SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK -------------------------------------------------------------------- )( ESRT EMPIRE STATE BUILDING, L.L.C., Plaintiff, IndeJC No. 656145/2016 (Lebovits, J.) -against- PACIFICA FOUNDATION, INC., Defendant. AFFIDAVIT OF TIMOTHY S. PECARO Motion Seq. 002 -------------------------------------------------------------------- )( TIMOTHY S. PECARO, being duly sworn, hereby deposes and states as follows: 1. I am a principal and founder of Bond & Pecaro, Inc. ("B & P"), a consulting firm that provides financial, valuation, and strategic consulting services to companies in the broadcasting, cable television, telecommunications, publishing, and internet industries. B & P has been providing these services since 1986. 2. I submit this affidavit in support of the opposition ofplaintiffesrt Empire State Building, L.L.C. ("ESRT") to the motion of defendant Pacifica Foundation, Inc. ("Pacifica") to amend its answer to assert a defense of''unconscionability" as respects the enforcement of the "Lease and License Agreement," between Pacifica and ESRT's predecessor-in-interest, dated as of June 27, 2005 (the "2005 Agreement"). 3. I have personal knowledge of the facts set forth herein. 4. I personally advised ESRT's predecessor-in-interest, Empire State Building Company L.L.C. ("ESBC"), as to certain aspects of its negotiations with Pacifica with respect to the 2005 Agreement, specifically the 2005 Agreement's rent and license fees. 5. As such, I have been asked to respond to certain assertions made in the Affidavit of John Crigler (the "Crigler Affidavit" or "Crigler Aff."). 00064158.DOCJC v 1 of 6
6. I understand, in summary, Pacifica is alleging that the 2005 Agreement is subject to an unconscionability defense because ESBC allegedly took unfair advantage of its market power after the September 11 tragedy during which the World Trade Center twin towers collapsed. While the 9/11 tragedy did impact the broadcasting community inn ew York City, as explained herein, the assertions made by Pacifica as to the impact of such tragedy on its negotiating ability with ESBC are demonstrably untrue. The 2005 Agreement Was an Extension of the 1992 Agreement and The Rent and License Fees Thereunder Stemmed From the FM Master Antenna Project Requested by Pacifica and Other Broadcasters 7. As an initial matter, it is my understanding that Pacifica or its affiliate has been broadcasting from the Empire State Building (the "Building") under the call letters WBAI since 1965. 8. Further, as Crigler states, the 2005 Agreement was in many respects an extension of the parties' previous lease and license agreement, the term of which was set to expire on February 28, 2005 (the "1992 Agreement"). 9. What Crigler fails to mention, however, is that in or about June 1992, ESBC (ESRT's predecessor-in-interest) agreed to permit 11 of its FM radio broadcast tenants, including Pacifica, to construct a new FM master antenna and combiner room (the "FM Master Antenna Construction"), with the cost of the construction to be split among the tenants. These tenants sometimes act collectively as a group known as the "Master FM Committee." 1 10. The FM Master Antenna Construction was requested by Pacifica and other broadcasters to increase the relevant coverage areas and improve transmission from the Building. This benefit was of course of great economic value to the tenants, including Pacifica. 1 Five (5) other FM stations have since joined the Master FM Committee and there are presently 16 FM stations broadcasting from the FM master antenna. 00064158.DOCX v 2 2 of 6
11. As part of the FM Master Antenna Construction negotiations, which led up to the 1992 Agreement, Pacifica and the 10 other original members of the Master FM Committee all agreed to remain as tenants in the Building for extended periods oftime that would expire, depending on the particular tenant, between 2004 and ~007. Further, all of the agreements stemming from the FM Master Antenna Construction contained substantially identical economic terms, including identical license fees (such agreements, including the "1992 Agreement," the "1992 FM Master Antenna Agreements"). 