______Federal Communications Commission______FCC 99D-2

Before the Federal Communications Commission Washington, D.C. 20554 FCC 99D-2 In re ) MM DOCKET NO. 98-66

fflCKS BROADCASTING OF INDIANA, LLC )

Order to Show Cause Why the License for ) FM Radio Station WRBR(FM), ) South Bend, Indiana, Should Not Be ) Revoked; )

AND ) PATHFINDER COMMUNICATIONS CORP. )

Order to Show Cause Why the License for ) FM Radio Station WBYT(FM) . ) Elkhart, Indiana, Should Not Be Revoked ) Appearances

Erwin G. Krasnow. Douglas W. Hall, and Eric T. Werner. on behalf of Hicks Broadcasting of Indiana, LLC; Eric L. Bernthal. Everett C. Johnson. Jr.. Michael J. G"*man. and Allan M. Gardner, on behalf of Pathfinder Communications Corp.; William Crispin, and Dean Brenner, on behalf of Niles Broadcasting, Inc.; and Roy J. Stewart. Norn18" Goldstein. James W. Shook. Rov W. Boyce. and KathrvnS. Berthot. on behalf of the Mass Media Bureau.

INITIAL DECISION OF LTTVE LAW JUDGE JO5

Issued: May 5, 1999 Released: May 11, 1999

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Table of Contents

I. Preliminary Statement 1

n. Proposed Findings of Fact 3

Background ...... 3

Joint Sales Agreement 4

Pathfinder©s Effort to Acquire WRBR(FM) 6

Dille Pursues Hicks as a Potential Buyer for WRBR(FM) 8

Hicks Decides to Participate 11

The APA 17

The Hicks/Indiana Assignment Application and Dille statement 19 Organization of Hicks/Indiana 28

Hicks/Indiana©s Operation of WRBR(FM) 34

Character Testimony 57 ffl. Conclusions of Law 60 Misrepresentation/Lack of Candor 61

Real Party-in-Interest/De Facto Control 74

Multiple Ownership 83 IV. Ultimate Conclusions 83

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I. Preliminary Statement

1. By Order to Show Cause, Hearing Designation Order, and Notice of Opportunity for Hearing, 13 FCC Red 10662 (1998), ("OSC"), the Commission commenced this proceeding to determine whether the licenses of Hicks Broadcasting of Indiana, L.L.C. ("Hicks/Indiana"), for Station WRBR(FM), South Bend, Indiana, and of Pathfinder Communications Corp. ("Pathfinder") for Station WBYT(FM), Elkhart, Indiana, should be revoked. The OSC specified the following issues with respect to Hicks/Indiana:

1. To determine whether [Hicks/Indiana] misrepresented facts and/or lacked candor, in its application (including all amendments) to acquire the license for Station WRBR(FM), regarding its present or future ownership or control in violation of Sections 73.1015 and/or 73..3514 of the Commission©s Rules.

2. To determine whether [Hicks/Indiana] abdicated control of Station WRBR(FM) to [Pathfinder] and/or its agents or principals in violation of Section 310(d) of the Communications Act of 1934, as amended.

3. To determine whether, in light of the evidence adduced under the foregoing issues, [Hicks/Indiana] possesses the requisite qualifications to be or remain the licensee of Station WRBR(FM).

The OSC also specified the following issues with respect to Pathfinder:

4. To determine whether John Dille HI misrepresented facts and/or lacked candor in the application of [Hicks/Indiana] to acquire the license for Station WRBR(FM).

5. To determine whether [Pathfinder] and/or any of its agents, including, but not limited to John Dille 111, was the undisclosed real party-in-interest in the application of Hicks/Indiana to acquire the license for Station WRBR(FM), in violation of Section 73.3514 of the Commission©s Rules.

6. To determine whether [Pathfinder] and/or its agents, including, but not limited to John Dille HI, acquired control of Station WRBR(FM) without Commission authorization in violation of Section 310(d) of the Communications Act of 1934, as amended.

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7. To determine whether, hi light of the evidence adduced under issues 2, 5 and 6, [Pathfinder] and/or its agents including, but not limited to John Dille HI - - owned, operated or controlled interests in violation of Section 73.3555(d)(2) of the Commission©s Rules.

8. To determine whether, hi light of the evidence adduced under the foregoing issues, Pathfinder possesses the requisite qualifications to be or remain the licensee of Station WBYT(FM).

2. The OSC further stated hi paragraph 65 that, irrespective of whether the hearing record warranted an order revoking the license of Hicks/Indiana for Station WRBR(FM), it should be determined, pursuant to Section 503(b) of the Communications Act of 1934, as amended, whether a forfeiture in an amount not to exceed 250,000 dollars should be issued against Hicks/Indiana for violations of Sections 73.1015 and/or 73.3514 of the Commission©s Rules and/or Section 310(d) of the Communications Act of 1934, as amended. Likewise, the OSC in paragraph 66 ordered that, irrespective of whether the hearing record warranted an order revoking the license of Pathfinder for Station WBYT(FM), it should be determined, pursuant to Section 503(b) of the Communications Act of 1934, as amended, whether a forfeiture hi an amount not to exceed $250,000 should be issued against Pathfinder for violations of Sections 73.1015 and/or 73.3514 and/or 73.3555(d)(2) of the Commission©s Rules and/or Section 310(d) of the Communications Act of 1934, as amended.1

3. Pursuant to paragraph 56 of the OSC, the Bureau had the burdens of proceeding and proof with respect to all issues.

4. Hearing sessions were held hi Washington, D.C. on October 6, 1998, and fromOctober 20 through 27, 1998, and from November 2 through 9, 1998. The record was closed on November 9, 1998. Order, FCC 98M-124, released November 13, 1998; Tr. 2293-4. On March 8, 1999, the parties to this proceeding submitted joint Findings of Fact and Conclusions of Law.

©The OSC also specified an issue to determine whether Pathfinder possessed the basic qualifications to acquire the licenses for Stations WNDU(AMTFM), South Bend, Indian from Michiana Telecasting Corp. However, because the applications to assign those licenses were dismissed by the parties, the Presiding Judge deleted that issue.

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n. Proposed Findings of Fact Backs ground

5. In Revision of Radio Rules and Policies, 7 FCC Red 2755 (1992) ("Radio Revision"), recon. granted in part, 1 FCC Red 6387 (7992;, fumher recon., 9 FCC Red 7183 (1994), the Commission modified its multiple ownership rules to permit increased ownership of broadcast radio stations bv any one person. In radio markets with 14 or fewer commercial radio stations, a party was allowed to own up to three radio stations, no more than two of which could be hi the same service, provided that the owned stations, if other than a single AM and FM station combination, represented less than 50 percent of the stations in the market. In larger radio markets, a party was allowed to own between four and six radio stations, provided that the combined audience share of the stations did not exceed 25 percent. 47 C.F.R. § 73.3555(a) (1992). In its order, the Commission also addressed issues raised by the use of joint ventures other than local time brokerage. Specifically, the Commission concluded that certain joint venture arrangements, including those involving joint advertising sales and shared technical facilities, generally strengthened the radio industry by providing stations that were not commonly owned with economies similar to those available to commonly owned stations. Radio Revision, 7 FCC Red at 2784-87. See also, Tr. 1317-21. The Commission did not modify the daily newspaper cross-ownership rule, which prohibited grant of a license for an AM, FM or TV broadcast station license where the party seeking the license owns, operates or controls a daily newspaper in certain specified areas. 47 C.F.R. § 73.3555(c) (1992). Also, the Commission did not modify its basic policies for determining de facto. control of a broadcast licensee. Radio Revision, 1 FCC Red at 2787. See also, Trinity Broadcasting of Florida, Inc., 8 FCC Red 2475 (1993).

Joint Sales Agreement 6. In the summer of 1992, Robert Ridder ("Ridder"), on behalf of John L. Booth, n ("Booth"), president of Booth American Company ("Booth American"), approached John F. Dille, m ("Dille"), president of Pathfinder, to determine whether the latter would be interested in a joint sales arrangement for their respective stations hi the South Bend/Elkhart, Indiana area, namely, Booth American©s WRBR(FM) and Pathfinder©s WLTA(FM). Tr. 2224. The basic idea was to take advantage of the expanded opportunities provided by Radio Revision. The stations would combine their sales staffs under one general sales manager and eliminate certain associated administrative positions, thereby reducing each station©s costs and increasing sales. Tr. 482, 2225-6. In this regard, each station had been struggling. WLTA(FM) had been a mediocre performer, while WRBR(FM) had lost more than $500,000 for the years 1991 and 1992. MMB Ex. 5; Tr. 518-20, 2225. After several months of negotiations, the parties combined sales

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operations in September 1992. Tr. 1049, 2226. Several months later, on December 18, 1992, they executed a Joint Sales Agreement ("ISA"). MMB Exs. 1, pp. 14-30; 2, p. 3; Tr. 2226-7.

7. The ISA specified that the Joint venture ("Venture") would operate under the name of Radio One Marketing of Michiana. MMB Ex. 1, p. 15. With one exception, all of the Venture©s workers were to be employees of Pathfinder and subject to Pathfinder©s discipline and supervision. Id. at pp. 15-6. The JSA called for a management committee of four members, two from Booth American and two from Pathfinder. Id. at p. 16. During the first year of operations, each party was responsible for 50% of the Venture©s expenses and entitled to 50% of its revenues. Thereafter, a formula that relied upon specified Arbitron data would determine each party©s share of revenues and expenses. Id. at p. 17A. The JSA further specified that Pathfinder would pay Booth American on or about the 55th and 70th days following a month when revenues exceeded expenses. When expenses exceeded revenues, Booth American was to reimburse Pathfinder only if the amount exceeded $5,000. When the amount was less than $5,000, Pathfinder was to offset that amount against Booth American©s share of the following month©s revenues Id. at p. 18. The Venture©s revenues, prior to disbursement to Booth American, were to be held in such accounts as the management committee deemed appropriate. Id. The JSA designated Pathfinder as the Venture©s accountant. Id. at p. 19. During their partnership, Pathfinder and Booth American followed the provisions governing the accounting, allocation and distribution of revenues and expenses. Tr. 489-92, 679-80, 1062-3, 1068-9

8. Although the JSA called for the combining of the stations© sales forces and efforts, it also clearly sought to ensure that the licensees maintained control over then- respective stations. Thus, Booth American and Pathfinder were each to have full authority over its own station©s operations, and each was to bear full responsibility for its station©s compliance with the Communications Act and the Commission©s rules. Further, each was to employ, at its expense, management level employees to direct day- to-day operations of its own station. All management level employees of a party were to "report to and be accountable to such party exclusively." Sec. 6.2 (b) of the JSA. Booth American and Pathfinder were each to retain complete control over its own station©s rate card, programming and promotions. MMB Ex. I at p. 20. In practice, Booth American and Pathfinder generally followed the provisions of the JSA. Tr. 482-4, 489-92. In this regard, Booth American maintained a separate programming staff and employed a general manager, Vince Ford ("Ford"), to oversee WRBR(FM)©s operations, other than sales. Tr. 483-4. 9. The JSA did not work as the parties had envisioned. While cost savings were apparent, revenues decreased, due hi large part to the departure of most of Booth

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American©s sales persons. Tr. 2229-31. Thus, instead of improving the stations© bottom lines, the JSA, initially, had the opposite effect. Tr. 520,1070-1. By memo dated April 15. 1993,, Dffle informed Booth that WLTA(FM)©s losses had increased from $37,154 to $178,271. Dille also reported to Booth that WLTA(FM)©s revenues were down 47% even though first quarter revenues for the entire market were up 10%. Dille noted that neither Steve Ruby, a Pathfinder employee, nor Ford, Booth American©s employee, had produced the results hoped for by the parties. MMB Ex. 6, p. 2; Tr. 2233-5, 2302.

10. Notwithstanding the obvious problems with the Venture, Dille wished to continue with the JSA because he believed that the cost savings from joint sales operations were significant and would continue and because he believed that the stations© revenues would eventually increase. Tr. 2302. To that end, he proposed that a replacement be sought for the general sales manager©s function for the Venture. He also suggested that Booth consider additional cost-savings measures, such as co-locating the facilities of WRBR(FM) and WLTA(FM) and employing a common general manager. MMB Ex. 6, pp. 3-4; Tr. 2304. Dille also passed along observations made by others involved in different joint ventures; namely, that presentation of each station should be done separately and that there should be separate sales staffs with a common sales manager. MMB Ex. 6, p. 2.

Pathfinder©s Effort to Acguire WRBRCFM)

11. Shortly after receipt of Dille©s memo, Ridder informed Dille that Booth American wanted to sell WRBR(FM). MMB Ex. 2, p 3; Tr. 486, 2235. While Booth American representatives contacted a number of regional prospects, including David Hicks 2 ("Hicks") and Niles Broadcasting, Inc. ("Niles"), licensee of WNIL(AM) and WAOR(FM), Niles, Michigan, it appears that only Pathfinder actually commenced negotiations with Booth American. Tr. 1862-6, 2236, 2241. Dille negotiated terms on behalf of Pathfinder, while Robert Watson ("Watson"), Pathfinder©s chief financial officer, Secretary and Treasurer, provided advice. Tr. 496-7, 2238.

12. By June 1, 1993, Pathfinder and Booth American had reached an understanding as to the basic terms of a deal. Tr. 1516, 1518-9. On that date, Pathfinder©s communications counsel, Alan Campbell ("Campbell"), faxed to Watson a draft Memorandum of Understanding ("MOU") concerning WRBR(FM). The draft MOU reflects a sales price for WRBR(FM) of $660,000 (principal and interest); a $50,000 deposit in the form of a promissory note; a promise to proceed expeditiously to negotiate

r, on behalf of Booth American, had offered to sell WRBR(FM) to Hicks for a purchase price of nearly $1 million in cash, without seller financing. Hicks rejected the proposal. Tr. 1862-4.

8418 Federal Communications Commission FCC 99D-2 and execute an Asset Purchase Agreement ("B/P-APA"); and a commitment to execute noncompetition and local marketing agreements. The proposed payment schedule called for no payments for the first six months following the signing of the B/P-APA; $5,000 per month, due on first day of the 7th through 12th months following the signing of the B/P-APA; a $105,000 payment at the closing; additional payments on the first day of the 13th through 33rd months following the closing; and a $240,000 balloon payment on the first day of the 34th month following the closing. MMB Ex. 9; Tr. 496-8.

13. As they were concluding then- negotiations for the sale of WRBR(FM). Pathfinder and Booth American ascertained that Pathfinder would have to obtain a waiver of the radio-newspaper cross-ownership rule (then Section 73.3555(c)(2) of the Commission©s Rules) because the I mV/m contour of WRBR(FM) encompassed the entire community of Elkhart, where the Elkhart Truth, a daily newspaper in which Dille held an attributable interest, is published. 3 MMB Exs. 1, pp. 32, 54; 2, p. 3. Booth, however, did not want to wait to see whether the Commission would act favorably on such a waiver request. MMB Exs. 1, p. 54, 2, p. 4-1 Tr. 502-3, 1517, 2240. Indeed, it appeared that grant of a waiver was far from certain and might take some time. Tr. 1517, 2241. Consequently, in late June or earlv Julv 1993, Booth indicated to Dille that he would begin seeking other buyers for WRBR(FM). MMB Ex. 2, p. 4.

hiver of WRBR

14. Hoping to find a way to preserve the ISA, Dille endeavored to locate a suitable substitute for Pathfinder as a buyer of WRBR(FM). MMB Ex. 2, p. 5; Tr. 2242. Dille considered several possibilities from among those previously contacted bv Booth American, and he contacted Hicks, a broadcaster hi Michigan, in July 1993. MMB Ex. 2, p. 4; Tr". 1866, 2242-3. Dille thought Hicks would be a good candidate for WRBR(FM) because he was an experienced broadcaster, close to Dille in age, and not a competitor in the South Bend/Elkhart area. MMB Ex. 1, p. 54. Dille and Hicks had become acquainted as a result of both having attended industry gatherings and having served in various capacities for the National Association of Broadcasters ("NAB"). Tr. 1866, 2035-6, 2242-4. Dille viewed Hicks as having a good character and reputation. Tr. 2298. 15. When Dille contacted Hicks, Pathfinder was the licensee of 9 radio stations: WTRC(AM)/WLTA(FM), Elkhart; WQHK(AM)/WMEE(FM), Fort Wayne- WCKY(AM)/WIMJ(FM), Cincinnati; WCUZ(AM-FM), Grand Rapids; and

3In addition to being president of Pathfinder, Dille has at all times pertinent to this proceeding held an atributable interest in Truth Publishing Company (Truth), publisher of the the Elkhart Truth. MMB Exs. 1, p. 32, 3, p. 83; Tr. 2221. Watson is also an officer and director of Truth as well as a director of Pathfinder. Tr. 478-80.

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WQWQ(AM), Muskegon Heights, Michigan. Further, Dille, through Truth, held attributable interests in KQLL(AM), Tulsa and KQLL-FM, Owasso, Oklahoma. MMB Ex. 3, p. 82. Finally, Dille also held a 50% interest in JAM Communications, Inc. ("JAM"), licensee of WQHK-FM. Decatur, Indiana. Tr. 589-90, 647. Hicks was president and sole stockholder of Hicks Broadcasting Company ("HBC"), licensee of two radio stations, WKMI(AM), Kalamazoo and WKFR(FM), Battle Creek. At that time, Hicks was in the process of merging HBC into The Air-Borne Group, Ltd ("Air-Borne"), licensee of WRKR(FM), Portage, Michigan, which would result in Hicks holding slightly less than one-third of the voting stock of the surviving entity. MMB Ex. 3, p. 82; Tr. 83-4, 91-3, 1856.

16. On July 28, 1993, Dille met with Hicks and proposed that Hicks become the majority owner in an entity that would acquire WRBR(FM). MMB Ex. 4, pp. 4-5; Pathfinder Ex. 10, p. 1; Tr. 1870. While they have different recollections regarding the particulars of the meeting they apparently discussed the JSA as well as some of the details of the deal Dille had worked out with Booth. Tr. 1872-5, 2245. Dille testified that he also raised the inclusion of his children as minority owners, and, possibly, then- having the right, ultimately, to buy Hicks out. Tr. 2245-6. Although Hicks was interested in having further discussions with Dille about WRBR(FM), he did not initially commit himself to Dille©s proposal. Tr. 1876.

17. Shortly thereafter, Dille contacted Hicks again. Tr. 2246-7. Although Hicks testified that he did not tell Dille that he would go forward with the WRBR(FM) project until early September, Dille, in mid-August, told Campbell that Dille (identified in the following memo as Dille, HI) had found someone to acquire WRBR(FM). MMB Ex. 12; Tr. 1519-20, 2250. As Campbell understood the situation (as reflected in his August 17, 1993, memorandum to John Quale ("Quale"), Booth American©s communications counsel):

"[A] new entity, Newco, would be formed to acquire WRBR. There would be a single majority shareholder who is not related to Dille, ffl. The majority shareholder is an experienced radio broadcaster who has no interests in the South Bend or Elkhart markets. The three minority shareholders would be the three adult children of Dille, m (ages 26, 25 and 19).... Dille, m would not have any interest - attributable or nonattributable - hi Newco." MMB Exs. 1, p. 32; 2, p. 5. Campbell determined that Dille©s idea of a single majority shareholder, with his children as non-attributable minority owners, would be acceptable to the Commission after discussing the idea with Quale and Larry Eads, then chief of the Mass Media Bureau©s Audio Services Division. MMB Exs. 1, p. 54; 12; Tr. 1520-1. At about the same time,

8420 Federal Communications Commission FCC 99D-2

Dille also discussed his plan with Peter Tannenwald ("Tannenwald"), a communications lawyer then with the law firm of Arent, Fox, Kintner, Plotkin & Kahn Cater with Irwin, Campbell & Tannenwald, P.C.). Tannenwald informed Dille that no waiver of the Commission©s rules would be needed if the buyer had a single majority shareholder and Dille©s children held non-attributable interests. Tr. 1426-7, 2242. 18. On the same day that Campbell sent his memorandum tc Quale, Dille sent a "Note to John Booth" ("Note") concerning WRBR(FM). The Note stated in pertinent part: "As we have discussed, Dave Hicks, a broadcaster hi Kalamazoo, has indicated his intent to become the controlling interest hi an entity that would acquire WRBR. As we have also discussed my three children would each hold a third of minority shares. They would have an arrangement-option-agreement to purchase from Hicks his shares when and if that became possible. Their ages are 26, 25 and 20. It would be prudent for NEWCO to have a JOA or some kind of agreement with someone. Clearly WLTA would be the likely choice. And that agreement would have an element of risk within it so as to ensure careful attention to the obligations of the business as well as the license. These things together should provide for an "arm©s length" agreement. The above along with the de minimis nature of the encroachment on the rules should make any request, if necessary, for a waiver fairly straighforward. Perhaps such a waiver is not a slam dunk, but relative to Bakersfield it ought to be quite "doable". Clearly, we would like to proceed. We see it as a reasonable business deal and a help to both stations as they position for the future..... By now you should have some kind of document from Alan Campbell regarding the governance of NEWCO that will furnish what we need to proceed. MMB Exs. 1, p. 31; 2, pp. 4-5. 19. Dille explained that his purpose in sending the Note was to update Boom on Dille©s progress with Hicks. In this regard, Dille did not want Booth to think about selling the station to anyone else. Tr. 2248. Notwithstanding the assertions in the first and second paragraphs regarding Hicks and an "arrangement-option-agreement," Dille testified that Hicks had not even committed to participate in the transaction, much less

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agreed to an arrangement for the disposition of his interests. Tr. 2248-9, 2338-40. Hicks likewise testified that, as of August 17, 1993, he had made no agreement and formed no intent either to purchase WRBR(FM) or to give the Dille children an option to acquire his interest. Tr. 1935-6, 2068.

