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7.18 Checklist: Purchasing a Broadcast Station The following checklist is intended to provide a general idea of the documents and information that will be necessary for a due diligence investigation when purchasing a broadcast station. The first step is to assemble multidisciplinary team-ideally a team of executives and professionals who will continue to be associated with the buyer should the deal go through. * BUSINESS ENTITY DOCUMENTSo Ascertain whether seller is a corporation, partnership, or proprietorship. o Obtain copies of charter documents and shareholder agreements, if any. o Determine existence and terms of any options, warrants and convertible securities. o Determine whether there are appraisal rights under the law of the state of incorporation of the seller. o If the station is publicly owned, inspect the required reports filed with the Securities and Exchange Commission and with the state Blue Sky commissions, and other reports to shareholders. o Ascertain in which states the seller does business or owns or leases property and whether the seller is in good standing with appropriate government agencies. o Determine whether there are any corporations or partnerships owned or affiliated with the seller. o Ascertain whether the size of the seller and of the transactions is enough to require a pre-notification filing under the Hart-Scott-Rodino Antitrust Improvement Act. * THE FCC FILE The station's FCC file is open to the public, and copies can be obtained without the seller's knowledge. This is a good place to start due diligence. The file will provide information about a variety of matters such as (a) when and how the station was purchased by the seller, (b) the license, and (c) network affiliation agreements. o Establish the date the station went on the air originally, its current ownership, and the amount of ownership each principal has. o Discover whether the persons in control of the seller have encountered any difficulties with the FCC or any state or other federal agencies. Examine the complaints of the file to investigate whether the station has remained in compliance with FCC regulations. o Look for copies of Asset Purchase Agreement or Stock Transfer Agreements. * FCC LICENSES o Exercise diligence in determining the licenses held by the seller, the expiration dates, matters that would make the transfer of the license subject to attach, and any restrictions on the seller. o Ascertain whether the seller conducted an "RF" (radio frequency) study at the time of its FCC application of renewal and complied with RF guidelines. * REAL PROPERTY o Determine whether real property is owned or leased by the seller. Are there any restrictions on the property? o Review the title on the land and buildings. o Obtain copies of all real property leases or title reports. o Determine whether radials are located on the property for an AM station. o Ascertain whether leases are assignable without the lessor's consent. o Learn whether local laws and zoning ordinances for restrictions on size or conditions of the station could affect future operations. o Determine whether there are easement or encroachment issues. o Determine whether there are any environmental problems. * PERSONAL PROPERTY AND INTANGIBLES o Ascertain the status of all personal property used in the operations of the station. o Conduct a Uniform Commercial Code search with the state and county or counties. o Determine whether there are any trade names, trademarks or copyrighted material owned or used by the seller. o Obtain an appraisal of the assets for tax purposes. o Determine whether vehicles are owned or leased. * CONTRACTS AND LEASES o Review existing contracts and leases. Must any of these be assumed? Are they assignable? Are they terminable? o Carefully review contracts or leases involving significant time periods and money. o Check network and syndicated programming contracts, if any. o Investigate programming commitments and prepaid programming, in particular. o Determine the amounts and types of barter obligations and trade deals. o Examine any sales representative agreements. o Look at the loan agreements, bank agreements and all security agreement, if being assumed. o Review contracts for lease or maintenance of communications equipment. o Examine any news service and jingle agreements. o Determine whether there are agreements restricting the conduct of the station's business. o Investigate any other material agreements existing outside the normal course of business. o Determine whether there is a written brokerage or finder's fee agreement. What are the terms? * INSURANCE o Determine what insurance coverage exists. Review all policies. Are they adequate? o Check to see if insurance policies are assignable. o Learn the extent to which the seller is self-insured against risks. o Determine whether there is any life insurance on the principals. Who are the owner and beneficiary? o Obtain the claims history for the last few years. * LITIGATION AND OTHER CONTINGENCIES o Ascertain whether there are any pending lawsuits. Obtain names and addresses of counsel and copies of pleadings. o Examine copies of lawyer responses to audit inquiry letters. o Determine whether there is any threatened litigation or correspondence with governmental authorities. o Check tax return filings, audits or correspondence by or from taxing authorities. o Determine whether there are any agreements and/or judgments by which the seller is a party or bound, which prohibits any future activities. * PERSONNEL o Obtain copies of all employment agreements or other personnel arrangements. o Ascertain are the details of these agreements. o Obtain copies of all management consulting or talent contracts. o Obtain a list of salaried employees. o Examine the company or employee manual. The company's policies and procedures should be checked. o Determine whether any of the employees are covered by union contracts. Has there been any union organizing activity? o Review any union contract for: term of contract, employees covered, vacation and sick leave policy, and other financially crucial terms. o Obtain a schedule of all employee benefit plans. o Review severance and vacation pay obligations. o Determine any possible liability under the Federal labor Standards Act requiring payment of time-and-a-half for overtime and minimum wages. * UNWANTED ASSETS o Determine whether there are any assets owned or leased by the seller that are unrelated to the station.