Federal Communications Commission______DA 98-784 Federal Communications Commission Washington, D.C. 20554 April 23, 1998 In reply refer to: 1800C1-CMW

Released: April 24, 1998

Richard R Zaragoza, Esq. Fisher Wayland Cooper Leader & Zaragoza L.L.P. 2001 Pennsylvania Avenue, N.W. Suite 400 Washington, D.C. 20006-1851 and John Tongjer, Esq. Holbrook, Heaven, and Osborn, PA P.O. Box 3867 Memam,KS 66203-0867

Re: Station KXBZ(FM) Manhattan, KS File No. BRH-970207YA FileNo.BTCH-961029GI

Dear Counsel: 1. This letter is in reference to (i) the above-captioned application for renewal of license of Station KXBZ(FM) (formerly KTDF(FM)), Manhattan, Kansas (File No. BRH-970207YA); (ii) the above- captioned application for transfer of control of Station KXBZ, licensed to Little Apple Broadcasting, Inc. ("LABI"), fiom Michael D. Law to Manhattan Broadcasting Co., Inc. ("MBC") (File No. BTCH- 961029GI); (iii) a complaint dated August 9, 1994, filed by The Eagle Broadcasting Company, Inc. ("Eagle"); (iv) a Petition for Revocation Hearing dated August 9, 1994, filed by Topeka Broadcomm, Inc. (©Topeka"); (v) a Petition for Revocation Hearing dated August 23, 1994, filed by Platinum Broadcasting, Inc. (Tlatinum"); and (vi) a complaint dated August 26, 1994, filed by Montgomery Publications, Inc. ("Montgomery")-1

1 For ease of reference, the petitions and complaints will hereinafter collectively be referred to as "me complaints" and the petitioners and complainants will hereinafter collectively be referred to as "the complainants." MBC and LABI both filed consolidated oppositions to the complaints on October 3, 1994. Platinum and Topeka both filed replies. Eagle filed numerous requests for additional time in which to file a reply, but mere is no record that Eagle ever did so. No informal objections or petitions to deny were filed against either the renewal or the transfer of control application.

1732 ______Federal Communications Commission______DA 98-784 BACKGROUND 2. On March 9, 1990, the Commission granted the application of Little Apple Broadcasting, a partnership ("LABP"), for a construction permit for a new commercial FM station in Manhattan, Kansas. On November 2, 1993, LABP filed an application for the pro forma assignment of the permit to LABI (File No. BAPH-931102GG). The application was granted on November 24, 1993. Notification of consummation was filed with the Commission on June 21, 1994, stating that the closing was "effective" as of June 1, 1994. Pursuant to grant of that application, and the consummation thereof, the managing general partner of LABP, Michael D. Law ("Law"), became the sole officer, director, and 100% shareholder of LABI. 3. Law states that he was approached by three different broadcast groups interested in investing in his station. In mid-1993 he entered negotiations with MBC. MBC is the licensee of Stations KMAN(AM) and KMKF(FM) in Manhattan, Kansas, and the principals of MBC hold attributable ownership interests in Seaton Publishing Co., Inc. ("Seaton"), which publishes a daily newspaper in Manhattan, The Manhattan Mercury. Negotiations continued between LABI, Law, and MBC for over a year. During that time, Law informed the Commission of his ongoing discussions with MBC, reporting that a prelirninary agreement had been reached See e.g. Exhibit 1 to LABFs October 26, 1993, Application for Minor Modification of Construction Permit (File No. BMPH-931027EF). In mid-1994, the agreements between Law and MBC were formalized, resulting in the execution of an Option Agreement, Promissory Note, Security Agreement, Stock Pledge Agreement, Studio Lease, Tower Lease, Joint Sales Agreement, and Employment Agreement (collectively, "the Agreements"). In sum, pursuant to the Agreements, LABI: borrowed construction monies from MBC pursuant to a Promissory Note secured by the station©s assets and a stock pledge; contracted to lease transmitter and studio space from MBC; granted MBC the right to sell KXBZs commercial air time and receive a percentage of tiie monies derived from the sale thereof; agreed to share some of MBCs non-management staff; and granted MBC the exclusive right to acquire stock in LABI. MBC has now exercised its right to acquire stock in LABI, and the pending application seeks transfer of control of 100% of LABI stock from Law to MBC. 4. As part of the pending assignment application, MBC has promised to eliminate existing attributable cross-ownership interests between MBC and Seaton that were grandfathered when the Commission adopted the daily newspaper cross-ownership rule in 1975. See Multiple Ownership of Sfaryknr^ FM and Television Broadcast Stations. Second Report and Order. 50 FCC 2d 1046, recon. granted in part 53 FCC 2d 589 (1975), aff d sub nom. FCC v. National Citizens Committee for Broadcasting: 436 U.S. 775 (1978). Specifically, MBC proposes that as of the closing of the instant transfer of control, Edward L. Seaton will have resigned as president and a director of MBC, retaining only a non-attributable 3.8% stock interest in MBC. Edward L. Seaton is presently the controlling stockholder (53.1024%), as well as president, secretary, treasurer, and a director of Seatoa Additionally, MBC asserts that three other members of the Seaton family will have resigned their positions as officers or directors of Seatoa MBC stales that, as a result of these changes, no individual will hold attributable interests in both MBC and Seatoa