20. Dille did not send to Campbell or Hicks the Note sent to Booth, and Hicks did not see the document until December 1995. Nor did Dille inform either of them at that time that he desired an "arrangement-option-agreement" for his children to be able to purchase Hicks© interest. Tr. 1559, 2330-1. However, consistent with his communications with Campbell and Booth and hi order to keep negotiations moving forward, Dille had Watson send to Booth American©s attorneys proposed changes to draft documents concerning the WRBR(FM) sale. Among other things, Watson related that "the purchaser will not be related to Pathfinder Communications Corporation; the corporate name is still yet to be established." MMB Ex. 13. At this point, Watson understood that he was acting on behalf of Dille©s children; however, all such activities occurred during his normal work day, and he received no extra compensation from Pathfinder or from the Dille children. Tr. 505-6.

Hicks Decides to Participate

21. Dille met with Hicks again on September 2, 1993. Pathfinder Ex. 10, p. 2; Tr. 1877-8, 2253. At this meeting, Dille provided Hicks a sketch as to how the ISA worked. Pathfinder Ex. 67; Tr. 1880, 2252-3. Hicks and Dille also discussed whether a JSA was permitted by the Commission, whether, and if so, what further combinations of operations could occur and whether Hicks was amenable to the participation of DiHes children as minority investors. Tr. 1882-3, 1886-7. Dille also provided to Hicks for the first time detailed information regarding the price and terms he had negotiated with Booth. Tr. 1885. Hicks further testified that, at that time, he had no agreement with Dille to move forward to acquire WRBR(FM) or to give Dille©s children an option to acquire his interest. Tr. 1888. Finally, while he was not certain, Hicks acknowledged that the Dille children©s future ownership of his interest could have been one of Dille©s long list of wishes that was raised at the meeting. Tr. 1887.

22. Subsequent to his meeting with Dille, Hicks wrote to Booth to "confirm my interest hi the purchase of Radio Station WRBR hi South Bend.... My intentions would be to form a [sic] Indiana corporation under Sub-S status with Mr. Dille©s children.... Mr. Dille informs me that there is now in place a selling agrreement with Radio Station WLTA and that this agreement provides an incentive for either station to perform well as revenues would be tied to audience shares. We feel it would be important to continue this agreement.... If my interest

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is acceptable to you I would ask that contracts or other agreements necessary for my consideration be forwarded to me as soon as possible. Please also inform me of any additional information that I may need to supply to you." MMB Ex. 15; Tr. 1889-90.

Hicks explained that he wanted Booth to know that he was interested in acquiring WRBR(FM) and having the JSA continue. Tr. 1890-1. Hicks© letter was not intended to reflect a commitment to buy the station but to communicate that he was an interested party. Hicks did not view WRBR(FM) as a "big deal;" rather, he perceived the project as a chance to do something creative and fun. Tr. 2073.

23. Approximately one week later, Hicks formally engaged Eric V. Brown, Jr. ("Brown"), a Michigan attorney, to assist him in negotiations with Booth American and in drafting documents related to the WRBR(FM) acquisition. MMB Ex. 18, p. 1; Tr. 1746-7, 2078. Hicks viewed Brown as a negotiator, document provider and counselor. Tr. 1895. Hicks had known Brown for approximately ten years. Tr. 1626, 1893. In addition to their business dealings, they were social friends. Tr. 1633, 2079-80.

24. Concurrent with his decision to go forward with negotiations concerning WRBR(FM), Hicks closed on a merger of his solely-owned HBC with Air-Borne on August 31, 1993. After the merger, the entity was renamed the Crystal Radio Group, Inc. ("Crystal"). Although Hicks had brought to the merger two of the three stations (see paragraph 15, supra) he held slightly less than 1/3 of Crystal©s stock after the merger. In this regard, Hicks© stations had a substantial amount of debt compared to Air-Borne©s station. Tr. 92, 1939, 2032-3). Hicks and Brown, who had been a director of HBC and its corporate counsel, became directors of Crystal. Crystal©s four other directors came from Air-Borne. Brown also took on the role of corporate counsel for Crystal. Tr. 94, 165, 1732, 1956.

25. Sometime between August 31, 1993 and September 28, 1993, Dille stopped by the Crystal offices to talk with Hicks. While there, Dille was introduced to Hicks© new business associate, Edward Sackley, ffl ("Sackley"), who was also one of Crystal©s directors. Tr. 1941-©). Dille told Sackley about Hicks© role in the possible acquisition of WRBR(FM). Sackley testified that, after further discussions with Hicks, it was his understanding that Hicks was going to acquire the station on Dille©s behalf and transfer it to Dille at a later date. Tr. 94-9. 26. Sackley was so concerned about the matter that he prepared a related item for the agenda for Crystal©s board of directors first meeting, which was held on September 28, 1993). The agenda item stated:

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"Outside Ownership and/or Quasi-Ownership of Additional Broadcast Properties - Dave has indicated that discussions have taken place involving possible involvement by him, personally, in the transfer and assignment of the license of another broadcast facility or facilities. This would be undertaken in connection with a planned subsequent transfer to a third party. The President requests that full details regarding any such activity, planned or actual, be provided on a regular basis and that the opinion of an FCC attorney be obtained by Dave, at no cost to CRG. That opinion, and a review period of no less than 3 business days, must be provided before Dave enters into any written or oral agreement or option. Indeed, such notification and legal opinion should be required of any CRG officer, director or shareholder contemplating any outside broadcast transaction. DISCUSSION AND BOARD RECOMMENDATION REQUESTED." MMB Ex. 23, p. 12.

Sackley testified that his primary concerns at this stage were Hicks© potential financial and time commitments. In this regard, he and Hicks were personally responsible for Crystal©s debt of several million dollars, and Sackley did not want Hicks becoming involved with another station which might divert Hicks© attention from his duties to Crystal. Tr. 92, 96, 105, 1760, 1778, 2049.

27. Notwithstanding Sackley©s concern, the minutes (as opposed to the agenda) of the Crystal meeting reflect only that, with respect to outside ownership, "[t]he Board briefly discussed its expectation that outside broadcast business interests by CRG employees be disclosed to and reviewed by the Board." MMB Ex. 23, p. 15. Hicks did not dispute the accuracy of the agenda or the minutes relative to his proposed ownership of WRBR, but he denied that either he or Dille had told Sackley that Hicks would hold the station only until~Dille could acquire it. Tr. 1943-4, 2038-43, 2047-8. According to Brown, the Crystal board©s discussion concerning Hicks© proposed participation in the acquisition of WRBR(FM) lasted about five minutes. Tr. 1733-4. Brown believed that the minutes accurately reflected what was discussed. Tr. 1734.

28. In the meantime, Hicks, along with Dille and Watson, had received a set of the most recent draft documents from Booth American©s attorneys. MMB Ex. 16; Tr. 507. Hicks took his set to Brown. From his review of the situation with Hicks on September 20, 1993, Brown learned that Dille could not acquire WRBR(FM) without a waiver; that Pathfinder and Booth American had a joint operating agreement (the ISA); and that Hicks believed he could pay the station©s purchase price of $660,000 out of the revenues derived from the ISA. Tr. 1634-7; MMB Ex. 19, p. 1. Brown©s notes reflect that Hicks informed Brown that Hicks would own 52% of the entity acquiring WRBR(FM); that Dille would basically operate the station while Hicks would be responsible for two or three employees; and that Hicks would have to put up a letter of

8424 Federal Communications Commission FCC 99D-2 credit for his share of the $50,000 deposit. Id., pp. 2-3. Brown further understood that if Hicks did not acquire the station, Booth American would likely sell WRBR(FM) to someone who could operate it as part of a duopoly. Id., p. 3; Tr. 1681-6.

29. On September 21, 1993, Brown spoke with Dille. Tr. 2254. Brown©s notes of the conversation reflect Dille©s rendition of a brief history of regulatory changes regarding ownership. Brown was also informed about the JSA, Dille©s inability to acquire WRBR(FM) absent a Commission waiver, Booth©s decision not to wait for die outcome of a waiver request, and Dille©s desire to protect the interests of his three children. Pathfinder Ex. 13; Tr. 1692-4.

30. On September 22, 1993, Brown met with Hicks and Dille, together. Tr. 1696-1704, 1897-8, 2254-5. At that meeting, Brown learned that Campbell was representing Dille. Brown was informed that the proposed deal had "been discussed with the FCC and blessed." MMB Ex. 21, p. 1. In this regard, Campbell had received assurances in late August 1993 from Larry Eads, then Chief of the Mass Media Bureau©s Audio Services Division, that the Dille children could hold non-attributable interests in the buyer of WRBR(FM). MMB Ex. 12, p. 1; Tr. 1519-21.

31. Brown©s notes also reflect "concerns," one of which was that the Dille "kids would buy David out. Would require waiver at present time." MMB Ex. 21, p. 1 According to Hicks, Brown and Dille, no agreement then existed as to how and when any such acquisition would be accomplished. Tr. 1704, 1898-9,2254-5. Moreover, although Brown viewed the children©s future ownership as merely one of the options for Hicks to leave the entity, Brown acknowledged that no other options were discussed. Tr. 1697, 1766. With respect to an exit strategy, Brown©s notes also reflect a "put," the price for which would either be $50,000 or be based on a formula. MMB Ex. 21, p. 3. According to Hicks and Dille, no further discussion about an option for Dille©s children occurred until March 1994. Tr. 1902, 2268-9, 2294.

32. Additional matters discussed by Dille, Hicks and Brown included Hicks© "Licensee - liability," which Brown understood to include programming, three or four employees including a general manager, and Hicks© time commitment, which was estimated at one morning per month at the station. MMB Ex. 21, p. 1,3. The proposed payment schedule was noted by Brown. By now, the proposal called for no payments for six months after the closing. Id., p. 2. Brown was also informed that Booth American would prepay the lease for WRBR(FM)©s studio and offices, thereby allowing Hicks and Pathfinder to combine the operations of WRBR(FM) and WLTA(FM). Id.; Tr. 1699. Finally, the parties worked out a procedure for revising draft documents, which included review by both Campbell and Brown. Id., p. 3; MMB Ex. 22.

8425 Federal Communications Commission FCC 99D-2

33. Thereafter, Brown reviewed draft documents and proposed suggestions on Hicks© behalf through the signing of the Asset Purchase Agreement (" APA") with Booth American on November -30, 1993. MMB Exs. 18, pp. 1-3; 25; 26; 27; 29; 31; Pathfinder Exs. 18-22; Hicks Ex. 10; Tr. 148-51, 1895. Dille and Watson continued to use Campbell to review drafts and propose suggestions on behalf of the Dille children. Campbell billed Pathfinder for the services rendered. MMB Exs. 17; 22; 24, p. 1; 32, p. 1; Tr. 515-7, 1527-8.

The APA 34. On November 30, 1993, Booth American and Hicks, as an agent for an Indiana limited liability company to be formed under the name Hicks Broadcasting of Indiana, L.L.C. ("Hicks/Indiana"), executed the APA. MMB Exs. 3, p. 26; 4, p. 5. The APA called for a seller-financed purchase price of $660,000, with the first payment of $5.000 to begin seven months after the closing. After five additional monthly payments of $5,000, a $105,000 payment was due on the first anniversary of the closing. After a year©s grace period, 21 monthly payments of $10,000 (later $15,000) were required with the balance to be covered bv a balloon payment of $240,000. MMB Ex. 3, p. 65. The APA©s payment schedule is virtually identical to the one described to Brown during his September 22, 1993, meeting with Hicks and Dille. Id.; MMB Ex. 21, p. 2. 35. Hicks/Indiana©s obligation to pay the purchase price was backed up by a guaranty to be executed at the closing from Hicks and the Dille children totaling $250,000. Per the guaranty, Hicks would be personally responsible for $127,500, while each of the three Dille children would be responsible for one third of the remaining $122,500. MMB Ex. 3, pp. 27, 66-9. The responsibilities of Hicks and the Dille children under the guaranty were personal, not joint and several; i.e, Booth American had no right to seek money from any one individual in excess of that person©s guaranty in the event one or more of the other guarantors were unable to pay. Tr. 643-4, 1654. 36. The APA also included an Escrow Agreement, which called for the deposit of $50,000 - $24,500 from the Dille children and a letter of credit from Hicks in the amount of $25,500. MMB Ex. 3, pp. 27, 70-6. Among other things, the Escrow Agreement provided that if closing occurred the cash portion of the escrow deposit would be returned to Hicks/Indiana. It further provided that if Hicks/Indiana paid Booth American a total of $105,000 in accordance with the payment schedule, the letter of credit would be returned. MMB Ex. 3, p. 71. Hicks obtained the letter of credit from the Michigan National Bank for $510., which he paid by personal check. MMB Exs. p. 77; 4, p. 5; Hicks Ex. 6, pp. 2-3, Tr. 1193-5. Although the checks used to fund the cash portion of the escrow came from the individual Dille children, the source of the funds contributed by them was Dille, a fact known bv Watson. MMB Exs. 1, pp. 33-7; 2, pp.

8426 Federal Communications Commission FCC 99D-2

6-7; 34; Tr. 548. In this regard, Dille had previously learned from Tannenwald that he could loan money to his children if they held non-attributable interests in the WRBR(FM) owner. Tr. 1426-8, 2255-7. Hicks and Campbell were not told and did not know that Dille had provided the money to his children. Tr. 532, 1570, 1904-6, 2346; MMB Ex. 1, p. 54. 37. Under the APA, notices to Hicks/Indiana were to be sent to the attention of Hicks to a post office box in Elkhart, with a copy to Brown. Id.., p. 43. The post office box in Elkhart had been opened by Watson and was maintained by Pathfinder. Tr. 909; MMB Ex. 1, pp. 109, 111. Watson received a complete set of signed APA documents. Tr. 533; MMB Ex. 35.

38. On December 8, 1993, Brown made the following note to his WRBR(FM) transaction file regarding the letter of credit and the guaranty: "We were advised by our client, David L. Hicks, that John F. Dille had agreed to hold him harmless with regard to any losses which might occur as a result of the Letter of Credit or Guaranty. Accordingly, we did not continue focusing on the various problems regarding those two documents and the possibility that David L. Hicks would be personally liable." MMB Ex. 36.

Brown©s recollection is that the memo followed a telephone call he placed to Hicks. Brown called because he was concerned about the guaranty and the letter of credit, both of which created liabilities for Hicks. Brown testified that Hicks did not expressly tell him that Dille agreed to hold Hicks harmless; rather, those were Brown©s words. However, Brown also stated that Hicks told him not to worry about the letter of credit and guaranty because Dille would take care of it.4 Tr. 1729-30,1796. Hicks allowed that he might have told Brown that the guaranty and letter of credit were nothing to worry about, but he could recall no conversation with Dille whereby Dille promised to hold him harmless. Tr. 1908, 2052-3. Dille testified that, prior to late March 1994 (see paragraph 60, infra), he had not agreed to indemnify or hold Hicks harmless in any respect in connection with the WRBR(FM) transaction. Tr. 2272-3. Watson was unaware of any plan to help Hicks meet his obligation under the guaranty if Hicks had to do so. Tr. 543.

©Indeed, notwithstanding his memo to the file, Brown testified that he continued to be concerned about the issue and, ultimately, he prepared a document (the "Side Letter") intended to address his concerns. Tr. 1731. See also paragraph 60, infra.

8427 Federal Communications Commission FCC 99D-2

The Hicks/Indiana Assignment Application and Dille Statement

39. On December 22, 1993, Booth American and Hicks/Indiana filed an application to assign the license of WRBR(FM) (BALH-931222GE). MMB Ex. 3, pp. 14-84. The application represented that Hicks/Indiana was a limited liability company, with Hicks as president/CEO holding 51% of the vote and the three Dille children as minority principals holding the remaining 49% of the vote. None of the Dille children were to be officers or to have any other official function. Id., pp. 17-18. The application included the APA, some, but not all, of the related schedules, and copies of the letter of credit and the Dille children©s checks which funded the escrow. Id., pp. 25- 79. The application also informed the Commission of the Dille children©s interests in Pathfinder and Truth, as well as the interests of Dille and of Dille©s father, John F. Dille, Jr. in those entities. Finally, the application related that Booth American and Pathfinder were parties to a JSA and that Booth American©s interests would be assigned to Hicks/Indiana. Id., p. 83. Hicks certified the accuracy of the information on behalf of Hicks/Indiana and submitted a personal check to cover the application fee, which was subsequently reimbursed by Hicks/Indiana Id., pp. 13. 23, Hicks Ex. 6, p. 2. Tr. 1193-4.

40. The information in the Hicks/Indiana portion of the application came from Watson and Hicks. MMB Exs. 37; 38. Watson©s contribution was Hicks/Indiana©s Exhibit 2, which identified the Dille children, Dille, and Dille©s father and described the interests of the Dille children. MMB Ex. 3, p. 83; Tr. 550. Hicks supplied the remainder of the information. MMB Ex. 37; Tr. 1911. Dille had no role in the assignment application. He did not see it either before or after its filing. Tr. 2258.

41. In response to Question 15 in Section n - Assignee©s Legal Qualifications: "Are there any documents, instruments, contracts or understandings relating to ownership or future ownership rights (including, but not limited to, non-voting stock interests, beneficial stock ownership interests, options, warrants, debentures)?," Hicks decided that the answer should be "No." MMB Exs. 37, p. 8; 3, p. 20; Tr. 1915. In this regard, Hicks, Brown, Watson, Campbell and Dille testified that, at the time the application was filed and during its pendency, there was no agreement of any kind regarding the future ownership of Hicks© interest in Hicks/Indiana. Indeed, such an agreement was not reached until the end of March 1994 after the application had been granted —. when the "Operating Agreement" and the "Side Letter" were finalized. (See paragraphs 58-60, infra). Tr. 1120-1, 1585, 1676, 1767-8, 1916, 2267-8, MMB Ex. 1, p. 90. As to whether or not there was an understanding regarding future ownership, Hicks, Dille and Brown acknowledged that discussions had occurred with respect to the Dille children©s acquisition of Hicks© interest but each insisted that nothing was completely resolved until the "Operating Agreement" and "Side Letter" were signed. Tr. 1647-8, 1657, 1704, 1833-7,1915-6,2260, 2267-71; MMB Ex. 1, p. 90. Hicks insisted that, notwithstanding

8428 ______Federal Communications Commission ______FCC 99D-2

any discussions regarding future ownership, he had intended to answer application question 15 trathfully, and, so far as he knew, he had done so. Tr. 2019.

