loan related to its acquisition of these stations. First, with respect to PBR's acquisition of WPBZ(FM), the record indicates that in early February 1995, ARSC sent a written proposal concerning the assignment of its rights under the contract for the acquisition of WPBZ(FM) to two of PBR's principals, who had previously expressed an interest in the station. The proposal provided for loans from ARSC to finance PBR's acquisition and operation of WPBZ(FM). However, no other documents, such as a letter of intent, were prepared, executed or exchanged, and PBR did not respond in writing to ARSC's initial proposal. Instead, by the time that the assignment application was filed on February 23, 1995, there was a preliminary oral understanding that ARSC would make a loan to PBR and would eventually participate in WPBZ(FM)'s appreciation. In this regard, ARSC and the principals of PBR previously had been involved in other business dealings. Based on this established relationship, the parties contemplated that the final terms of their agreement would be negotiated later and that financing documents would be executed around the time of the closing of the WPBZ(FM) assignment. Gary Hess, who at the time was PBR's Vice President, had disclosed to counsel the preliminary discussions with ARSC concerning the financing for its acquisition of WPBZ(FM). However, because there was only an oral understanding that did not specifically define any future ownership rights, and no written agreements had been negotiated, prepared, or executed, counsel who prepared the assignment application answered Question 15 by checking "no," indicating that there were no agreements as to the future ownership of the station or of PBR's stock. The agreements between ARSC and PBR were not negotiated until June 1995, after the WPBZ(FM) assignment application had been granted. Moreover, PBR had changed counsel soon after the WPBZ(FM) assignment application was filed. The New York office of this law firm handled PBR's closing on the acquisition of WPBZ(FM) on July 1, 1995. In September 1995, PBR filed applications to acquire WSTU(AM) and WMBX(FM). However, a different attorney, in the firm's Washington office, prepared these assignment applications. At the time, PBR and ARSC had not reached any new agreements concerning financing for PBR's acquisition of WSTU(AM) and WMBX(FM) or concerning the terms of ARSC's future ownership rights in those stations. The attorney who prepared the WSTU(AM) and WMBX(FM) assignment applications believed that the agreements that PBR had previously entered into with ARSC covered only the acquisition of WPBZ(FM). Mr. Hess, the PBR principal who signed the assignment applications, also considered PBR's agreements with ARSC only insofar as they affected WPBZ(FM). However, the earlier agreements between ARSC and PBR for WPBZ(FM) included options through which ARSC could acquire PBR's stock as well as the pledge of PBR's stock as security for the loan made by ARSC. The stock option and stock pledge should have been disclosed in Questions 15 and 16 on the assignment applications for WSTU(AM) and WPBZ(FM). Thus, as PBR acknowledges, incorrect responses were given to Questions 15 and 16 on these assignment applications. Nevertheless, PBR points out that in December 1995, the New York office of its law firm forwarded the WPBZ(FM) financing documents to Washington. Thereafter, in January 1996, while the assignment applications for WSTU(AM) and WMBX(FM) were pending, PBR's counsel in Washington filed with the Commission the shareholder and stock pledge agreements. These agreements reference the loan made by ARSC to finance PBR's acquisition of WPBZ(FM) as well as the stock pledge and ARSC's options. We find that PBR had no intent to deceive the Commission by giving inaccurate answers to questions on the FCC Form 314 assignment applications for WPBZ(FM), WSTU(AM) and WMBX(FM) and by failing to disclose ARSC's options and future ownership rights. Misrepresentation is characterized by making a material false statement of fact to the Commission, while lack of candor is characterized by the failure to disclose material information. See Fox River Broadcasting, Inc., 93 FCC 2d 127, 129 (1983). An intent to deceive is an essential component of both. See Pinelands, Inc., 7 FCC Rcd 6058, 6065 (1992). Here, because we find that the record as a whole demonstrates that PBR had no intent to deceive, there is no substantial and material