THE AGREEMENTS 5. The Option Agreement, executed June 14,1994, grants MBC two separate options to purchase the stock of LABI, although both could be exercised simultaneously. The first option grants MBC the right to purchase 49% of the stock of LABI at anytime from the date of execution until ten years after the commencement of program tests (Section 2.1). In consideration for that option, MBC paid LABI $53,800, with $100 more to be paid in consideration of the transfer and delivery to MBC of the stock (Sections 2.1 and 2.2). Moreover, in consideration for the construction loan and other "Collateral Agreements," the

1733 ______Federal Communications Commission______DA 98-784 Option Agreement grants MBC die right to purchase 51% of all of the outstanding LABI stock at anytime during the ten year period following the commencement of program tests (Section 3.1). The consideration for the transfer and delivery to MBC of 51% of LABFs stock varies depending upon when the option is exercised, but, at a minimum, is $56,100 (Section 3.1 and 3.2).2 6. Pursuant to the Option Agreement, in the event that the 49% option is exercised and MBC and Law are both shareholders of LABI, Law has a right of first refusal for the 49% interest during the ten year period following commencement of program test authority and both MBC and Law have a right of first refusal thereafter (Section 2.3). Moreover, upon the transfer of Law©s 49% interest in LABI to MBC, MBC agrees to pledge such stock to Law to secure the performance of its obligations under the Option Agreement (Section 2.4). Additionally, if the agreement is terminated, depending on why termination has occurred, MBC is entitled to a refund from Law of all amounts paid by MBC to Law (Section 7). Finally, if MBC acquires the 49% interest, but fails to exercise the 51% option, Law must either repurchase the 49% or seek an independent party to purchase such interest for the fair market value of such stock (Section 10). 7. The parties also executed a Promissory Note on June 14,1994, whereby MBC agreed to lend LABI up to a specified sum to be used to finance the construction of Station KXBZ. Specific requirements for payment of the loan plus interest are contained in that agreement The loan is secured by the station©s assets (Security Agreement dated June 14,1996) and Law©s stock in LABI (Stock Pledge Agreement dated June 14, 1994). 8. On that same date, LABI and MBC also entered into a Studio Lease and a Tower Lease whereby LABI leases space on MBCs tower and in MBCs studio building. Both agreements are for a period of five years, but may be renewed, and both contain specific provisions regarding rent and the payment thereof. 9. MBC and LABI also entered into a Joint Sales Agreement on June 14,1994. Pursuant to that agreement, which is for a five year renewable term, MBC is authorized to represent LABI in the sale of all of the commercial advertising time on Station KXBZ and to provide any general and administrative services necessary to facilitate the sale of commercial air time on the station (Section 1). Under the Joint Sales Agreement, MBC retains a certain percentage of all revenues derived from the sale of time jointly on Station KXBZ and on any other radio statioa All other station income is to be given to LABI, although MBC is to receive a certain percentage of any station profit after the payment of expenses. If the station revenues are insufficient to pay expenses, MBC has agreed to pay the shortfall, up to a certain sum, but LABI must repay that amount or it may be considered a liability at closing (Section 4). The Joint Sales Agreement provides that "decisions regarding the program format... shall remain the sole and exclusive province and responsibility of Owner [LABI]" (Section 8). Moreover, it specifies that "Owner shall continue to retain full authority and control over the operation of the Station" (Section 8). 10. Finally, Law, LABI, and MBC, to a limited degree, entered into an Employment Agreement. Under that agreement, Law committed to be General Manager of the station, overseeing its day-to-day operation, in exchange for a specified "Monthly Fee" (Section 4). Pursuant to the agreement, MBC is to

2 The amount of possible consideration was increased pursuant to a settlement agreement entered into by and between LABI, Law, and MBC, in connection with a case filed in the District Court of Riley County, Kansas. See Amendment of Option Agreement dated September 9, 1996. Under that amendment, so long as the Commission grants the pending assignment application, Law is entitled to $67,500 in consideration for the transfer and delivery to MBC of 51% of LABFs stock.

1734 ______Federal Communications Commission DA 98-784 reimburse LABI for the payment of Law©s "Monthly Fee" as an inducement to LABI to enter into the Joint Sales Agreement.