42. In the application, Hicks also certified that Hicks/Indiana had "sufficient net liquid assets ... on hand or ... available from committed resources to consummate the transaction and operate the facilities for three months." MMB Exs. 3, p. 21; 37, p. 9; Tr. 1917-8. In this regard, Hicks viewed his personal assets as adequate to cover the station©s expenses for the first three months of operation. Tr. 1918, 2101. Moreover, although the station had been losing money, Hicks believed that personnel cost savings resulting from automation and from co-locating the station with WLTA(FM) would allow him to operate the station with a minimal investment. Tr. 1902-5, 2029-31. Consistent with this idea, Hicks determined that the applicant would employ less than five full-time employees. MMB Exs. 3, p. 21; 37, p. 9; Tr. 1919-20. Hicks had not formulated a budget for the station at the time the application was filed. Tr. 775. Hicks also had no concrete information regarding the financial wherewithal of the Dille children. Tr. 1905- 6.

43. For the preparation, submission and prosecution of the WRBR(FM) assignment application and for all subsequent matters related to the Commission prior to the OSC, Hicks/Indiana chose to employ Campbell©s firm - Irwin, Campbell & Crowe, P.C. (later Irwin, Campbell & Tannenwald, P.C.) - as its communications counsel. MMB Exs. 3, p. 12-33; 37; 38; 40; 126, Tr. 1525-6, 1909-10. Although the formal attorney-client relationship was not established until December 21, 1993, Hicks had determined at least one month earlier to use Campbell hi connection with the WRBR(FM) transaction. MMB Ex. 33; Tr. 2084-5. Hicks testified that although he was aware that Campbell had done work for Dille he understood that Dille was primarily represented by Tannenwald. Tr. 2085-6. Hicks paid Campbell©s retainer from his own funds by a personal check dated December 22, 1993, which was subsequently reimbursed by Hicks/Indiana. Hicks Ex. 6. Thereafter., Campbell©s bills were paid by checks drawn by Pathfinder personnel pursuant to the Pathfinder-Hicks/Indiana accounting agreement, (see paragraphs 62, 64, 104 infra). MMB Exs. 42; 44; 54; 126; Tr. 565, 574-5, 626, 982-9. Hicks chose Campbell as Hicks/Indiana©s FCC counsel after having been introduced to him on the telephone by Dille. Tr. 1525. Hicks hired Campbell because his previous communications attorneys had retired from practice and Campbell had a working knowledge of the ISA, the negotiations between Booth American and Pathfinder, and the discussions that had occurred with Commission staff concerning these matters. Tr. 1909-10. 44. Campbell put the WRBR(FM) assignment application into final form. MMB Exs. 38; 39; 40: Tr. 1529-30. Except for some matters not germane to this proceeding, Campbell did not discuss the application©s answers with Hicks because he believed that

8429 Federal Communications Commission FCC 99D-2

Hicks was an experienced broadcaster who understood the application©s questions. Tr. 1532,1569-70. Campbell©s onlv communication with Watson relating to the preparation of the application concerned the application exhibit which detailed the interests of the Dille children, Dille, and Dffle©s father. Tr. 550, 1529.

45. In January 1994, while the WRBR(FM) assignment application was pending, Sackley received a telephone call from Crystal©s accountant, congratulating him on the acquisition of a new station. When Sackley asked what he was referring to, the accountant faxed him a page of Broadcast & Cable magazine, which contained a summary of the proposed purchase. MMB Ex. 23, p. 16; Tr. 105-6. Sackley thereafter confronted Hicks. Sackley was angry because, among other things, Hicks had not provided an opinion of counsel prior to entering into the transaction. Sackley thereupon asked Richard Zaragoza ("Zaragoza"), a Crystal shareholder and its communications counsel, to obtain a copy of the Hicks/Indiana application to acquire WRBR. Tr. 108-9. 46. The Crystal board discussed Hicks© proposed acquisition of WRBR(FM) at its January 28, 1994, meeting. Tr. 110. Sackley©s recollection of the board meetings is that the members discussed every aspect of the proposed transaction, including ownership, rights to future ownership, financing and day-to-day management. Tr. 111. Sackley testified that he was particularly concerned that Question 15 of the application (concerning the existence of any agreement or understanding regarding present or future ownership rights) had been answered in the negative because that answer "flew in the face of everything we had been told ... regarding the planned subsequent transfer...... Tr. 115. Sackley recalled that Brown©s response to his concern was that Question 15©s "No" answer was appropriate because, at that point, there was no written agreement regarding future ownership and nothing was finalized. Tr. 115-7, 216-9. With respect to financing, Sackley related that Hicks explained that he had no out-of-pocket expenses and would not be contributing anything to the deal. Sackley further recalled that, in response to concerns about paying expenses in the event station revenues were insufficient, Hicks related that Dille would back him up. Tr. 113-4, 138-9, 221. Sackley also recalled that his father (also a Crystal director) called Hicks "stupid" because, at that time, Hicks had no written assurance that Dille would help financially if such help were needed. Tr. 221- 2. Sackley testified that, as a result of the discussion, he was concerned about the trathfulness of the application©s representation regarding future ownership and the impact such a representation might have on Crystal©s licenses. Tr. 116. 47. Hicks© recollection of events differs from Sackley©s in a number of respects. Hicks testified that the mood preceding the board meeting "was not harmonious and it was not a very pleasant meeting from the first issue all the way through." Tr. 1953. Hicks stated that he tried to explain to the Crystal board the exact plan for the WRBR(FM) transaction but had a "real hard time communicating" because of Sackley.

8430 Federal Communications Commission FCC 99D-2

Tr. 1953. In this regard, Hicks related that Sackley was concerned about the effect of an infraction at South Bend on Crystal. Tr. 1954. To assuage that concern, Hicks testified that Brown offered to obtain an opinion from counsel about the possible impact of the WRBR(FM) transaction on Crystal. Tr. 1955. Hicks also indicated that, in response to concerns about his plans to operate WRBR(FM) and the amount of time he might have to devote, his plan was to have a general manager and to devote personal time after his normal work day in Kalamazoo. Tr. 1957-8. Hicks also acknowledged that questions were raised about his financial capabilities. Hicks stated he reacted sarcastically to a comment from Sackley©s father about Dille©s role in financing the operation in stating that Dille was "going to be at my door." Tr. 1958-9. Hicks then related that Sackley©s father thought it "stupid" that Hicks did not have a signed agreement with Dille with regard to financing. Tr. 1959. With respect to the question of future ownership, Hicks denied that either he or Brown stated at the meeting that there was an agreement to sell the station to Dille or his children at some point in future. Tr. 1959-60. Hicks also testified that neither he nor Brown justified not disclosing an option in the assignment application because it had not been reduced to writing. Tr. 1960, 2099.

48. Brown related that, prior to the meeting, he learned that Sackley was concerned that Brown had not disclosed certain information about the WRBR(FM) transaction. Brown also understood that Sackley had charged Brown with a conflict of interest, which prompted Brown to propose resignation from the board. However, before Brown could resign, Sackley asked him not to because, according to Brown, Sackley wanted the merger to go forward. 5 Immediately thereafter, the meeting occurred. Tr. 1739-41. Brown recalled that, during the meeting, there was a discussion regarding Hicks© obligations, specifically, the guarantee and the letter of credit, neither of which caused any concern among board members. Brown also related that a question was asked and a statement was made that Hicks© rights or what he could get out of the deal had not yet been agreed upon. In this regard, Brown testified that Sackley©s father cautioned Hicks that he should be adequately compensated for what he was going to do. Tr. 1780- 1. 49. The minutes of the meeting state as follows:

"Hicks Private Transaction. Dave explained the transaction recently filed with the FCC involving his 51 % ownership of Hicks Broadcasting of Indiana, LLC, purchaser of WRBR, South Bend, Indiana, from Booth American Company. The Board reminded Dave of the previous instruction to furnish to Crystal Radio a

5In this regard, Sackley also testified that he had raised conflict of interest concerns with Brown and that Brown had asked to resign prior to the meeting. Sackley further testified, however, that Brown did not resign because Sackley wanted Brown to attend the meeting and justify Hicks© application. Tr. 112-3.

8431 Federal Communications Commission FCC 99D-2

legal opinion from an FCC attorney on the possible impact of the transaction on Crystal Radio. The Board also discussed the ramifications of WRBR having FCC violations, the possible need for an indemnification from Dave if so advised by legal counsel, and clarification that this activity was not to in anyway [sic] interfere with Dave©s responsibilities at Crystal Radio. Dave acknowledged understanding of these points and agreed to arrange for Dick Zaragoza to review the transaction as soon as Hicks Broadcasting of Indiana completes a Shareholders Agreement between all of its owners. Eric Brown agreed to assist Dave with obtaining the opinion, which is not to be an expense of Crystal." MMB Ex. 23, p. 17.6

Except for the reference to being "reminded" about getting an opinion of counsel, both Brown and Hicks acknowledged that the minutes of the meeting accurately reflected what had been discussed. Tr. 1742, 1953, 2050-1.

50. Sometime in February 1994, Campbell received a telephone call from a member of the FCC©s staff. Tr. 1534, 1573)-5. The staff person requested two "pieces of information hi the form of amendments." MMB Ex. 1, p. 41. With respect to the future operation of WRBR(FM), Campbell related to Hicks that the staff wanted "a.statement from John Dille and his father that they w[ould] not be involved in the day- to-day operation of WRBR and w[ould] not participate in the financing of the purchase of the station for John©s children." Id. Other than Campbell©s letter and the statement which Dille ultimately signed, there is no written record of exactly what it was that the staff requested. Tr. 1579, 2325-7.

51. Campbell did not discuss with the staff person the rationale behind the request. Tr. 15357 1578-9. Indeed, in situations where a staff request is made, Campbell©s practice is simply to try to supply the information requested in order to expedite the processing of the application. Tr. 1579. Campbell also did not discuss the staffs request or amendment with Hicks. MMB Ex. 44, Tr. 1923. As to why the letter©s phraseology differed from the statement Dille signed (compare MMB Ex. 1, p. 41 with MMB Ex. 1, p. 40), Campbell explained that his letter to Hicks was only

6 " By letter dated March 15, 1994, Brown sent a copy of the draft Operating Agreement to Zaragoza, in accordance with the commitment Hicks made at the January 28, 1994, Crystal board meeting to have FCC counsel review such an agreement. MMB Ex. S3. By letter dated March 21, 1994, Brown informed Zaragoza that the draft Operating Agreement was going to be amended to change the buy and sell provisions. MMB Ex. 55. After being informed bv Zaragoza that he would not render an opinion on behalf of Hicks/Indiana, Brown requested that Campbell provide the opinion. MMB Ex. 60; Tr. 1580-1,181 1. Campbell did so by letter to Sackley dated March 31, 1994. MMB Ex. 23, pp. 21-23; Tr. 119-20.

8432 ______Federal Communications Commission______FCC 99D-2 intended to alert him generally of the request and was not meant to reflect precisely what the staff had asked. Tr. 1538-9. 52. The letter from Campbell memorializing the staff s request was sent to Hicks on February 17, 1994, and reflected that a copy was to be sent to Watson. MMB Exs. 1, p. 41; 4, p. 7. However, both Dille and Watson testified that they never saw Campbell©s letter to Hicks. Tr. 584, 2266. Further, while Campbell©s statement of services reflects that he called Dille and Watson about a " WRBR amendment," Campbell and Watson did not recall any conversation about the specifics of the staff s request or the reasoning behind it. MMB Ex. 43; Tr. 585, 1576, 1578, 2266. Dille recalled merely that Campbell called him and told him and Watson that the Commission needed a statement regarding Dille©s and his 80 year old father©s non-involvement in financing and day-to-day operations of Hicks/Indiana. Tr. 2260-1.

53. Initially, Campbell prepared a statement to be signed by both Dille and his father. However, after being informed by Dille that Dille©s father was too ill to sign any such statement, Campbell revised the statement so that only Dille would sign it. Tr. 1535-6, 2261-2. The statement ultimately prepared by Campbell and signed by Dille on Februarv 22. 1994, read as follows:

"I am the father of Sarah D. Dunkel, Alec C. Dille and John F. Dille, IV. I am aware that they are each proposing an ownership interest of 16.33% in Hicks Broadcasting of Indiana, L.L.C.. which is proposing to acquire the above- captioned station. This is to advise the Commission that neither I nor my father, John F. Dille, Jr., will finance or guarantee the purchase of the station by Hicks Broadcasting: Moreover, upon acquisition of the station by Hicks Broadcasting, neither I, nor my father, will be involved in the day-to-day operation of the station." MMB Exs. 1, p. 40; 2, p. 7; Tr. 2262-3.

Campbell did not refer to Pathfinder in the statement because the staff had not asked for anything with respect to Pathfinder. Tr. 1539-40. These were the only revisions to the statement ever discussed or made. Tr. 1536-7, 2262.

54. Dille and Campbell did not discuss the implications of Dille already having furnished the money to fund the cash portion of the escrow. Tr. 2343. Indeed, Campbell did not know and had not asked where the Dille children had obtained those iunds, and he also did not inquire how the Dille children would obtain funds in the future if such were needed to cover their commitment to Hicks/Indiana. Tr. 532,1570. Dille testified that because of the advice he had previously received from Tannenwald that it was permissible for him to loan his children any funds they might need for their obligation to WRBR(FM) (see paragraph 36, supra), he believed the statement he signed did not

8433 Federal Communications Commission FCC 99D-2 preclude him from loaning or giving money to his children to fund any obligation they might have relative to Hicks/Indiana. Rather, he understood diat he could not pay Booth American directly on behalf of Hicks/Indiana, and he testified that, at that time, he had no intention of doing so or of guarantying such payment. Tr. 2263-4, 2345-7-, MMB Ex. 1, pp. 54-55. Dille did not consider whether Pathfinder was affected by his statement inasmuch as it had been already reported in the application that Pathfinder was involved in WRBR(FM)©s sales because of the ISA. Tr. 2314-9, 2321-2.

55. Hicks and Dille did not discuss the statement. Tr. 2113, 2341. Ultimately,. Hicks signed on February 23, 1994, and Campbell filed the amendment the next day which included Dille© s statement. MMB Exs. 3, p. 85; 4, p. 7. It appears that Hicks did not receive and review Dille©s statement until after it had been filed at the Commission. Tr. 1921, 1923-4. The statement raised no question in Hicks© mind as to its responsiveness to the staffs request or to its accuracy. Tr. 1924.

of Hicks/Indiana

56. Upon submission of the requested amendment on February 24, 1994, Brown, Hicks, Watson and Dille knew that the application was ripe for grant. Tr. 2260-1. To ensure that the documentation governing Hicks/Indiana was prepared in a timely manner, Watson, at Brown©s or Hicks© request, engaged Samuel Thompson ("Thompson") of Barnes & Thornburg,, a South Bend law firm which had represented Pathfinder.7 Tr. 589, 1660, MMB Ex. 45, p. 2; 46, p. 2. Upon its completion in early March, a set of draft documents was sent by Dille (and supplemented by Watson) to Hicks, with a copy to Brown. MMB Exs. 18, p. 4; 50; Tr. 612-3, 1119, 1662. Ultimately, on March 23, 1994, John F. Dille, IV ("Flint Dille") executed Articles of Organization for Hicks/Indiana. MMB Ex. 59. 57. Brown©s statement of services indicates that, from January 1994 through March 1994. discussions occurred with Hicks and, in some instances, Watson, about a "shareholders agreement." MMB Ex. 18, pp. 4-6. Brown©s statement of services also reflects, however, that no one from his firm actually discussed the "Operating Agreement" with Indiana counsel until late March 1994. MMB Ex. 18, p. 6. Similarly, the statement of services from Barnes & Thornburg reflects that the first discussion with Brown©s firm about an operating agreement occurred on March 29, 1994. MMB Ex. 45, p. 2.

7 Brown explained that once it was decided that the company should be an Indiana limited liability company, he and his partners felt that an Indiana law firm should prepare the organizational documents. Tr. 1659. Brown also stated that he was familiar with Bames & Thornburg and viewed it as a very good firm. Tr. 1660.

8434 Federal Communications Commission FCC 99D-2

58. The initial draft of the Operating Agreement of Hicks Broadcasting of Indiana, L.L.C. ("Operating Agreement") transmitted to Brown in early March 1994 did not include a "call" or "put" provision with respect to Hicks© interest. Pathfinder Ex. 65-, Tr. 1662, 1831. On March 23-24, 1994, the draft Operating Agreement was revised at Dille©s suggestion to include, inter alia, a "call" provision (new Sec. 7.4(b)), which would allow the Dille children, jointly, to acquire at any time Hicks© interest. Essentially,- the price to be paid by the Dille children was proposed at five times Hicks© share of the station©s cash flow, less Hicks© share of the station s debt,8 or $50,000, whichever was greater. The language for the formula was derived from a December 1992 agreement Dille had with the other shareholders of JAM (seeparagraph 15, supra). Pathfinder Exs. 32; 32A; 66; MMB Ex. 57; Tr. 589-90, 647, 2267-8. But for the proposed minimum price for Hicks© shares, neither Brown nor Hicks objected to the call provision. Tr. 649, 1667-9, 1927. Indeed, Brown was "looking for it" and was delighted to get such a proposal. Tr. 1783, 1832-7.

59. On March 25, 1994, Watson transmitted the revised draft Operating Agreement to Brown. MMB Ex. 58. Hicks countered by changing the minimum price for his interest from $50,000 to $100,000. Pathfinder Ex. 66, p. 5; Tr. 1794, 1927, 2134. Subsequent drafts were authored bv Brown and Stephen Stankewicz (on behalf of Hicks) and Thompson, J. Scott Troeger, Watson and Dille (on behalf of the Dille children). MMB Exs. 62; 64; 65; Tr. 6879, 1794. The specific language governing the transfer of ownership in Hicks/Indiana was not agreed upon until March 31, 1994, the day of the closing on the sale of the WRBR(FM) assets from Booth American to Hicks/Indiana. Tr. 688-9, 1676. Brown understood that the Operating Agreement was structured so that Hicks would have to divest his interest whenever the Dille children wanted him out. Tr. 1788-9. The Dille children signed the Operating Agreement upon the advice of then- father sometime in late April or early May 1994. MMB Exs. 3, p, 179; 79; 85; Tr. 737-8. 60. In addition to the Operating Agreement, Brown proposed by a letter dated March 30. 1994 (the "Side Letter"), three other provisions meant to govern the relationship between Hicks and the Dille children. First, Brown confirmed the amounts

8 According to a media broker, Charles Giddens, the multiple proposed was not unreasonable. Tr. 1338-9. Although Hicks opined that the formula was "fair" (Tr. 1931), Brown acknowledged that the formula was totally different from Hicks© arrangement with the other Crystal shareholders, which had no formula for determining a price for the purchase or sale of other shareholders© shares. Instead, the idea in the Crystal arrangement was that a potential buyer or seller would suggest a price which could be used to determine what he paid for others© shares or received for his own. Tr. 1790. Brown made no such proposal on behalf of Hicks. Tr. 1791. Brown could not say whether the formula in the call proposal offered on behalf of the Dille children would result in Hicks receiving fair market value for his interest. Tr. 1792-4.

8435 Federal Communications Commission FCC 99D-2 of the members© capital contributions. Second, Brown proposed that Hicks have a right to "put" his interest in Hicks/Indiana to the Dille children, which could be exercised at any time after three years. The cost to the Dille children would be the same as that agreed upon in the Operating Agreement in the event the Dille children chose to purchase Hicks© interest. Finally, Brown proposed that the Dille children hold Hicks harmless from any costs arising from the letter of credit Hicks had given to Booth American to fund his share of the escrow and that the Dille children agree to pay their respective shares of the guaranty in full before Hicks had to pay any amount on the guaranty. MMBEx. 61; Tr. 635-7,1673,1725,1821-4, 1932. After determining that the guaranty commitment did not appreciably increase the Dille children©s financial burden, Watson and Dille agreed to Brown©s proposals and had the Dille children sign the Side Letter. MMB Ex. 2, pp. 9-10; Tr. 639-41, 2271-3. Campbell became aware of the existence and contents of the Operating Agreement and Side Letter in connection with the preparation of the first ownership report for Hicks/Indiana. In this regard, both the Operating Agreement and Side Letter were included with the ownership report which was filed at the Commission toward the end of April 1994. Tr. 1583-5

61. Notwithstanding Hicks© majority share in Hicks/Indiana, Hicks did not have, nor did he ever seek, a right to call the Dille children©s interests. Hicks© explanation for this was that he was already involved in Kalamazoo and that South Bend was going to be a "fun" project. Moreover, Hicks believed that the spirit of the deal was such that he was not concerned about somebody trying to remove him from ownership. Tr. 2135-6. As to why he needed an exit strategy for a company he would control, however, Hicks had no answer. Tr. 2138. According to Brown, Hicks had no reciprocal right to call the Dille children©s shares because Brown did not think that having such a right provided a good exit for Hicks. Tr. 1726. In this regard, Brown never proposed that Hicks have a call right because Brown©s focus was on how Hicks could get out of the investment if such was his desire. Tr. 1784-6.

