Chapter
369
2005 -- S 1142 SUBSTITUTE A AS AMENDED
Enacted 07/19/05
A N A C T
RELATING TO FIDUCIARIES -- PUBLIC RADIO STATIONS
Introduced By: Senators Roberts, Paiva-Weed, and Felag
Date
Introduced: June 01, 2005
It is
enacted by the General Assembly as follows:
SECTION
1. Title 18 of the General Laws entitled "Fiduciaries" is hereby
amended by
adding
thereto the following chapter:
CHAPTER
4.1
THE PUBLIC RADIO CONVERSIONS
ACT
18-4.1-1.
Short title. -- This chapter shall be known and may be cited as
"The Public
Radio
Conversions Act."
18-4.1-2.
Findings. -- The general assembly finds and declares that:
(1) Public radio stations in Rhode Island contribute uniquely and substantially
to the
cultural,
educational and journalistic quality of life in Rhode Island;
(2)
Rhode Island's existing public radio stations have been built and maintained
through
the
charitable contributions of thousands of Rhode Island individuals, foundations
and businesses
who
expected that their contributions would be used to maintain and improve public
radio
stations
in Rhode Island;
(3)
Consolidation in commercial radio and other media has reduced the number of
Rhode
Island
owned and operated cultural, educational and news organizations;
(4)
Rhode Island public radio stations are under particular challenge because the
lawful
but
dominant signal strength and broadcasting priority of television's broadcast
channel six limits
the signal
strength of virtually all noncommercial radio licenses in Rhode Island, thereby
limiting
the
technical ability of Rhode Island public radio stations to serve the entire
state through a single
noncommercial
radio license;
(5)
Public radio stations that do not operate on frequencies reserved for
noncommercial
broadcasting
may easily be sold to for-profit entities that do maintain public radio
programs;
(6)
Donations to Rhode Island charities are given with the intent that each charity
will use
the
donations to support the charity's mission as long as the charity and mission
are viable; and
(7)
In order to protect public welfare and public and charitable assets, and ensure
that
Rhode
Islanders' gifts to Rhode Island public radio stations are used for their
intended purposes, it
is
necessary to establish standards and procedures that result in recoupment of
public investment
through
the assessment of a conversion fee to create the financial infrastructure to
replicate public
radio
programming that may be lost in the sale of a public station to a commercial
operator.
18-4.1-3.
Purpose. -- The purpose of this chapter is to:
(1)
Assure Rhode Islanders retain or expand access to high quality public radio
station
programming;
(2)
Establish a process to evaluate, monitor and review whether the conversion of a
public
radio station to a commercial station is consistent with the intentions of
Rhode Island
donors
whose contributions had made the noncommercial station viable;
(3)
Establish a review process for determining whether assessment of a conversion
fee is
appropriate
in a public radio station conversion;
(4)
Clarify the jurisdiction and the authority of the department of attorney
general to
preserve
and protect public and charitable assets in reviewing public radio station
conversions;
and
(5)
Provide for independent organizations to hold, spend and/or distribute the
conversion
fee for
public radio station conversions that the attorney general considers not to
provide a
community
benefit.
18-4.1-4.
Definitions. -- As used in this chapter:
(1)
"Acquiree" means the person or persons that lose(s) any ownership or
control,
including
programming control, of a public radio station, as the terms "public radio
station" and
"person(s)"
are defined within this chapter;
(2)
"Acquirer" means the person or persons which gain(s) an ownership or
control,
including
programming control, in a public radio station, as the terms "public radio
station" and
"person(s)"
are defined within this chapter;
(3)
"Affected community" means any city or town within the state from
which an existing
public
radio station produces, records or otherwise originates programming or
broadcasts its
signal,
and/or those cities and towns whose inhabitants are regularly served by the
existing public
radio
station;
(4)
"Community benefit" means:
(i)
whether the conversion furthers the findings and purposes of sections 18-4.1-2
and 18-
4.1-3
above, and in particular: retains or expands public radio programming;
(ii)
is consistent with the intent of prior donors to the existing public radio
station;
(iii)
affords substantial opportunity to provided noncommercial radio programming
produced
in Rhode Island;
(iv)
provides programming that is not already prevalent among Rhode Island
commercial
radio
broadcasters at the time of the conversion;
(v)
promotes responsible news, information, arts and cultural programming to help
listeners
better understand the world around them; and
(vi)
preserves a substantive governing role for the Rhode Island volunteers, for
example,
a
community board of directors.
