<PAGE>
As filed with the Securities and Exchange Commission on July 25, 1996
Registration No. 33-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
REGISTRATION STATEMENT
ON FORM S-1
UNDER THE SECURITIES ACT OF 1933
------------------
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
(Exact name or registrant as specified in its charter)
Delaware 2721 54-1799019
- -------- --------- ----------
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial Classification Identification
Incorporation or Number) Number)
Organization)
-----------------
1320 Old Chain Bridge Road -- Suite 220
McLean, Virginia 22101
(703) 883-1836
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)
-----------------
Copy To:
Carl N. Duncan, Esq.
Bayh, Connaughton & Malone, P.C.
1350 I Street, N.W. -- Suite 200
Washington, D.C. 20005
(202) 962-9437
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the
Registration Statement
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [x].
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Title of Each Class Proposed Maximum Amount of
of Securities to be Amount to be Proposed Maximum Aggregate Registration
Registered Registered* Offering Price per Share* Offering Price Fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common 5,000,000
Stock Shares $5.00 $25,000,000 $8,610
- ---------------------------------------------------------------------------------------------------
</TABLE>
*Estimated for purposes of calculation of the registration fee only and
assuming that the $25,000,000 maximum is sold during this Offering Period at
the price of $5.00 per Share.
------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file an amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
CROSS REFERENCE SHEET
(SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1)
An asterisk (*) under "Caption in Prospectus" indicates that the answer to
the item of Form S-1 Part I is negative or inapplicable.
<TABLE>
<CAPTION>
ITEMS IN FORM S-1 CAPTION IN PROSPECTUS
- ----------------- ---------------------
<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover of Prospectus. . . . . Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus. . . . . . . . . . . . . . Front Cover Page; Risk Factors
3. Summary Information and Risk Factors . . . . . Summary; Risk Factors
4. Use of Proceeds. . . . . . . . . . . . . . . . Application of Proceeds
5. Determination of Offering Price. . . . . . . . Cover Page
6. Dilution . . . . . . . . . . . . . . . . . . . Dilution
7. Selling Security Holders . . . . . . . . . . . *
8. Plan of Distribution . . . . . . . . . . . . . Plan of Distribution
9. Description of Securities to be
Registered . . . . . . . . . . . . . . . . . . Cover Page; Description of Capital Stock
10. Interest of Named Experts and Counsel. . . . . Conflicts of Interest
11. Information with Respect Cover Page; Summary;
to the Registrant. . . . . . . . . . . . . . . The Company; Description of Capital Stock
12. Disclosure of Commission Position on Fiduciary Responsibility of
Indemnification for Securities Act Company's Management;
Liabilities. . . . . . . . . . . . . . . . . . Description of Capital Stock
</TABLE>
<PAGE>
PROSPECTUS $25,000,000 SEPTEMBER , 1996
5,000,000 SHARES OF COMMON STOCK
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
5,000,000 shares of common stock (the "Shares") are being offered hereby
by Heartland Communications & Management, Inc., a Delaware corporation (the
"Company"), on a best-efforts basis. The Company will be engaged in a
broad-based communications and management business aimed at specific targeted
markets, including the development, production, marketing and syndication of
advertising-supported broadcast programs and print products. (See "The
Company -- Specific Projects Under Consideration.") These products are
designed to meet the expanding needs of the media business for creative
content -- especially in those segments, e.g., AM radio and newspaper
publishing, in which syndicated alternatives to locally-produced content are
financially attractive. The Company's Heartland Radio Network, directly or
indirectly, will not only produce news, information and talk programming of
its own but assist in the development of programming by outside producers,
secure syndication opportunities for them and share in the revenue. The
Company will be paid a specific negotiated portion of the gross advertising
receipts and/or income (or some combination) of several talk radio shows, one
of which is on more than 80 radio stations across the U.S. The Company
contemplates forming one or more of its own satellite-transmitted radio
networks to sell broadcast time to advertisers and talk show hosts and is
currently investigating the acquisition of a satellite-based program radio
network (to permit the Company to act as a satellite-based program
distributor). In addition, the Company has the option to obtain a substantial
interest in two prospective innovative, national specialty supplements to
newspapers designed to appeal to targeted segments of the mass audience the
Company believes to be under-served: teenagers and sports enthusiasts.
Additional print, broadcast, Internet-based products, management services and
news media components, as well as hybrid combinations, also are contemplated.
They will be developed by the Company or will be part of the Company's
acquisition strategy and/or management services will be offered to clients on
a fee and/or equity basis providing, for example, marketing concepts and
strategies. In addition, the Company seeks out promising investment
opportunities where it will take a passive investment position in certain
management companies (but not so much as to subject the Company to the
Investment Company Act of 1940). The first such situation relates to an
option to obtain a minority interest in a money management firm which is
planning its first targeted product, a private investment company (sometimes
called a "hedge fund"), and an option to acquire 50% of the management fees
relating to its next two contemplated products, either an inflation index
fund and/or a mutual fund, in return for providing the funding associated
with such proposed start-ups. At the present time, all such investment
opportunities are contingent on the successful completion of this offering
and due diligence supporting the viability of the investment.
Unless earlier terminated, the Initial Offering Period will be up to two
(2) months from the date hereof unless, in the sole discretion of the Company
and Selling Agent, it is extended for periods up to a total of seven (7)
additional months. The Company is offering a minimum of $2,000,000 up to a
maximum of $25,000,000 of such Shares. (See "Plan of Distribution.") The date
that (1) subscriptions for a minimum of $2,000,000 in Shares have been
received and (2) the Company has accepted such subscriptions, will mark the
end of the Initial Offering Period. As described in greater detail in "Plan
of Distribution," the offering is being made pursuant to a Registration
Statement which may be extended for additional periods which will, in the
aggregate, not exceed 18 months from the date of this Prospectus (the
"Continuous Offering Period"). During both the Initial and Continuous
Offering Periods (up to 9 and 18 months, respectively), Shares will be
offered at $5.00 per share, inclusive of an 8 1/2% selling commission (the
"Selling Price"). (See "Notes to the Cover Page.") If a minimum of $2,000,000
of Shares is not sold during the Initial Offering Period (as it may be
extended), investor funds will be promptly returned with all net interest
earned thereon. The minimum purchase is $5,000 except that the Company in its
discretion (IRA accounts, for example) may accept less; additional purchases
by existing Shareholders may be made in the amount of $1,000 or more.
See "Risk Factors" for certain factors that should be considered by
prospective investors.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION NOT CONTAINED IN THE
PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY ANY PERSON WITHIN
ANY JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL.
POTENTIAL INVESTORS IN THE COMPANY ARE ADVISED THAT AN INVESTMENT IN ITS SHARES
IS SUBJECT TO THE FOLLOWING CONSIDERATIONS, AMONG OTHERS:
- - Communications and/or management companies can be speculative and volatile
and involve significant risks, including those discussed in "Risk Factors."
- - The Company has not had significant prior operations, and market acceptance
is beyond the control of management. (See "The Company" and "Risk
Factors.")
- - Certain conflicts of interest exist in the management of the Company. (See
"Conflicts of Interest.")
- - The success of the Company is dependent on its management. (See "The
Company -- Management" and "Risk Factors -- Reliance on Management.")
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Price to Public During Initial Offering Selling Proceeds to Company (3)
Period (1)(2)(3) Commission (2)(3)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share $5.00 $0.45 $4.575
Total Minimum $2,000,000 $170,000 $1,830,000
Total Maximum $25,000,000 $2,125,000 $22,875,000
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) During this Offering Period, there is a $5,000 minimum (except that the
Company in its discretion -- IRA accounts, for example -- may accept less,
and existing Shareholders may make additional purchases in the amount of
$1,000 or more).
(2) A selling commission of 8 1/2% will be paid on all Shares sold. The Company
has agreed to indemnify the Selling Agent (and any Additional Selling
Agents) against certain liabilities, including any that may exist under the
Securities Act of 1933. (See "Plan of Distribution.")
(3) These amounts are before deducting offering expenses, (estimated at
$220,000 in the case of the minimum offering and $805,000 in the case of
the maximum offering) payable by the Company.
UNTIL DECEMBER , 1996 (90 DAYS AFTER THE DATE HEREOF), ANY
BROKER-DEALER EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A CURRENT COPY
OF THIS PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A COPY OF THIS PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO ANY UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER OR
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATES ANY IMPLICATION THAT THE
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE OR, IN THE CASE OF INFORMATION INCORPORATED HEREIN OR
THEREIN BY REFERENCE, THE DATE OF FILING WITH THE SECURITIES AND EXCHANGE
COMMISSION.
ii
<PAGE>
INVESTMENT REQUIREMENTS
Subscriptions for the purchase of the Shares offered hereby are subject to
the following conditions:
(1) The minimum initial purchase is $5,000 subject to discretion of the
Company to accept less. (See "Plan of Distribution.") There is generally no
limit on the maximum number of Shares that may be purchased by any one
investor, except as limited by applicable regulatory considerations. (See,
for example, "ERISA Considerations.")
(2) Each purchaser must represent in the Subscription Agreement and Power of
Attorney that he has (a) a net worth of at least $100,000 (exclusive of home,
furnishings and automobiles) or (b) a net worth of at least $50,000
(similarly calculated) and an annual adjusted gross income of not less than
$25,000. The Administrators of securities laws of certain states have imposed
additional suitability requirements for investments by residents of such
states. (See Annex to the Subscription Agreement and Power of Attorney).
(3) In the case of a pension, profit sharing plan or trust or any
tax-deferred or tax-exempt entity, including retirement plans, the trustee or
custodian must represent that he, she or it is authorized to execute such
subscription on behalf of the plan and that such investment is not prohibited
by law or the plan's governing documents.
(4) The Company may reject any subscription. All subscriptions received are
irrevocable.
(5) The Company and any Selling Agent must have reasonable grounds to
believe, on the basis of information obtained from the purchaser concerning
his financial situation and needs and any other information known by the
Company and/or any Selling Agent that (a) the purchaser is or will be in a
financial position appropriate to enable him to realize to a significant
extent the benefits described in the Prospectus; (b) the purchaser has a net
worth sufficient to sustain the risks inherent in an investment in the
Company, including possible losses on their investment and lack of liquidity;
and (c) the Company is otherwise a suitable investment for the purchaser.