62. Concurrent with the preparation and transmission of organizational documents, Campbell and Watson discussed in early March 1994 "the extent to which the Accounting Department of Pathfinder ... could do the accounting services for HICKS." MMB Ex. 48, p. 2-1 51; Tr. 596. Consistent with this discussion, Watson prepared a memo dated March 4, 1994 ("March 4 memo") which described the points upon which he and Campbell had agreed. The March 4 memo (with a minor change made by Campbell to item 6) provided: 1) There will be a written agreement signed by David Hicks, majority shareholder of HICKS, regarding the accounting services to be performed.

8436 Federal Communications Commission FCC 99D-2

2) Steve Kline will be considered one-half General Manager of WLTA Radio and one-half General Manager of WRBR Radio. Steve will, of course, report to David Hicks regarding anything to do with WRBR Radio. 3) John Dille m will be writing a memo to Steve Kline reminding him that he is reporting to David Hicks on all substantial matters regarding WRBR Radio and they should not be discussed with John.

4) After WRBR invoices are approved by Steve Kline for payment, they are sent to the Business Office. Steve should also, at that same time, forward a copy to David Hicks for approval. Dave need not forward the invoices anywhere; he should merely call Steve if he has a problem with anything Steve had previously approved.

5) We need to obtain a stamp that reads (or have printed on our checks) Hicks Broadcasting of Indiana, L.L.C./dba WRBR Radio so that we can stamp our checks appropriately.

6) No officer or director of Pathfinder or of Truth should be an officer or director of HICKS. 7) HICKS has adopted the same employee benefits as PATHFINDER. Furthermore, since many of the employees of Hicks are already being paid through PATHFINDER because of the JOA agreement, we have decided that all of the employees of HICKS could be on PATHFINDER©S payroll. Of course, individuals© wages, payroll taxes, etc., will be charged to HICKS or the JOA accordingly. ~MMB Ex. 48, p. 2.

63. Campbell viewed Watson©s memo as an accurate summary of their conversation. Tr. 1541. Campbell believed that implementation of the foregoing points would not result in an abdication of control by Hicks over the operations of WRBR(FM). Tr. 1542-9. Basically, Watson consulted with Campbell in order to determine what Pathfinder could and could not do with respect to WRBR(FM) consistent with Hicks/Indiana maintaining control over the station. Tr. 597, 1135 -6. CampbelTs records do not reflect any contemporaneous discussion with Hicks about CampbelTs conversation with Watson. MMB Exs. 44; 54. However, the subject matter of the memo had been discussed previously between Hicks and Dille, and copies of the memo were given to Hicks, Dille and Kline. Tr. 595, 597-601, 1142, 1221-2, 1972-3, 2014. 2086-9, 2094, 2319. Neither the memo nor its contents were disclosed to the Commission. MMB Exs. 4, pp. 6-7; 23, pp. 21-3; Tr. 1540-9. 1580, 2319.

8437 Federal Communications Commission FCC 99D-2

64. In accordance with the first point of the March 4 memo, Watson prepared and submitted to Hicks on March 23,1994, a proposed agreement which called for Pathfinder to

"perform all accounting functions for [Hicks/Indiana]. This includes general accounting, accounts payable, preparation of payroll checks and proper payment and accounting for related withholding taxes, issuance of financial statements on a monthly basis and filing of required government reports relating to any accounting records for [sic] which we maintain." MMB Ex. 1, p. 81.

According, to Hicks, the idea for using Pathfinder developed after he had asked Watson about the availability of accounting services in the South Bend area. Tr. 2158. For the accounting services, Watson proposed a charge of $705 per month, with the fee being subject to review and revision each January 1. The proposal allowed either party to terminate the agreement upon 60 days© written notice. Hicks signed the agreement that same day. 9 MMB Ex. 1, p. 81, Tr. 618.

65. Relative to the third point lo of the March 4 memo, Dille drafted and sent to Steve Kline ("Kline"), the general manager of Pathfinder©s WLTA(FM) and the Venture, a letter dated March 17, 1994, advising Kline that he (Dille) did not "want to be involved to any degree in the day-to-day operations of WRBR." Pathfinder Ex. 30; Tr. 352, 2286. The letter further advised Kline that Dille©s role relative to WLTA(FM) and to Pathfinder©s operations pursuant to the JSA remained unchanged. Pathfinder Ex. 30. Dille sent the letter at Campbell©s suggestion to make it clear to Kline that Dille wanted nothing to do with the daily operation of WRBR(FM). Tr. 2287.

66. On March 16, 1994, the Commission granted the application to assign the license of WRBR(FM) from Booth American to Hicks/Indiana. MMB Ex. 4, p. 8. On March 1, 1994, Booth American and Hicks/Indiana closed on the sale of the station. MMB Ex. 66-, Tr. 688. Hicks executed documents on behalf of Hicks/Indiana. E.g., MMB Exs. 63, p. 3, 66, p. 3. Each Dille child ultimately executed the guaranty. MMB Ex. 74. None of the documents related to the closing, including the Operating Agreement or the Side Letter bears Dille©s signature. The closing costs of $696.88 were

" By letter dated December 29, 1995, Watson proposed and Hicks accepted that same day an increase in the monthly accounting charge from $705 to $1,000. MMB Ex. 1, p. 45.

* 10 The second and the fourth through the seventh points of the March 4 memo will be addressed infra in the findings of fact pertaining to the operations of WRBR(FM)

8438 ______Federal Communications Commission______FCC 99D-2

covered by a check issued by Pathfinder. MMB Ex. 63. The amount was accounted for as a receivable to Pathfinder and a corresponding payable bv Hicks/Indiana. Tr. 658-9.

Hicks/Indiana©s Operation of WRBRfFMl

i. Personnel

67. In its application to©acquire WRBR(FM), Hicks/Indiana proposed to use less than five full-time employees to operate the station. MMB Exs. 3, p. 21; 4, p. 6. Hicks determined that operation with such a small number of employees was possible if some of the operations of WRBR(FM) were automated, and if the station were to be co-located with WLTA(FM). n Tr. 1919-20, 2029-30. In the application, Hicks/Indiana also proposed to assume Booth American©s role in the ISA, which would result, inter alia, in Pathfinder continuing to employ all sales and administrative support personnel. MMB Exs. 1, pp. 15-6; p. 83; 4, p. 8.

68. Notwithstanding the ISA©s provision that each party was to employ its own management level employees, Hicks and Dille, with Campbell©s blessing, approved Kline becoming general manager of WRBR(FM) while continuing as general manager of WLTA(FM) in accordance with the second point of the Watson/Campbell discussion (see 62, supra). MMB Exs. 1, p. 20; 48, p. 2; Tr. 601-4, 1973, 2088, 2287. As of March 1994. Kline was the general manager of WLTA(FM) as well as the general manager of Radio One Marketing of Michiana (the name under which the Joint venture between Booth American and Pathfinder operated). Kline had begun to work for Pathfinder at those positions in October 1993. Pathfinder Ex. 70, p. 1; Tr. 268-9. Hicks testified that he considered one other person (Mike Klein) for the position of general manager of WRBR(FM), but he apparently spoke with no one but Kline. Tr. 1970-1. In this regard, however, it is unclear whether, and, if so, when and how often, Hicks and Kline actually discussed Kline©s role with respect to WRBR(FM) prior to April 1, 1994. Compare Tr. 271-6 with 443-7 and 609-10. Neither Hicks nor Kline could pinpoint when Kline was actually hired by Hicks; rather, Kline simply understood that he would become WRBR(FM)©s general manager. Tr. 272-4, 410, 1973, 2088-9. The frequency and nature of Kline©s communications with Hicks relative to WRBR(FM) prior to the taking

11 Indeed, WRBR(FM)©s studios and offices were moved from their location under Booth American to the studios and offices maintained by Pathfinder for WLTA(FM) at 237 Edison Road, Mishawaka, Indiana, sometime between April and June 1994. Thereafter, Hicks/Indiana has been charged 50% of the rent paid by Pathfinder pursuant to an oral agreement. MMB Ex. 4, p. 14; Tr. 607-8, 621, 2121-2.

8439 Federal Communications Commission FCC 99D-2

ofKline©sdepositioninHicks© civil lawsuit against Crystal are also in considerable doubt. n Compare, e.g., Tr. 275-8, 443-7 with 354, 359-61.

69. When Kline took on the role of general manager of WRBR(FM) beginning April 1, 1994, his salary did not change. Tr. 603, 2089-90. Instead, Pathfinder became responsible for only 50% of Kline©s salary; Hicks/Indiana was charged for the remaining 50% notwithstanding that WLTA(FM) had more employees than WRBR(FM). Compare MMB Exs. 69 and 70; Tr. 269-70, 603-4. Dille and Hicks review Kline©s performance annually prior to any change in compensation. Tr. 2090-1. Kline has continued as general manager of both WRBR(FM) and WLTA(FM) (now WBYT(FM)) to the time of this proceeding. Tr. 255-8.

70. As noted, the seventh point of the March 4 memo (see paragraph 62, supra) reads as follows:

7) HICKS has adopted the same employee benefits as PATHFINDER. Furthermore, since many of the employees of Hicks are already being paid through PATHFINDER because of the JOA agreement, we have decided that all of the employees of HICKS could be on PATHFINDER©S payroll. Of course, individuals© wages, payroll taxes, etc., will be charged to HICKS or the JOA accordingly. MMB Ex. 48, p. 2.

On March 7. 1994, Watson prepared a "Summary of Employee Benefit Programs" which were applicable to both Pathfinder©s WLTA(FM) and Hicks/Indiana©s WRBR(FM). The programs covered: payroll policy; doctor and dental appointments; jury duty; holidays; vacations; sick leave pay, funeral leave; auto mileage allowance, health insurance; life insurance and pension plan benefits; and a U.S. Savings Bond program. MMB Ex. 49; Tr. 61 1. Beginning April 1, 1994, all WRBR(FM) employee paychecks were issued by Pathfinder. Tr. 618-9.

71. On April 1, 1994, Kline hired a news director, a sports announcer and a receptionist for WRBR(FM). MMB Exs. 73, p. 3; 89, p. 1; 92, pp. 1-2. On May 11, 1994, Kline replaced the WRBR(FM) news director with a Pathfinder employee who had been working at WTRC(AM), Elkhart. Dawn Hatfield ("Hatfield"), the new news director now held the position of news director for Pathfinder©s WTRC(AM) and.WLTA(FM) and for Hicks/Indiana©s WRBR(FM). The arrangement and the allocation of her pay among the three stations was agreed to by Kline and Richard Rhodes

12 In that deposition, Kline testified that be first met Hicks in the summer of 1994 in connection with Dille©s vinyl sign business. MMB Ex. 128; Tr. 276-8.

8440 ______Federal Communications Commission ______FCC 99D-2

("Rhodes"), the general manager of WTRC(AM). MMB Ex. 73, pp. 1-2, 4-6; Tr. 313. Hatfield remained a Pathfinder employee during her tenure as news director for the three stations, as did her replacement, Thomas Rogers. Tr. 706-6, 713-4, 716-7; MMB Exs. 73, pp. 7-8; 119, p. 3; 120, p. 5; 121, p. 4. A news announcer might work for all three stations (and have their pay allocated among them) or work for two of the three stations. MMB Exs. 87, pp. 1, 3-4; 119, p. 3; 120, p. 5; 121, p. 4.

72. On July 1, 1994, the sports announcer hired by Kline at WRBR(FM) was replaced. Four hours of his time would now be automated; the remaining four hours of his shift were filled by a Pathfinder employee, Vince Turner, who now became the sports director for WTRC(AM), WBYT(FM) and WRBR(FM). MMB Ex. 89, pp. 2-3, 8; Tr. 325. Vince Turner remained a Pathfinder employee during his tenure as sports director for the three stations. Tr. 717, 996-8; MMB Ex. 89, pp. 10-11. On May 9, 1994, WRBR(FM)©s receptionist became a sales assistant for WRBR(FM) and WLTA(FM). She became a Pathfinder employee in accordance with the ISA. Subsequent receptionists and other office staff have been Pathfinder employees, whose salaries were allocated between WRBR(FM) and WBYT(FM). MMB Exs. 1, p. 64; 92, pp. 2-4. 73. WRBR(FM)©s first program director after Hicks/Indiana acquired the license was Bob Henning ("Henning"). Tr. 364, 2123; MMB Ex. 119, p. 3. According to Hicks, Henning served as Hicks© contact with regard to programming and promotions at WRBR(FM). In addition to programming and promotional responsibilities, Henning also performed engineering services. In this regard, Henning had worked as an engineer for WRBR(FM) (and several other stations) while Booth American was licensee. Tr. 2126. On November 29, 1994, Kline informed the staff at WBYT(FM) and WRBR(FM) that Henning had assumed "additional engineering responsibilities with Corporate ... in addition to the facilities© maintenance at 237 Edison." Thereafter, Henning©s salary was allocated among three stations - Pathfinder©s WTRC(AM) and WBYT(FM), and Hicks/Indiana©s WRBR(FM) - and he was viewed as a Pathfinder employee. MMB Exs. 1, p. 64 (RH, Chief Engineer): 120, p. 5; 121, p. 4; 122. p. 5. 74. At the time of Henning©s reassignment, Kline also announced that David Miholer (air name, Phil Britain, hereafter referred to as "Britain" or "Britten") had become program director of both WBYT(FM) and WRBR(FM). MMB Ex. 72, pp. 10- 11; Tr. 307. Previously, Britain had been the program director for WBYT(FM). MMB Ex. 72, p. 1. Although Britain©s salary was allocated 50% to WBYT(FM) and 50% to WRBR(FM). Kline claimed Britain had "very little involvement in the programming" for WRBR(FM). MMB Ex. 2, p. 15; Tr. 309. In a similar vein, Hicks testified that he bypassed Britain and discussed programming matters with Henning. Tr. 2123-5. In this regard, Hicks indicated that, although he wanted his own program director for WRBR(FM), he tolerated Britain in order to accommodate Kline. Tr. 2125. During his

8441 Federal Communications Commission FCC 99D-2

tenure as program director for both stations, Britain remained a Pathfinder employee. MMB Ex. 72, pp. 1-4. 75. In November 1995, Kline promoted Joseph Goldbach (air name, Joe Turner, hereafter referred to as "Turner11 or "Joe Turner") to the position of assistant program director of"WBYT/WRBR." MMB Ex. 96, p. 6; Tr. 338. Previously, Turner had been an announcer, first for WBYT(FM) and, later, for WRBR(FM). Id., pp. 1-5; MMB Exs. 119, p. 3; 120, p. 5; Tr. 1386-90. Although Turner©s title reflected responsibilities at both stations, his activity was directed primarily toward WRBR(FM) inasmuch as he continued to do that station©s morning show and he served as that station©s "main link" with the station©s program consultant. MMB Ex. 96, p. 6; Pathfinder Ex. 5. Turner continued as assistant program director until Britain©s departure in February 1996, at which time Turner became interim program director of both stations. Tr. 339; MMB Ex. 96, p. 8. In March 1996, Turner became program director solely of WRBR(FM). Id., p. 9. Notwithstanding his job titles, Turner©s salary has been allocated 100% to WRBR(FM) since February 1995. 13 Id., p. 1. MMB Ex. 1, p. 64.

76. Generally, Kline has decided how to allocate responsibilities and salary of nonsales personnel between WBYT(FM) and WRBR(FM). Tr. 303, 305. Thus, in addition to the personnel already noted, Kline divided the salary of the continuity director and the event coordinator equally between WBYT(FM) and WRBRQFM). MMB Exs. 88, pp. 1-2; 95, pp. 1-6. The salary allocation of the operations manager has varied, apparently, according to the amount of time spent by that individual at each station. MMB Exs. 1, p. 64; 91, pp. 1-4. 77. Since Hicks/Indiana©s acquisition of WRBR(FM), sales personnel have always been Pathfinder employees and then* compensation has been divided between WB YT(FM) and WRBR(FM) hi accordance with the JSA. MMB Exs. 1, p. 65; 94, pp. 1-26; 119, p. 3; 120, p. 5; 121, p. 4; 122, p. 4; Pathfinder Ex. 50; Tr. 653-4. As was the case when Booth American was licensee of WRBR(FM), account executives continued to sell the stations jointly following Hicks/Indiana©s acquisition of WRBR(FM). However, beginning on July 1,1995, account executives primarily sold only one station or the other (WBYT(FM) or WBRB(FM)); they no longer sold both unless the client wanted to buy time on both stations. Tr. 293, 327, 333, 2303. Notwithstanding this change in procedures, the compensation of all sales personnel continued to be divided between WRBR(FM) and WBYT(FM) pursuant to the formula prescribed hi the JSA. Tr. 653-4. Effective January 1, 1997, the JSA was amended. From that time on, the compensation

13 For EEO reporting purposes, Turner was viewed as a Pathfinder employee in 1994, but a Hicks/Indiana employee subsequently. MMB Exs. 1, p. 64; 119, p. 3; 120, p. 5; 121, p. 5; 122, p. 6

8442 Federal Communications Commission FCC 99D-2 of sales personnel has been allocated either to WBYT(FM) or to WRBR(FM) exclusively, depending on which station©s air time the individual sold. MMB Exs. 1, pp. 64-5; 94; 100, p. 5; Pathfinder Ex. 50. The compensation of the general sales manager has always been divided equally between the stations, except for a brief period hi the latter part of 1996, in accordance with the ISA. MMB Exs. I, pp. 64-5; 93, pp. 1-5; 100, p. 5 - Hicks/Indiana Ex. n. 78. When Hicks/Indiana acquired the license for WRBR(FM), Hicks was employed bv Crystal at its stations in the Kalamazoo, Michigan area. He held the titles of Chairman, Executive Vice President and Director of Sales. MMB Ex. 23, p. 15. His compensation was more than $100,000 per year, and, operationally, he was in charge of the stations© sales. Id., p. 14; Tr. 93-4, 1856, 1941.

79. Pursuant to a recommendation from communications counsel retained separately by Crystal, the Crystal board, on July 15, 1994, removed Hicks as Chairman and Treasurer due, in part, to questions concerning the propriety of the acquisition and operation of WRBR(FM) by Hicks/Indiana. In addition, Crystal©s board voted to place Hicks on unpaid administrative leave pending further investigation of his relationship with WRBR(FM) and other allegations. 14 Tr. 129-32, 236. He no longer received a salary but continued to receive insurance coverage until Crystal terminated that in December 1994. MMB Ex. 90, p. 3; Tr. 1857. Hicks never again worked for Crystal. Tr. 1858-9.

80. On September 1, 1994, Dille hired Hicks to oversee the opening of stores which would make and sell vinyl signs. MMB Ex. 1, pp. 66, 96; Tr. 790, 2274. Eventually, stores, operating under the name "Sign Pro," were opened in Elkhart (autumn 1994), Grand Rapids, Michigan Gate 1994/early 1995), and Fort Wayne, Indiana (1995). MMB Ex. 3, p. 180; Tr. 795-6. 2139-41. In this regard, Hicks met Flint Dille for the first time sometime in August 1994, hi connection with an interview for the position of general manager for the Elkhart Sign Pro store. MMB Ex. 3, p. 181. Dille paid Hicks $20,000 (based on a $60,000 annual salary) for Hicks© services with regard to Sign Pro for the four months covering September through December, 1994. MMB Exs. 4, p. 13; 90, p. 4. During this period, Hicks visited WRBR(FM) and spoke with Kline and/or Henning during the visits or by telephone. He also received weekly sales reports, monthly financial statements and miscellaneous invoices. MMB Ex. 110, Tr. 354, 359-

14 In December 1994, Hicks filed a civil suit against Crystal (Case No. B94-3603-NZ, Circuit Court for the County of Kalamazoo, Michigan). On August 5, 1996, summary judgment was entered in favor of Hicks "on the core issue of the unlawful removal of a forced sale clause by Crystal from a shareholder agreement to which Hicks was a party." Pathfinder Ex. 48. On August 8, 1997, Hicks and Crystal settled their litigation. Pathfinder Ex. S3; Tr. 133.

