Advisories

Affected States:

• Radio: Texas
• TV: Delaware, Indiana, Kentucky, Pennsylvania, and Tennessee

By April 1, 2007, radio stations in Texas , and television stations in Delaware, Indiana, Kentucky, Pennsylvania, and Tennessee must prepare and file an FCC Form 323 Biennial Ownership Report with the Federal Communications Commission. Noncommercial stations in these states must also file a Biennial Ownership Report on FCC Form 323E.

Ownership Reports are to be filed every other year, reporting on changes in the licensee’s ownership and updating the information requested by the form. Ownership information must be provided for all attributable owners of the licensee (see below). Other changes to be noted in the report would include changes in broadcast interests of the licensee, and changes in the list of documents that need to be filed with the Commission pursuant to Section 73.3613 of the rules. Those documents are described in Attachment A hereto, but principally deal with agreements that could affect future ownership, or ones that in some way restrict the operations of the licensee. Examples of such agreements include Options, Rights of First Refusals, Stock Pledge Agreements, Security Agreements that place significant restrictions on the operations of the licensee, and programming agreements such as Time Brokerage Agreements or Television Network Affiliation Agreements.

The reports are due every two years, on the anniversary of the filing date of your license renewal application. For television stations in Delaware and Pennsylvania, the reports will be filed in connection with the renewal applications also due on April 1, 2007.

Note that stations that are co-owned with stations in other states can elect a unified Ownership Report filing date, as long as the licensee has at least one station in a state with that reporting date. In that case, the licensee will file its report on every other anniversary of the renewal filing of the stations in the state it elects. If the licensee of a station in one of the states listed above has made the election to file a consolidated report for all of its stations, and notified the Commission of that election, there is no additional obligation to file an Ownership Report on April 1.

Attributable interests

While a full discussion of who has an attributable interest in a licensee would take many pages, there are some generalities that can be summarized here. In a corporate licensee, officers, directors, and shareholders with a 5 percent or greater interest in the voting stock of a company are deemed to have an attributable interest. In general and limited partners, all general partners have attributable interests. In addition, in limited partnerships, any limited partner who is not insulated from control, both by the written terms of the limited partnership agreement and in day-to-day practice, has an attributable interest. To be exempt from attribution, the written terms of the limited partnership agreement must contain “magic language” restricting the activities of the limited partner in a number of areas. Attachment B to this memo contains the magic language required for insulating a limited partner. The remainder of the partnership agreement must not contradict this restrictive language.

With respect to a limited liability company, managers of the company are attributable, as are all members unless they are insulated in the same manner as limited partners, as described above. In order for the interests of members to be nonattributable, the LLC agreement would need to contain the same “magic language” as a limited partnership agreement, and the members would have to act in accordance with those restrictions to preserve their insulation.

In noncommercial entities, the attributable owners are those who make decisions for the entity. In most non-profit corporations, that would be the company’s officers and directors. For other non-profit entities such as a college or other institution, it would normally be the governing board.

An Ownership Report is not required for individuals or LPTV stations

Under the FCC’s Rules, if you hold a station’s license as an individual, or as a general partnership made up entirely of natural persons ( i.e. individuals as opposed to corporations or other business entities), then you are not required to file a biennial Ownership Report. The reason for this is that if there are any changes in the ownership of a licensee owned by an individual or general partnership, prior FCC permission is required. For instance, if an individual adds a second owner, he has created a partnership, requiring approval on an FCC Form 314 (or possibly a Form 316 if the new owner has less than a 50 percent voting interest). Similarly, the FCC takes the common law view that change of partners in a general partnership creates a new partnership, thus requiring prior FCC approval.

Because the FCC has traditionally collected less ownership information from licensees of low power television stations and Class A television stations, those licensees are not required to file ownership reports.

Basic questions when preparing the Biennial Ownership Report

In the event your station’s information may have changed since the last time you prepared and filed a biennial Ownership Report, you should review it carefully and make any necessary changes. In particular, you should consider the following basic information as you review the report. While the FCC should be notified when some of this information changes even apart from the ownership filing deadline, the preparation of the biennial report gives the licensee a good opportunity to review the continuing accuracy of all this information.