(6) Shares will be legended to restrict transfer until the offering
terminates and may be subject to restrictions on transfers thereafter to
persons who meet specified suitability requirements. This may reduce the
possibility of any trading market developing in the Shares for an additional
period of time after the close of the offering. (See "Risk Factors -- No
Market For The Company's Shares; Non-Transferability Of Shares Until Offering
Period Ends.")
-----------------------------------------------
FOLLOWING THE CONCLUSION OF EACH FISCAL YEAR, SHAREHOLDERS WILL RECEIVE
AN ANNUAL REPORT, INCLUDING A BALANCE SHEET, STATEMENTS OF OPERATIONS, CASH
FLOWS AND SHAREHOLDERS' EQUITY AND RELATED FOOTNOTES. THE FINANCIAL
STATEMENTS CONTAINED IN THE ANNUAL REPORT WILL BE AUDITED BY THE COMPANY'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. UNAUDITED QUARTERLY REPORTS ON
OPERATIONS WILL ALSO BE DISTRIBUTED TO SHAREHOLDERS OR MADE AVAILABLE THROUGH
E-MAIL AND/OR THE INTERNET.
iii
<PAGE>
TABLE OF CONTENTS
Descriptive Title Page
- ----------------- ----
INVESTMENT REQUIREMENTS
PROSPECTUS SUMMARY
SUMMARY FINANCIAL DATA
PRO FORMA FINANCIAL INFORMATION
INTRODUCTORY STATEMENT: WHO SHOULD INVEST
RISK FACTORS
FIDUCIARY RESPONSIBILITY OF THE COMPANY'S MANAGEMENT
THE COMPANY
General
Introduction
Specific Opportunities Under Consideration
Management Employees and Property
Securities Ownership Of Certain Beneficial Owners And Management
Selected Financial Data
Management's Discussion And Analysis And Results Of Operations
CONFLICTS OF INTEREST
APPLICATION OF PROCEEDS
ABSENCE OF PUBLIC MARKET AND DIVIDEND POLICY
CAPITALIZATION
DILUTION
DESCRIPTION OF CAPITAL STOCK
PLAN OF DISTRIBUTION
ERISA CONSIDERATIONS
LEGAL MATTERS
EXPERTS
AVAILABLE INFORMATION
APPENDIX I (Financial Statements)
APPENDIX II (ALVERY BARTLETT BIOGRAPHY)
EXHIBIT A - SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
iv
<PAGE>
[GRAPHIC]
[GRAPHIC] [GRAPHIC]
[GRAPHIC] [GRAPHIC]
v
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. ALL REFERENCES IN THIS PROSPECTUS TO SHARES ARE
AS OF MAY 18, 1996, UNLESS OTHERWISE SPECIFIED. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."
The Company
Heartland Communications & Management, Inc. is a recently organized
Delaware corporation which will engage in a broad-based communications and
management business aimed at specific targeted markets. At the present time,
the Company has engaged mostly in organizational activities to structure the
various business areas. The Company, directly or indirectly, also has
contracts to market, produce and/or distribute certain syndicated radio
programs. (As of the date of this Prospectus, the Company's talk shows
include "America The Beautiful" (with Mike Foudy), "Rodham Radio" (with Hugh
Rodham), "Synergy" (with Robbie Patterson), the "Doug Casey Show," "End of the
Line" (with Jeff Rense) and "The Travel Show" (with Larry Gelwix and Danny
Kramer); "For Women Only" (with Kathleen Schafer) is a show currently under
development.) It is also performing initial due diligence on various other
business development opportunities. For example, the Company contemplates
forming one or more of its own satellite-transmitted radio networks to sell
broadcast time to advertisers and talk show hosts and is currently
investigating the acquisition of a network (to allow the Company to act as
its own program distributor). In addition, the Company has an option to
obtain a substantial interest in two prospective innovative, national
specialty supplements to newspapers designed to appeal to targeted segments
of the mass audience the Company believes to be under-served: teenagers and
sports enthusiasts. Additional print, broadcast, Internet-based products,
management services and news media components, as well as hybrid
combinations, also are contemplated. They will be developed by the Company or
will be part of the Company's acquisition strategy and/or management services
will be offered to clients on a fee and/or equity basis providing, for
example, marketing concepts and strategies. In addition, the Company has an
option (the first of its proposed passive investment positions in certain
management companies so long as not thereby subjected to the Investment
Company Act of 1940) to obtain a minority investment interest in a money
management firm which is planning its first product, a private investment
company, and an option to acquire 50% of the management fees relating to such
money management firm's next two contemplated targeted products, an inflation
fund and/or mutual fund, in return for providing the funding associated with
such proposed start-up(s). (See "The Company -- Specific Projects Under
Consideration.")
The Company was incorporated on March 27, 1996 in Delaware. Its par
value $.001 Shares are not expected initially to be listed on NASDAQ, the
American Stock Exchange or any other listed market for at least 6 to 18
months after the offering commences. In fact, Shareholders will have their
certificates legended to preclude the transfer of their Shares until the
Offering Period ends. (See "Risk Factors -- No Market For The Company's
Shares; Non-Transferability Of Shares Until Offering Period Ends.")
The Offering
Securities 5,000,000 Shares having an aggregate offering price of
$25,000,000 are being offered at $5.00 per share (the "Selling
Price") during this Offering Period. (See "Plan of Distribution"
and Cover Page.)
Offering As described in greater detail in "Plan of Distribution" and on
the Cover Page, the Initial Offering Period begins Period on the
date of this Prospectus and may continue for up to nine (9)
months thereafter, unless earlier terminated or extended. (The
date that (1) subscriptions for a minimum of $2,000,000 of
Shares have been received and (2) the Company has closed the
initial escrow will mark the end of the Initial Offering
Period.) Subject to pertinent securities requirements, the
Company expects to update this Prospectus after its Initial
Offering Period and continue the offering (the "Continuous
Offering Period") for up to 18
1
<PAGE>
months from the date of this Prospectus if, as expected, the
$25,000,000 maximum is not achieved during the Initial Offering
Period.
Proceeds Held All subscriptions during the Initial Offering Period will be
held in an escrow account with George Mason Bank, McLean,
Virginia. Such proceeds will not be paid to the Company until
receipt of the minimum offering amount of $2,000,000;
thereafter, if such minimum is achieved, the offering will
continue at the Company's $5.00 per share Selling Price. If the
minimum offering amount of $2,000,000 is not achieved, the
related proceeds and the interest earned thereon will be
returned to the investors. Even after the Initial Offering
Period (so long as at least the $2,000,000 minimum is achieved),
subscriptions will continue to be escrowed with George Mason
Bank pending (i) month-end acceptance or (ii) acceptance in
"tranches" of at least $250,000, whichever first occurs.
Minimum The minimum purchase is $5,000 and minimum additional
purchase(s) by an existing Shareholder is $1,000. Subscription
(See "Investment Requirements" and "Plan of
Distribution--Subscriptions.")
Risks and An investment in the Company involves substantial risks due in
Conflicts of part to the highly speculative nature of the communications
Interest and management business and to the costs which the Company will
incur. (See "Conflicts of Interest.") Risks inherent in
investing in the Company are discussed under "Risk Factors."
Plan of The Shares are being offered on a best-efforts basis by
Additional registered broker-dealers (the "Selling and/or Selling Agents").
Distribution (See "Plan of Distribution.")
Application of Proceeds of this offering will be applied to certain
Proceeds contemplated acquisitions and/or start-ups outlined herein and
for working capital purposes. (See "Application of Proceeds.")
Specifically, depending on the amount and timing of funds
raised, the Company expects that it will (but is not required
to): fully fund its Heartland Radio Network and a possible
communications acquisition and partially fund the proposed
magazine for teens once the $2,000,000 minimum is achieved; fund
the foregoing and partially fund Alvery Bartlett Fund Management
Co. once $5,000,000 is raised; fund the foregoing and Alvery
Bartlett Fund Management Co. and partially fund a national
sports weekly once $12,500,000 is raised; and fully fund the
foregoing if the $25,000,000 offering is achieved. (See
"Application of Proceeds" and "The Company.")
SUMMARY FINANCIAL DATA
The Summary Financial Information, all of which (except the information
for the three months ended March 31, 1995) has been derived from audited
financial statements included elsewhere in this Prospectus, reflects the
operations of Heartland Capital Corporation, ("HCC" and "Predecessor Company"),
the majority of whose development and contract rights were assigned to the
Company ("Successor Company") on May 17, 1996. The Company has had no
operations before the transfer of the majority of HCC's operations as of May 17,
1996.
2
<PAGE>
<TABLE>
<CAPTION>
HCC (Predecessor Company)(1)(3) HCMI - (Successor Co.)(1)(3)
---------------------------------------------------------- ---------------------------------------------
From
6/23/94 6/23/94 3/27/96
(Date of (Date of Date of
Formation) 3 Months 3 Months Formation) Formation)
Through Year Ended Ended Ended Through Through
12/31/94 12/31/95 3/31/96 3/31/96 3/31/96 4/30/96
-------- -------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income Statement
Data:
Revenue $ - $ 647 $ - $ 2,106 $ 2,573 $ -
Costs and expenses $ 211,172 $ 506,092 $ 71,643 $ 160,318 $ 877,582 $ -
Loss from operations $(211,172) $(505,445) $(71,643) $(158,212) $(874,829) $ -
Interest expense, net $ 8,342 $ 10,720 $ 3,709 $ 1,514 $ 20,576 $ -
Net loss (5) $(219,514) $(516,165) $(75,352) $(159,726) $(895,405) $ -
Net loss per share $ (.03) $ (.07) $ (.01) $ (.02) $ (.11) $ -
Common and
common equivalent
shares outstanding(2) 7,851,000 7,851,000 7,851,000 7,851,000 7,851,000 -
</TABLE>
<TABLE>
<CAPTION>
HCC (Predecessor Company)(1)(3) HCMI (Successor Company)(1)(3)
---------------------------------------------------------- --------------------------------------------
As of
---------------------------------------------------------- As of As Adjustd (4)
Balance Sheet Data: 12/31/94 12/31/95 3/31/95 3/31/96 4/30/96 Minimum Maximum
-------- -------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital
(deficiency) $ (245,214) $(333,529) $(308,179) $(266,989) $(91,180) $ 53,820 $723,820
Total assets $ 36,274 $184,800 $36,913 $338,667 $100,696 $1,685,696 $21,420,696
Stockholders' equity
(deficit) $(217,714) $(171,379) $(293,066) $(35,051) $ 4,758 $1,614,758 $22,074,758
Accumulated deficit $(219,514) $(735,679) $(294,866) $(895,405) $ - $ - $ -
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Effective May 17, 1996, the Company was assigned certain development
rights and obligations by HCC, its parent company at that time. Effective May
18, 1996, the Company was spun off via a dividend to the HCC shareholders.