8443 Federal Communications Commission FCC 99D-2

60, 2123), 2138. None of the salary Hicks received from Pathfinder was allocated to WRBR(FM). Tr. 794-5.

81. On January 1, 1995, Dille assigned Hicks the additional responsibility of increasing national sales for some, but not all, of the radio stations operated by Pathfinder and Truth. Tr. 2275. From January 1, 1995, to July 1, 1995, Hicks© salary, now $70,000 per year, was allocated among Sign Pro and eight radio stations, one of which was WRBR(FM). MMB Exs. 4, p. 13; 90, p. 5; Tr. 795-7. On July 1, 1995, Hicks, at no change hi salary, became the general manager of Pathfinder stations, WCUZ(AMTFM), Grand Rapids and WAKX(FM), Holland, Michigan. Tr. 818-9. Hicks continued as general manager of WAKX(FM), following the sale of WCUZ(AM/FM) hi 1996, until March 1, 1997. MMB Ex. 1, p. 66. While he was general manager of Pathfinder©s Grand Rapids area stations, Hicks continued to visit WRBR(FM) periodically, maintain telephone contact with Kline, Henning, and, later, Turner, and review station reports and invoices. Tr. 354-5, 360-1, 1394, 1413-4, 2123- 5, 2140-3, 2147-8.

82. Bv memo dated November 14, 1995, Watson informed Pathfinder©s payroll clerk that, effective November 1, 1995, $3,000 of Hicks© salary was to be charged to WRBR(FM). The remaining compensation was to be charged to WCUZ-FM. In addition, Watson informed the clerk that he had reclassified $30,000 of Hicks© 1995 salary to the WRBR(FM) account. MMB 90, p. 11. Watson did not recall why he made such an allocation but he believed it followed a conversation with Hicks. Tr. 802-6. Likewise, Hicks testified that the allocation had been discussed with Watson although Hicks acknowledged that he spent far more time at Grand Rapids than at South Bend. Tr. 2145-9. By memo dated May 1, 1996, Watson directed Pathfinder©s payroll clerk to charge 50% of Hicks© salary to WAKX(FM) and 50% to WCUZ-FM; however, Pathfinder would continue to make a standard journal entry transferring $3,000 per month from the WAKX(FM) account to the WRBR(FM) account. MMB Ex. 90, p. 13; Tr. 817-8. By memo dated August 30, 1996, Watson informed Pathfinder©s payroll clerk that, effective July 1, 1996, Hicks©s compensation should be allocated solely to WAKX(FM), except for the $3,000 per month which should continue to be charged to WRBR(FM). MMB Ex. 90, p. 15; Tr. 820-1. Consequently, between January 1, 1995 and March 1, 1997, slightly more than 51% of Hicks© salary was allocated to WRBR(FM). MMB Ex. 1, p. 66. Since March 1, 1997, all of Hicks© compensation has been charged to WRBR(FM). Hicks© salary has remained at $70,000 per year. MMB Ex. 90, p. 17.

83. As of April 1, 1997, when Hicks/Indiana and Pathfinder responded to a letter

8444 ______Federal Communications Commission FCC 99D-2 of inquiry ("LOT") from the FCC©s staff, 15 the compensation of nine persons was allocated exclusively to WRBR(FM). Those individuals included Hicks, Joe Turner, five announcers, a board operator, and a person involved in promotions. MMB Exs. 1, p. .64; 90; 96. The compensation of the general manager (Kline), WRBR©s Operations Manager (Hull), the employee in charge of Production/Continuity (Poeppe), the Event Coordinator (Tiedemann). the General Sales Manager (Williams), and the Office Manager/Traffic Director were split evenly between WBYT(FM) and WRBR(FM). MMB Exs. 1, p. 64; 88; 91, p. 1, 93, pp. 2-5, 95, pp. 1-3. The compensation of the Chief Engineer (Henning) and the Sports Director (Vince Turner) were split among WTRC(AM), WBYT(FM) and WRBR(FM). MMB Exs. 1, p. 64; 89, pp. 3, 8. The record is not clear as to whether and, if so, to what extent, there was a split in the allocation of the compensation of the News Director. MMB Ex. 73, pp. 4-9. Finally, the compensation of the five persons who sold air time for only WRBR(FM) was allocated to Hicks/Indiana pursuant to the amended JSA. MMB Exs. 1, p. 64; 94, pp. 5-7, 17-19. ii. Programming

84. Under Booth American, WRBR(FM)©s entertainment programming was "oldies." Tr. 1974. Following the acquisition of the station by Hicks/Indiana, the oldies format was continued. Tr. 351, 1975. Hicks signed the music license agreements following their transmission to him by Watson and forwarded them to the appropriate parties with cover letters prepared by Watson. MMB Ex. 86; Pathfinder Exs. 37; 40; Tr. 769-70, 2015-6. WRBR(FM) continued to use an oldies format until March©1996, when the format was changed to "active rock." 16 Tr. 287-8. Hicks made the decision to change the format after receiving input from Kline, Turner and Tim Moore ("Moore") of the Audience Development Group. Tr. 1395-6; 1402-3, 1977.

85. By letter dated January 24, 1994, Kline, in his capacity as general manager of Radio One Marketing of Michiana, advised Booth of his intention to use Moore as a consultant for the programming of both WLTA(FM) and WRBR(FM). Pathfinder Ex.

15 The LOI had followed Miles© October 29, 1996, informal objection which contended, inter alia, that Pathfinder controlled Hicks/Indiana. Miles© informal objection was supported in large measure by December 1995 and January 1996 deposition testimony of Hicks, Dille, Kline, Watson and Flint Dille, which focused on their roles in Hicks/Indiana©s acquisition and operation of WRBR(FM). E g., MMB Exs. 1, p. II; 2, p. 20; 3, p. 9; 4, pp. 15-16.

16 Kline, with Dille©s approval, had changdd the format of WLTA(FM) to country and changed the station©s call sign to WBYT(FM) in June 1994. Tr. 285.

8445 Federal Communications Commission FCC 99D-2

1; Tr. 379-80. Two days later, Booth informed Kline that he concurred with the use of Moore and asked Kline to have Moore contact Ford (then WRBR(FM)©s general manager) to coordinate plans for Moore©s visit. Pathfinder Ex. 2; Tr. 380-2. The advice received was to continue with oldies. Tr. 351. Following Hicks/Indiana©s acquisition of WRBR(FM), Kline continued to use Moore as a programming consultant for WRBR(FM). MMB Ex. 118, pp. 1-2, 4-5, 7. According to Moore, he persuaded Hicks to continue the oldies format, notwithstanding Hicks© misgivings about the wisdom of doing so. Tr. 1463-4. Prior to the format change in 1996, Moore visited WRBR(FM) approximately four or five times a year. Moore testified that Hicks was there "most of the time." Tr. 1470-1.

86. In mid-January 1996, Moore sent a memo to "Steve Kline, Dave Hicks - Federated Media." In this regard, Moore testified that, contrary to the inference one could draw from the way the memo was addressed, he did not view Hicks/Indiana as a part of Federated Media. As to why he sent a copy of the memo to "Federated Media," Moore explained that he sent the document to DUle "as a passive sales tool." Tr. 1489- 90. The memo focused on WRBR(FM)©s (then known as KOOL 104) performance in the fall of 1995 and possible approaches to attain audience growth. Essentially, Moore recommended increased marketing and promotion, a change hi the morning show, and, possibly, a change hi format. Pathfinder Ex. 3; Tr. 390-1, 1491-3. According to Moore, Dille called immediately and said: "©Don©t waste your memos on me. I don©t have anything to do with the station, and I really shouldn©t be receiving them."© Tr. 1489.

87. Shortly thereafter, Moore sent a second memo, this one directed to Kline, Joe Turner and Hicks. This memo observed that:

"WRBR has been a sub-optimized product. We©ve assumed that while the station©s Oldies position is viable as a compliment [sic] to B-100, it cannot be expected to achieve the total persons tonnage to challenge for the market©s top 3 ranking. Market cluster composition, SUNNY 101 ©s prominence and the slowly aging narrow target of Oldies are factors hi the projection of KOOL 104©s future limitations."

Moore recommended that WRBR(FM) change its format to "active rock," attack two of its competitors, WAOR (licensed to Niles) and WZOW, and change its image from KOOL 104 to the "BEAR." Pathfinder Ex. 5; Tr. 394-5, 1494-7. In conjunction with this recommended change, Hicks negotiated for and ultimately acquired the rights to the "The Bob and Tom Show," a syndicated program originating in Indianapolis, which

8446 Federal Communications Commission FCC 99D-2

became WRBR(FM)©s new morning show. " Hicks Ex. 8; Tr. 1978-84. On March 17, 1996, the format of WRBR(FM) was changed from oldies to active rock. Tr. 287. Prior to the format change, Turner acknowledged that he had little or no interaction with Hicks; subsequent to the change, Turner testified that he has contact with Hicks at least weekly. Tr. 1413-4.

88. From the time of the acquisition of the station by Hicks/Indiana to the present, WRBR(FM) has obtained news and public affairs programming from Pathfinder. In this regard, since May 11, 1994, the news director has been a Pathfinder employee and the news broadcasts are edited and delivered by Pathfinder employees. Tr. 279-81, 2131. See also, paragraph 71, supra. Likewise, the public affairs programs are moderated by Pathfinder employees, and the programs themselves are usually broadcast both on WRBR(FM) and WBYT(FM). MMB Ex. 4, pp. 15-16; Tr. 281-3, 2131-2. With respect to news programming, the principal difference between Pathfinder©s WBYT(FM) and Hicks/Indiana©s WRBR(FM) is that the latter features national news discussions and ©presentations during its morning show, "The Bob and Tom Show," and thus its news breaks during the morning show are focused more on local news. Tr. 1406-9.

iii. Finances

89. Hicks/Indiana©s financial certification was based on Hicks© ability to sustain the operations of WRBR(FM) for three months from his personal assets. Tr. 1918, 2101- 2. Hicks further believed that Hicks/Indiana could meet its obligations to Booth American from funds derived through the operations of WRBR(FM). Tr. 1904. In this regard, Hicks understood that WRBR(FM) would derive revenues primarily through the ISA, which Hicks/Indiana was to assume from Booth American upon becoming licensee. MMB Ex. 3, p. 83, Tr. 2094-7. As events unfolded, however, Hicks was not called upon (and did not volunteer) to cover initial operations, and station revenues were insufficient to pay the amounts due on the note to Booth American.

90. As discussed above (see paragraph 7, supra), the ISA charged Pathfinder with the tasks of accounting for the Venture©s revenue and expenses and paying sales expenses. However, if expenses exceeded revenues by more than $5,000 in any month, the ISA called for Booth American, and, once it became licensee, Hicks/Indiana, to reimburse

17 The Dille children covered the $75,000 fee paid to acquire the rights to "The Bob and Tom Show." MMB Exs. 1, p. 59, n. 6; 104, pp. 6-8; 105, pp. 4-5; Tr. 878-9, 2328. Each had recently received a check from Hicks/Indiana for more than $42,000, which represented a return of money loaned to Hicks/Indiana hi order to, inter alia, make the $105,000 payment to Booth American. MMB Exs. 102, pp. 35-38; 104, pp. 2-3; 105, p. 3; Tr. 874-5, 2328.

8447 Federal Communications Commission FCC 99D-2

Pathfinder for the excess. Conversely, if revenues exceeded expenses for any given month, the ISA prescribed that Pathfinder disburse the excess to Booth American, later, Hicks/Indiana, by the 55th and 70th days following the month in question. MMB Ex. 1, p. 18. The ISA did not provide for payments of interest by either party. Tr. 1061. While Booth American was licensee of WRBR(FM), Pathfinder disbursed funds to Booth American in accordance with the ISA. Tr. 489-92, 1062-3.

91. As a consequence of the Hicks/Indiana - Pathfinder accounting agreement, Pathfinder undertook to perform all accounting functions for Hicks/Indiana, not just those arising through the ISA. MMB Ex. 1, p. 81; Pathfinder Ex. 78; Tr. 1013, 1143-4, 1163, 2159-60. Although not specified in either the ISA or the accounting agreement, Hicks and Watson, with Campbell©s blessing, understood that all of Hicks/Indiana©s bills would be paid from an account maintained and controlled by Pathfinder. Tr. 1140-2, 1166, 1545-6, 2014. In this regard, for bills relating solely to WRBR(FM) operations, the Pathfinder check was to and did in most instances reflect that it was a payment from Hicks/Indiana. MMB Exs. 48, p. 2; 63, p. 4; 106; Tr. 903-4. In addition, all invoices related solely to WRBR(FM) were supposed to be sent to Hicks for his approval. Tr. 1139. But see, e.g., MMB Exs. 118, 126 and Tr. 982-9. 1996. In any event, regardless of whether a Pathfinder check correctly identified, or mistakenly failed to reflect, that it was a payment from Hicks/Indiana, the books of both Pathfinder and Hicks/Indiana properly attributed the expense to Hicks/Indiana. Tr. 658-9, 698-9. Since May 1994, Hicks has received a copy of the monthly general ledger and financial statement for WRBR(FM). Tr. 1159-60, 1993-4.

92. For the period April 1, 1994 to September 1, 1996, sales expenses and revenues were evenly divided between Pathfinder and Hicks/Indiana in accordance with the ISA. For the period September 1, 1996 to January 1, 1997, revenues and expenses were divided 60% to Pathfinder and 40% to Hicks/Indiana because of WBYT(FM)©s higher ratings during the applicable rating period in accordance with the JSA. Pathfinder Ex. 49; Hicks Ex. 11; Tr. 1200-3). 1211-2. Since January 1, 1997, in accordance with the amendment to the JSA, revenues and expenses have been divided in accordance with the actual sales of time for each station, Pathfinder©s WBYT(FM) and Hicks/Indiana©s WRBR(FM). Pathfinder Ex. 50; MMB Exs. 1, p. 65; 100, p. 5. Hicks receives a weekly sales report. Tr. 354, 1993-4.

93. Prior to the establishment of a separate bank account for Hicks/Indiana hi April 1997 (MMB Ex. 4, p. 10), all funds belonging to Kicks/Indiana resided in a Pathfinder checking account. Tr. 1171-3. Indeed, during this period, Hicks/Indiana did not have a bank account. Tr. 1164. From April 1, 1994 to April 1997, when those funds (other than those designated to pay Booth American, discussed at paragraph 99, infra, or used to pay the rights to the "Bob and Tom Show," discussed at n. 13, supra)

8448 Federal Communications Commission FCC 99D-2 were insufficient to cover WRBR(FM)©s expenses, Pathfinder simply paid the bill and treated the amount advanced as a receivable from Hicks/Indiana. Tr. 681, 1163-70. As with other receivables, Pathfinder did not charge interest for any funds advanced to Hicks/Indiana. Tr. 761, 1235-6. Thus, for the periods June 1994 through March 1995, and January through May 1996. Pathfinder (and/or Truth) funded Hicks/Indiana©s negative cash flows. MMB Exs. 112, pp. 7-27; 113, pp. 1-9; 114, pp. 1-15; Tr. 758- 61, 835-6, 841-7. The largest amount Hicks/Indiana ever owed to Pathfinder and Truth was approximately $80,000. Tr. 1177. Accordingly, irrespective of whether expenses exceeded revenues by more than $5,000 in any month, Pathfinder never sought and Hicks/Indiana never tendered reimbursement in accordance with the JSA. Tr. 679-84. However, beginning April 1997, if Hicks were to owe Pathfinder money, it would have to be paid within 30 days. Tr. 1177; MMB Ex. 1, p. 60, n. 11

94. Conversely, during the period April 1, 1994 to April 1997, any funds belonging to Hicks/Indiana remained in Pathfinder©s account. Tr. 683. Money from that account was swept regularly into an interest-bearing account of Pathfinder; however, Pathfinder has never paid any interest earned from money to Hicks/Indiana. Tr. 761, 1224. In this regard, the handling of funds jointly generated by WBYT(FM) and WRBR(FM) was similar to the treatment accorded other Pathfinder stations which operate jointly. Tr. 761-3. The largest amount Pathfinder and Truth owed to Hicks/Indiana was approximately $175,000. Tr. 1177. All funds payable to Hicks/Indiana were handled by Pathfinder personnel and deposited into the Pathfinder checking account. MMB Exs. 76; 102, pp. 4, 10, 15, 17, 19, 21, 24, 28-30, 38; 103, p. 6, 104, pp. 6, 12; 109; Tr. 723-5, 853-6. Watson acknowledged that, prior to Januarv 1, 1997, disbursements of the Venture©s revenue were not made in accordance with the JSA. Tr. 679-84. However, pursuant to an amendment to the JSA effective January, 1, 1997, revenue has been disbursed twice hi a 30 day period, with the first payment occurring in March 1997. Tr. 683,1172; Pathfinder Ex. 50. The amendment has been strictiv followed thereafter. Tr. 1177. 95. Dille has received Hicks/Indiana financial statements. Tr. 2281. In December 1994, Dille knew about and discussed with Watson the amounts owed by Hicks/Indiana to Pathfinder and Truth. Dille acknowledged the amount was "becoming significant." Tr. 2282-3. Rather than try to collect money from Hicks/Indiana, Dille chose to wait, and, eventually, WRBR(IFM) was "in the clear." Tr. 2284. Dille recognized that Hicks/Indiana was not like an advertiser since he knew Pathfinder would get what it was owed. Tr. 2323-4. In any event, Dille never thought of the Hicks/Indiana receivable as a form of financing the WRBR(FM) acquisition or as inconsistent with his February 1994 representation to the Commission. Tr. 2284-5.

8449 Federal Communications Commission FCC 99D-2

96. When Hicks/Indiana became licensee of WRBR(FM), the members© capital contributions totalled $1,000 - $510 from Hicks and $490 from the Dille children - in accordance with the Side Letter. MMB Ex. 61. Hicks© contribution was the cost of his letter of credit from the Michigan National Bank. MMB Ex. 3, p. 77; Hicks Ex. 6, p. 2; Tr. 1194-5. The Dille children©s capital contribution was derived from the cash portion of the escrow, all of which was sent directly by Booth American©s counsel to Watson. Watson treated the remainder of the funds initially provided by Dille children, approximately $24,000, as loans to Hicks/Indiana. MMB Exs. 76; 105, pp. 1. 3; 112, p. 1; Tr. 723-5. Eventually, Watson prepared and Hicks signed promissory notes to repay to each of the Dille children $8.000, which represented the difference between the escrow funds returned to Hicks/Indiana and the amounts of their respective capital contributions. MMB Ex. 104, p. 1; Tr. 871-3. Subsequent loans from die members to Hicks/Indiana have been evidenced by promissory notes contemporaneously prepared by Watson and signed by Hicks. MMB Exs. 103, pp. 1, 4, 7, 9-10, 13; 104, pp. 4-5, 8, 10-11, 13, 15-6; Tr. 875-7, 895-7.

97. Sometime during the months of April, May and June, 1994, Kline, Watson, and, eventually, Hicks discussed a budget for WRBR(FM) for the 1994 calendar year. Tr. 773-6. The budget was finalized on June 15, 1994 and transmitted to Hicks by letter dated June 22, 1994. Hicks Exs; 13; 14; MMB Ex. 108; Tr. 770-2, 1204. Kline, Watson and Hicks testified that subsequent annual budgets for WRBR(FM) have been prepared during the autumn preceding the year at issue. Tr. 401-3, 1213-5, 1985-7. Hicks testified that Kline and Watson are involved in assembling the information for the budget, but that he has made the final decision regarding the amounts to be spent and that he reviews each line of the budget. Tr. 1985-7. With respect to WRBR(FM), Dille has never participated in the budget process, suggested an expenditure, or vetoed a capital expenditure. Tr. 408.

98. The 1994 budget for WRBR(FM) anticipated that the station would have a positive cash flow for all months except May. Hicks Ex. 13, p. 1. However, as reflected in the station©s financial statements, WRBR(FM)©s operating cash flow dropped from a positive $3,585 hi April 1994 to a negative $52,570 by the end of the vear. MMB Ex. 112. Indeed, the only positive cash flow months for 1994 were April, August and December. Id., pp. 15, 27. Hicks/Indiana did not fund the losses via contributions or loans from its members; rather, Pathfinder simply continued to pay Hicks/Indiana©s bills and the amounts contributed were reflected on Hicks/Indiana©s balance statement as a payable to Pathfinder and/or to Truth. E.g., id. p. 20. By the end of 1994, Hicks/Indiana©s net operating loss was over $160,1000. Id., p. 27. The same financial statement shows that Hicks/Indiana owed Truth $11,370 and Pathfinder $52,219. Id., p. 26; Tr. 844-5.