DISCUSSION 11. Complainants contend that the Agreements give MBC ownership and control of Station KXBZ in violation of the Commission©s rules and policies regarding multiple ownership, cross-interest, unauthorized transfer of control, and sale of an unbuilt statioa Further, Topeka and Platinum argue that any action taken by LABI should be unwound since the transfer of control from LABP to LABI is not valid Finally, Eagle, Topeka, and Platinum allege that MBC has been less than forthcoming with the Commission because its most recent ownership report failed to disclose the interests of its principals in The Manhattan Mercury.3 LABI and MBC both assert that LABI and Station KXBZ are completely owned and controlled by Law and that neither the agreements nor the effectuation thereof show otherwise. Further, LABI contends that there is no reason to invalidate the assignment of the station from LABP. Finally, MBC states that it has been formcoming with the Commission and that there is no evidence that it has engaged in either misrepresentation or lack of candor. A Misrepresentation or Lack of Candor by MBC 12. Eagle, Topeka, and Platinum all point out that MBCs 1997 ownership report failed to disclose the interests of its principals in The Manhattan Mercury, although none of the three complainants specifically contend that such a failure was intentional. MBC asserts that there was no intent to deceive the Commission with regard to its principals© interests in The Manhattan Mercury. It states that most of MBCs principals have, through their interests in Seaton, had an interest in The Manhattan Mercury for decades and that the Commission was informed of those interests at the time the stations were first built Further, other ownership reports have contained information about MBCs connection with the paper. MBC contends that it does not know why the 1997 ownership report did not mention the paper, but that its failure to do so was simply an oversight and that there was no motive or intent to conceal its connection with tfie daily paper. 13. Misrepresentation involves false statement of material fact made with an intent to deceive. Fox River Broadcasting. Inc.. 93 FCC 2d 127,129 (1983). Lack of candor involves concealment, evasion, and other failures to be fully forthcoming concerning material facts undertaken with an intent to deceive the Commission. Id- We do not believe that the information before us supports a finding of either misrepresentation or lack of candor. Moreover, we do not find any evidence of a "willful material omission" warranting a sanction pursuant to Section 1.117 or 73.1015 of the Commission©s Rules. See Abacus Broadcasting Corp.. 8 FCC Red 5110,5115 (Rev. Bd. 1993). MBC previously has informed the Commission of its connection to The Manhattan Mercury and there is no evidence to suggest that its

J Topeka and Platinum also suggest that Law has withheld information from the Commission regarding LABFs negotiations and agreements with MBC. Specifically, they contend mat "agreements-commitments" were entered into in 1993, but LABI did not file the Option Agreement and other relevant documents until July 11, 1994, when it filed its ownership report following consummation of the pro forma assignment LABI responds that h has made full disclosures to the Commission, keeping it informed of LABfs ongoing negotiations with MBC and filing copies of the executed documents as required by Section 73.3613 of the Commission©s Rules. The Agreements at issue were executed on June 14, 1994, and, to the extent required, were filed with the Commission on July 11,1994, within the thirty day period. Moreover, documents filed by LABI prior to mat date reported its ongoing negotiations with MBC. Accordingly, we see no reason to pursue Complainants© allegations in this regard.

1735 ______Federal Communications Commission______DA 9S-784 failure to include such information in its 1997 ownership report was anything but an oversight. Accordingly, no Commission action is required in this regard B. Failure to Consummate in a Timely Manner 14. Topeka and Platinum contend that the transfer of control of Station KXBZ from LABP to LABI was not timely consummated and that the transfer should not be recognized. Specifically, they state that the application to change to corporate form was granted November 24, 1993, and was conditioned upon consummation within sixty days. Thus, it should have been consummated by January 23, 1994. They assert that since it was not consummated until June 1994, the transfer of control is invalid. Additionally, Topeka maintains that LABI violated the express terms of the authorization by taking steps toward construction of the station before it had notified the Commission ot the consummatioa In support of its assertion, it points to an equipment order signed by Michael Law on behalf of LABI. 15. LABI contends that the sixty-day closing time is an informal, unofficial, and internal policy of the Mass Media Bureau which has never been codified Further, it points out that grants of additional time to consummate are routinely given by oral confirmatioa Thus, LABI contends that its failure to timely consummate should not invalidate the transfer of control. Additionally, LABI rejects Topeka©s contention that it proceeded with construction of the station prior to consummatioa While it concedes that when Law signed the equipment proposal, he specified that he was doing so on behalf of LABI, it argues that the designation of the company as LABI was inadvertent, pointing to the fact that the order was in the name of LABP and that Law indicated his title as "partner," not president. Moreover, it contends, the mere acceptance of an equipment proposal does not constitute premature constructioa 16. It is true that in connection with the grant of the pro forma assignment application, the Commission issued a letter dated November 30, 1993, advising LABI that it had sixty days to complete the assignment and that it was required to notify the Commission of such consummatioa It is also true that LABI did not complete consummation within that sixty-day period, and there is no evidence that it requested additional time to consummate. However, while the staff could have rescinded its grant when the parties went beyond the sixty-day consummation period, it did not do so. Rather, upon the filing of the consummation letter on June 21, 1994, the staff simply updated its records to reflect LABI as the licensee of Station KXBZ. In this case, involving a pro-forma assignment with no change to the controlling party, the staffs action was clearly appropriate. Accordingly, the assignment remains valid Moreover, we find no basis for concluding that LABI proceeded with construction of the station prior to consummatioa The equipment proposal at issue was directed to LABP and was signed by Law as "partner," not president While Law indicated that he was signing the proposal on behalf of LABI, we do not find that designation to be controlling, particularly since Law was a principal of both LABP and LABI at the time. C. Ownership and Control of Station KXBZ 17. Complainants assert that as a result of the Agreements, MBC has acquired an ownership interest in and control of Station KXBZ. Thus, they contend, MBC should be attributed with ownership of three radio stations licensed to Manhattan, KS, as well as the communitys only daily newspaper, in violation of the Commission©s multiple ownership rule.4 Moreover, Complainants contend that even if MBCs relationship with Station KXBZ is not attributable for purposes of the multiple ownership rule, it

4 When the Commission first adopted its prohibition on newspaper-broadcast cross-ownership, Seaton and MBC were grandfalhered as a permissible newspaper-broadcast combination. 47 C.F.R. § 73.35555, note 4.