(5)
"Conversion" means any:
(i)
transfer or assignment by a person or persons of an ownership or membership
interest
or
authority in a public radio station, or the assets of a public radio station,
whether by purchase,
merger,
consolidation, lease, gift, joint venture, sale, or otherwise;
(ii)
agreement, such as a local management agreement or programming agreement, the
implementation
of which would require a change in the public radio station's broadcast license
to
permit
commercial operations;
(iii)
transfer, assignment or issuance of twenty percent (20%) or greater of the
membership
or voting rights or interests of the public radio station or of the assets of
the public
radio
station or pursuant to which, by virtue of the transfer, a person, together
with all persons
affiliated
with the person, holds or owns, in the aggregate, twenty percent (20%) or
greater of the
membership
or voting rights or interests of the public radio station or of the assets of
the public
radio
station;
(iv)
the removal, addition or substitution of a partner that results in a new
partner gaining
or
acquiring a controlling interest in the public radio station; or
(v)
any change in membership that results in a new person gaining or acquiring a
controlling
vote in the public radio station.
(6)
"Conversion Fee" means the amount the department of attorney general
orders an
acquirer
to pay pursuant to subsection 18-4.1-5(a);
(7)
"Existing public radio station" means a public radio station as it exists
prior to the
conversion;
(8)
"Public radio station" means a radio station possessing a United
States Federal
Communications
Commission noncommercial license, to broadcast on a frequency that is not
reserved
by the FCC for noncommercial use, assigned to a community of license located in
Rhode
Island and which is operated by an entity that may not lawfully distribute
operating
surpluses
or other retained earnings to individual persons or which would cease to
qualify as an
organization
described in Section 501(c)(3) of the United States Internal Revenue Code were
the
organization
to do so;
(9)
"New radio station" means the radio station as it exists after the
completion of a
conversion;
(10)
"Person" means any individual, trust or estate, partnership,
corporation (including
associations,
joint stock companies and insurance companies,) state or political subdivision
or
instrumentality
of the state; and
(11)
"Transacting parties" means any person or persons who seeks either to
transfer or
acquire
ownership or a controlling interest or controlling authority, including
programming
authority,
in a public radio station which would result in a change of ownership, control
or
authority
of twenty percent (20%) or greater.
18-4.1-5.
Notice and Conversion Fee. -- (a) The transacting parties shall
notify the
department
of attorney general within five (5) business days after entering into an
agreement for
conversion
of public radio station, and in no event later than the date on which an
application to
transfer,
assign or amend the license of a public radio station to permit commercial
operations is
filed
with the FCC. In the event the department of attorney general concludes that a
conversion
has
occurred and did not constitute a community benefit, or a conversion is
proposed to occur and
will
likely not constitute a community benefit, the department of attorney general
shall have the
authority
to order the acquirer to pay to an organization pursuant to section 18-4.1-11 below,
a
conversion
fee upon consummation of the conversion of an amount not to exceed the sum of
all
donations
made to the acquiree related to its public radio station since its inception,
plus two (2)
times
the average annual revenue received by the acquiree related to its public radio
station
during
the preceding three (3) years. The amount of the conversion fee should be
sufficient in the
attorney
general's opinion, to finance production of the public radio programming lost
in the
conversion.
In order to evaluate whether the conversion constitutes a community benefit,
the
transacting
parties shall be entitled to file such information with the department of
attorney
general
as they may elect and as the department of attorney general may request.
(b)
Two (2) copies of the initial application shall be addressed to the attorney
general, and
sent
to the department of attorney general either by hand (provided the deliverer
obtains a receipt
from
the department of attorney general for the delivery) or by United States mail,
certified,
return
receipt requested.
(c)
Except for information determined by the attorney general in accordance with
section
18-4.1-14
to be confidential and/or proprietary, or otherwise required by law to be
maintained as
confidential,
the initial application and supporting documentation shall be considered public
records
and shall be available for inspection upon request.
18-4.1-6.