8450 Federal Communications Commission FCC 99D-2

99. The financial difficulties in 1994 also affected how the note to Booth American was paid. By memos sent during the period September 1994 through March 1995, Watson informed the Dille children that Dille was making a gift (or a loan) to each of them in the form of the enclosed check. The Dille children were directed to deposit their father©s check in their individual checking accounts and then send a personal check to Watson. Watson thereupon deposited the checks of the Dille children for the benefit of Hicks/Indiana in Pathfinder©s account and paid the amount due to Booth American. MMB Ex. 102, pp. 1-5, 7-10,12-15,18-22, 25-30, 32-38; Tr. 830-2, 838-45. Between September 1994 and April 1995, Dille was the source for all funds, which totalled nearly $120,000, contributed by the Dille children. MMB Ex. 1, pp. 52-3; Tr. 838-9, 901. Dille was also the source of funds contributed by the Dille children for the Hicks/Indiana payments made to Booth American that were due on May I and June 1, 1996. MMB Exs. 1, p. 89; 102, pp. 39-41; Tr. 851-2, 901. Hicks did not receive copies of Watson©s memos to the Dille children, and he did not know about any of the transactions involving Dille and his children. Tr. 2006-7.

100. Between September 1994 and February 1995, Watson also sent reminder memos to Hicks. Hicks, in turn, would send a personal check to Watson, who deposited the check for the benefit of Hicks/Indiana in Pathfinder©s account. MMB Ex. 102, pp. 4-6, 10-11, 16-17, 23-24, 31; Tr. 836-7, 840-2. For several of the $5,000 payments due Booth American, however, Hicks did not have sufficient funds to pay the amount of his share. To allow Hicks to make the payment, Pathfinder in early 1995 sent Hicks "extra compensation," which he then used to pay his portion of the money due Booth American.18 MMB Ex. 90, pp. 6, 9-10; Tr. 809-11. Moreover, Hicks made no contributions toward the $105,000 payment made to Booth American on March 22,1995 or the $10,000 payment made to Booth American on April 24. 1996. However, Hicks did contribute the entire $10,000 amount paid to Booth American on March 27, 1996 as well as his pro rata share toward the $10.000 payment made on May 22, 1996. MMB Ex. 1, p. 89. Between June 1996 and December 1997, funds for note payments were derived from station operations. MMB Ex. 1, p. 58. Finally, Hicks secured from Old Kent Bank a line of credit which enabled Hicks/Indiana to make the final balloon payment due Booth American on January 1, 1998. MMB Ex. 100, pp. 10-17; Tr. 962-3. 2010-4.

18 According to Hicks, Dille and Watson, the April 3, 1997, LOI response contained an inadvertent error. Specifically, the response should have noted that Pathfinder was the source of some of the money paid by Hicks to cover his share of the payments made to Booth American. In this regard, the three forgot that Pathfinder had paid Hicks "extra compensation" to allow him to contribute his pro rata share of the payment due Booth American. Tr. 812-5, 1963-5, 2276-7.

8451 ______Federal Communications Commission FCC 99D-2

101. Initially, Pathfinder©s accounting department treated the money provided by the Dille children and Hicks to pay Booth American as contributions to capital. MM B Exs. 102, pp. 1-3; 112, pp. 20, 23, 26. However, Watson ultimately suggested and Hicks agreed that the amounts should be treated as loans to Hicks/Indiana. Tr. 830-4. These loans were usually memorialized in the form of promissory notes prepared by Watson and signed by Hicks. Initially, the loans were repaid at the instigation of Watson by Hicks/Indiana when it had the cash balance to do so. MMB Exs. 103, p. 1; 104, pp. 2-5; Tr. 901-2. However, at the first meeting of the members of Hicks/Indiana on December 23, 1996, the members agreed that there should be no repayment of loans in order to have sufficient cash to meet the company©s obligations. MMB Ex. 100, p. 4. 102. On April 22, 1997, Hicks/Indiana opened a bank account. MMB Ex. 4, p. 10. Funds from that account are used to repay Hicks/Indiana©s line of credit and attorneys fees. Most of Hicks/Indiana©s payables, however, are still made from Pathfinder©s account. Tr. 904-5. WRBR(FM)©s revenue for 1997 was $1,542,000. As of May 29,1998, the station©s bookings for 1998 exceeded $1.1 million. MMB Ex. 100, p. 22. Pathfinder©s annual gross revenue is approximately $12 million. Tr. 1046.

iv. Miscellaneous Matters

Legal bills/services 103. Brown©s April 29, 1994 invoice regarding Hicks/Indiana was sent directly to Hicks. MMB Ex. 18. Copies were sent to both Watson and Dille. MMB Exs. 80; 81; 82; Tr. 509-10. The invoice, which totalled $22,804.58, covered services Brown provided between September 6, 1991 and April 26, 1994. Virtually all of the services noted were provided~by Brown and the members of his firm to Hicks in his capacity as agent for Hicks/Indiana or to Hicks/Indiana. MMB Ex. 18. By letter dated May 2, 1994, to Dille, copies to Watson and Hicks, Brown advised that he was reducing the firm©s normal charges by 10%. MMB Ex. 82. By letter dated November 7, 1994, to Dille, copy to Hicks, Brown confirmed that, pursuant to their conversation, the firm©s invoice to Hicks/Indiana would be reduced to $15,759.08 provided that payment was made hi full on or before December 15, 1994. MMB Ex. 107, p. 1; Tr. 1745-6. Dille negotiated the reduction in the fee because Hicks was uncomfortable doing so in light of his relationship with Brown. Tr. 2078-80. Watson made the payment on behalf of Hicks/Indiana. MMB Ex. 107, p. 2; Tr. ©510. 104. CampbelTs invoices to Hicks/Indiana have been sent directly to Hicks. Hicks, in turn, has forwarded the invoices to Watson, who would authorize payment. Tr. 560-1. In this regard, none of the invoices from attorneys would be paid unless Watson approved. Tr. 499, 530, 560-1, 565, 572, 574-5, 586-7, 626. Some of the

8452 Federal Communications Commission FCC 99D-2 invoices reflect that Hicks reviewed the invoice and determined that payment should be made. MMB Ex. 126. pp. 3-5. 11-31. Others do not indicate whether Hicks reviewed the bill. MMB Exs. 39-, 42; 44; 126, pp. 1-2, 6-10; Pathfinder Exs. 41; 42. However, even with respect to invoices that Hicks approved, Pathfinder did not always pay the entire amount authorized by Hicks. MMB Ex. 126, pp. 17, 21, 23, 25.

105. The Barnes & Thornburg invoices pertain to services rendered between February 24 and March 31, 1994. MMB Exs. 45; 46. As discussed (see paragraphs 56- 9, supra), those services resulted in the preparation of the organizational documents for Hicks/Indiana, including the Articles of Organization and the Operating Agreement. The invoices were sent to Watson who determined when they should be paid. MMB Exs. 45; 46; Tr. 591-2. Insurance 106. By letter dated March 31, 1994, Watson informed Pathfinder©s insurance agent that WRBR(FM) radio "should have similar coverages as do our other radio stations and companies." MMB Ex. 67; Tr. 690. Ultimately, WRBR(FM) was included on Pathfinder insurance policies covering motor vehicles, real property and equipment, workers compensation and communications liability. MMB Ex. 101, pp. 1-10,18-32; Tr. 922-34, 945-7. Hicks/Indiana has been charged for its share of insurance premiums paid by Pathfinder, and the charges are reflected in Hicks/Indiana©s budgets. Hicks Ex. 13. Accountant 107. Hicks/Indiana used the same outside accounting service, McGladrey & Pullen, LLP ("McGladrey"), as did Pathfinder. Hicks/Indiana employed McGladrey only for the purpose of preparing tax returns; Pathfinder also uses McGladrey to audit its books. Tr. 750-1, 907-8 The invoices from McGladrey were sent to Hicks/Indiana at Pathfinder©s post office box in Elkhart. Tr. 909. Prior to January 1997, the invoices indicate that the onlv persons who saw them were Pathfinder personnel. Beginning in January 1997, some of the invoices reflect Hicks© acquiescence or approval. MMB Ex. 117; Tr. 915. Hicks/Indiana files/records 108. Hicks/Indiana files and records have been hi the custody of a variety of persons. Initially, pertinent records such as the APA and all its schedules were sent to Hicks, Brown, Dille, Watson and Campbell. MMB Ex. 35-, Tr. 533. Following the closing, the entire set of documents was sent by Brown to Watson. MMB Ex. 81; Tr. 739. Watson later set up and maintained the minute book for Hicks/Indiana. MMB Ex.

8453 Federal Communications Commission FCC 99D-2

85; Tr. 764. Watson has also forwarded music licensing agreements to Hicks and prepared appropriate letters for Hicks© signature. MMB Ex. 86; Tr. 769-70. As previously noted, Watson sent reminder memos to Hicks and the Dille children and prepared promissory notes as well as the checks used to pay off the notes (see paragraphs 99-101, supra) while Pathfinder employees have prepared and occasionally executed forms for WRBR(FM) which were filed at the Commission. MMB Exs. 99, pp. 1-6; 125. Finally, Watson has served as the scribe and keeper of the minutes of Hicks/Indiana©s members© meetings. MMB Ex. 100; Tr. 959-60.

Monitoring Station Affairs

109. As noted, Kline, Watson and Hicks testified that weekly sales reports and monthlv financial statements for WRBR(FM) are sent to and reviewed by Hicks. In this regard, by letter dated July 25, 1995, Hicks congratulated Kline "on a money making June for WRBR." In addition, Hicks had questions about line items for the Associated Press ("AP"), the rent, and the telephone. With respect to the AP item, Hicks commented that he hoped the station was nearing the end of the expense, while for the rent, he inquired how the figure was arrived at and that the station had received a sizeable increase over the previous year. MMB Ex. 110. The June 1995 financial statement showed that the station had a positive operating cash flow for the month of $25,995. MMB Ex. 113, p. 17 (column heading: "This Mo. Actual"). In addition, the statement showed that the station©s rent was only $57 over budget and some $500 less than the amount budgeted hi 1994. Compare MMB Ex. 113, p. 17, with Hicks Ex. 13, p. 1. Hicks believed he was questioning why the rent was not consistent. Tr. 2120. Moreover, even though he understood that the rent was based on an even split with Pathfinder, he was questioning whether Hicks/Indiana was on the "short side" of the deal. Tr. 2121. With respect to the AP expense, the 1994 budget reflects a monthly budget expense for the AP news wire of $675 to $845. Hicks Ex. 13, p. 13. Hicks explained his concern was based on the premise that he was nearing the end of the contract, and he was hoping to reduce or eliminate the expense soon. Tr. 2117.

110. Generally, any questions regarding station operations are now discussed by Hicks and Kline during Hicks© visits to the station or during telephone conversations. Hicks also discusses programming with Joe Turner. Tr. 1988-93, 2007-9. Hicks also now keeps track of station affairs via email. E.g., MMB Ex. 111. Kline reviews monthly financial statements with Hicks. Tr. 359-60. The frequency of Hicks© visits to WRBR(FM) varied depending on his responsibilities to Sign Pro, Pathfinder©s national sales and Pathfinder©s Grand Rapids properties. Tr. 2138-43.

111. Beginning hi late 1996, Hicks has convened meetings of the members of Hicks/Indiana to review and discuss formally the affairs of WRBR(FM). Tr. 960-1. At

8454 Federal Communications Commission FCC 99D-2 least three such meetings have occurred on: December 23, 1996; August 20, 1997; and May 28, 1998, MMB Ex. 100, pp. 3-7, 10-17, 20-24. At such meetings, the members of Hicks/Indiana (Hicks and the Dille children) have reviewed station operations with Watson, Kline and Williams (the WBYT(FM)/WRBR(FM) sales manager) and approved or vetoed capital expenditures. As late as their most recent meeting, the members discussed, inter alia, whether WRBR(FM) is receiving the same amount of "hype" as WBYT(FM), whether WRBR(FM) is still "looked at as a "stepchild" in the building [shared with WBYT(FM)]," and whether then* sales people were as good as those of WBYT(FM). MMB Ex. 100, p. 21. However, it was also noted that Hicks/Indiana had two new rental agreements for use of space on WRBR(FM)©s tower and that a load study was being performed to determine whether additional space could be rented. Id., p. 22.

Character Testimony

112. Edward K. Christian ("Christian") testified as a character witness on behalf of Hicks. At present, Christian is president and chief executive officer of Saga Communications ("Saga"). Tr. 2168. Saga operates in twelve broadcast markets with 37 radio stations and one television station. Tr. 2169. Christian started working in radio as a teenager and has known Hicks for approximately 35 years. Tr. 2172. 113. Christian recommended Hicks to the owner of two radio stations in Battle Creek, Michigan; the owner ultimately hired Hicks as the general manager of the stations. Tr. 2174-6. When the owner of the stations offered to sell them to Hicks, Christian assisted Hicks in obtaining the necessary financing by introducing him to executives at a bank and to another investor. Tr. 2176-7. Christian indicated that his assistance was a measure of his confidence in Hicks. Christian assisted Hicks because he believed Hicks had the character and ability to own the stations, and that Christian would not have done so for just anybody because it could reflect badly on him. Tr. 2177-8.

114. Christian and Hicks have had contact throughout the years through various business and social relationships. Tr. 2172-80. Christian testified that Hicks was well respected hi the broadcast community in Michigan and was viewed as a responsible broadcaster who was not out to "beat the system or cheat the system." Tr. 2181. Based on his experience with Hicks, Christian believes him to be trustworthy and a man of integrity who would not be predisposed to mislead the Commission. Tr. 2182. 115. Richard H. Harris ("Harris") also testified as a character witness on behalf of Hicks. Harris is the former president and chairman of Group W, Westinghbuse Broadcasting©s radio station group. Tr. 2195. Harris joined Westinghouse in 1964 and

8455 ______Federal Communications Commission______FCC 99D-2

worked there until his retirement in 1991. Tr. 2198. At the time of his retirement, Group W owned 21 radio stations. Tr. 2199. 116. Harris has known Hicks for between 12 and 15 years, primarily through industry organizations to which they both belonged, such as the National Association of Broadcasters ("NAB"). Tr. 2204-6. In approximately 1990, Harris and Hicks served on a committee that worked with a group of European broadcasters to develop a trade conference in Switzerland. Tr. 2204-5. Harris also invited Hicks to serve on the Radio Music Licensing Committee, on which they served together from the late 1980s through 1997, and he appointed Hicks to be the vice chair of the Committee in the early 1990s. Tr. 2206, 2209-11. Harris testified that, throughout the period he has known Hicks, he found Hicks to be "very honest," "candid and forthcoming." and not the type of person who would mislead the Commission. Tr. 2212-3.

117. Henry L. ("Jeff) Baumann ("Baumann") testified as a character witness on behalf of Dille. At present, Baumann is the Executive Vice President for Law and Regulatory Policy at the NAB. Tr. 2356. Previously, Baumann held various jobs at the Commission, ultimately rising to the position of Deputy Chief of the Broadcast (later, Mass Media) Bureau before joining the NAB in 1984. Tr. 2352-6.

118. Baumann first met Dille in 1982, when Dille attended an NAB board meeting after having been elected to serve as a board member. Tr. 2360. Subsequently, Baumann had contact with Dille through the NAB, when Baumann served as Senior Vice President and General Counsel and Dille served as first a board member and later as chairman (1985-6) of the NAB radio board. Additional contacts have occurred through Dille©s work on an NAB committee and return to the NAB board in 1997. Tr. 2362. Baumann developed his high regard for Dille largely as a consequence of Dille©s role in the 1986 merger between the NAB and the National Radio Broadcasters Association ("NRBA"). In Baumann©s view, Dille was instrumental in convincing broadcasters and the leadership of both groups that a merger was the best way to advance the mutual agendas of the two organizations. According to Baumann, the merger occurred hi large part because the broadcasters in both the NAB and the NRBA respected Dille©s integrity. Tr. 2365-8. 119. Baumann testified that despite numerous requests for him to testify on people©s behalf throughout his years at the Commission and at the NAB, he has never vouched for anyone©s character other than Dille in an FCC proceeding. Indeed, Baumann felt so strongly about Dille©s integrity that he made an exception to a rule he instituted at the NAB that no NAB personnel may testify voluntarily hi any court or admmistrative proceeding. Tr. 2371. As a consequence of his contacts with Dille, Baumann has the highest regard for Dille©s integrity. Tr. 2369-70.

8456 Federal Communications Commission FCC 99D-2

. Conclusions of Law

120. The OSC calls for resolution of interrelated issues involving representations made to the Commission by Hicks/Indiana and by Dille in connection with the acquisition of the license for WRBR(FM), South Bend, Indiana, and the control of that station. The OSC specified the issues because the record then before the Commission raised substantial and material questions of fact with respect to the truthfulness of those representations. Specifically, it appeared that Hicks/Indiana sought to conceal from the Commission the existence of an understanding regarding the future ownership of WRBR(FM). It also appeared that Hicks/Indiana and Dille sought to conceal from the Commission the role Dille was going to play in the financing of the purchase of WRBR(FM) by Hicks/Indiana and that station©s operation by Pathfinder once Hicks/Indiana became licensee. The ascribed motive for the questionable representations was Dille©s apparent desire to purchase and control WRBR(FM) notwithstanding the existence of the newspaper-radio cross-ownership rule which served to bar his ownership and control absent a waiver. However, after considering all the evidence, including the demeanor of the various witnesses, it is concluded that while a material omission occurred in the statement which was signed by Dille and which was submitted as an amendment to the Booth American - Hicks/Indiana assignment application, that omission did not happen because of deceit. Rather, the omission occurred because Dille mistakenly concluded, based on an earlier conversation with counsel, that the information he did not provide was not decisionally significant to the Commission. Accordingly, revocation of the license for WRBR(FM) or WBYT(FM) is not warranted; rather, a forfeiture will be imposed against Pathfinder. Moreover, it is concluded that Pathfinder has exercised and continues to have the ability to exercise de facto control over WRBR(FM). Thus, Pathfinder and Hicks/Indiana have violated Section 310 of the Act, and Pathfinder has violated Section 73.3555(d)(2) of the Commission©s Rules. Accordingly, appropriate forfeitures will be imposed upon both licensees and the licensees will be required to demonstrate compliance with applicable Commission rules.

A. Misrepresentation/Lack of Candor

121. Issue 1 seeks to determine whether Hicks/Indiana misrepresented facts and/or lacked candor in its application to acquire the license for Station WRBR(FM) in violation of Sections 73.1015 and/or 73.3514 of the Commission©s Rules. Specifically, the issue concerns representations made to the Commission with regard to the station©s present or future ownership or control. Issue 4 seeks to determine whether John Dille El misrepresented facts and/or lacked candor in the application of Hicks/Indiana to acquire WRBR(FM).

8457 Federal Communications Commission FCC 99D-2

122. Misrepresentation is a false statement of fact made with an intent to deceive. Fox River Broadcasting. Inc.. 93 FCC 2d at 129. Lack of candor involves concealment, evasion or some other failure to be fully informative, also with an intent to deceive. Id. Intent to deceive is a "necessary and essential element" of misrepresentation. See Swan Peek Communications. Inc. v. FCC. 39 F.3d 1217 (D.C. Cir. 1994). Such intent may be found from the false statement of fact, coupled with proof that the party making it had knowledge of its falsity. See David Ortiz Radio Com v. FCC. 941 F^2d 1253, 1260 (D.C. Cir. 1991).. Intent may also be inferred from motive. See Joseph Bahr. 10 FCC Red 32, 33 (Rev. Bd. 1994). The duty of candor requires an applicant before the FCC to be "fully forthcoming as to all facts and information relevant" to its application. Swan Creek. 39 F.3d at 1222. Relevant information is defined as information that may be of "decisional significance." RKO General Inc. v. FCC. 670 F.2d 215, 229 (D.C. Cir. 1981), cert denied. 456 U.S. 927 and 457 U.S. 1119 (1982). Even when an intent to deceive does not exist, however, the Commission can impose a forfeiture for the willful omission of material facts pursuant to Section 73.1015 of the Commission©s Rules. See Abacus Broadcasting Corp.. 8 FCC Red 5110 (Rev. Bd. 1993). i. Hicks/Indiana 123. The findings establish and it is therefore concluded that Hicks/Indiana accurately set forth its ownership structure which existed throughout the pendency of the application to acquire WRBR(FM). In this regard, the representations in the application were fully in accord with the documents which ultimately gave birth to Hicks/Indiana. Specifically, David Hicks was and remains the single majority owner of Hicks/Indiana, while the three Dille children were and remain the minority owners of that entity. (Findings, 11 39, 61-3, 66).