1736 ______Federal Communications Commission______DA 98-784 violates the Commission©s cross-interest policy. Finally, Complainants contend that the Agreements and the effectuation thereof have resulted in an unauthorized transfer of control of Station KXBZ. 18. Ownership Interest in LABI. Section 73.3555(d) of the Commission©s Rules, 47 C.F.R. § 73.3555(d)(2), prohibits a party from directly or indirectly owning, operating, or controlling a broadcast station and a daily newspaper, where the station©s predicted 1 mV/m contour encompasses the entire community in which the newspaper is published See Wisconsin Television. Ltd.. 59 RR 2d 193, 194 (1985). Complainants contend that the Agreements give MBC a current attributable interest in Station KXBZ. MBC and LABI, on the other hand, assert that Law is the sole officer, director, and shareholder of LABI and that no principal of MBC holds any attributable or nonattributable interest in LABI. 19. In support of their position, Complainants rely on the terms of the Option Agreement, asserting that the Option Agreement is in fact a "perfected1! agreement for the purchase and delivery of a 49% interest in LABI, with 99.8% of the purchase price for the 49% interest prepaid. They point to the fact that the agreements on which the option is based (the construction loan, stock pledge, and security agreement) have already been effected and that MBCs only remaining obligation is payment of $ 100 for deli very of me stock certificates. In such a case, they assert, the 49% interest should be attributable for multiple ownership purposes. 20. The Commission has previously held that in this context purchase options and other potential future rights are noncognizable for current attribution purposes. WWOR-TV. Inc.. 6 FCC Red 6569, a 13 (1991). See also 47 C.F.R §73.3555, Note 2(f). Specifically, the Commission has stated that in the context of a transfer of control, there is "[n]o presumption that an option will be exercised" WWOR-TV. Inc.. 6 FCC Red at n.13. Topeka asserts mat because this case involves a station that was unbuilt at the time the agreements were executed, the Commission should not apply mis standard but instead should look to its position in comparative broadcast cases for new stations. In those cases, because of the desire to process applications expeditiously and avoid the delay caused by exercise of an option during the proceeding, there is a presumption that options will be exercised Jd Such a presumption allows for speedy service to the public. Regardless of whether or not a station is unbuilt at the time an option agreement is exercised, there is no such compelling reason for a presumption that an option will be exercised in a transfer of control context. Accordingly, we reject Topeka©s argument in this regard Additionally, we do not believe that the up-front option payment, in mis case, warrants a deviation from our normal policy regarding attribution of options. The payment does not change the fact that the option may not be exercised In fact, the Option Agreement specifically recognizes that possibility and contains provisions for repayment- of the option price, in whole or in part, if the agreement is terminated Moreover, we do not find that any of the other Agreements give MBC any current ownership interest in LABI. See Attribution of Ownership Interests. 97 FCC 2d 997, 1021-22 (1984) (subsequent history omitted) (neither debt agreements nor stock pledges as security for a loan confer a cognizable interest in the holder); WHW Enterprises. Inc.. 51 RR2d 409, 419, all (Rev. Bd 1982) (subsequent history omitted) (debtor-creditor relationship does not constitute the type of interest cognizable under the Commission©s multiple ownership rules). 21. Control of Station KXBZ. Having concluded that MBC does not directly or indirectly have a current ownership interest in Station KXBZ, we next turn to the question of whether or not MBC has direct or indirect control of Station KXBZ in violation of our multiple ownership rule, our cross interest policy, and our prohibition against the unauthorized transfer of control of a broadcast station. Citing DavidADavila. 5 FCC Red 5222 (Video Services Division, MMB 1990), affd 6 FCC Red 2897 (1991), Complainants contend that the Agreements, .and the effectuation thereof have resulted in an unauthorized transfer of control of Station KXBZ. In support of this assertion, Complainants rely on the following: MBC loaned LABI the money to construct Station KXBZ; Station KXBZs studios are located in KMKFs studio; the antenna is mounted on KMKFs tower, which is owned by MBC; and MBC provides sales and