Review process and criteria of the department of attorney general. -- (a)
In considering
conversions in accordance with this section, the department of attorney general
shall
adhere to the following process:
(1)
Within sixty (60) days after receipt of an initial filing, the department of
attorney
general
shall advise the filer, in writing, whether the filing is complete, and, if
not, shall specify
all
additional information the filer is requested to provide;
(2)
The filer shall have thirty (30) working days to submit the requested
information. If
the
additional information is submitted within the thirty (30) day period, the
department of
attorney
general will have thirty (30) working days within which to determine
acceptability of the
additional
information. If the additional information is not submitted by the filer within
the thirty
(30)
day period or if the department of the attorney general determines the
additional information
submitted
by the filer is insufficient, the conversion will be deemed not to provide a
community
benefit
and the department of attorney general shall specify a conversion fee to be
paid. If the
department
of attorney general determines the additional information to be as requested,
the filer
will
be notified, in writing, of the date of acceptance of the filing;
(3)
Within sixty (60) working days after acceptance of the initial filing, the
department of
attorney
general shall render its determination on confidentiality pursuant to section
18-4.1-14
and
the department of attorney general shall publish notice of the filing in a newspaper
of general
circulation
in the state and shall notify by United States mail any person who has
requested notice
of
the filing. The notice shall:
(i)
State that an initial filing has been received and accepted for review;
(ii)
State the names of the transacting parties;
(iii)
State the date by which a person may submit written comments to the department
of
attorney
general; and
(iv)
Provide notice of the date, time and place of informational meeting open to the
public
which
shall be conducted within ninety (90) days of the date of the notice.
(4)
The department of attorney general shall determine whether the conversion
constitutes
a community benefit, and if not, the amount of any applicable payments due,
within
one hundred
and eighty (180) days of the date of acceptance of the filing.
(b)
In considering a conversion pursuant to subsection (a) the department of the
attorney
general
shall consider the following criteria:
(1)
Whether the proposed conversion will harm the public's interest in property
given,
devised,
or bequeathed to the existing public radio station for charitable, educational
or religious
purposes
located or administered in this state;
(2)
Whether a trustee or trustees of the acquiree will be deemed to have exercised
reasonable
care, diligence, and prudence in performing as a fiduciary in connection with
the
proposed
conversion;
(3)
Whether the board established appropriate criteria in deciding to pursue a
conversion
in
relation to carrying out its mission and purposes;
(4)
Whether the board formulated and issued appropriate requests for proposals in
pursuing
a conversion;
(5)
Whether the board considered the proposed conversion as the only alternative or
as
the
best alternative in carrying out its mission and purposes;
(6)
Whether any conflict of interest exists concerning the proposed conversion
relative to
members
of the board, officers, directors, senior management, experts or consultants
engaged in
connection
with the proposed conversion including, but not limited to, attorneys,
accountants,
investment
bankers, actuaries, broadcasting experts, or industry analysts;
(7)
Whether individuals described in subdivision (b)(6) were provided with
contracts or
consulting
agreements or arrangements which included pecuniary rewards based in whole, or
in
part
on the contingency of the completion of the conversion;
(8)
Whether the board exercised due care in engaging consultants with the
appropriate
level
of independence, education, and experience in similar conversions;
(9)
Whether the board exercised due care in accepting assumptions and conclusions
provided
by consultants engaged to assist in the proposed conversion;
(10)
Whether the board exercised due care in assigning a value to the existing
public
radio
station and its charitable assets in proceeding to negotiate the proposed
conversion;
(11)
Whether the board exposed an inappropriate amount of assets by accepting in
exchange
for the proposed conversion future or contingent value based upon success of
the new
radio
station;
(12)
Whether officers, directors, board members or senior management will receive
future
contracts in existing, new, or affiliated public radio stations or
organizations;
(13)
Whether any members of the board will retain any authority in the new radio station;
(14)
Whether the board accepted fair consideration and value for any management
contracts
made part of the proposed conversion;
(15)
Whether individual officers, directors, board members or senior management
engaged
legal counsel to consider their individual rights or duties in acting in their
capacity as a
fiduciary
in connection with the proposed conversion;
(16)
Whether the proposed conversion results in an abandonment of the original
purposes
of
the existing public radio station or whether a resulting entity will depart
from the traditional
purposes
and mission of the existing public radio station such that a cy pres or
comparable
proceeding