124. Although the findings future ownership of Hicks/Indiana are not as clear cut, it is concluded that Hicks/Indiana did not misrepresent facts or lack candor. Question 15 of the Booth American - Hicks/Indiana assignment application inquired whether there were "any documents, instruments, contracts or understandings relating to ownership or future ownership rights...." The findings show that there were no documents, instruments or contracts then in existence. In this regard, the findings further show that the Operating Agreement, which gave the Dille children the right to "call" Hicks© interest at any time, and the Side Letter, which gave Hicks the right to "put" all of his interest to the Dille children were not finalized until the end of March 1994, several weeks after .the assignment application had been granted. (Findings 11 59-60). 125. The findings regarding further indicate that, throughout the pendency of the application, only discussions had occurred between Hicks and Brown on the one hand and Dille and Robert Watson on behalf of the Dille children as to whether Hicks would sell

8458 Federal Communications Commission FCC 99D-2

his interest in Hicks/Indiana to the Dille children. In this regard, from his first meeting with Hicks hi July 1993 through his joint meeting with Hicks and Eric Brown, Hicks© counsel, Dille repeatedly expressed not only his desire that his children hold minority interests but that they have the right to acquire Hicks© interest when and if such became possible. (Findings, 11 16, 21, 29, 31) Neither Hicks nor Brown ever rejected such overtures or suggested that they were unacceptable. Indeed, in considering Hicks© exit possibilities, the only option ever discussed was acquisition of Hicks© interest by the Dille children. (Findings 1 31).

126. However, until the mechanics of transmitting Hicks© interest in Hicks/Indiana to the Dille children were resolved - which did not occur until after the application had been granted - only discussions concerning the matter had actually occurred. Thus, even though Dille asserted to Booth as early as August 15,1993, that his children "would have an arrangement-option-agreement to purchase from Hicks his shares when and if that became possible," Hicks had not yet assented to such an arrangement. Indeed, it appears that Dille©s assertion, which was made without Hicks© knowledge, was gratuitous and designed primary to persuade Booth that Hicks was ready to step into Pathfinder©s shoes and buy WRBR(FM). (Findings, 1118-9) That such ultimately happened does not prove the existence of an understanding, especially when one considers that Brown had an independent role on behalf of Hicks during subsequent negotiations with Booth American. (Findings, 11 33). 127. Admittedly, a more troublesome question is raised by Sackley©s testimony. In this regard, Sackley, then Hicks© business partner, understood by late September 1993 that Hicks© possible acquisition of WRBR(FM) involved a "planned subsequent transfer to a third party." (Findings, 1 26) Obviously, Sackley could not have obtained this understandhig absent statement regarding this topic from Hicks and/or Dille. However, Sackley©s testimony does not inevitably lead to the conclusion that an understanding between Hicks and Dille regarding future ownership actually existed. Moreover, even if one credited only Sackley©s recollection of the discussion that occurred during the January 1994 Crystal board meeting, it shows only that Hicks and Brown viewed matters as unsettled because there was no written agreement concerning future ownership rights. (Findings, 1 46). 128. Consistent with the view attributed to Hicks and Brown by Sackley, the record reflects that, while the application was pending, there was no agreement as to how and at what price such a planned transfer was to occur. Indeed, Dille©s first concrete proposal regarding his children©s future ownership rights - a proposal which Hicks did not accept - was not made to Hicks until one week after the application was granted. (Findings, 11 58-9) While Hicks© counteroffer involved only a change in price, that change was not so insignificant as to be meaningless Moreover, the ultimate terms

8459 Federal Communications Commission FCC 99D-2

agreed to by Hicks and Dille (on behalf of his children) cannot be viewed as unreasonable considering the circumstances then existing hi the broadcast industry. (Findings, 11 58-9) Finally, by virtue of the put provision in the Side Letter, Hicks tacitly promised to be available for at least three years before he might choose to exit as an owner of WRBR(FM). (Findings, 1160) In sum, while the issue of future ownership by the Dille children was never a point of contention between Hicks and Dille, it also never rose to the level of an actual understanding. Thus, Hicks was not obligated to report his discussions with Dille concerning future ownership, and his decision not to report them cannot be viewed as arising from deceit.

129. With respect to the issue of providing information relative to the control of WRBR(FM), however, Hicks/Indiana did not disclose during the pendency of the application the extent to which Pathfinder would be involved hi the affairs of WRBR(FM). Nevertheless, in light of the sequence of events, it is concluded mat Hicks/Indiana did not violate Sections 73.1015 or 73.3514 of the Commission©s Rules; rather, it appears that Hicks/Indiana may have violated Section 1.65 of the Commission©s Rules. In this regard, Hicks/Indiana accurately responded to the staffs query regarding the proposed roles of Dille and his father and answered each application question accurately. However, following the Watson/Campbell discussion, Hicks/Indiana did not inform the Commission that Pathfinder©s role with respect to WRBR(FM) was going to be more than that set forth in the ISA. Thus, although it appears that Hicks/Indiana may have violated Section 1.65 of the rules, no sanction is warranted. First the findings reflect that any such violation was not caused by deceit. Second, this proceeding does not include an issue as to whether a violation of Section 1.65 of the rules occurred. 130. In its application, Hicks/Indiana reported that Booth American and Pathfinder were parties to a ISA and that Booth American©s interests therein would be assigned to Hicks/Indiana. (Findings, 1 39) Nothing else appears relative to Pathfinder©s proposed role in the operation of WRBR(FM). Thus, the only impression given hi the application regarding Pathfinder©s role was that it would be limited to that specified hi the ISA, a type of agreement that the Commission explicitly permitted. (Findings, 1 5) That impression was further bolstered by the submission of the Dille statement, which clearly and unequivocally stated that Dille and his father, Pathfinder©s and Truth©s principal shareholders, respectively, would not be involved in either the financing or the day-to-day operations of WRBR(FM). (Findings, 11 50-5) 131. However, shortly thereafter, in early March 1994, Hicks, Watson, Dille and Campbell had discussed and/or assented to a seven point plan which gave Pathfinder significant additional influence with respect to the day-to-day operation of WRBR(FM) to that already accorded by the ISA in the areas of personnel and finances. With regard to personnel, Pathfinder employee Kline, who was already general manager of

8460 Federal Communications Commission FCC 99D-2

WLTA(FM), would also become general manager of WRBR(FM). Second, all employees of Hicks/Indiana would be on Pathfinder©s payroll and subject to Pathfinder©s personnel policies. With regard to finances, Pathfinder would do all of Hicks/Indiana©s accounting, and Pathfinder©s checking account would serve as the repository for all Hicks/Indiana funds and the source of all Hicks/Indiana checks. (Findings, 11 62-3) All such checks would be prepared and signed by Pathfinder personnel. (Findings, 11 64, 91, 93-4) While the arrangement also had several built-in safeguards that were designed to keep Hicks in charge of WRBR(FM), the totality of the provisions gave Pathfinder an opportunity to control WRBR(FM) an opportunity of which it took advantage, as more fully discussed, infra. Notwithstanding Hicks© and Campbell©s knowledge of the arrangement, the Hicks/Indiana application was not updated to report Pathfinder©s additional proposed role in the operation of WRBR(FM). (Findings, 11 50-5, 62). 132. Section 1.65(a) of the Commission©s Rules provides in pertinent part that "whenever the information furnished in the pending application is no longer substantially accurate and complete hi all significant respects, the applicant shall as promptly as possible and hi any event within 30 days, unless good cause is shown, amend or request the amendment of his application so as to furnish such additional or corrected information as may be appropriate...." As noted, the application initially only reported the existence of the ISA, and the amendment to the application declared that Dille and his father would not be involved in the day-to-day operation of the station. Thus, once Hicks/Indiana and Pathfinder agreed to arrangements which expanded Pathfinder©s role beyond those specifically set forth in the ISA, Hicks/Indiana arguably should have reported those arrangements to the Commission. However, in light of Campbell©s advice and the resultant understanding of Hicks, Watson and Dille that then* arrangements would not result in an abdication of control by Hicks (Findings, 11 62-3), it must be concluded that Hicks/Indiana©s failure to report the information was, at most, inadvertent and not the result of deceit. Moreover, considering that the OSC does not specify a Section 1.65 issue and the proceedings were not enlarged to include such an issue, it would not be appropriate to reach a conclusion on that issue. ii. Dille 133. The findings establish and it is therefore concluded that Dille did not misrepresent facts or lack candor hi the application of Hicks/Indiana to acquire the license for WRBR(FM). Specifically, no misrepresentations occurred because the only representations Dille made relative to the application were literally true. Moreover, although Dille mistakenly failed to disclose material information hi connection with bis

8461 Federal Communications Commission FCC 99D-2

February 22, 1994, statement to the Commission, the omission was the result of an erroneous belief rather than deceit. Thus, while the ultimate sanction of revocation is inappropriate, a forfeiture is warranted pursuant to Section 73.1015 of the Commission©s Rules. See 1 66 of the OSC.

134. The only information in Hicks/Indiana©s application in which Dille had any personal role was the statement he signed hi response to a request by the staff for additional information. (Findings, 11 40, 50-5) In that statement, Dille affirmed first that he would not finance or guarantee the purchase of WRBR(FM) by Hicks/Indiana. Dille also promised that he would not be involved in the day-to-day operations of WRBR(FM). (Findings, 11 53).

135. At the outset, the parties note that the statement Dille signed was prepared by Alan Campbell, a former president of the Federal Communications Bar Association and an attorney with extensive experience before the Commission in connection with the processing of applications, including applications to assign licenses. Campbell had directly communicated with the staff person regarding the matter to be submitted. 19 That communication was brief and never reduced to writing by the staff. From his conversation with the staff, Campbell understood that the staff was concerned about the personal involvement of Dille and his father in the financing and operations of WRBR(FM). CampbelTs records and the recollections of Campbell, Watson and Dille reflect that CampbelTs conversation with Dille and Watson about the statement©s subject matter was brief and made no particular impression upon any of the parties to the conversation. (Findings, 11 50-5). 136. At the time the statement was signed, Dille had not provided any money to Hicks either to fund Hicks© portion of the escrow or to pay Campbell©s fee. (Findings, 11 36, 43) Moreover, Dille©s testimony that he had no present intention to pay any portion of the money due Booth American or to guarantee such payment is credible in light of the seller financing that Booth American was contracted to provide. (Findings, 154) Indeed, at that time, the only guarantee which was to be provided was from Hicks and each of the Dille children for $250,000 total, which represented less than one-half of the contract price for the station. (Findings, 1 35). At most, Dille intended to lend his children then* proportionate shares should such loans be necessary to provide Hicks/Indiana with funds to pay Booth American. As Dille understood the situation from prior discussions with Peter Tannenwald, another lawyer well-versed in FCC matters, he

19 In this regard, although the statement prepared by Campbell differed slightly from the information contained in the cover letter sent to Hicks, which indicated a copy to Watson - in that the letter advised that the Commission©s staff had asked Dille to sign a statement that he would not finance the purchase of the station for his children there is no evidence that Campbell©s letter or its contents were ever communicated to Dille.

8462 Federal Communications Commission FCC 99D-2 could make such loans to his children consistent with the Commission©s multiple ownership rules, and the statement he was signing did not preclude him from making any such loans. Consequently, Dille never even informed Campbell about the money he already contributed or his (Dille©s) intentions in the event his children needed additional money to meet their commitments (Findings, ^ 54).

137. The evidence further indicates that Dille never made any commitment to, or had any agreement with, Hicks/Indiana to provide money. At the time of the statement and throughout the pendency of the application, Hicks and the Dille children were the only parties personally responsible for he escrow provided. (Findings, t 36) Hicks was the person who paid Campbell©s retainer and was the only person who signed the retainer agreement with Campbell©s firm on behalf of Hicks/Indiana. (Findings, 143) Hicks, on behalf of Hicks/Indiana, was the only party responsible (and the ultimate signatory of) the promissory note to Boom American, while Hicks and the Dille children ultimately were the only parties responsible for the guaranty to Booth American. Dille never made any personal commitments to Booth American, not did he ever make, or cause to be made, any such commitments on behalf of Pathfinder or Truth. (Findings, ^ 66).

138. Moreover, the weight of the evidence is that Dille also did not make any personal commitment to Hicks. Brown©s December 1993 note to the file that Dille would hold Hicks harmless on the letter of credit and guaranty was not based on a communication from Dille. Rather, it resulted from telephone conversation with Hicks who simply told Brown not to worry about the letter of credit and guaranty. Dille, on the other hand, flatly denied having made any such commitment to Hicks. (Findings, \ 38) Further, although Hicks ultimately obtained indemnification protection via the Side Letter, the protection obtained differed materially from that suggested by Brown©s note to the file. Specifically, in the Side Letter, the Dille children, as opposed to Dille himself, promised only to indemnify Hicks on the letter of credit. Thus, any failure to do so would have given Hicks a cause of action only against the Dille children, not against their father. More importantly, the Dille children©s promise relative to the guaranty was only to pay their respective commitments to Booth American before Hicks paid his. Such a promise did not appreciably change the burden of the Dille children and, at most, reduced Hicks© commitment by only $10,000 (out of possible exposure of $127,500). (Findings, fl 35, 60). 139. The conflicts in testimony relative to the January 1994 Crystal board meeting do not alter the basic conclusion about the non-existence of Dille©s commitment to Hicks and, thus, the tmthfulness of Dille©s statement to the Commission. Analysis of the three versions of the meeting - Sackley©s, Hicks© and Brown©s - indicates that the issue of Hicks/Indiana©s future funding was discussed. Moreover, Dille©s role as a possible source of funds was also mentioned. (Findings, ^ 46-8) However, the minutes of the

8463 ______Federal Communications Commission______FCC 99D-2 meeting are absolutely silent about Dille or the financing of WRBR(FM). (Findings, 1 49) It thus appears that Hicks comments regarding Dille©s commitment to fund the operations of the station were ultimately perceived as Hicks had testified; namely, a sarcastic reaction by Hicks to a caustic comment and not a concession to the accuracy of the premise that a commitment from Dille actually existed. (Findings, ^ 47).

140. When payments to Booth American were due, Watson specifically sought and obtained funds from Hicks and the Dille children. Generally, Hicks and the Dille children made pro rata contributions to Hicks/Indiana. Further, beginning June 1996, funding for note payments came either from station operations or from a line of credit obtained by Hicks. No Pathfinder funds were ever used directly to pay Booth American. (Findings, ft 99-100).

141. Notwithstanding the foregoing, it could be argued that Pathfinder©s and Truth©s provision of interest-free funding to the operations of Hicks/Indiana is contrary to the representation Dille made to the Commission that he would not finance the purchase of WRBR(FM). However, the weight of the evidence suggests otherwise. At the outset, Hicks expected that station revenues would be sufficient to fund station operations. (Findings, 11 89). This expectation was not unreasonable on its face given the station©s modest personnel costs and the savings likely to occur from joint operations with WLTA(FM). (Findings, ft 67) Consistent with this expectation, the 1994 budget prepared by Hicks and Kline for WRBR(FM) projected a positive cash flow for all but the month of May. (Findings, 11 97-8) Moreover, Watson©s March 4 memo and the related accounting agreement did not commit Dille, Pathfinder or Truth to fund Hicks/Indiana hi any way, and Dille never thought of the Hicks/Indiana receivable as a form of financing the WRBR(FM) acquisition or as inconsistent with his February 1994 statement to the Commission. (Findings, 11 62, 64, 91, 93, 95) Thus, it does not appear that the funding which Pathfinder provided occurred as a result of any plan which arose during the pendency of the Hicks/Indiana application or resulted from a conscious effort by Dille or Hicks to evade the effect of Dille©s promise to the Commission that he would not finance the acquisition of WRBR(FM) by Hicks/Indiana.

142. Even though the evidence establishes the literal truth of Dille©s statement to the extent that he did not directly finance or guarantee the purchase of the station, the evidence also shows that Dille provided, and had intended to provide, all the funds which his children had been and might be obligated to provide Hicks/Indiana. In this regard, Dille and Watson knew that Dille had supplied the entirety of the escrow provided by the Dille children to Booth American, and Dille knew that, as of the date of his statement, he would further furnish his children with whatever funds they needed to meet then- commitments. (Findings, 11 36, 54) As events unfolded, Dille did, in fact, provide nearly $120,000 toward the payment of the Booth American note. (Findings, 199) Dille

8464 ______Federal Communications Commission ____FCC 99D-2 neither disclosed his actions nor his intentions to the Commission. Instead, he left unmodified a statement prepared by Campbell, who was unaware of Dille©s financial actions and plans. Consequently, the statement, which clearly implied that Dille would have no role in financing the purchase of the station, gave a false impression about Dille©s actions and imparted no hint about his intentions. (Findings, W 52-3) However, considering the advice Dille received from Tannenwald that provision of funds from a parent to a child was permissible, Dille©s belief that his statement did not preclude him from loaning or giving money to his children was not unreasonable on its face. (Findings, ^ 36, 54) In sum, the evidence supports a conclusion that although Dille©s statement omitted material information that would have ensured that the Commission understood Dille©s precise role in providing funds used to purchase WRBR(FM), the omission, though willful, was a mistake and not occasioned by an intent to deceive. Accordingly, a forfeiture, not revocation, is warranted. See Abacus Broadcasting Corp.. 8 FCC Red at 5114-5.

143. With respect to Dille©s promise that he would not be involved hi the day-to day operations of WRBR(FM), the evidence again establishes that the promise was literally true. Other than sales matters which fell under Pathfinder©s purview pursuant to the ISA, there is no evidence that Dille himself had or took any role in the operations of the station. At Campbell©s suggestion, Dille specifically informed Kline that he (Dille) did not want to be involved in WRBR(FM)©s operations, and Dille subsequently honored that commitment by avoiding any involvement in decisions concerning the station©s personnel, programming and finances. (Findings, ffl 65, 86, 97). 144. Moreover, it cannot be concluded that Dille willfully or deceitfully omitted material information from his statement regarding his and his father©s non-involvement. In this regard, the proposals concerning Kline and Pathfinder©s expanded role at WRBR(FM) were not settled until sometime after the date of Dille©s statement. Moreover, Campbell basically informed Watson that Watson©s proposals regarding Pathfinder©s role would not run afoul of the Commission©s dictates concerning control of the station. (Findings, ^ 62) Thus, it cannot be concluded that Dille lacked candor by failing to describe Pathfinder©s ultimate role.

B. Real Partv-in-Interest/De Facto Control

145. Section 310(d) of the Act states, hi 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

8465 ______Federal Communications Commission ______FCC 99D-2

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. § 73.3504(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).

146. Although there is no formula for evaluating whether a party is in de facto. or actual, control, see, e.g.. Stereo Broadcasters. 55 FCC 2d 819, 821 (1975), modified. 59 FCC 2d 1002 (1976), the Commission traditionally looks 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), affd 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 basic 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 persons assigned a task must be guided by policies set by the permittee or licensee. See David A. Davila. 6 FCC Red 2897, 2899 (1991). Further, while joint sales agreements between licensees in the same market are permissible, each licensee must retain control of its own station and comply with the Communications Act and the Commission©s rules and policies. Radio Revision. 7 FCC Red at 2787. The Commission evaluates real party in interest questions as it does questions concerning de facto control of a permittee or licensee. Univision Holdings, 7 FCC Red 6672, 6675 (1991), recon. denied, 8 FCC Red 3931 (1993)

147. The evidence indicates that neither Pathfinder nor any of its agents were real parties-in-interest in the Hicks/Indiana application when it was filed. Although Pathfinder, through Dille and Watson, had negotiated the basis terms of the APA with Booth American and remained involved on behalf of the Dille children throughout the negotiations with Booth American, Hicks© attorney, Brown, clearly had a significant and active role in the final negotiations leading up to the execution of the APA. (Findings 1ffl 12, 20, 23, 28, 32-4) Moreover, Hicks, on behalf of Hicks/Indiana, executed the APA and obtained the letter of credit to fund his share of the escrow. The letter of credit and the personal guaranty required of Hicks exposed him to a substantial financial loss in proportion to his interest in the applicant. (Findings, ^1 34-6) Hicks completed the principal parts of the assignment application. He retained Campbell as special communications counsel and paid his retainer. He executed the various certifications in the application. Dille had no role in the preparation of the application, and Watson©s role was limited to providing information about the interests of the Dille children in Pathfinder and Truth. (Findings, ffl 39-40). It thus appears that Hicks had adequate control of the applicant at least until March 1994.