1737 ______Federal Communications Commission______DA 98-784 administrative services to the station. Although Complainants recognize that the Joint Sales Agreement states that Law will provide programming, they contend that this commitment "rings hollow" because Law resides approximately 115 miles away from Manhattan and is employed full time by a Kansas City, MO radio statioa Moreover, Complainants argue that the Agreements restrict Law©s operation of Station KXBZ. Specifically, they contend, Law is prohibited from assuming any indebtedness and cannot sell the station©s assets, change employee compensation, or modify station facilities. In addition, they point out that MBC has the immediate right to review the books and all operating infbrmatioa Finally, Complainants contend that because the Option Agreement requires LABI to conduct business in a "normal© and ordinary" way, LABI is prohibited from competing with MBCs stations, KMAN and KMKF. Thus, Complainants assert, MBC has "effective" or "operational" control of Station KXBZ and, in accordance with Joseph Patrick Williams. 56 RR 2d 1526 (MMB 1984) and Wisconsin Television. Ltd.. 59 RR 2d 193 (1985), MBCs relationship with KXBZ should be attributable for multiple ownership purposes. 22. Both LABI and MBC assert that neither the Agreements, nor the actions of LABI, Law, or MBC, have resulted in a transfer of control of Station KXBZ and that Law is and has been in control of LABI and Station KXBZ. LABI and MBC contend that the Commission has previously approved similar agreements and business relationships. In fact, MBC argues, the Commission has approved even more closely involved business relationships than at issue here. In support of its assertions, MBC relies on He O.RT.R. Inc.. FCC 871-097, released September 8, 1987, where the Commission found no control or attributable interest even though a lender, in addition to financing construction and operation, also supplied programming, nominated certain Board members, took a stock pledge and held a purchase optioa MBC also cites to David Davila. 5 FCC Red 5222 (Video Services Division, MMB 1990), affd. 6 FCC Red 2897 (1991), where the Commission concluded that even though a lender took a stock pledge and a lien on the licensee©s assets, held a purchase option, financed the construction and initial operation of the station, and supplied the programming, no unauthorized transfer of control had occurred. 23. Moreover, LABI and MBC contend that the restrictions in the Agreements at issue are all commercially reasonable and have previously been reviewed and approved by the Commissioa MBC contends that the Commission has long held that restrictions upon a licensee designed to protect lenders or minority investors do not confer defacto control. In fact, it states, the Commission has approved "far more intrusive restrictions than those at issue here,", citing Flathead Valley Broadcasters fKOFI). 5 RR 2d 74, 76 (Rev. Bd. 1965) (loan agreement limits officers© salaries and capital expenditures, and prohibits bonuses, loans to officers, dividends, and the sale of stock); Data Transmission Co.. 44 FCC 2d 935,936 (1974) (agreement limits sale of stock, merger, selling or leasing assets, purchasing stock, or making or guaranteeing loans); National Broadcasting Company. Inc.. 6 FCC Red 4882, 4883 and n.2 (1991) (agreement requires prior consent to amend certificate of incorporation, sell assets, dissolve company, acquire or merge with another corporation, incur indebtedness not in ordinary course of business). MBC Opposition at 11. With regard to Complainants© specific objection to those provisions in the Agreements requiring LABI to operate in a normal and ordinary way, MBC contends mat such restrictions are only designed to protect MBCs investment, allowing MBC to claim a default if LABI, decides, for example, to substantially curtail its hours of operation or change to a program format with no audience appeal. MBC Opposition at 12. Finally, in response to Complainants© arguments regarding limitations on incurring debt, LABI points out that the Option Agreement does not flatly prohibit LABI from incurring debt as Eagle has alleged. Rather, LABI asserts, the Option Agreement only limits the amount of debt that may be incurred, and how that additional debt is secured. 24. As LABI and MBC have stated, the Commission has previously approved agreements with terms similar to those at issue here. In so ruling, the Commission looked beyond the terms of the agreements to the facts of the specific case to determine who was in actual control of the station. Sge, News International. PLC. 97 FCC 2d 349, 356-57 (1984) (transfers of control must be answered with reference to the specific facts presented), citing Data Transmission Co.. 44 FCC 2d at 936-37.

1738 ______Federal Communications Commission DA 98-784 25. There is no exact formula by which control of a broadcast station can be determined. In ascertaining whether a transfer of control has occurred, we traditionally look to whether a new entity or individual has obtained the right to determine the basic operating policies of the station. See WHDRInc. 17 FCC 2d 856 (1969), affd sub nom. Greater Boston Television Corp. v. FCC 444 F.2d 841 (B.C. Cir. 1970), cert, denied. 403 U.S. 923 (1971). Specifically, we look to three essential areas of station operation: the programming, personnel, and finances. S^£4« Stereo Broadcasters. Inc.. 87 FCC 2d 87 (1981), recon. denied. 50 R.R. 2d 1346 (1982). Licensees are permitted under Section 310(d) of the Act to delegate day-to-day operations relating to those three areas, so long as they continue to set the policies guidingthose operations. See Southwest Texas Public Broadcasting Council. 85 FCC 2d 713,715 (1981); The Alabama Educational Television Commission. 33 FCC 2d 495, 508 (1972). Thus, in making a determination, we look not to who executes the programming, personnel, and finance responsibilities, but to who establishes the policies governing those three areas. See WGPR. Inc.. 10 FCC Red 8140, 8142 (1995). 26. Control of Station Construction. In cases like this one where the station was unbuilt at the time the Agreements were entered into, we look first to who was in control of the station©s construction SeeRovMSpeer. 11 FCC Red 18393 (1996); Salem Broadcasting. Inc.. 6 FCC Red 4172 (MMB 1991). LABI states that Law supervised and was in control of the station©s construction Law declares, under penalty of perjury, that he: selected and used his own engineering counsel to prepare all technical reports and exhibits submitted to the Commission, including the license application; selected and retained his own local counsel for the purpose of incorporating LABI, and drafting articles of incorporation and bylaws; selected and retained and used his own FCC counsel for negotiating and drafting the agreements; personally selected the studio equipment package; had discussions concerning the transmission equipment before he spoke to anyone at MBC; made numerous trips to Manhattan to meet employees, visit the transmitter site, and oversee the buildout and refurbishment of MBCs studios to accornmodate KXBZ studios and offices; conferred frequently with engineering and technical consultants and visited the station to monitor signal and sound Complainants have provided no evidence to the contrary. Thus, based on the evidence before us, it appears that Law was intimately involved with and in control of the station©s construction. Cf. Salem Broadcasting. Inc.. 6 FCC Red 4172 (MMB 1991) (unauthorized transfer of control found where broker infused the station with capital, chose the station format, and was intimately involved in the construction and operation of the station); Roy M. Speer. 11 FCC Red 18393 (1996) (unauthorized transfer of control found where employees of a non-voting minority stockholder had supervised the construction of the new television station, the non-voting stockholder had paid for the purchase of the station©s equipment through loans to the permittee and the permittee was not even aware of what equipment was being purchased for it or how much was being spent). 27. Control of Station Programming. LABI states that Law is and has been in control of the station©s programming. In this regard, Law states that he personally selected the musical format for the station based on his own research of the market without conferring with anyone at MBC and that he has selected all of the music to be played on the station Complainants have provided no evidence to the contrary. The fact that Law does not reside in the service area does not, as Complainants seem to suggest, preclude him from selecting the station©s programming. Likewise, the existence of the Joint Sales Agreement granting MBC the right to sell the commercial advertising time on Station KXBZ does not demonstrate, as Complainants also contend, that Law is not in control of the station©s programming. The Commission eliminated its restrictions on joint sales practices in 1996, concluding that joint sales agreements do not violate the multiple ownership rules. Elimination ofUnnecessary Broadcast Regulation. 59 R.R.2d 1500, 1516 (1986), recon denied 63 R^. 2d 212 (1987). See also Revision of Radio Rules and Policies. 7 FCC Red 2755,2787 (1992) (subsequent history omitted). 28. Control oJLStation Personnel. LABI states that it is in complete control over station personnel. Specifically, Law states that he personally interviewed and hired two managers (the station