would be necessary in the absence of this statute;
(17)
Whether the proposed conversion contemplates the appropriate and reasonable
fair
market
value;
(18)
Whether the proposed conversion was based upon appropriate valuation methods
including,
but not limited to, market approach, third-party report or fairness opinion;
(19)
Whether the conversion is proper under the Rhode Island nonprofit corporation
act
chapter
6 of title 7;
(20)
Whether the conversion is proper under applicable state tax code provisions;
(21)
Whether the proposed conversion jeopardizes the tax status of the existing
public
radio
station;
(22)
Whether the individuals who represented the existing public radio station in
negotiations
avoided conflicts of interest;
(23)
Whether officers, board members, directors, or senior management deliberately
acted
or failed to act in a manner that impacted negatively on the decision to
approve the
conversion
or its terms and conditions;
(24)
Whether the formula used in determining the value of the existing public radio
station
was appropriate and reasonable which may include, but not be limited to,
factors such as:
the
multiplier factor applied to the "EBITDA" – earnings before interest,
taxes, depreciation, and
amortization;
the time period of the evaluation; price/earnings multiplies; the projected
efficiency
differences
between the existing public radio station and the new radio station; and the
historic
value
of any tax exemptions granted to the existing public radio station;
(25)
Whether the proposed conversion appropriately provides for the disposition of
proceeds
of the conversion that may include, but not limited to:
(i)
Whether an existing entity or a new entity will receive the proceeds and
whether such
recipient
serves the public interest of Rhode Islanders;
(ii)
Whether appropriate tax status implications of the entity receiving the
proceeds have
been
considered;
(iii) Whether the mission statement and program agenda will be or should be
closely
related
with the purposes of the mission of the existing public radio station;
(iv)
Whether any conflicts of interest arise in the proposed handling of the
conversion's
proceeds;
(v)
Whether the bylaws and articles of incorporation have been prepared for the new
entity;
(vi) Whether the board of any new or continuing entity will be independent
from the new
radio
station;
(vii) Whether the method for selecting board members, staff, and consultants
is
appropriate;
(viii) Whether the board will be comprised of an appropriate number of
individuals with
experience
in pertinent areas such as foundations, public radio, business, labor,
community
programs,
financial management, legal, accounting, grant making and public members
representing
diverse ethnic populations of the affected communities;
(ix) Whether the size of the board and proposed length of board terms are
sufficient;
(26) Whether the transacting parties are in compliance with the Charitable
Trust Act,
chapter
9 of title 18;
(27) Whether a right of first refusal to repurchase the assets has been
retained;
(28) Whether the character, commitment, competence and standing in the
community,
or
any other communities served by the transacting parties are satisfactory;
(29) Whether a control premium is an appropriate component of the proposed
conversion;
(30) Whether the value of assets factored in the conversion is based on past
performance
or
future potential performance; and
(31) Whether based on all the facts and circumstances, the attorney general
concludes
that
the acquiree's charitable and educational missions are no longer viable absent
the conversion.
18-4.1-7. Reports, use of experts, costs. -- (a) The
department of attorney general may
in
effectuating the purposes of this chapter engage experts or consultants
including, but not limited
to,
actuaries, investment bankers, accountants, attorneys, or industry analysts.
All copies of
reports
prepared by experts and consultants, and costs associated with the reports,
shall be made
available
to the transacting parties and to the public. All costs incurred under this
provision, including
internal
attorney general costs, shall be the responsibility of one or more transacting
parties in an
amount
to be determined by the attorney general as he or she deems appropriate. No
filing made
pursuant
to the requirements of this chapter shall be considered complete unless an
agreement has
been
executed with the attorney general for the payment of costs in accordance with
this section.
18-4.1-8. Investigations – Notice to attend – Court order to appear –
Contempt. –
(a)
The attorney general may conduct investigations in discharging the duties
required under this
chapter.
For purposes of this investigation the attorney general may require any person,
agent, trustee,
fiduciary,
consultant, institution, association, or corporation directly related to the
proposed conversion
to
appear at any time and place that the attorney general may designate, then and
there under oath to
produce
for the use of the attorney general any and all documents and any other
information relating
directly
to the proposed conversion that the attorney general may require.
(b) Whenever the attorney general may require the attendance of any person
as provided in
subsection
(a), the attorney general shall issue a notice setting the time and place when
the attendance
is
required and shall cause the notice to be delivered or sent by registered or
certified mail to the
person
at least fourteen (14) days before the date fixed in the notice for the
attendance.