question of fact concerning misrepresentation or lack of candor. We believe that PBR, in its assignment application for WPBZ(FM), should have indicated that ARSC would have future ownership rights, even though the final terms of the agreement between PBR and ARSC had yet to be specifically determined. The record indicates discussions moved rapidly and that there were only a few weeks between ARSC's initial written proposal and the filing of the WPBZ(FM) application based on the parties' oral agreement. Nevertheless, PBR brought these matters to counsel's attention when the application for WPBZ(FM) was being prepared. Under these circumstances, we believe that there was no intentional lack of candor or misrepresentation, especially in light of the Commission's stated reluctance to impute a lack of candor to an applicant where the record shows good faith reliance on counsel. See, e.g., WEBR v. FCC, 420 F.2d 158, 167-68 (D.C. Cir. 1969)(good faith reliance on counsel is relevant to candor determination); Abacus Broadcasting Corp., 8 FCC Rcd 5110, 5113 (Rev. Bd. 1993). Moreover, the filing of the shareholder and stock pledge agreements while the WSTU(AM) and WMBX(FM) assignment applications were pending is inconsistent with a finding that PBR intentionally made misrepresentations or concealed its agreements with ARSC in the inaccurate answers given in these assignment applications. We note that the WSTU(AM) and WMBX(FM) assignment applications should have been amended to correct the responses to Questions 15 and 16 at the same time that the shareholder and stock pledge agreements were filed. However, the record also indicates that the failure to do so was based on counsel's erroneous belief that the agreements related only to the financing for WPBZ(FM). Id. Although we conclude that there is no substantial and material question of fact as to whether PBR intentionally misrepresented or concealed its agreements with ARSC in the assignment applications for WPBZ(FM), WSTU(AM) and WMBX(FM), we note that pursuant to Section 73.3613 of the Commission's rules, a licensee must file with the Commission, within 30 days of execution, "contracts, instruments or documents relating to the present or future ownership or control of the licensee," including option agreements. 47 C.F.R.  73.3613(b). See, e.g., KDLT-TV 55, Inc., 8 FCC Rcd 6316 (1993). The record here indicates that PBR failed to file the documents required by Section 73.3613(b) in a timely manner. PBR did not file the shareholder and stock pledge agreements associated with its acquisition of WPBZ(FM) until January 1996, more than 30 days after these agreements were executed. Furthermore, it was not until after we commenced our inquiry that PBR filed the note purchase agreements associated with the loans made by ARSC for its acquisition of WPBZ(FM), WSTU(AM) and WMBX(FM) and the agreement that amended the shareholder, security and stock pledge agreements to incorporate the terms of the loan for WSTU(AM) and WMBX(FM). Again, however, PBR had filed the shareholder and stock pledge agreements in January 1996, and these agreements referenced the loan for WPBZ as well as the pledge of stock to ARSC and ARSC's options. Therefore, we also find that there is no substantial and material question of fact as to whether PBR's failure to comply with Section 73.3613(b) reflected an intention to conceal these agreements. Nevertheless, a forfeiture is warranted. See, e.g., WASV-TV, 10 FCC Rcd 7611, 7613 (MMB 1991)(no improper motive or intent to deceive based on delay in filing agreements required under Section 73.3613(b), but delay constitutes rule violation for which a forfeiture is assessed). Unauthorized Transfer of De Facto Control Section 310(d) of the Act, states, in pertinent part: No construction permit or station license, or any rights thereunder, shall be transferred, assigned, or disposed of in any manner, voluntarily or involuntarily, directly or indirectly, or by transfer of control of any corporation holding such permit or license, to any person except upon application to the Commission and upon finding by the Commission that the public interest, convenience, and necessity will be served thereby. 