It’s hard to get a deal done these days – and of course the primary difficulty is making the money work. But the legal part is important too – you don’t want to get past the dollars and cents only to trip over the whereas’s and therefore’s in the contract.
That’s why all buyers and sellers of broadcast properties should have a copy of “Profitably Buying and Selling Broadcast Stations,” coauthored by Erwin Krasnow, John King and John Pelkey of Garvey Schubert Barer.
Published by RBR-TVBR, it tells you everything you need to know on how to buy or sell a broadcast station.
It’s practical advice – it tells you what should be in a contract and what should not.
Here is an example straight from the book, advising sellers to steer clear of the temptation to write some post-sale connections to the station into the contract.
The Rule Against Reversion and Reservation of Time
Section 73.1150, which is the Commission’s “rule against reversion” prohibits clauses in contracts (a) providing for reversion (i.e., reassignment of a license) or “reacquisition” of station control in the event of default by the purchaser and (b) reserving to the seller any rights to use the facilities of the station as a condition of the sale. In interpreting its prohibition against reversions, the Commission has consistently refused to grant transfer and assignment applications where the former owner retained the right to regain the status of licensee through reversion of stock control or reassignment of the license. FCC policy demands that the buyer be free to dispose of the control of the corporation or the station license without the former owner’s consent.
Where the deal contemplates a stock transaction, the sale must be absolute, with no reversionary rights in the event of default. The voting rights to the stock must immediately be transferred to and remain with the buyer until other disposition is made of the stock with the prior consent of the Commission. The buyer may pledge the stock with a pledgee, including the seller, but, title to the stock and any related voting rights may not revert to the seller under any circumstances. However, provision may be made for allowing the stock to be sold at a public auction in the event of a default, or in a private sale to a buyer found after the default, at which time the seller could also be a bidder.
The Commission’s prohibition against reversionary interests most often comes into play in situations in which seller financing is used. A seller naturally wants to make sure that it will receive full consideration for the station and that it is protected in the event the buyer defaults on the note. The temptation will be to include in the purchase agreement, the security agreement or even in the note itself a provision whereby the seller will get the station back if the buyer were to default. This, however, is a classic example of a prohibited reversionary interest. The temptation to provide the seller with a reversionary interest in the event of a default on a note is so great that the Commission staff frequently will ask the parties to a transaction involving seller paper to confirm that the transaction does not give the seller the right to get the station back in the event that the buyer defaults on the note.
The rule against reversionary interests not only prohibits the blatant form of reversionary interest that would arise if the sales documentation simply stated that the seller gets the station back in the event of a default by the buyer. The rule also prohibits any reservation of rights to “use the facilities of the station for any period whatsoever.” This provision has been interpreted by the Commission staff to mean not just that a seller cannot retain the right to use the physical facilities of the station, but also that the seller may not enter into a local marketing agreement with the buyer that would permit seller to provide programming to the station. Although case precedent addressing the point is sparse, the Commission staff has stated that, in the context of a television LMA, a provision whereby the seller would be able to provide programming over the station after closing “would appear to violate the plain language” of the reversionary rule to the extent that the LMA is “either a condition of, or consideration for, the proposed transaction.” Nexstar Broadcasting, Inc., and Mission Broadcasting, Inc., 23 FCC Rcd 3528 (2008).
RBR-TVBR note: Now available “Profitably Buying and Selling Radio Stations,” – RBR-TVBR’s ‘2010’ new book and guide to help chart a course through the treacherous waters of buying, owning and selling radio or television stations. A comprehensive resource which includes template agreements and advice to assist sellers, potential buyers, lenders and investors. Coauthored by Erwin Krasnow, John King and John Pelkey of Garvey Schubert Barer. Buy it now in paperback or ebook exclusively on line.
Click to purchase: “Profitably Buying and Selling Radio Stations,” or 1-800-288-4677, ext. 5022 for $49.95, paperback, $39.95, e-book.