Consequently, the Company has yet to commence operations and is presented as
the Successor to HCC which, in turn, is deemed the "Predecessor" in the above
table.
(2) Common and common equivalent shares outstanding is based on the weighted
average number of shares of common stock equivalents outstanding each period,
as adjusted for the effects of Securities and Exchange Commission Staff
Accounting Bulletin ("SAB") No. 83. Pursuant to SAB No. 83, "cheap" stock and
warrants (that is, stock or warrants issued for consideration or with
exercise prices below the initial public offering (IPO) price within a year
prior to the initial filing, or in contemplation of the IPO, should be
treated as outstanding for all reported periods. Consequently, 7,851,000
shares are the common and common equivalent shares outstanding for all
reported periods for purposes of computing net loss per share for HCC.
(3) The financial statements from which the above information has been
derived have been prepared assuming the Company and HCC will continue as
going concerns. However, HCC has incurred losses since inception and both the
Company and HCC have negative working capital. Such factors, among others,
raise substantial doubt about the Company's and HCC's ability to continue as
going concerns.
3
<PAGE>
In this regard, see Reports of the Independent Certified Public Accountants
accompanying the Company's and HCC's audited financial statements appearing
elsewhere herein which cite substantial doubt about the Company's and HCC's
ability to continue as going concerns. There can be no assurance that the
Company and HCC will achieve profitability and adequate financing in the
future. If the Company or HCC fail to achieve profitability and/or adequate
financing, their growth strategies could be materially adversely affected.
(4) Assumes completion of the Offering and application of the net proceeds of
$1,610,000 in the case of the minimum offering and $22,070,000 in the case of
the maximum offering.
(5) There have been no, nor are there expected to be, cash dividends.
PRO FORMA FINANCIAL INFORMATION
Pro forma financial information has not been presented since no
significant business combination has occurred or is probable and, even where
possible or remote, there have been no significant historical operations.
Furthermore, where historical activities have been transferred to the
Company, there has been, at best, minimum historical activity. Consequently,
pro forma information would serve no useful purpose. Furthermore, full
financial statements have been presented which include these transferred
activities, notably for Heartland Capital Corporation and ATB Productions,
L.L.C., as well as for the Company. (See Appendix I.) In addition, summary
financial data is provided in "Selected Financial Data."
INTRODUCTORY STATEMENT:
WHO SHOULD INVEST
PURCHASE OF THE SHARES OFFERED HEREBY SHOULD BE MADE ONLY BY THOSE
PERSONS WHO CAN AFFORD TO BEAR THE RISK OF A TOTAL LOSS OF THEIR INVESTMENT.
THE COMPANY RESERVES THE RIGHT TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART.
Each subscriber will be required to make certain representations as to
his net worth and income. (See "Investment Requirements" and the Subscription
Agreement and Power of Attorney attached as Exhibit A.) The Company believes
that prospective investors should consider the Shares as a long-term
investment. There is no public market for these Shares, and none is likely to
develop for approximately 6 to 18 months after this offering commences. In
fact, no public market can develop until the offering terminates. (See "No
Market For The Company's Shares; Non-Transferability Of Shares Until Offering
Period Ends..")
In addition, offerees should not purchase Shares with the expectation of
sheltering income.
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS BEFORE
PURCHASING THE SHARES OFFERED HEREBY.
(1) EARLY STAGE OF DEVELOPMENT; LIMITED HISTORY OF OPERATIONS; ACTIVITIES'
HISTORICAL NET LOSSES; NEED FOR ADDITIONAL CAPITAL; GOING CONCERN REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. While certain activities are being
assigned to the Company from an affiliate, Heartland Capital Corporation, it
is in the early stage of development and has no history of operations. (See
"The Company -- Introduction" and "Conflicts Of Interest.") To the extent that
the Company implements its business plan, the Company's business will be
subject to all of the problems, expenses, delays and
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risks inherent in a new business enterprise (including limited capital,
delays in program development, possible cost overruns, uncertain market
acceptance and a limited operating history). (See also below "Reliance On
Management.") In addition, the Company's future success will depend upon many
factors, including those which may be beyond its control or which cannot be
predicted at this time, such as increased levels of competition (including
the emergence of additional competitors, changes in economic conditions,
emergence of new technologies and changes in governmental regulations).
Such factors raise substantial doubt about the Company's ability to
continue as a going concern. In this regard, see the Report of Independent
Certified Public Accountants accompanying the Company's audited financial
statements appearing elsewhere herein which cites substantial doubt about the
Company's ability to continue as a going concern. There can be no assurance
that the Company will achieve profitability in the future, if at all. If the
Company fails to achieve profitability, its growth strategies could be
materially adversely affected. (See "Management's Discussion And Analysis Of
Financial Condition And Prospective Results Of Operations.")
As a result of these and other factors, there can be no assurance that
the Company's proposed activities and/or acquisitions will be successful or
that the Company will be able to achieve or maintain profitable operations.
The Company's minimal capital resources are not adequate to fully implement
its business plan. Accordingly, whether the Company achieves the $2,000,000
minimum or the $25,000,000 maximum offering associated with this Offering
Period, the Company is expected to require additional financing. There can be
no assurance that any such additional financing that is required will be
available to the Company if and when required, or on terms acceptable to the
Company, or that such additional financing, if available, would not result in
substantial dilution of the equity interests of existing Shareholders.
(2) RELIANCE ON MANAGEMENT. Although members of management have significant
experience and expertise in the identification, acquisition and operation of
various businesses, none of its members previously has operated such a broad-
based communications and management company. Investors will have no right or
power to take part in or direct the management of the Company. Accordingly, no
investor should purchase Shares unless such investor is willing to entrust all
aspects of management of the Company, including the selection of businesses
and/or companies to acquire, to the Company's management. This potential risk is
even more important in this offering since the Company's business is dependent
to a significant degree upon the performance of certain key individuals, the
departure or disabling of any of whom could have a material adverse effect on
the Company's performance and none of whom is required to devote their services
exclusively to the Company. The Company has entered into an employment agreement
(which contains non-compete provisions) with each of Gerald Garcia, Michael L.
Foudy, Bradford W. Baker and Bradley B. Niemcek; the loss of the services of any
such key personnel could have a material adverse effect upon the Company. The
Company maintains key man life insurance of $1,000,000 on each of Mr. Garcia and
Mr. Foudy. These employment agreements contain non-compete provisions; however,
there can be no assurance that the Company will be able to retain such employees
or prevent them from competing with the Company in the event of their departure.
(3) BROAD DISCRETION OF MANAGEMENT WITH REGARD TO USE OF PROCEEDS. A
significant portion of the net proceeds of this Company have been allocated
to working capital and, among other things, to expand its contemplated
communications-related activities and/or acquisitions. While the Company
expects to use proceeds of this offering as outlined in "Application Of
Proceeds", management of the Company retains broad discretion as to the
specific use of such funds.
(4) FUTURE EXPANSION. As a result of this offering, the Company is expected
to experience significant expansion, including expansion into certain
activities which neither the Company nor its management has previously
operated. In addition, the Company is pursuing additional opportunities for
expansion through the acquisition of additional communications and/or
management companies and, to that end, is expected to be regularly involved
in discussions with third parties regarding potential acquisitions. Although
no agreements have been reached regarding any such potential acquisition, in
light of the Company's pursuit of additional acquisitions and funding in this
and future offerings, it is likely that the Company will experience
significant expansion in the future. Although Mr. Garcia has previously
served as vice president of the regional operations of Gannett West Newspaper
Group (which had significant revenues), it is possible (as a result of these
recent preliminary activities -- and potential future acquisitions) that
the Company's management will be required to manage a larger business
operation than historically has been the case. There can be no assurance that
the
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Company will be able to effectively implement the organizational and
operational systems necessary for optimal management integration of its
expanded portfolio of activities.
(5) FUTURE ACQUISITIONS. To expand its market and diversify its business
mix, the Company's business strategy includes growth through acquisitions and
investments. There can be no assurance that future acquisitions will be
available and, if they are, will be consummated on terms favorable to the
Company or that any newly acquired companies will be successfully integrated
into the Company's operations. The Company may use equity or incur long-term
indebtedness or a combination thereof for all or a portion of the
consideration to be paid in conjunction with any future acquisitions.
(6) COMPETITION. The Company's business plan spans a variety of businesses,
many of which overlap and are highly competitive. The Company faces
substantial competition from a number of well-established, well-financed
companies, many of whom have greater resources and are more established than
the Company. Increased competition by existing and future competitors could
materially and adversely affect the Company's ability to achieve
profitability. For example, to the extent that ownership of stations is
consolidated among only a few owners (see below), there may be a reduction in
the market for independently produced programs the Company has developed or
will develop. In addition, as the Company seeks to increase market
penetration, its success will depend, in part, on its ability to gain market
share from established competitors. For example, the success of each of the
Company's talk show activities is dependent, to a significant degree, upon
its audience ratings and share of the overall advertising revenue within its
market. Similarly, the broadcasting and newspaper publishing industry are
highly competitive businesses. The Company will compete for listeners and/or
readers and advertising revenue directly with other radio networks, print and
other media, within their respective markets. The Company's audience ratings
and market share are subject to change, and any adverse change in a
particular market could have a material and adverse effect on the revenue of
the Company and/or publishers located in that market. There can be no
assurance that any one of the Company's properties will be able to attain,
maintain and/or increase its current audience ratings, readership and
advertising revenue market share.
(7) NO MARKET STUDIES. In formulating its business plan, the Company has
relied on the judgment of management. No formal, independent market studies
concerning the demand for the Company's proposed products and services have
been conducted; however, market studies are expected to be employed in the
future.
(8) FEASIBILITY. Directly or indirectly, the Company will use a significant
portion of the proceeds of this offering to validate the legal and economic
feasibility of its business plan. To the extent that the Company determines
any or a part of its business plan is not feasible, or to the extent the
Company is unable to make a determination of feasibility and/or to modify the
plan, the Company will be unable to proceed to develop in accordance with its
business plan and investors may lose their entire investment in the Company.