47 U.S.C.  310(d); see also 47 C.F.R.  73.3540(a)(implementing the statutory provisions of Section 310(d) and prohibiting the voluntary assignment or transfer of control of a broadcast permit or license without prior Commission consent). Although there is no formula for evaluating whether a party is in de facto, or actual, control, see, e.g., Stereo Broadcasters, Inc., 55 FCC 2d 819, 821 (1975), modified, 59 FCC 2d 1002 (1976), we look to whether a new entity has obtained the right to determine the basic operating policies of the station, that is, to affect decisions concerning the personnel, programming or finances of the station. See WHDH, Inc., 17 FCC 2d 856 (1969), aff'd sub nom. Greater Boston Television Corp. v. FCC, 444 F.2d 841 (D.C. Cir. 1970), cert. denied, 403 U.S. 923 (1971). A licensee may delegate certain functions on a day-to-day basis to an agent or employee, e.g., Southwest Texas Public Broadcasting Council, 85 FCC 2d 713, 715 (1981), but such delegation cannot be wholesale. That is, those parties delegated a task must be guided by policies set by the permittee or licensee. See David A. Davila, 6 FCC Rcd 2897, 2899 (1991). Here, the record indicates that terms of the financing agreements themselves exceeded generally acceptable boundaries for loan agreements. In this regard, ARSC had the right to review and approve PBR's finances. In practice, it appears that ARSC was the hands-on decision maker for PBR with respect to most aspects of the financial operations of PBR's West Palm Beach stations. Moreover, the financing agreements also gave ARSC the right to review and approve changes in PBR's senior management. ARSC was actively involved in many aspects of the process through which PBR hired personnel for its stations, including recommending, interviewing and negotiating the employment of candidates for key positions, including senior management. ARSC's counsel also at times prepared employment contracts for PBR employees, apparently at the direction of ARSC. ARSC participated in the termination of at least one of PBR's employees. ARSC was also involved in the programming and promotion of PBR's stations, including participating in and making recommendations with respect to format. In this regard, it appears that an ARSC employee continued to be responsible for directing WPBZ(FM)'s promotions when the joint sales agreement terminated on October 31, 1996. ARSC also recommended programming consultants, who provided audience research, music testing and program evaluation that was shared by ARSC and PBR. Although PBR ratified some of the recommendations made by ARSC, especially with regard to personnel, the record, viewed as a whole, indicates a pervasive involvement by ARSC in the operation of PBR's West Palm Beach stations. Under these circumstances, it appears that PBR abdicated and ARSC assumed de facto control of PBR's stations from July 1995 at least until September 1997, in violation of the Act and the Commission's rules. See Roy M. Speer, 11 FCC Rcd 18393, 18415 (1996). FORFEITURE Accordingly, pursuant to Section 503(b) of the Communications Act, you are hereby advised of your apparent liability for a FORFEITURE in the amount of $18,500 for your apparent willful and repeated violations of 47 C.F.R.  73.3613 as a result of your failure to timely file the June 30, 1995 and March 15, 1996 note purchase agreements, a security agreement entered into on June 15, 1995 concerning the license and assets of WPBZ(FM), and a March 15, 1996 amendment agreement that incorporated the loan for WSTU(AM) and WMBX(FM) into the terms of the security, stock pledge and shareholder agreements, and for your apparent willful and repeated violations of Section 310(d) of the Act and Section 73.3540(a) of the Commission's rules. We have considered the factors set forth in 47 U.S.C.  503(b) as well as Commission precedent concerning similar violations in order to determine the appropriate amount of the fine imposed. Furthermore, you are afforded a period of thirty (30) days from the date of this letter to show, in writing, why a forfeiture penalty should not be imposed or should be reduced or to pay the forfeiture. Any showing as to why the forfeiture should not be imposed or should be reduced shall include a detailed factual statement and such documentation and affidavits as may be pertinent. 47 C.F.R.  1.80(f)(3). Other relevant provisions of Section 1.80 of the Commission's rules are summarized in the attachment to this letter. Sincerely, Roy J. Stewart Chief, Mass Media Bureau Attachment cc: Howard J. Braun, Esq. Shelley Sadowsky, Esq. Counsel to Palm Beach Radio Broadcasting, Inc. Rosenman & Colin L.L.P. 1300 19th Street, N.W. Washington, DC 20036