1739 ______Federal Communications Commission DA 98-784 manager and music director) and the night announcer/operator, none of whom had any prior association with MBC or Seatoa In addition, he states, that all of LABIs employees report either directly to him or his station manager. Finally, Law states that he has spoken to his station manager at least once a day since the station became operational. Complainants point to the fact that LABI and MBC share some personnel services as evidence that Law is not in control over LABIs personnel. The evidence, however, does not support such a conclusion. Law admits that LABI and MBC share the services of a receptionist, contract maintenance engineer, traffic person and bookkeeper, but declares that none of these shared personnel have any management authority over the station©s personnel, or any authority over the programming, policies or operations of the station. Moreover, Law states that any problems which arise concerning these shared personnel are referred to management of both MBC and LABI. It is permissible for stations to share staff in order to maximize efficiencies. WGPR. Inc.. 10 FCC Red at 8143, citing Michael R. Birdsill. 7 FCC Red 7891 (Complaints Branch, MMB 1992). In addition, the Commission has approved agreements where a party brokering time on a station is to employ and be responsible for the salaries and other expenses related to personnel it deems necessary to fulfill its contractual obligations. See WGPR. Inc.. 10 FCC Red at 8143, citing Gisela Huberman. Esquire. 6 FCC Red 5397 (MMB 1991). Thus, the fact that MBC and LABI share some staff does not demonstrate that MBC has control over Station KXBZ. Moreover, the fact that, under the terms of the Employment Agreement, MBC is to reimburse LABI for Law©s salary is likewise not controlling. Although we require licensees to remain responsible for the payment of their own expenses, a broker©s reimbursement of such expenses, as part of its contractual obligations, does not perse demonstrate that the broker is in control of the station. Rather such a determination depends upon the particular facts of a case. WGPR. Inc.. 10 FCC Red at 8145. See also Letter from Barbara Kreisman to Paramount Stations Group of Kerrville, Inc. at 11 (Video Services Division, MMB June 6,1995), review denied 12 FCC Red 6135 (1997). In this case, there is no evidence before us that MBC©s reimbursement of Law©s salary has in any way transferred control of Station KXBZ from Law to MBC. See also David A. Davila, 5 FCC Red at 5225 (broker, as part of loan agreement, provided money for construction and initial operation of the station, including a per month fee to president and controlling stockholder). 29. Control of_ Station Finances. LABI asserts that it has effective control over the station©s financial operations. Specifically, Law states that the station has its own operations budget, bank accounts and books, and that all checks must be co-signed by either him or his station manager. Complainants point to the existence of the loan agreement as evidence of MBCs control over the finances of LABI and the station. In addition, Topeka also objects to the fact that the Option Agreement provides that MBC is paying $5,000 of LABTs attorneys fees and that under the Joint Sales Agreement, MBC has agreed to pay up to a certain amount if the station©s revenues are insufficient to pay expenses. Section 11.12 of the Option Agreement specifies that MBC will pay LABI and Law©s counsel $5,000 in connection with the negotiation and preparation of the Agreements. Law has stated that with the exception of that payment, LABI has paid for its own legal and professional services. Accordingly, based on the information before us, we cannot conclude that the payment of $5,000 worth of attorney©s fees amounts to a transfer of control over either LABIs or Station KXBZ©s finances. We likewise do not find that the provisions in the Joint Sales Agreement regarding the coverage of any shortfall have resulted in an unauthorized transfer of control. Section 4(c) of the Joint Sales Agreement provides for MBCs payment of any shortfall, up to a certain amount, to LABI which will then use that money to pay expenses. As we discussed above, reimbursement of expenses, as part of a broker©s contractual obligations, does not perse demonstrate that the broker is in control of the station. WGPRJfoc.. 10 FCC Red at 8145. See also Letter from Barbara Kreisman to Paramount Stations Group of Kerrville, Inc. at 11 (Video Services Division, MMB June 6, 1995), review denied 12 FCC Red 6135 (1997). Moreover, the Joint Sales Agreement contains provisions for LABrs repayment to MBC of any shortfall amounts and, to the degree that such amounts are not reimbursed, specifies that the shortfall amounts may be considered a liability of LABI.