(9) DISTRIBUTIONS AT DISCRETION OF MANAGEMENT; PAYMENT OF DIVIDENDS
UNLIKELY. Distributions, if any, to shareholders are at the discretion of
management which does not presently intend to declare dividends. (See
"Conflicts of Interest -- Distributions Would Reduce Funds Available For
Expanding Operations Or To Make Acquisitions.") In fact, the Company
anticipates that, for the foreseeable future, it will continue to retain any
earnings for use in the operation of its business. Moreover, the Company may
be restricted from paying dividends to its Shareholders under future credit
or other financing agreement(s). (See "Absence Of Public Market And Dividend
Policy.")
(10) NO MARKET FOR THE COMPANY'S SHARES; NON-TRANSFERABILITY OF SHARES UNTIL
OFFERING PERIOD ENDS. The Company's Shares are not publicly traded, and there
can be no assurance that a public market ever will develop. The Company does
not intend to apply for listing of the Shares on NASDAQ, the American Stock
Exchange or any other listed market until the end of this Offering Period,
(currently estimated, as it may be extended, 6 to 18 months after the
offering commences). In fact, Shareholders will have their certificates
legended to preclude the transfer of their Shares until the Offering Period
ends -- either because the $25,000,000 maximum offering is achieved or the
offering is terminated on a date not more than 18 months from the date of
this Prospectus. (See "Investment Requirements.")
The Company has been advised by the Selling Agent that it does not
intend to make a market in the Shares until after the Offering Period, as it
may be extended, is concluded. However, even if the Selling Agent did become
a market
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maker of the Company's Shares, any Selling Agent acting as a marketmaker may
discontinue such activities at any time without notice. No assurance can be
given as to the liquidity of the trading market for the Shares or that an
active public market will develop or, if developed, will continue. If an
active public market does not develop or is not maintained, the market price
and liquidity of the Shares may be adversely affected. Consequently, holders
of Shares acquired pursuant to this offering may not be able to liquidate
their investment in the event of an emergency or for any other reason, and
the Shares may not be readily accepted as collateral for a loan. Accordingly,
prospective investors should consider the purchase of Shares only as a
long-term investment.
(11) LEVERAGE. While the Company has no long-term debt currently, the Company
anticipates that the proceeds of this offering will be used to finance future
activities and/or acquisitions of communications and/or management companies,
and for general corporate purposes. (See Application Of Proceeds.) The
Company may issue debt securities from time to time subject, among other
things, to compliance with applicable securities law considerations and
possible future credit or other financing agreements.
(12) CYCLICALITY. Advertising revenues of the Company, as well as those of
the media generally, are often cyclical and dependent upon general economic
conditions. Historically, advertising revenues have increased with the
beginning of an economic recovery, principally with increases in classified
advertising for employment, housing and automobiles. Decreases in advertising
revenues have historically corresponded with general economic downturns and
regional recessions and local conditions. Management believes, however, that
the Company's pricing strategies, distribution, production cost structure,
marketing strategy and management's experience mitigate, to some degree, the
effects of an economic downturn to the extent such downturn is regional.
Moreover, the diverse nature of its targeted businesses -- talk radio, a
satellite distribution system, targeted print products, management and
marketing services, Internet and related media components -- should reduce
the cyclical risk often associated with communications companies.
(13) ABSENCE OF CERTAIN STATUTORY REGISTRATION. Neither the management nor
the Company is (nor does management believe it is required to be) registered
under the Investment Company Act of 1940 or the Investment Advisers Act of
1940, each as amended; therefore, purchasers of the Shares will not be
afforded any protection provided by those Acts. The Company intends to
examine opportunities that, if pursued, may become wholly owned subsidiaries
of the Company; alternatively, those pursued activities may take the form of
providing, directly or indirectly, financing and/or providing management
services to affiliated or non-affiliated companies. Under pertinent operating
criteria, the Company will intend to conduct its operations so that it does
not come under the regulation of the Investment Company Act of 1940, as
amended.
(14) DEPENDENCE ON OUTSIDE ADVISORS. In order to supplement the business
experience and expertise of the Company's management, the Company may employ
accountants, technical experts, appraisers, attorneys and other consultants
or advisors. The selection of such consultants or advisors will be made by
the Company's management without any influence or control by shareholders.
(See "The Company -- Professional Advisors.")
(15) DETERMINATION OF OFFERING PRICE. The offering price of the Shares
offered hereby has been determined by the Company and the Selling Agent and
bears no direct relationship to the Company's asset value, net worth,
earnings or any other established criteria of value. Therefore, the price of
the Shares is not necessarily indicative of the price at which the Shares may
be traded following the consummation of this offering. For example, the
Company's existing Shareholders acquired their Shares at $.50 per share. (See
"Capitalization and Dilution.")
(16) DILUTION. This offering will result in immediate and substantial
dilution of the net tangible book value per common share. Investors who
purchase Shares offered hereby will experience immediate dilution based on
the difference between the subscription price and the net tangible book value
per common share. Purchasers of Shares during at least the Initial Offering
Period will pay $5.00 per share which, upon completion of this offering, will
have a net tangible book value (based on the Company's balance sheet as of
April 30, 1996, after giving effect to this offering) of approximately $.39
if the $2,000,000 offering is achieved and $2.56 if the $25,000,000 maximum
offering is achieved. That represents dilution of $4.61 per share (or
approximately 92%) at the $2,000,000 level and $2.44 per share (or
approximately 49%) at the $25,000,000 level. (See "Capitalization and
Dilution.")
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(17) POSSIBLE ISSUANCE OF PREFERRED STOCK. While none is currently issued,
the Company is authorized to issue up to 10,000,000 shares of Preferred
Stock, par value $.001 per share. The Preferred Stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by
the Board of Directors, without further action by the Company's shareholders,
and may include voting rights, preferences as to dividends and liquidation,
conversion and redemption rights and sinking fund provisions as determined by
the Board of Directors. Although the Company has no present plans to issue
any shares of Preferred Stock, the issuance of Preferred Stock in the future
could adversely affect the rights of the holders of the underlying common
stock and, therefore, reduce their value. In particular, specific rights
granted to future holders of Preferred Stock could be used to restrict the
Company's ability to merge with or sell its assets to a third party, thereby
preserving control of the Company by the Principal Shareholders and other
present owners.
(18) CONTROL BY THE PRINCIPAL STOCKHOLDERS. Prior to the Offering, individual
officers, directors, advisors and more than 10% shareholders (the "Principal
Stockholders") owned in the aggregate approximately 43% of the Shares. (See
"Management -- Security Ownership Of Certain Beneficial Owners and
Management.") Upon completion of the offering, the Principal Stockholders' and
their affiliates' aggregate ownership Shares in the Company will permit them
to retain approximately 28% of the Shares, assuming the $25,000,000 maximum
is raised. Consequently, the Principal Stockholders may be able to
effectively control the outcome on all matters submitted for a vote to the
Company's stockholders (particularly if significantly less than the
$25,000,000 maximum is raised). Specifically, at least initially, the
Principal Stockholders will be able to elect all of the Company's directors.
Such control by the Principal Stockholders may have the effect of
discouraging certain types of transactions involving an actual or potential
change of control of the Company, including transactions in which holders of
Shares might otherwise receive a premium for their Shares over then current
market prices.
(19) FUTURE SALES OF SHARES. The Principal Stockholders beneficially hold
3,927,500 Shares. All of such Shares held by the Principal Stockholders are
"restricted" as defined in Rule 144 under the Securities Act ("Rule 144"). All
of these restricted Shares have been owned beneficially for less than two years
by existing shareholders and may not be sold in the market pursuant to Rule
144 with regard to sales by affiliates until at least two years have passed
from the date of their purchase. The Company can make no prediction as to the
effect, if any, that sales of Shares, or the availability of Shares for
future sale, will have on the market price of the Shares prevailing from time
to time. Sales of substantial amounts of Shares in the public market, or the
perception that such sales could occur, could depress prevailing market
prices for the Shares. Such sales may also make it more difficult for the
Company to sell equity securities or equity-related securities in the future
at a time and price which it deems appropriate.
(20) RADIO AND TELEVISION BROADCASTING INDUSTRY SUBJECT TO FEDERAL
REGULATION. The radio and television broadcasting industries are subject to
regulation by the FCC under the Communications Act of 1934, as amended (the
"Communications Act"). Approval of the FCC is required for the issuance,
renewal or transfer of radio and television broadcast station operating
licenses. Initially, however, no operations of the Company are subject to the
FCC regulations and, unless it acquires radio and/or television stations, the
Company's business will not be dependent upon its obtaining and holding
broadcasting licenses from the FCC. In the future, it is possible the Company
may seek to acquire radio and/or television broadcast facilities. While not
currently applicable, it is noted that the Congress and the FCC may in the
future adopt new laws, regulations and policies regarding a wide variety of
matters (including technological changes) which could, directly or
indirectly, affect the operations and ownership of the Company. For example,
the recently enacted Telecommunications Act of 1995 relaxes the current
limitations imposed on the number and location of broadcasting properties
that may be owned by any one person or entity; such regulations had not
permitted any person or entity to own more than two FM or two AM radio
stations in any one market over a specified size or in excess of 20 FM and 20
AM radio stations in the aggregate and restricted ownership of licensed
properties by foreign nationals. (See "Competition" above.)
CONFLICTS OF INTEREST
THE FOLLOWING INHERENT OR POTENTIAL CONFLICTS OF INTERESTS SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS BEFORE SUBSCRIBING FOR SHARES. (SEE
DISCLAIMER AT THE END OF THE FOLLOWING DISCUSSION REGARDING CERTAIN SPECIFIC
TRANSACTIONS.)
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GENERALLY
(1) CERTAIN MEMBERS OF MANAGEMENT ARE NOT REQUIRED TO DEVOTE FULL-TIME TO THE
BUSINESS ACTIVITIES OF THE COMPANY. Most, if not all, members of management
have professional responsibilities to entities other than the Company. Some
of those are complementary (for example, media related activities originally
developed by ATB Productions, L.L.C., an affiliate). Others, however, may be
pursued within the discretion of those individual members of management.
However, as described in "Fiduciary Responsibility Of The Company's
Management" below, those activities are subject to fiduciary standards even
if full-time is not devoted to the Company. Moreover, any activities that can
be characterized as communications and/or management-related in character are
required to be submitted to the Company for consideration pursuant to a right
of first refusal to acquire such business and/or project on terms comparable
to what an independent third party would pay.
