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7 Law Notes Gen. Prac. 1 (1970-1971)

handle is hein.journals/lwntgen7 and id is 1 raw text is: Law Notes, October, 1970


                Volume 7, page 1


Unique Provisions in Contracts for

the Purchase of Broadcast Stations

by ERWIN G. KRASNOW
Kirkland, Ellis, Hodson, Chaffetz, Masters, and Rowe
Washington D.C.

DAVID W. MAHER
Kirkland, Ellis, Hodson, Chaffetz, Masters, and Rowe
Chicago, Illinois


I. Introduction
THE SALE OF A RADIO OR television station, and
the transfer of its license, involves legal consid-
erations that are not present in the transfer of most
other business enterprises. In Law Notes for July,
1966, an article appeared on FCC Procedure in
Acquiring AM, FM and TV Licenses.' The sec-
ond portion of that article outlined procedures in-
volved in securing the Federal Communications
Commission's approval of a license transfer. Since
it is increasingly difficult to find frequency spec-
trum space for the construction of new stations, the
transfer of existing licenses takes on ever greater
importance. This article presents some practical
guidelines for drafting contracts involving the
transfer of a broadcast station license.

II. Requirement of Prior FCC Approval
   The Communications Act of 1934, as amended,
provides that a license of a broadcast station may
not be assigned nor may control of a corporation
holding a license be transferred, except upon ap-
plication to the FCC and a finding that the public
interest, convenience and necessity will be served
thereby.2 Premature transfers have resulted in the
disapproval of assignment and transfer applications
and the institution of proceedings for revocation of
the station's license. Accordingly, there should be
a specific provision in both option and purchase
agreements which provides that consummation
shall be subject to the prior written approval of the
FCC.
Sample Clause:
    (a) Notwithstanding anything herein to the con-
  trary, the terms and conditions of this Agreement are
  subject to the prior consent and approval of the Com-
  mission. Upon the execution of this Agreement, Buyer
  and Seller shall proceed as expeditiously as prac-
  ticable to file with the Commission all requisite appli-
  cations and all other necessary instruments, which
  filing shall occur on or before thirty (30) days from the
  date hereof. Seller and Buyer thereafter agree to pros-


  ecute said application or applications with all reason-
  able diligence and otherwise to use their best efforts to
  obtain the requisite consent and approval promptly.
    (b) Between the date of this Agreement and the
  Closing Date, Seller will continue to operate the Sta-
  tion in the public interest, convenience and necessity
  and in addition, will file with the Federal Commu-
  nications Commission all documents required to be
  filed in connection with the operation of the Station
  prior to the Closing Date.

III. Control
  The seller must retain control over the station
before the closing date and the buyer after the
closing date.
Sample Clause:
  Between the date of this Agreement and the closing
  date, Buyer shall not directly or indirectly control,
  supervise or direct, or attempt to control, supervise, or
  direct, the operation of station, but such operation,
  including complete control and supervision of all pro-
  grams and employees, shall be the sole responsibility
  of Seller. Seller shall, however, permit Buyer and its
  authorized representatives and agents to have full and
  free access to the premises, books and records of Sell-
  er, and Seller will furnish Buyer for inspection such
  financial and operating data and information as Buyer
  may request to facilitate the transfer of ownership.
  Seller will furnish to Buyer, at its request, copies of
  any or all contracts listed in the schedule attached
  hereto certified by an officer of Seller to be true and
  correct copies as of the date of this Agreement. In
  addition, Buyer shall be entitled to reasonable in-
  spection of the premises and assets and to notice of any
  unusual operating problems or developments with the
  purpose that an uninterrupted and efficient transfer of
  ownership may be accomplished. It is further under-
  stood and agreed that, effective on the closing date and
  thereafter, Seller shall have no control over nor right
  to intervene or participate in the operation of the sta-
  tion.

IV. Consideration
  Except in the sale of an unbuilt station,3 or
where there is a question of trafficking in licens-
es, the FCC will not normally look at the consid-


© 1970 American Bar Association
General permission to republish but not for profit, all or part of this material is granted, provided that reference is made to this publica-
tion, its date of issue, and that reprinting privileges were granted by permission of the American Bar Association Sections of General
Practice and Young Lawyers.


CONTRACTS

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