1740 ______Federal Communications Commission DA 98-784 30. Cross Interest Policy. Complainants, citing to Joseph Patrick Williams. 56 RR 2d 1526 (MMB 1984), and Wisconsin Television. Ltd. 59 RR 2d 193 (1985), argue that even if ownership or control of Station KXBZ is not attributed to MBC for multiple ownership and unauthorized transfer of control purposes, ownership of that station should be attributed to MBC for cross-interest purposes. Complainants argue that the Commission©s cross-interest policy was developed to prevent precisely the type of situation which exists here, where parties have multiple business relationships involving broadcast and newspaper interests in the same market. In such a situation, Complainants contend, there is no way the stations involved can be thought of as independent or in competition. Specifically, Topeka and Platinum argue that MBC, because of its extensive relationship with LABI, should be considered a "putative shareholder" for cross-interest purposes. In addition, Eagle contends that although the Commission has ruled generally that joint sales agreements do not violate its cross interest policy, joint sales agreements involving stations serving the same market do violate that policy. 31. LABI and MBC argue that there is no basis for rinding a cross-interest violation. Specifically they contend that MBC has no ownership interest in LABI, no control over LABI or the station, and none of LABFs shareholders, officers, directors, or management employees are officers, directors, or management employees of LABI. Moreover, they contend that the cases cited by Complainants support the conclusion that there is no cross-interest violation. MBI states that "[fjhe stations and the newspaper operate independently of each other with separate facilities, staff and day-to-day management and operations." MBIs Opposition at para. 5. 32. The (^mmission©s cross-interest policy generally focuses on the potential adverse effects on competition and diversity in situations where a party owns an attributable interest in one media outlet and enjoys a "meaningful relationship" with another media outlet serving "substantially the same area." Reexaminatinn of the Commission©s Cross-Interest Policy. 2 FCC Red 3699, 3699-700 (1987). We do not believe that any of MBCs interests in or relationships with LABI constitute a "meaningful relationship" which implicates the cross-interest policy. In Joseph Patrick Williams our finding of a possible cross-interest violation was based on evidence that the licensee may have been deeply involved with the newspaper at a management level. In Wisconsin Television. Ltd, our ruling was based on the fact that a limited partner of a station also had control over a newspaper in the same market No similar facts exist in this case. Moreover, we reject Eagle©s contention that joint sales agreements involving stations in the same market are perse violations of our cross-interest policy, gee Reexamination of the Commission©s Cross-Interest Policy. Policy Statement 4 FCC Red 2208 (1989); Reexamination of the Commission©s Cross-Interest Policy. 2 FCC Red 3699, 3699-700 (1987); Elimination of Unnecessary Broadcast Regulation. 59 RR2d 1500, 1516 (1986), recon. denied 63 RR 2d 212 (1987); In the Matter ofRepresentation of Stations by Representatives Owned by Competing Stations in the Same Area. 87 FCC 2d 668 (1981). Finally, we do not believe that the Option Agreement between MBC and LABI affords MBC a present interest that carries the kind of certain, realizable gain which we have considered sufficient to trigger cross-interest concerns. See Roy M. Speer. 11 FCC Red at 18442-44. We note in mis regard that the right to acquire a 49% interest in LABI pursuant to the Option Agreement is not assignable by MBC to any party other than stockholders of MBC. Moreover, although LABI must, in some circumstances, repay the up-front option money, such repayment is linked to the 49% option price and not the market value of the 49% interest 33. We recognize Complainants© concerns regarding the relationship between LABI and MBC, particularly in light of the fact that MBC or its principals own two radio stations and a daily newspaper in the same market as Station KXBZ. This case appears to be another in a series of cases which push the limits of our rules. We warn broadcasters that Ihe use of such complex contractual agreements involying numerous business relationships between conpetitors in the same market creates an environment conducive to an unauthorized transfer of control and violation of our cross-interest and©multiple ownership rules and policies. Accordingly, such arrangements will be subject to close scrutiny. See Choctaw Broadcasting