(2) DISTRIBUTIONS WOULD REDUCE FUNDS AVAILABLE FOR EXPANDING OPERATIONS TO
MAKE ACQUISITIONS. The amount and frequency of dividends declared and/or
distributed to Shareholders is solely within the discretion of the Company.
Since certain fees to management and/or related parties are, directly or
indirectly, related to assets of the Company and the Company seeks to invest
those funds to the maximum extent feasible, management would suffer an
economic disadvantage if the Company reduced its assets through such
distributions to Shareholders. Consequently, the Company does not expect to
declare dividends for the foreseeable future.
(3) FUTURE RELATIONSHIPS. In undertaking activities which comprise the
Company's business plan, the Company may provide services to related
entities. In addition, the Company may consider investments in or with
related entities such as Shareholders of the Company or acquire businesses
identified by an affiliate. The Company will seek to avoid any actual or
perceived conflicts and will develop procedures with regard to such
activities to minimize the effect of such potential, actual or perceived
conflicts. (See "Certain Related Party Transactions" below.) For example, any
director or officer must recuse themselves from any negotiations or Board
consideration if they have any personal interest in the matter(s) under
consideration.
(4) FEES TO ADVISORS. Persons who serve as professional advisors to the
Company may receive compensation for services in their respective capacity.
(See "The Company -- Professional Advisors".) To the extent such professional
advisors (or the firms with which they are associated) do receive
compensation, the Company believes these fees are no less favorable than
those which could be obtained for comparable services from unaffiliated third
parties.
(5) OTHER RELATIONSHIPS. Messrs. Sivertsen, Garcia and Foudy, each of whom is
a director of the Company, are directors and officers of HCC, an affiliate of
the Company. Mr. Foudy, a host of one of the Company's talk shows on its
Heartland Radio Network, is an officer and director of the Company as well as
the managing member of ATB Productions, L.L.C. (ATB). Mr. Sivertsen is an
employee of DeRand Corporation of America, the financial advisor of HCC and
an investor in the Company and HCC, and serves as an officer or director of
various DeRand subsidiaries. Ms. Moore, Ms. Denora and Mr. Ryan Smith are
officers of the Company and investors in ATB. Messrs. Garcia, Niemcek and
Baker are officers of the Company, and all three have interests in affiliated
entities (Messrs. Garcia and Niemcek in ATB) or possible activities to be
pursued by the Company (Mr. Garcia and Mr. Baker in the proposed magazine for
teens and in the proposed national sports weekly). Messrs. Garcia and Foudy,
each of whom is an officer and director of the Company, are investors in ATB.
Edward S. DeBolt is an investor in the Company and ATB; Chairman of and
investor in HCC, an affiliate of the Company; provides consulting services to
the Company; and is the sole principal of The DCM Group which is the
landlord, and a major vendor of products and services, to the Company. (See
below and Certain Related Party Transactions with regard to specific
situations.)
(6) GERALD GARCIA RELATIONSHIPS. Gerald Garcia is the Chairman of the Company
and President of both the Company and HCC. To the extent that the relationships
overlap, there may exist a conflict of responsibilities by Mr. Garcia to such
entities. Moreover, Mr. Garcia is a partner with Bradford W. Baker who has
developed the magazine for teens and national sports weekly concepts.
Consequently, the terms negotiated by the Company, including a 50% joint venture
interest being retained by Messrs. Garcia and Baker although funding is expected
to be provided entirely by the Company, may have not been
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established on an arms'-length basis. In the same context, Mr. Baker is
Secretary/Treasurer of the Company and may have similar conflicts. (See below
and "Certain Related Party Transactions" with regard to specific factual
circumstances.)
(7) MICHAEL L. FOUDY RELATIONSHIPS. Mr. Foudy is an investor, director and
officer in the Company, HCC and ATB, the owner of Mike Foudy's America The
Beautiful program. Mr. Foudy is managing director of ATB Productions, L.L.C.
and the majority owner of that entity through a family-owned trust. In
addition, Mr. Foudy has extended loans to the Company and/or HCC and, as of
the date of this Prospectus, has a $100,000 note payable from HCC, an
affiliate of the Company. Finally, certain compensation due Mr. Foudy was not
paid in full and $20,000 has been deferred by the Company. Consequently,
there exist certain overlapping rights and responsibilities by Mr. Foudy to
the foregoing entities, and to that degree, certain conflicts may arise in
the future. (See below and "Certain Related Party Transactions" with regard to
specific situations described below.)
(8) OVERLAPPING RELATIONSHIPS AMONG DENISON SMITH, ALVERY BARTLETT, ABFM,
RANDALL SMITH, RYAN SMITH AND ANGELA SMITH. It is contemplated that the
Company will make an investment of at least $380,000 in Alvery Bartlett Fund
Management Co. (ABFM). (See "The Company -- Specific Investment
Opportunities.") Specifically, if at least $2,000,000 is raised in this
offering, it is contemplated that the Company will provide funding to ABFM in
return for a 6.5% interest -- on a fully-diluted basis -- in ABFM (and
all future funds it may sponsor). Investors are advised that Alvery Bartlett,
the principal of ABFM, has a sister who is married to Randy Smith, the
brother of Denison Smith, who is expected to be a principal of the Selling
Agent to be selected. Denison Smith, in turn, is a principal of DeRand
Corporation of America which serves as a paid ($5,000 monthly plus expenses)
advisor to HCC, an affiliate of the Company, and Randall Smith is a
shareholder of DeRand. In turn, DeRand has an ownership interest in ABFM of
approximately 16%. Moreover, Denison Smith will significantly benefit,
directly or indirectly if the Company raises all or a substantial portion of
the $25,000,000 offering. This is because Mr. Smith is expected to be a major
seller of Shares, thereby participating in a negotiated portion of the 8 1/2%
selling commission on Shares offered and sold. In addition, since Denison
Smith (or his wife, Angela) owns 275,000 Shares acquired for services
rendered and/or at a maximum exercise price of $.50 per share. He has a
direct economic incentive in having the Company sell its Shares, all offered
at $5.00 per share during both the Initial and Continuous Offering Periods.
Ryan Smith, Denison Smith's son, is a production associate of (and an
investor in) ATB and the associated Mike Foudy's America The Beautiful
program. Finally, Angela Smith, the wife of Denison Smith, is a registered
representative of Financial West Group, the Selling Agent, and an investor in
ATB.
(9) CERTAIN OVERLAPPING OWNERSHIP INTERESTS. Investors in the Company as of
the date of this Prospectus acquired interests in the Company solely because
of their stock ownership in HCC. As a result, at least until such time as the
Company's public offering minimum is achieved, there is common ownership
between HCC and the Company. In turn, a number of the investors in HCC are
also investors in ATB, which entity owns Mike Foudy's "America The Beautiful"
program. Likewise, a number of investors in the Company are also investors in
ATB. As a consequence of those overlaps, decisions as to whether to fund
certain deals or terms (such as pricing and amounts negotiated) may be
affected.
(10) NO INDEPENDENT REVIEW. Investors should note that the Company and HCC
and their management are represented by the same counsel. Therefore, to the
extent the Company and this offering would benefit by an independent review,
such benefit will not be available in this case. Such potential conflict may
be greater in this offering since a partner of the Company's counsel owns
Shares in, and serves as an advisor to, the Company. While it is not expected
to have any adverse consequence (such as undermining professional
representation), Max Miller, a partner of the law firm (Bayh, Connaughton &
Malone) that represents the Company, HCC and ATB, has made an investment in
Shares of the Company and HCC through a pension plan and serves as an advisor
to the Company; certain members of his family also own interests in ATB, HCC
and the Company. (See "The Company -- Management -- Professional Advisors.")
CERTAIN RELATED PARTY TRANSACTIONS
The Company was formed on March 27, 1996 to be a broad-based
communications and management business, including the development, production
and syndication of advertising - supported broadcast programs and print
products. Upon formation, Heartland Capital Corporation ("HCC") subscribed to
4,758,000 shares of the Company's common stock. As of May 17, 1996, HCC paid
its $4,758 stock subscription and the Company (Successor Company) was
simultaneously
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assigned certain development and contract rights and obligations by HCC. The
Company is also related to another entity, ATB Productions, L.L.C. ("ATB"),
with which it shares common, but not identical ownership, and to which it
will provide marketing services.
As part of its merchant banking operations, HCC identifies investment
opportunities which can be developed into viable operations. Several
opportunities were identified in 1994 and 1995, including talk radio, a
youth-oriented newspaper, a newspaper insert aimed at sports enthusiasts and
an investment fund management company. The talk radio venture was furthest
along in the development process, with HCC having provided a line of credit
as well as marketing expertise to ATB. The other ventures identified are only
development options and are intended to be pursued only if funding is
achieved (see below) and appropriate due diligence, which supports the
feasibility of the acquisitions, has been completed. Neither HCC nor the
Company has entered into any definitive agreements with respect to the
investment options.
HCC determined that these ventures could not be adequately developed
without additional capital and, to that end, on May 17, 1996, HCC assigned
its option and, in the case of ATB, its contract rights to the Company, its
wholly-owned subsidiary. On May 18, 1996, HCC spun off the Company via a
dividend to the HCC shareholders with the Company effectively replicating the
HCC capital structure by issuing a share of its common stock for each share
of HCC common and preferred stock outstanding as of May 18, 1996. Warrants to
purchase the Company stock were granted to holders of non-contingent HCC
stock purchase warrants, including warrants to the HCC preferred
shareholders, as of May 18, 1996. Additionally, on April 17, 1996, the
Company granted HCC warrants to purchase 1,236,000 shares of its common stock
for $.50 per share. The contracts and option rights transferred to the
Company have no carrying value because development of, or servicing, the
rights is expected to require a substantial infusion of capital. It is the
Company's intention to obtain the necessary capital through an initial public
offering of its common stock.
Effective January 1, 1995, HCC entered into a marketing agreement with
ATB ("the HCC Agreement") whereby HCC will provide marketing services on behalf
of ATB. Such services include presenting programs to sponsors on a worldwide
basis, negotiating sponsorship agreements, and performing related activities.