12. Significantly, none of these broadcast tenants or their successors ceased broadcasting from the Building at the expiration of the 1992 FM Master Antenna Agreements. Rather, all of them or their successors, including Pacifica, agreed to continue broadcasting from the Building for additional periods of time, many on substantially identical economic terms, including identical license fees (collectively, including the "2005 Agreement," the "Extended License Agreements")? 13. These tenants, including Pacifica, entered into the Extended License Agreements because they continued to enjoy the benefit of the still relatively new FM master antenna for which they had collectively invested significant capital, not because they were constrained to do so by the post 9/11 market. 14. Furthermore, to support Pacifica's claim of''unconscionability," in his affidavit Crigler states that "[i]ncreases to the license fee in the 1992lease were 5%," and "[i]n the 2005 lease they were increased to 7%". (Crigler Aff. ~ 10.) In the first place, it seems doubtful to me that a 2% increase to the license fee is ''unconscionable." In any event, Crigler's statement is misleading. 2 Some of the tenants negotiated agreements in this time period several years before the other tenants. The economic terms of those agreements are substantially identical to each other but differ from the majority of tenants on the Master FM Committee, including Pacifica. 00064158.DOCX v 3 3 of 6
15. In fact, the 1992 FM Master Antenna Agreements contained an initial license fee of $84,000, but also contained subsequent annual adjustments, including extra rate steps in years 5 and 10. Therefore, it would have been rational to assume an above average rate step would also occur in year 15 (that is, 2007). Also, the average annual rate increase over the 13 years prior to 2005 was 6.0% compared to the 7.0% rate increase in the 2005 Agreement. 16. Significantly, Crigler's Affidavit concedes that Pacifica had "options" in 2005. (Crigler Aff. ~ 5.) Although Mr. Crigler fails to explain what those "options" were, it is clear that, at a minimum, he is referring to 4 Times Square, which I understand is where Pacifica now wants to broadcast from instead of the Building 17. I would point out in this regard that as a direct result of the 9/11 tragedy and the collapse of the World Trade Center towers, between 2002 and 2003 the original antenna mast atop 4 Times Square was replaced with a taller mast to accommodate primary and auxiliary television and radio signals ofbroadcast tenants who had been displaced by destruction of those buildings. 18. Given the improvements made in 2002-2003 to the 4 Times Square antenna facility, I believe that Pacifica could have moved its broadcast activities to that building prior to it entering into the 2005 Agreement. It instead decided to enter into the 2005 Agreement. Again, Pacifica likely made this decision because of its capital investment in the FM Master Antenna Construction and the significantly higher transmitting antenna position provided by the antenna mast at the Building, but in any event, it had choices. 19. I also would point out to the Court that the 4 Times Square master antenna is inferior to the Building's, so the rents and license fees are not comparable. 20. The FM radio antennas on 4 Times Square are at a height of approximately 922'. 00064158.DOCX v 4 4 of 6
The Master FM antenna on the Building is at 1,361 '. Moreover, there are 12 buildings in New York City that are taller than the FM antenna mast on 4 Times Square, and these structures can cause objectionable interference and coverage loss for stations on 4 Times Square. This simply is not true with respect to the Building, which at the time of the 2005 Agreement was the tallest building inn ew York City. 21. Accordingly, for the reasons stated herein, Crigler's statements that "[d]espite Pacifica's objections to the onerous terms it was presented in 2005," ESBC "presented its rates as a take it or leave proposition," and ifpacifica "wanted to continue to serve its New York City listeners, [it] was constrained to acquiesce to Plaintiffs demands" (Crigler Aff. ~~ 13-14), are plainly inaccurate. TIMOTHY S. PECARO District of Columbia: ss: Subscribed and Sworn to before me this~ day of August 2017. 00064158.DOCXv 5 5 of 6
CERTIFICATE OF CONFORMITY DISTRICT OF COLUMBIA ) ss.: On the '2--) day of August in the year 2017 before me, the undersigned, personally appeared Timothy S. Pecaro, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual executed the instrument., Notary Public D.C. My commission expires fjo,j )~ 20'Jd 00064158.DOCX v 6 6 of 6