1741 ______Federal Communications Commission______DA 98-784 Corporation. 12 FCC Red 8534 (1997). Nonetheless, in this case, based on the information before us, we conclude that the relationship between MBC and LABI does not violate any existing Commission rule or policy. We note, however, the Commission has specifically expressed concern about multiple business relationships of the type involved here, observing that "otherwise permissible cooperative arrangements between broadcasters . . are being used in combination by those broadcasters to obtain, indirectly, controlling interests in multiple stations that they would be prohibited from holding directly under the multiple ownership rules." Review of the Commission©s Regulations Governing Attribution of Broadcast Interests. 10 FCC Red 3606, 3609 (1995). However, that proceeding is still pending and the questions raised therein have not been resolved. Moreover, we note that as part of the pending application for transfer of control of Station KXBZ, MBC has stated that both MBC and Seaton will be restructured so as to remove any joint operation or control of the stations and the newspaper. See paragra )h 4, supra Furthermore, MBC has stated mat the stations and the newspaper operate independently of eac i other with separate facilities, staff and day-to-day management and operations. Thus, grant of the pending transfer of control application will eliminate the current joint ownership of The Manhattan Mercury and Stations KMKF and KMAN and will remove any ongoing concern with regard to the common ownership or control of radio stations and a newspaper in the same market. D. gale of an Unbuilt Station 34. Eagle contends that because the Agreements were entered into before Station KXBZ was constructed and because MBC obtained an irrevocable "prepaid" option prior to construction, this transaction should be considered as the transfer of an unbuilt station and evaluated under Section 73.3597 of our rules. 47 C.F.R, § 73.3597. MBC and LABI assert that MBC acquired no ownership or control of the station prior to its construction and, pursuant to David D. Qxenford Esq. reference 1800B3-LK (Audio Services Division, MMB June 14, 1993), and David Davila. 5 FCC Red 5222 (Video Services Division, MMB 1990), affd 6 FCC Red 2897 (1991), the no profit prohibition of Section 73.3597 of the Commission©s Rules is triggered only where there is an assignment or transfer of control of an unbuilt station Moreover, LABI states that it is "inherently improbable" that Law is receiving more than the legitimate construction expenses and that the burden of so proving should be on Complainants. 35. Construction permits are granted only to qualified applicants in reliance on their bonafide intention to place the proposed station on the air and to provide the broadcast service they propose. See William Silva. Esq.. reference 1800B3-MFW (Audio Services Division, MMB July 24, 1995), recon denied sub nom. Choctaw Broadcasting Corporation. 12 FCC Red 8534 (1997) (parties did not seek reconsideration of the discussion concerning the Commission©s "no profit" rule). Accordingly, in order to ensure the integrity of the Commission©s licensing process, "we have long sought ©to preclude the use of broadcast authorizations as a means of obtaining financial gain without rendering the broadcast service which, alone, justifies the grant of permits . . . "© William Silva. Esq. at p. 4, quoting Assignment and Transfer of Construction Permits. 33 Fed Reg. 12, 678 (September 6, 1968). As discussed, supra, this does not mean that permittees cannot enter into certain pre-operational agreements, such as options or loans, prior to constructing and commencing operations. See William Silva. Esq. at 5-6, a9. Nor does it mean, as MBC and LABI contend, that so long as the station is constructed prior to filing of an application for assignment or transfer of control, that the "no profit" rule does not apply. Rather, regardless of when the agreements are entered into and when the station is constructed, in each case the terms of the arrangements between parties and the totality of the facts and underlying circumstances must be reviewed to determine whether the facts reflect a permittee©s intention to construct the station or are more reflective of an up-front sale with consummation postponed until after the station goes on the air. Id Thus, in William L. Silva. Esq. the Audio Services Division ruled that the existence of a signed binding asset purchase agreement coupled with the lack of any evidence that the permittee took any concrete steps toward construction of the station prior to the assignee©s involvement, indicated that the permittee had no real intention to construct. In so ruling, the Audio Services Division distinguished that

1742 ______Federal Communications Commission DA 98-784 case from others involving option agreements rather than binding asset purchase agreements. Specifically, the Audio Services Division stated that because an option is not a binding contract and does not become one until it is exercised, the existence of such a contract is not perse evidence of an up-front sale. Id. at 5. 36. The Option Agreement in this case is a non-binding agreement with options which may or may not be exercised. As discussed, supra, the fact that LABI received money up front is not controlling since, even with that payment, MBC acquired no ownership interest in the statioa Moreover, there is no evidence before us which indicates that Law did not intend to construct and operate the station. Rather, the record reveals that Law took steps toward construction of the station prior to his dealings with MBC and that Law has been involved in and in control of the station©s construction and operarioa Accordingly, we reject Eagle©s showing in this regard and conclude that Section 73.3597 of the Commission©s Rules is not applicable to mis case.5

CONCLUSION 37. For the reasons set forth above, the complaints ARE DENIED. Accordingly, the pending application for renewal of license (File No. BRH-970207YA) IS GRANTED. It is FURTHER ORDERED, That, the application for transfer of control of Station KXBZ(FM), licensed to Little Apple Broadcasting, Inc., from Michael D. Law to Manhattan Broadcasting Co., Inc. (File No. BTCH- 961029GT) IS GRANTED SUBJECT TO THE CONDITION That, prior to consummation, no individual will hold attributable interests in both Manhattan Broadcasting Co., Inc. (licensee of KMAN(AM) and KMKF(FM), Manhattan, Kansas), and Seaton Publishing Co., Inc. (publisher of the Manhattan Mercury, a daily newspaper published in Manhattan, Kansas).

Sincerely,

Mass Media Bureau

cc: J. Dominic Monahan, Esq. (Counsel for Eagle) James A. Gammon, Esq. (Counsel for Topeka) Robert K Weary, Esq. (Counsel for Platinum) Montgomery Publications, Inc.

5 Having so concluded, we need not reach LABIs position that Complainants had the burden of proving that Law would receive more than the legitimate and prudent expenses of constructing the station.

1743