In return for providing the marketing services, ATB is obligated to pay HCC
40% of its gross advertising cash receipts and 5% of its non-advertising
gross receipts. The agreement was transferred to the Company on April 17,
1996. The HCC Agreement automatically terminates on January 1, 1999, unless
extended by mutual agreement, and it is terminable at earlier dates under
certain specified conditions. In the event of termination for whatever
reason, the amounts due under the HCC Agreement for sponsorship existing at
the time of termination shall remain due and payable, notwithstanding the
termination, if certain other conditions are met for the period ending the
later of the automatic termination of the HCC Agreement or two years after
the date of other termination. Revenues recognized by HCC under the HCC
Agreement aggregated $647 and $2,176 during 1995 and the three months ended
March 31, 1996, respectively.
The total number of shares of stock that the Company has the authority
to issue is 60,000,000 consisting of 10,000,000 shares of preferred stock,
and 50,000,000 shares of common stock, each respectively par value $.001 per
share. The Board of Directors of the Company is empowered to provide for the
issuance of shares of preferred stock in series, to establish the number of
shares to be included in each series and to fix the designations, powers,
preferences and rights of the shares of each such series. To date, no series
have been issued.
In conjunction with the Company's formation as an HCC subsidiary, HCC
subscribed to 4,758,000 shares of the Company's common stock on March 27,
1996. On May 17, 1996, HCC contributed the par value ($.001) of those shares
(4,758,000) to the Company in cash ($4,758) in full payment of its
subscription receivable and the 4,758,000 shares were issued to HCC. In
conjunction with the Company's spinoff to the shareholders of HCC, on May 18,
1996, the Company retired those shares and issued 4,758,000 shares of common
stock as follows: 1,969,000 shares to the existing common shareholders of HCC
and 2,789,000 shares to the preferred shareholders of HCC.
In addition, the Company issued 1,394,500 of its warrants to the HCC
preferred shareholders who held contingent HCC warrants on the basis of one
warrant for each two HCC preferred shares. Each warrant entitles the holder
to purchase an additional share of the Company's common stock. During May
1996, the Company notified the holders of its intent to make an initial
public offering (IPO) and that the Shareholders had until July 23, 1996 to
exercise their warrants at $.50 per share -- versus $4 per share thereafter
(80% of the $5 per share IPO price). Through July 24, 1996, 1,160,400
warrants
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<PAGE>
were exercised for an aggregate purchase price of $580,200, leaving 234,100
warrants outstanding and excisable under the terms outlined above.
On March 27, 1996, the Company's incorporators reserved 600,000 shares
of common stock for a Stock Option Plan. Conditions of grants, terms,
exercise prices and related terms have yet to be determined by the Board of
Directors. The Shareholders would be required to approve the plan prior to
granting options.
The Company has employment agreements (the "Agreements") with four
officers and employees, Gerald Garcia, Michael L. Foudy, Bradford W. Baker
and Bradley B. Niemcek. (See "The Company -- Management.") The Agreements
provide for base annual salaries aggregating $310,000 and permit
participation in an annual bonus pool, the amount and conditions of which
will be determined by the Company's Board of Directors. In addition, the
Agreements provide that these employees are eligible to annually receive
options to buy up to 100,000 shares of common stock at $.10 per Share with
terms, other than price, to be determined by the Board of Directors. One of
the Agreements also provides for the issuance of 75,000 shares of common
stock to the employee if he is employed by the Company for three years from
May 1, 1996. The Agreements are effective as of May 1, 1996, have a term of
three years and provide for termination for cause with a cessation in
compensation payments. If terminated by the Company without cause (or by the
employees with cause) prior to the end of their term, the Agreements require
payments to be continued at the rate of base salary at the date of
termination for the period after termination through the end of the term of
the Agreements.
On January 15, 1995, HCC executed a noncollateralized line of credit
agreement with ATB (the "Credit Agreement") which provides ATB with a standby
line of credit in the amount of $360,000. Borrowings under the Credit
Agreement bear interest at a fixed rate of 8% per annum, with payment of
interest on any borrowing being deferred until January 15, 1997, whereupon
monthly interest payment will be required. Any principal and interest
outstanding on the line of credit must be repaid on December 31, 1999. During
the year ended December 31, 1995, the average amount borrowed under the
Credit Agreement was $42,000 and the maximum amount of month-end borrowing
during the period was $144,850. During the three months ended March 31, 1996,
HCC advanced an additional $74,375 under this line of credit. Interest income
on this line of credit amounted to $3,364 and $3,930 for the year ended
December 31, 1995 and three months ended March 31, 1996, respectively. HCC
intends to continue to provide the line of credit to ATB after the assignment
to the Company of its contract with ATB.
Xpress Ventures, Inc. is a Tennessee corporation whose principals are
Gerald Garcia and Bradford W. Baker, both officers of the Company. Messrs.
Garcia and Baker have entered into a license agreement providing all rights
each has in a proposed magazine for teens and a national sports weekly. In
turn, Xpress Ventures, Inc. has now assigned all its rights in such proposed
newspaper inserts to the Company in a May 31, 1996 agreement. While Messrs.
Garcia and Baker are affiliates and have an interest in these transactions,
all negotiations with the Company have been independently negotiated by
principals other than Messrs. Garcia and Baker.
On May 31, 1996, the Company entered into an agreement with Alvery
Bartlett Fund Management Co. ("ABFM") pursuant to which the Company would
receive a passive six percent (6.5%) interest in ABFM if the Company provides
$380,000 in funding for a proposed private investment company. That agreement
also provided that the Company would receive 50% of gross management fees on
future investment funds being considered for organization by ABFM, an index
inflation fund and a mutual fund. (See "The Company -- Specific
Opportunities Under Consideration.") While there are certain family
relationships outlined in General above, the terms were negotiated by
disinterested persons who do not have such family connections and any direct
pecuniary interest.
Because the Company has not generated sufficient cash flow to pay all
compensation when due to Mr. Garcia, a portion of such compensation has been
deferred, and the Company has entered into a $60,000 note payable to Mr.
Garcia.
Edward S. DeBolt is the Chairman of the Board of HCC and an investor in
ATB. In addition, he is the sole principal of The DCM Group, which is an
investor in the Company and HCC and a major provider of products and services
to the Company. The Company, HCC and ATB lease office space, furniture,
computers telephone and office equipment from The DCM Group under operating
leases cancelable on sixty days notice. The three companies' combined rent
expense under
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<PAGE>
operating leases was $8,000 and $17,500 in 1994 and 1995, respectively, and
$3,000 and $7,500 for the three months ended March 31, 1995 and 1996
respectively.
In conjunction with the initial public offering, HCC has incurred and
expects to incur further indirect expenses which are expected to aggregate
approximating $600,000. The Company has agreed to reimburse HCC for at least
a portion of these costs.
A number of activities which the Company intends to pursue with the
benefit of funds raised during this offering are those which have been
assigned to the Company by HCC. Moreover, the management and all current
Shareholders of the Company, as of the date of this Prospectus, are
essentially identical to that of HCC. Accordingly, the economic terms,
including compensation and equity ownership, may not have been the result of
arm's-length negotiations. However, in evaluating this potential conflict of
interest, Shareholders should be aware that a right of first refusal has been
granted by HCC and the Company's management for any activities or
acquisitions that fall within the communications and management charter of
the Company so long as on terms comparable to what an independent third party
would pay.
THE COMPANY BELIEVES THAT ANY PAST TRANSACTIONS WITH ITS AFFILIATES HAVE
BEEN AT PRICES AND ON TERMS NO LESS FAVORABLE TO THE COMPANY THAN
TRANSACTIONS WITH INDEPENDENT THIRD PARTIES. THE COMPANY MAY ENTER INTO
TRANSACTIONS WITH ITS AFFILIATES IN THE FUTURE. HOWEVER, THE COMPANY INTENDS
TO CONTINUE TO ENTER INTO SUCH TRANSACTIONS ONLY AT PRICES AND ON TERMS NO
LESS FAVORABLE TO THE COMPANY THAN TRANSACTIONS WITH INDEPENDENT THIRD
PARTIES. IN THAT CONTEXT, THE COMPANY WILL REQUIRE ANY DIRECTOR OR OFFICER
WHO HAS A PECUNIARY INTEREST IN A MATTER BEING CONSIDERED TO RECUSE
THEMSELVES FROM ANY NEGOTIATIONS. IN ANY EVENT, ANY DEBT INSTRUMENTS OF THE
COMPANY IN THE FUTURE ARE EXPECTED GENERALLY TO PROHIBIT THE COMPANY FROM
ENTERING INTO ANY SUCH AFFILIATE TRANSACTION ON OTHER THAN ARM'S-LENGTH
TERMS. MOREOVER, IT IS EXPECTED THAT ADDITIONAL INDEPENDENT DIRECTORS WILL BE
ADDED TO THE BOARD. IN ADDITION, COMMENCING IMMEDIATELY, A MAJORITY OF THE
INDEPENDENT BOARD OF DIRECTORS MEMBERS (DEFINED AS HAVING NO PECUNIARY
INTEREST IN THE TRANSACTION UNDER CONSIDERATION) WILL BE REQUIRED TO APPROVE
ANY MATTERS INVOLVING INTERESTED PARTIES.
FIDUCIARY RESPONSIBILITY OF THE COMPANY'S MANAGEMENT
Counsel has advised the Company's management it has a fiduciary
responsibility for the safekeeping and use of all assets of the Company.
Management is accountable to each Shareholder and required to exercise good
faith and integrity with respect to its affairs. (For example, whether under
SEC and/or general fiduciary principles, management cannot commingle property
of the Company with the property of any other person, including that of
management.)
Cases have been decided under the common or statutory law of
corporations in certain jurisdictions to the effect that a shareholder may
institute legal action on behalf of himself and all other similarly situated
shareholders (a class action) to recover damages from management for
violations of fiduciary duties, or on behalf of a corporation (a corporation
derivative action), to recover damages from a third party where management
has failed or refused to institute proceedings to recover such damages. On
the basis of federal and/or state statutes, including most critically the
Delaware General Corporation Law, and rules and decisions by pertinent
federal and/or state courts, accordingly, (a) shareholders in a corporation
have the right, subject to the provisions of the Federal Rules of Civil
Procedure and jurisdictional requirements, to bring class actions in federal
court to enforce their rights under federal securities laws; and (b)
shareholders who have suffered losses in connection with the purchase or sale
of their shares may be able to recover such losses from a corporation's
management where the losses result from a violation by the management of Rule
10b-5, promulgated under the Securities Exchange Act of 1934, as amended. It
should be noted, however, that in endeavoring to recover damages in such
actions, it would be generally difficult to establish as a basis for
liability that the Company's management has not met such standard. This is
due to the broad discretion given the directors and officers of a corporation
to act in its best interest.