• Is the licensee’s contact information still accurate? If the address of the licensee has changed, that should be reported on FCC Form 5072 when the change occurs. Waiting to report that change until the Ownership Report could mean that important communications from the FCC may be missed.
• Are the call signs and communities of license listed on the form still accurate? Make sure that the actual community of license for each station is reported on the Form, not the market the station may serve.
• Have any of the officers, directors, or other parties directing the management of the licensee changed since the last report?
• Have the voting and equity percentages listed for the shareholders, partners, or members changed since the last report?
• Have any of the names or addresses of the principals changed since the last report?
• Has the station entered into any agreements that need to be filed at the Commission pursuant to Section 73.3613 (see Attachment A)? If so, do the changes need to be listed on the report and filed with the FCC?

Reports for companies with attributable owners who are not individuals

If the licensee company has attributable owners who are not individuals, then ownership reports for each of those companies also need to be filed. Ownership Reports need to be filed for each company that has an attributable interest in the licensee. Ownership reporting is cut off only when an owner “up the chain” is insulated from control ( e.g. using the “magic language” for an LLC or limited partnership) or if their interest is less than 5 percent in a corporate licensee (the Form 323 sets out a “multiplier” formula to be used for companies to compute whether their holdings in other companies exceed the 5 percent benchmark).

Additional considerations for public companies

At the time of the filing of the Ownership Report, public companies and other companies with widely dispersed ownership need to assure that they are in compliance with the FCC’s restrictions on alien ownership. If the company cannot, simply by reviewing the rolls of its shareholders, determine that 80 percent of the corporate licensee’s stock (or 75 percent of a parent company) is owned by U.S. citizens, the Company must take other steps to make sure that the company is in compliance. A random survey of shareholders has been suggested by the FCC as one means for a licensee to make such a determination. Alien ownership considerations for non-corporate entities are complex. Counsel should be consulted with any questions.

Character qualifications

While not actually filed with the Ownership Report, Section 1.65 of the Commission’s rules requires that each licensee report to the Commission any adverse legal findings that could affect the character qualifications of a licensee. If there has been an adverse finding of a felony, any antitrust or unfair competition issue relating to media matters, any fraudulent statement to another government agency, or any discrimination matter, then the licensee must file a report with the Commission. A report must also be filed if any business owned or controlled by an attributable owner is involved in such conduct, or if an attributable owner is directly involved in such conduct at another business. That report is to be filed on the anniversary date of the filing of the license renewal, so a report would be due at the same time as your ownership report. If such conduct occurs in the year that a Biennial Ownership Report is not due, then a report would still need to be filed on the anniversary date of the filing of the renewal. For companies with widely disbursed ownership, the licensee should survey its attributable owners to make sure that they have not been involved in such conduct.

Preparing and filing the Biennial Ownership Report

The FCC Form 323 Ownership Report, and the Form 323E, must be filed with the FCC electronically. Accordingly, the report must be prepared and submitted through the FCC’s CDBS filing system, which can be accessed at the following web site: http://www.fcc.gov/mb/cdbs.html.

If there have been no changes in the station’s ownership since the last biennial Ownership Report, the station must still prepare and file a new report; however, the CDBS filing system allows you to utilize information from a prior electronic ownership report, which should simplify the completion of the new form. If you do not already have a CDBS filing account, you can create one by following the directions at the FCC’s website. In addition to the CDBS account number and password, you will also need the licensee’s FCC Registration Number (FRN) and password when you are ready to submit the Form.

Once the report has been submitted electronically, commercial stations must then submit the necessary FCC filing fee, which is $60.00 per call sign. The fee can either be paid electronically via credit card, or in paper with a check payable to the FCC.

For more information about the FCC’s ownership rules, or for assistance in preparing and filing your Form 323 Ownership Report, please contact any of the lawyers in the Davis Wright Tremaine LLP Broadcast Practice Area.