(c) If any person receiving notice pursuant to this provision neglects to
attend or remain in
attendance
so long as may be necessary for the purposes which the notice was issued, or
refuses
to
produce information requested, any justice of the superior court for the county
within which the
inquiry
is carried on or within which the person resides or transacts business, upon
filing by the
attorney
general, or any transacting party shall have jurisdiction to hear and consider
on an
expedited
basis the request, and if appropriate and relevant to the consideration of
proposed
conversion,
may issue to the person an order requiring the person to appear before the
attorney
general
there to produce for the use of the attorney general evidence in accordance
with the terms
of
the order of the court, and any failure to obey the order of the superior court
may be punished
by
the court as contempt of court.
18-4.1-9. Perjury. -- Any person who is found to have
testified falsely under oath before the
legislature,
or the attorney general pursuant to this chapter shall be subject to
prosecution for
perjury
and be subject to the penalties set forth in section 18-4.1-13.
18-4.1-10. No derogation of attorney general. -- (a) No
provision of this chapter shall
derogate
from the common law or statutory authority of the attorney general nor shall
any provision
be
construed as a limitation on the common law or statutory authority of the
attorney general,
including
the authority to investigate at any time charitable trusts for the purpose of
determining
and
ascertaining whether they are being administered in accordance with law and
with the terms
and
purpose thereof.
(b) No provision of this chapter shall be construed as a limitation on the
filing of the
doctrine
of cy pres or any other legal doctrine applicable to charitable assets and/or
charitable trusts.
18-4.1-11. Distribution of conversion fee – Selection of a charitable
organization by
superior
court. --
(a) Any conversion fee shall be awarded by the superior court to an existing
or
newly
formed legal entity that is a nonprofit corporation organized under chapter 6
of title 7, is
exempt
from taxation under Section 501(a) of the United States Internal Revenue Code
as an
organization
described in Section 501(c)(3) of such code and has as its primary purpose to
promote
and/or
operate public radio stations in Rhode Island.
18-4.1-12. Whistleblower protections. -- (a) Prohibition
against discrimination. No person
subject
to the provisions of this chapter, may discharge, demote, threaten or otherwise
discriminate
against
any person or employee with respect to compensation, terms, conditions, or
privileges
of
employment as a reprisal because the person or employee (or any person acting
pursuant to
the
request of the employee) provided or attempted to provide information to the
attorney general
or
his or her designee regarding possible violation or failure to satisfy the
approval criteria of this chapter.
(b) Enforcement. Any person or employee or former employee subject to the
provisions of this
chapter
who believes that he or she has been discharged or discriminated against in
violation of
subsection
(a) may file a civil action within three (3) years of the date of discharge or
discrimination.
(c) Remedies. If the court determines that a violation has occurred, the
court may order the person
who
committed the violation to:
(1) Reinstate the employee to the employee's former position;
(2) Pay compensatory damages, costs of litigation and attorneys' fees;
and/or
(3) Take other appropriate actions to remedy any past discrimination.
(d) Limitation. The protections of this section shall not apply to any
person or employee who:
(1) Deliberately causes or participates in the alleged violation of law or
regulation; or
(2) Knowingly or recklessly provides substantially false information to the
attorney
general
or his or her designee.
18-4.1-13. Failure to comply – Penalties. -- If any person
knowingly violates or fails
to
comply with any provision of this chapter or willingly or knowingly gives false
or incorrect
information,
the superior court may, after notice and opportunity for a prompt and fair
hearing,
impose
a fine of not more than one million dollars ($1,000,000).
18-4.1-14. Disclosure of documents. -- The attorney general
has the power to decide
whether
any information required by this chapter of a filer is confidential and/or
proprietary.
The
decisions by the attorney general shall be made prior to any public notice of
information
filed
pursuant to this chapter or any public reviews of any information and shall be
binding
on
the attorney general and all experts or consultants engaged by the attorney
general.
18-4.1-15. Severability. -- If any provision of this chapter
or the filing of any provision
to
any person or circumstances is held invalid, that invalidity shall not affect
other provisions
or
applications of the chapter, which can be given effect without the invalid
provision or
application,
and to this end the provisions of this chapter are declared to be severable.
18-4.1-16. Judicial review. -- Any transacting party aggrieved
by a final order of the
attorney
general under this chapter may seek judicial review by original action filed in
the
superior
court.
SECTION 2. This act
shall take effect upon passage.
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LC03408/SUB A
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