The SEC has stated that, to the extent any exculpatory or indemnification
provision purports to include indemnification for liabilities arising under the
Securities Act of 1933, as amended, it is the opinion of the SEC that such
indemnification is contrary to public policy and, therefore, unenforceable.
Shareholders who believe that the Company's
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<PAGE>
management may have violated applicable law regarding fiduciary duties should
consult with their own counsel as to their evaluation of the status of the
law at such time.
THE COMPANY
GENERAL
Heartland Communications & Management, Inc. (the "Company") was
organized March 27, 1996. The Company's principal executive offices are
located at 1320 Old Chain Bridge Road -- Suite 220, McLean, Virginia 22101,
and its telephone number is (703) 883-1836. The Company intends to raise
capital, perform support services and pursue specific targeted business
development opportunities as its basis for growth and profitability. The
Company has identified several service and support areas where it intends to
establish profit centers. These include, but are not limited to, business
areas such as radio talk show programming, newspaper supplements and inserts
publishing and other communications- and management-related activities. (See
"Specific Opportunities Under Consideration.") The Company has investigated
business opportunities for investment and has performed preliminary due
diligence on certain projects. It is the intent of management to use a part
of the proceeds of this offering to continue the due diligence process on
these projects (which will include third party feasibility studies where
management considers such studies prudent to complete the required due
diligence).
More specifically, the Company will engage in the broad-based
communications and media business including (but not limited to) the
development, production, marketing management and syndication of
advertising-supported broadcast programs and print products. These products
will be designed to meet the expanding needs of the media business for
creative content -- especially in those segments, e.g., AM radio and
newspaper publishing, in which syndicated alternatives to locally-produced
content are financially attractive. Its radio operation will not only assist
in the development of programming by outside producers, secure syndication
opportunities for them and share in their revenue but also produce news,
information and talk programming of its own, the latter effected through an
affiliate, ATB Productions, L.L.C. The Company expects to own a specific,
negotiated portion (typically 10% to 60%) of the gross advertising receipts
and/or net income of several talk shows, one of which is already carried by
more than 80 stations across the country. The Company contemplates forming
one or more of its own satellite-transmitted radio networks to sell broadcast
time to advertisers and talk show hosts and is currently investigating the
acquisition of a satellite-based radio network (to permit the Company to act
as a satellite-based program distributor). In addition, if the Company
provides the associated funding, the Company has the option to obtain a 50%
interest in two prospective innovative, national specialty supplements to
newspapers designed to appeal to targeted segments of the mass audience which
the Company believes is under-served: teens and sports enthusiasts.
Additional print, broadcast, Internet-based products, information services
and news media components, as well as hybrid combinations, also are
contemplated. Such activities will be developed by the Company or will be
part of Company's acquisition strategy and/or management services will be
offered to clients on a fee and/or equity basis providing, for example,
marketing concepts and strategies. In addition, the Company has an option to
obtain a minority interest in a money management firm which is planning its
first targeted product, a private investment company, and an option to
acquire 50% of the management fees relating to its next two contemplated
products, an inflation index fund and/or mutual fund, in return for providing
the funding associated with such proposed start-ups.
INTRODUCTION
Though recently organized, many of the Company's contemplated activities
to be pursued during the early years of operations will be based on
opportunities developed by Heartland Capital Corporation ("HCC"), a private
merchant banking business advisory firm which was incorporated in June 1994
to pursue a broad spectrum of investment opportunities. Over time, HCC
concentrated much of its activities in communications-related businesses,
most specifically the support of talk show programs and a contemplated radio
network. Because of the faster than expected progress of HCC's efforts in the
communications arena and the slower than expected development of other areas,
the HCC Board of Directors determined that the best strategy was to take an
affiliate public at this time. Specifically, the decision was made by HCC to
assign all contracts, business opportunities and performance obligations
meeting certain investment development criteria
14
<PAGE>
to the Company with the existing HCC shareholders receiving the same number
of shares and associated rights that they owned in HCC, including the right
to exercise warrants for Shares of the Company, by paying a variable exercise
price (ranging from $.001 up to $.50 per share). (Some limited merchant
banking activities may take place in the Company as well.) Accordingly, as of
May 17, 1996, HCC has assigned these opportunities to HCMI, which was a
wholly-owned subsidiary on that date, and HCMI will be responsible for
pursuing development of these opportunities. (See also the discussion below
regarding how the fund manager business was added to the Company's proposed
activities.) Because the Company has assumed the rights previously negotiated
and owned by HCC and there continues to be common ownership and management,
the Company and HCC may be deemed to be affiliated. For a discussion of the
associated conflicts, see "Conflicts of Interest."
As part of its merchant banking operations, HCC identifies investment
opportunities which can be developed into viable operations. Several targeted
opportunities were identified in 1994 and 1995, including talk radio, a
youth-oriented newspaper-related supplement, a newspaper insert aimed at
sports enthusiasts and an investment fund management company. The talk radio
venture was furthest along in the development process, with HCC having
provided a line of credit as well as marketing expertise to ATB Productions,
L.L.C. ("ATB"). The other ventures identified to date are only developmental
options.
HCC has determined that these ventures cannot be adequately developed
without additional capital and, to that end, on May 17, 1996, HCC assigned
its option (and in the case of ATB, its contract) rights to the Company.
Formed as a wholly-owned subsidiary of HCC, the Company received on May 17,
1996 the development and contract rights and obligations and the assumed
responsibility for costs to be associated with the future development of
these activities. On May 18, 1996, HCC spun off the Company via a taxable
dividend to the HCC stockholders with the Company replicating the HCC capital
structure, including replicating HCC's outstanding non-contingent stock
options and warrants and issuing 1,394,500 of the Company's warrants to the
HCC preferred shareholders, who held contingent warrants, on the basis of one
warrant for each two HCC preferred shares. A share of the Company's common
stock was issued to each HCC common and preferred shareholder for each share
of HCC common and preferred stock outstanding May 18, 1996. Warrants to
purchase the Company's stock were granted to holders of non-contingent HCC
stock purchase warrants as of May 17, 1996. Additionally, on April 17, 1996,
HCC itself was granted warrants, exercisable until April 16, 2001, to
purchase 1,236,000 Shares of the Company's common stock for $.50 per share.
The contracts and option rights transferred to the Company have no net book
value because development or servicing the rights is expected to require a
substantial infusion of capital. It is HCMI's intention to obtain the
necessary capital through this initial public offering of its common stock.
The activities to date principally relate to Michael Foudy's "America
The Beautiful", "Rodham Radio" (with Hugh Rodham), "Synergy" (with Robbie
Patterson), "The Doug Casey Show", "The End of the Line" (with Jeff Rense)
and "The Travel Show" (with Larry Gelwix and Danny Kramer). ("For Women Only"
- -- with Kathleen Schafer --is a show currently under development.) There are
a number of other related talk show programs under development which are
expected to be added to the existing line-up, thereby enabling the Company to
develop a network of its own. This would permit stations around the country
to pick and choose from the Company's stable of talk shows. Such an
arrangement permits economies in production and enhances cross selling
opportunities to maximize advertising revenues and revenues from sponsorship
of these programs. (However, see "Risk Factors.")
HCC also has obtained rights to acquire working and/or equity interests
in specialized newspaper supplements (described in greater detail in "Specific
Opportunities Under Consideration"); while expected to cost considerably more
to develop, they are believed to be quite promising. Accordingly, as a
function of the amount of monies raised, it is intended that a series of
special interest supplements be developed and distributed by newspapers
around the country. The supplements can best be analogized to the PARADE
insert that goes into many Sunday newspapers around the country. These new
products will be value-added supplements distributed by local newspapers
either within the newspaper or as stand-alone supplements to segments of the
non-subscribing market. The Company believes its proposed magazine for teens
and a national sports weekly have unique attributes. Based upon its market
research, actual experience and/or proprietary concepts (including their
expected distribution through existing newspapers), the Company believes that
a large readership can be developed relatively quickly. (See, however, "Risk
Factors.") (The "national sports weekly" and "magazine for teens" names are
working titles only; all materials and editorial content will be protected by
the appropriate trademark and copyright laws.)
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<PAGE>
HCC also has developed over the last two years contingent arrangements to
fund Alvery Bartlett Fund Management Co. Because this proposed activity is
able to commence immediately upon funding, HCC and the Company jointly
decided to add the ABFM investment to the Company's management company mix.
(See also "Conflicts of Interest -- Overlapping Relationships Among Denison
Smith, Alvery Bartlett, ABFM, Randall Smith, Ryan Smith And Angela Smith.)
This activity will provide money management in three targeted areas, a
"hedge" fund, an inflation fund and/or mutual fund. It is expected that the
first fund organized will be a private investment company (sometimes called a
"hedge" fund) because this is a less capital intensive business -- with the
inflation fund and/or mutual fund being organized and funded shortly
thereafter as a function of internal growth and possible additional monies
being raised by the Company used to fund either or both of these additional
investment products.
As described in greater detail under each of the individual sections
which follow, the ownership interests will be negotiated independently for
each activity. For example, individual radio programs might be based upon a
fee or a percentage of gross advertising revenues generated and/or a
percentage of net profits without any actual ownership in the talk show
itself. In contrast, the proposed magazine for teens and national sports
weekly are expected to be separate joint ventures between the Company and the
creators of such concepts with each party sharing on a 50/50 basis after all
expenses, including paying the creators royalties -- 3.75% of gross revenues
for the first five years and 5% thereafter. (During the first five years, the
Company will receive a royalty of 1.25%.)
SPECIFIC OPPORTUNITIES UNDER CONSIDERATION
The Company has identified several projects for which it proposes to
investigate funding. No fixed commitments have been made for any of these
projects. The projects listed below are in different states of due diligence
and are intended to be pursued once, and only if, the funding contemplated
from this offering is achieved and the appropriate due diligence has been
completed. Therefore, at present, these projects cannot be viewed as probable
acquisitions. This list is not complete and those identified below are
subject to being discontinued if warranted after its due diligence review is
concluded. Management intends to fund projects strictly based on satisfactory
completion of appropriate due diligence and based on investment guidelines as
they may evolve over time. Any specific opportunities pursued will relate to
communications, broadcast or print, and/or management activities.