8466 Federal Communications Commission __FCC 99D-2

148. However, the evidence further reflects that, beginning in March 1994, Hicks and Pathfinder began to put into place a series of joint operational elements that had the unintended effect of ceding control of WRBR(FM) to Pathfinder. Shortly after or concurrent with the submission of Dille©s statement of no involvement with WRBR(FM), Hicks, Dille, Watson and Campbell discussed and ultimately agreed to arrangements which expanded Pathfinder©s role well beyond that established in the JSA. (Findings, 11 7-8, 62-5, 90). As a consequence of the March 1994 arrangements, operational control of WRBR(FM) would rest with Kline, who was to serve as the station©s general manager as well as the general manager of WLTA(FM). In addition, by virtue of the accounting agreement and the fact that Hicks/Indiana did not maintain its own bank account, Pathfinder had the opportunity to exercise inappropriate control over Hicks/Indiana©s funds. Finally, all employees providing services to WRBR(FM) were going to be paid from Pathfinder©s payroll whether or not the employees devoted all or merely part of then- work day to that station. (Findings, 11 62, 64, 68, 70, 91) The only restrictions imposed on Pathfinder were personal to Dille. As Dille understood the restrictions, he was not precluded from lending money to his children. Also, Dille did not consider whether Pathfinder was affected by those restrictions inasmuch as it had already been reported to the Commission that Pathfinder was involved in WRBR(FM)©s sales pursuant to the JSA. (Findings, 11 53-4, 65). 149. Shortly after the application©s grant, shareholder agreements further reduced the influence Hicks might otherwise hold as majority shareholder of Hicks/Indiana. Specifically, Hicks gave the Dille children the right to buy his stock at any time without obtaining a reciprocal right to buy theirs. Hicks© choice in this regard must be contrasted with the rights he held vis-a-vis Sackley, the primary shareholder in Crystal. For example, hi the Crystal situation, if Sackley offered to buy out Hicks, Hicks, in turn, had the right to buy out all the other Crystal shareholders, including Sackley, at Sackley©s offering price. (Findings, 1158-9) In addition, Hicks, at Brown©s initiative, continued to focus on how to leave the investment and reduce his financial exposure. As a consequence of the Side Letter, Hicks obtained a right to "put" all of his shares to the Dille children at any time after three years, a promise that the Dille children would hold him harmless from any costs arising from the letter of credit, and a promise from the Dille children that they would pay their part of the guaranty before he would have to pay anything (Findings, 1160-1) Taken in combination, the March memo, the accounting agreement, the Operating Agreement and the Side Letter left Hicks with virtually no employees and minimal investment in, or incentive to stay involved with, WRBR(FM). 150. The passive role envisioned for Hicks at the outset of Hicks/Indiana©s acquisition of he WRBR(FM) license dovetails perfectly with his then existing responsibilities relative to Crystal. Hicks was a director and officer of Crystal, employed full time as director of sales for Crystal©s three stations hi Kalamazoo, Michigan, and was

8467 Federal Communications Commission FCC 99D-2 personally responsible (along with Sackley) for several million dollars of bank debt. (Findings, 11 15, 24, 26, 78) Clearly when Hicks/Indiana became licensee, Hicks© focus was going to be directed toward Kalamazoo, not South Bend. Moreover, even after his termination from Crystal, Hicks did not become involved on a full-time basis with WRBR(FM). Rather, he became an employee of Dille/Pathfinder, first in the fledgling Sign Pro business, then in national sales for all of Pathfinder©s radio stations (as well as for WRBR(FM)) and finally as general manager of three Pathfinder stations hi Grand Rapids. (Findings, 11 79-82) Only after the sale of all of Pathfinder©s Grand Rapids properties, was Hicks hi a position to devote his full time and attention to WRBR(FM). In any event, as the following demonstrates, Pathfinder has had and will continue to have a role which is at odds with Hicks/Indiana being licensee of WRBR(FM).

151. Personnel. Kline, WRBR(FM)©s only general manager under Hicks/Indiana, also was and remains a Pathfinder employee. 20 (Findings, 11 68-9) WRBR(FM)©s news directors, sports director and program directors also have been or became Pathfinder employees and have nearly always had dual roles at both WBYT(FM) and WRBR(FM). (Findings, 1171-5) Likewise, the operations manager, continuity director, events coordinator and general sales manager for WRBR(FM) have always been Pathfinder employees. (Findings, 1176-7) Moreover, the only person that Hicks claims to have hired (other than Kline) - Henning as program director - apparently also worked as a contract engineer for Pathfinder. (Findings, 1 73) Further, the fact that Hicks receives a salary from Hicks/Indiana for his contributions to WRBR(FM) and communicates with the station©s program director, Joe Turner, on a regular basis, is not dispositive given Kline©s continued presence. (Findings, 1175, 82-3, 87) Finally, every employee working for WRBR(FM), either partially or exclusively, is on Pathfinder©s payroll and subject to Pathfinder©s personnel policies. (Findings, 1 70). 152. Programming. From April 1, 1994 until late 1995, the evidence is inconclusive as to what part Hicks actually played in determining WRBR(FM)©s entertainment programming. In this regard, although Moore testified that he and Hicks had discussed whether to continue the oldies format and had periodically met, the documentary evidence reflects no involvement by Hicks until early 1996, except as a signatory of documents forwarded to him by Watson. (Findings, 11 84-5) Even then, Moore chose to address his January 1996 memo about WRBR(FM) to Hicks and

clear that 20 In this regard, even though Hicks/Indiana has paid one half of Kline©s salary, it is by no means Britain program it has had half of Kline©s attention, time and effort. Two examples will suffice. First, Kline made in that position director of both WBYT(FM) and WRBR(FM) (and charged Hicks/Indiana accordingly) and kept him that period. for more than a year even though Hicks testified he viewed Henning as his program contact during 199S deposition, (Findings, 1173-5) Second, Hicks apparently made so little an impression on Kline that, during a Kline connected his first meeting with Hicks to Sign Pro, not WRBR(FM). (Findings, 1 68).

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Federated Media. (Findings, 1 86) Had Hicks/Indiana been truly independent, there would have been no reason for Moore to have addressed his memo to Federated Media. Moreover, Moore©s next memo, addressed only to Kline, Joe Turner and Hicks, candidly appraised WRBR(FM)©s oldies format as a viable complement to Pathfinder©s WBYT(FM). However, the evidence also clearly shows that Hicks played a significant role in the acquisition of the Bob and Tom Show and the concurrent format change. In addition, Hicks has played and continues to play a significant role in the entertainment programming of WRBR(FM). (Findings, 1 87) Thus, Hicks now has apparent control over the entertainment programming of the station.

153. With respect to non-entertainment programming, however, Hicks has been virtually invisible. From the beginning, WRBR(FM)©a news and public affairs programming has been edited and delivered by Pathfinder employees. Hicks/Indiana©s only role in their activities is to pay a portion of their salaries. (Findings, 11 71, 88).

154. Finances. As a consequence of the ISA, the Watson memo and the accounting agreement, Pathfinder has served as Hicks/Indiana©s principal accountant. (Findings, 11 62, 64, 91) In this role, Pathfinder has faithfully prepared and sent to Hicks weekly sales reports, monthly financial reports and general ledgers. Hicks has reviewed and, to varying degrees, commented on these materials. (Findings, 1180, 91- 2, 110) Hicks has also received on a regular basis most attorneys bills (except those of Barnes & Thomburg) and a variety of invoices. (Findings 11 80, 103-5, 107, 109) Further, Hicks has reviewed every budget prepared for WRBR(FM). (Findings, 1 97) Beginning hi late 1996, Hicks has clearly directed the station©s capital budget. (Findings, 1 111) The foregoing shows that Hicks is and has been fully informed about WRBR(FM)©s finances. 155. However, the evidence demonstrates that, prior to April 1997, Hicks was not in control of Hicks/Indiana©s financial affairs. Until April 1997, Hicks/Indiana had no bank account of its own. Consequently, until that time, it was not in a position to receive interest on its funds (which totalled more than $100,000 in 1996) which were regularly swept into a Pathfinder interest bearing account. As of now, most, but not all, of Hicks/Indiana©s funds immediately find their way into the Hicks/Indiana account. The remainder stay in the Pathfinder account until paid to Hicks/Indiana pursuant to the amendment to the ISA. (Findings, 11 91, 93-4). 156. Prior to 1997, whenever Hicks/Indiana was struggling financially, Hicks did not seek bank financing or contributions from his fellow shareholders. Indeed, Hicks did nothing. Rather, Pathfinder simply paid Hicks/Indiana©s bills and treated the resulting debt as a receivable, notwithstanding that Hicks/Indiana was not in any way like a Pathfinder advertiser. In this regard, Pathfinder treated WRBR(FM)©s bills just as it

8469 Federal Communications Commission FCC 99D-2

would have treated any other station controlled by Dille. 21 (Findings, 11 93, 95, 98) This situation has been ameliorated somewhat since, beginning in 1997, Hicks/Indiana has its own line of credit from which it paid off the Booth American note and which it pays down from its own account. (Findings, 11 100, 102). 157. The decisions to obtain money from shareholders in 1994 and 1995 and how to treat the money sent - whether as loans or capital contributions - were made in the first instance by Pathfinder. In this regard, Watson initiated the memos to Hicks and the Dille children, which requested funds necessary to pay Booth American, and Watson suggested whether monies contributed should be classified as capital contributions or loans. Hicks© role in this process was passive, at best. Likewise, Watson was the person who initiated the preparation of promissory notes, who proposed the interest rate for the repayment of funds advanced, and who initiated repayment. Again, Hicks© role appears to have been passive. (Findings, 11 96, 99-101).

158. Although Hicks has reviewed WRBR(FM)©s basic expenses in the course of establishing station budgets, Pathfinder personnel have made the day-to-day allocations of costs for WRBR(FM). Kline, together with Richard Rhodes, his counterpart at Pathfinder©s WTRC(AM), Elkhart, have allocated salaries and costs among and between WTRC, WBYT(FM) and WRBR(FM) with no visible input from Hicks. (Findings 11 71-6) Occasionally, those allocations - such as the ones for Britain and Joe Turner - favored Pathfinder over Hicks/Indiana in that the latter paid for more than its share of those employees© compensation given the time they spent on WRBR(FM) affairs. (Findings, 11 74-5) Additional disparities include Kline©s compensation (shared evenly between Pathfinder and Hicks/Indiana) and the rent (where Pathfinder has charged Hicks/Indiana 50% of the cost of its shared premises) because WRBR(FM) has always had a smaller number of employees. r (Findings, 11 67, 69) Finally, Pathfinder allocated 50% of Hicks© compensation to Hicks/Indiana during periods when Hicks spent far more than half his time on Pathfinder business. While Hicks apparently agreed with the allocation, the evidence reflects that Pathfinder took the initiative in effecting the allocation. (Findings, 11 81-2) The point is not that Pathfinder took advantage of its position vis-a-vis Hicks/Indiana but that it had the ability to do so.

21 Such treatment includes the payments of attorney bills. With respect to Brown©s bill, Dille negotiated the final amount due at Hicks© request. With respect to other bills, Watson had the final say as to when and how much of a bill is paid. (Findings 11 103-5). 22 In this regard, Pathfinder has always been the employer of all WBYT(FM) and WRBR(FM) sales personnel and support staff pursuant to the JSA. (Findings, 1 77).

8470 ______Federal Communications Commission _____FCC 99D-2

159. In sum, with respect to finances, Pathfinder©s role was and still is pervasive. It is not and never has been a mere accountant. Pathfinder has controlled the sole account which served and still serves Hicks/Indiana©s main repository of funds and primary source of funds for the payment of WRBR(FM)©s bills. Pathfinder personnel, principally Watson and his subordinates, have initiated all significant financial actions taken by Hicks/Indiana. While Hicks has taken a more active role since late 1996, WRBR(FM)©s finances are still affected by the decisions of Pathfinder.

160. Considering the totality of the evidence, it is concluded that Pathfinder and its agents acquired the ability to control WRBR(FM) immediately before Hicks/Indiana became licensee of the station. Moreover, because Pathfinder has continued to have impermissible control over the operations of WRBR(FM), it is also concluded that Hicks abdicated control of Hicks/Indiana and that Pathfinder acquired control contrary to Section 310 of the Act. See Rov M. Speer. 11 FCC Red 18393, 18415 (1996).

C. Multiple Ownership

161. Section 73.3555(d)(2) of the Commission©s Rules provides:

(d) Daily newspaper cross-ownership rule. No license for an ...FM... broadcast station shall be granted to any parry (including all parties under common control) if such party directly owns, operates or controls a daily newspaper and the grant of such license will result in:

(2) The predicted 1 mV/m contour for an FM station, computed hi accordance with § 73.313, encompassing the entire community in which such newspaper is published.

The findings show that Truth publishes the Elkhart Truth, a daily newspaper in Elkhart, and that WRBR(FM) encompasses the entire community of Elkhart, Indiana. (Findings, H 13) The evidence further shows that Truth and Pathfinder are controlled by common parties, including Dille and Watson. (Findings, 11 6, 11, 13) Finally, as explained above, the evidence shows that Pathfinder, not Hicks/Indiana, has controlled WRBR(FM). Inasmuch as Pathfinder has never obtained a waiver to operate or control WRBR(FM), it is concluded that from April 1, 1994, to the present, Pathfinder has operated and/or controlled WRBR(FM) in violation of Section 73.3555(d)(2) of the Commission©s Rules.

8471 Federal Communications Commission FCC 99D-2

D. intimate Conclusions

162. As reflected above, neither Hicks/Indiana nor Pathfinder misrepresented facts or lacked candor. However, Pathfinder, through its agent, Dille, omitted material information from a statement submitted to the Commission in connection with Hicks/Indiana©s application to acquire WRBR(FM), in violation of Section 73.1015 of the Commission©s Rules. Further, Hicks/Indiana and Pathfinder each violated Section 310 of the Act by abdicating and acquiring control, respectively, of WRBR(FM) without approval of the Commission. Finally, Pathfinder©s control of WRBR(FM) was in violation of Section 73.3555(d)(2) of the Commission©s Rules. Inasmuch as the foregoing violations resulted from mistake rather than deceit, the ultimate sanction of revocation is not appropriate. See Rov M. Speer. 11 FCC Red at 18428. Further, it is concluded, notwithstanding the statutory and rule violations described above, that Hicks/Indiana and Pathfinder are qualified to remain Commission licensees. However, as discussed below, forfeitures are warranted.

163. Section 503(b) of the Communications Act provides for the imposition of forfeitures for willful and/or repeated violations of the Communications Act and/or the Commission©s rules. As discussed above, the violations were willful. The parties knew what they were doing even though they did not intend to violate the law. See Abacus Broadcasting Corp.. 8 FCC Red at 5115. In this regard, the fact that the parties consulted with their attorneys and formed a good faith belief that they were not trespassing Commission rules does not absolve them of these violations. Further, with respect to the violations related to Pathfinder©s illegal control of WRBR(FM), the violations were continuous and, therefore, repeated. After considering the violations hi light of case precedent, a the forfeiture guidelines, ** and the factors enumerated in Section 503(d) of the Act, it is appropriate to assess Hicks/Indiana a forfeiture of $20,000 for the Section 310(d) violation. Also, it is appropriate to assess Pathfinder a total forfeiture of $30,000 ($10,000 for the Section 73.1015 violation and $20,000 for the Section 310(d) violation and the Section 73.3555(d)(2) violation). In this regard, the parties concur in their joint conclusions that the forfeiture liability for Dille©s violation of Section 73.1015 of the rules appropriately falls upon Pathfinder in light of Dille©s and Watson©s knowledge concerning the source of the escrow funds provided by the Dille

23 The Presiding Judge agrees with the Bureau that Abacus Broadcasting Corp.. 8 FCC Red SI 10 (Rev. Bd. 1993), is the appropriate precedent for the forfeiture amount specified for the violation of Section 73.1015 of the Commission©s Rules. For the violations of Section 310(d) of the Act and Section 73.3555(d)(2) of the Commission©s Rules, Rov M. Speer. 11 FCC Red 18393 (19%), American Radio Systems Corporation. 13 FCC Red 9588 (MMB 1998) and Palm Beach Radio Broadcasting. 13 FCC Red 9593 (MMB 1998), cited by the Bureau, are appropriate precedent.

24 Forfeiture Guidelines. 12 FCC Red 17087 (1997).

8472 Federal Communications Commission FCC 99D-2 children and their involvement in the events leading up to Dille©s execution of the February statement that was submitted to the Commission. (Findings, t1 36, 52).

164. Further, Hicks/Indiana and Pathfinder shall be ordered to take such steps as deemed appropriate to avoid future violations of Section 310(d) of the Act and Section 73.3555(d)(2) of the Commission©s Rules. Such steps shall include some or all of the following: 1) the employment of Hicks/Indiana of a WRBR(FM) general manager who is not subject in any way to the authority of Pathfinder; 2) the disbursement of all revenues generated by the ISA to Hicks/Indiana in accordance with the ISA; and 3) the payment of all non-JSA bills, invoices, obligations, etc. from an account maintained solely by Hicks/Indiana. See Rov M. Speer. 11 FCC Red at 18430-4; Fox Television Stations. Inc.. 10 FCC Red 8452, 8523 (1995) (subsequent history omitted). Lastly hi light of the conclusion that Hicks/Indiana and Pathfinder are qualified to remain Commission licensees, the prohibition on Pathfinder©s right to assign, transfer and acquire additional licenses may be lifted upon finality of the Initial Decision in this proceeding. See OSC. 1 53.

Accordingly, IT IS ORDERED, that unless an appeal from this initial Decision is taken by a party, or it is reviewed by the Commission on its own motion in accordance with Section 1.276 of the Rules, * the license of Hicks Broadcasting of Indiana, LLC., FM Radio Station WRBR(FM), South Bend, Indiana, and the license of Pathfinder Communications Corp., FM Radio Station WBYT(FM), Elkhart, Indiana ARE NOT REVOKED.

IT IS FURTHER ORDERED, that Hicks Broadcasting of Indiana, LLC and Pathfinder Communications Corp. SHALL no later than sixty (60) days after this Initial Decision becomes final submit a report to the Commission setting forth the steps taken to avoid future violations of Section 310(d) of the Act and Section 73.3555(d)(2) of the Rules. IT IS FURTHER ORDERED, pursuant to Section 503(b) of the Communications Act of 1934, as amended, this Initial Decision SHALL CONSTITUTE an Order of Forfeiture in the amount of $20,000 against Hicks Broadcasting of Indiana, LLC. IT IS FURTHER ORDERED, pursuant to Section 503(d) of the Communications Act of 1934, as amended, this Initial Decision SHALL CONSTITUTE an Order of Forfeiture hi the amount of $30,000 against Pathfinder Communications Corp.

25 In the event exceptions are not filed within 30 days after the release of ths Initial Decision, and the Commission does not review the case on its own motion, this Initial Decision shall become effective SO days after its public release pursuant to Section 1.276(d) of the Rules.

8473 Federal Communications Commission FCC 99D-2

IT IS FURTHER ORDERED, that, within 30 days after the date of this Initial Decision becomes final, Hicks Broadcasting of Indiana, LLC and Pathfinder Communications Corp. SHALL PAY the full amount of the forfeiture by check or money order made payable to "Federal Communications Commission." The remittance should identify the payor, be marked "NAL Control No. FCC 98-88; NOF Control No. FCC 99D-2," and be sent to the following address:

Federal Communications Commission Post Office Box 73482 Chicago, IL 60673-7482

FEDERAL COMMUNCIATIONS COMMISSION

Joseph Chachkin Chief Administrative Law Judge

•*U.S. GOVERNMENT PUNTING OFHCE:1999-454-J9«00033

8474