The Company intends to consider many other development projects and
intends to continue to raise capital to take advantage of opportunities, thus
providing income and asset growth for its shareholders based on its planned
investment and development strategy. The Company intends to develop strict
guidelines for investment, first considering preservation of capital, then
equity participation and liquidity. In most situations, it will endeavor to
maintain a preferred position with emphasis on an exit strategy with earnings
and a residual equity position. Actual liquidation of an investment will be
based on management's assessment of growth and earnings potential of each
investment. HOWEVER, INVESTMENTS AS SUGGESTED HEREIN ARE INHERENTLY RISKY,
AND THERE CAN BE NO ASSURANCE THAT THESE RISKS CAN BE MITIGATED TO THE EXTENT
THAT LOSSES WILL NOT OCCUR, AND THERE CAN BE NO ASSURANCE THAT INVESTORS IN
THIS OFFERING WILL NOT LOSE ALL OF THEIR INVESTMENT. POTENTIAL INVESTORS ARE
ADVISED TO CONSULT THEIR OWN LEGAL AND ACCOUNTING COUNSEL AS TO THEIR
SUITABILITY FOR INVESTMENT IN THE COMPANY.
(1) HEARTLAND RADIO NETWORK
The Company has established radio program marketing and, directly and/or
through contractual arrangements with ATB, production (as opposed to station
ownership/operation) as one of its primary activities. It will market those
services to the $11.5 billion advertising - supported commercial radio
broadcasting market. (Source: National Association of Broadcasters 1995
Annual Report.) For example, the Company's Heartland Radio Network ("HRN"),
through ATB, provides programming, marketing and administrative support for
"America The Beautiful" (15 hours of programming weekly) in addition to other
existing programs, or those under development, thereby building a network one
program at a time. The Company has a variety of other communication
properties, broadcast and/or print, under development and/or consideration.
The Company, directly or through ATB, will acquire, create, develop and own
creative content that it markets for domestic and international broadcasters
with the production being done by its affiliate, ATB. (See "Conflicts of
Interest.").
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The Company believes most nationally syndicated and locally produced
talk shows adopt a conservative political slant, attempting to emulate the
success of the 13-year-old Rush Limbaugh program by appealing to the
so-called "angry white male" which typically feels under-served by other media
outlets. The general tenor of talk radio has therefore become negative, angry
and anti-government, with much of the content provided by listeners
themselves. This has made some advertisers reluctant to advertise on talk
radio programming.
Because talk radio has largely ignored alternatives to conservative,
"sound off" themes, the Company believes the potential for talk radio which is
non-partisan and which presents alternative viewpoints emphasizing the search
for solutions to societal problems (rather than just complaining about those
problems) is considerable. (In fact, the Company will test its theory that
the success of talk radio -- which it believes strongly relies on
participation by angry or alienated listeners but is cheaper to develop and
sustain -- may have peaked.) Support for this theory can be found in the
success of ethnic-oriented programming and National Public Radio ("NPR")
programming such as All Things Considered and Morning Edition. The NPR
programs air in morning and afternoon drive times; however, the economic
potential of such programs is largely untested because of their non-profit,
non-commercial nature.
There are approximately 11,500 radio stations in America; about half of
these are AM stations, and most of them are co-owned and operated with FM
affiliates. Many AM radio stations lose money; about 1,200 of them have a
news/talk format, the only format to emerge in the past 20 years which has
consistently demonstrated the potential for profit on AM stations -- which
do not have the bandwidth required for the successful programming of music
formats. (Source: Broadcasting & Cable 1996 Yearbook.) Complicating this
inequity has been the inclination of packaged goods advertisers to
concentrate their messages on younger audience segments, as they have on
television. Thus, the share of advertising revenues flowing to AM stations
has steadily declined since 1975, and joint AM/FM licensees have concentrated
their energies on FM programming. Operators spend relatively little on AM
program content. In fact, almost 1,000 AM operators merely simulcast on their
AM outlets the programming that is produced on their FM outlets, although the
Federal Communications Commission ("FCC") frowns on the practice.
The limited local spending on local AM programming content has provided
a major opportunity for programmers who provide a national service
distributed inexpensively by satellite. As a result, AM radio, once thought
of as the prototypically local medium, is today heavily reliant on national
programs.
Most syndicated programs are provided to the local affiliate on a barter
(free, in exchange for advertising time) basis. Typically, the national
program receives one-quarter to one-half of the total commercial time (up to
15 minutes total) available per hour in exchange for providing the program
content itself. Some programs are distributed on a cash basis only. Talk
radio programs can be broken down into several categories --
entertainment/humor, advice/information, host opinion and listener driven.
The following is a list of some of the daily nationally syndicated talk show
programs (all daily except for the Sunday only Jeff Rense's "End of the Line"
program):
<TABLE>
<CAPTION>
EST.
NAME TYPE SYNDICATION BASIS AFFILIATES DAYPART
<S> <C> <C> <C> <C>
Rush Limbaugh Host opinion Barter/Cash 650 Midday
Bruce Williams Advice/Information Barter 300 Evening
G. Gordon Liddy Host opinion Barter 260 Midday
Doug Stephenm Host opinion Barter 150 AM
Laura Schlesinger Advice/Information Barter 250 Midday
Stan Major Host opinion Barter 85 Overnight
Oliver North Host opinion Barter 125 PM Drive
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EST
NAME TYPE SYNDICATION BASIS AFFILIATES DAYPART
<S> <C> <C> <C> <C>
Howard Stern Entertainment/Humor Barter 100 AM Drive
Don Imus Entertainment/Humor Cash 75 AM Drive
Don & Mike Entertainment Barter 75 PM Drive
Barry Farber Host opinion Barter 50 Evening
Mike Foudy's Advice/Information Barter 35 Midday
"America The
Beautiful"
Jeff Rense's Host opinion/ Barter 80 Sunday Overnight
"End of the Line" Interviews
</TABLE>
Several networks have sprung up to provide additional syndicated
programming on a barter basis, including Talk America, Sun Network,
Chancellor Radio Network, Talk Radio Network and the Business Radio Network.
These networks typically sell production and transmission services to the
program hosts, who then sell national advertising time to cover their costs.
Syndicated talk shows air from one to six hours per day -- most often
two to three hours -- and most have 15 to 60 local affiliates. Most
affiliates are in medium to small markets or cover portions of larger markets
(radio coverage areas are substantially smaller than TV coverage areas). The
Company believes station operators and programmers face a paradox in
designing talk radio formats. According to listener surveys at the station
level and in the media which cover them, controversial programs draw the
largest audiences and are therefore the most desirable. However, most
nationally syndicated advertisers avoid controversial program formats for
fear of having their product(s) identified with a particular controversial
political viewpoint. Thus, nationally syndicated talk shows may have great
difficulty selling their advertising time.
As a recently formed, development stage company, the Company has only
recently begun to have business activities. Many of these activities are
those that were assigned from HCC, incorporating preexisting business
relations, contractual rights and opportunities. In that context, ATB has
been producing and distributing a number of radio shows as described above or
has a number under development. To expand those activities and to create a
focus, the talk radio programs have been cross marketed to prospective radio
stations and newspapers under the trade style, the "Heartland Radio Network."
Under those preexisting agreements, ATB enters into the contracts and the
Company receives various percentages of the gross revenues generated. As
described above, those interrelated transactions constitute an affiliated
relationship among the Company, ATB and HCC. Because ATB is an integral part
of the communications business contemplated by the Company, it is possible
that a merger between the two will be affected at some time in the future.
Because the communications activities developed by HCC have already been
spun-off and HCC will continue to function as a merchant bank in other areas,
it is unlikely that a merger or other combination will occur between the
Company and HCC. (As described in the last paragraph of "Conflicts of
Interest," any such merger(s) would require approval by a majority of the
independent Board of Directors members.)
HRN has been formed to take advantage of the opportunity inherent in
this situation. Specifically, ATB has obtained agreements with various
nationally syndicated talk shows (of the host opinion and advice/information
type) and a talk radio network to market their availabilities. By combining
buys in several programs, the Company can assemble an audience sufficient to
justify an advertising buy for national advertisers who have minimum
audience-coverage requirements. In addition, HRN will work to place
advertising in targeted local talk shows in major markets to assure
appropriate coverage.
By delivering sponsors to struggling talk show hosts, the Company
believes it has the opportunity to demonstrate to those hosts how they can be
financially and politically independent. The Company expects the resulting
increase in
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diversity of its talk radio programming by programmers seeking to exploit
targeted markets will serve to build audience size and interest. The Company
believes this will help AM broadcasters become financially viable and help
attract both hosts and advertisers to the Company and HRN. Moreover, the
Company believes it can assemble a team of professionals with experience and
expertise in media who will assure quality programming, provide personalized
service to advertisers and develop excellent affiliate relations.
Virtually all of the Company's revenues initially will be generated from
the sale of advertising and production services for broadcast on its talk
show programs in various market niches. Additional broadcasting revenue will
be generated from production services agreements and other miscellaneous
transactions. Local advertising sales will be made by each talk show's sales
staff (or that of their affiliates). National advertising sales are made by
firms specializing in radio advertising sales on the national level in
exchange for a commission from the Company (based on its gross revenues from
the advertising contained on the respective talk show programs).
The Company believes that radio is one of the most efficient and
cost-effective means for advertisers to reach specific demographic groups.
Advertising rates charged by talk shows are based primarily on (i) the
program's penetration of demographic groups targeted by advertisers; (ii) the
number of stations in the market competing for the same demographic group;
(iii) the supply of and demand for radio advertising time; and (iv) certain
qualitative factors. (Because of a larger audience, rates are generally
higher during morning and afternoon commuting hours.)
A station's listenership is reported in ratings surveys that estimate
the number of listeners tuned to a station and the time they spend listening
to that station. Each station's ratings are evaluated by advertisers and used
by advertising representatives when negotiating advertising contracts between
advertising and broadcasters. The surveys are used by the Company to chart
audience growth, set advertising rates and adjust programming. The radio
broadcast industry's principal ratings service is Arbitron, which publishes
quarterly ratings surveys for significant domestic radio markets; these
surveys, contracted through Marketron, are the Company's primary sources of
ratings data with respect to its talk shows.
In that context, the Company is embarking on an aggressive expansion
program to develop, through ATB, its production services and broadcast
capabilities (at least in the talk show programming niche). These activities
include, to date, the specific programs described under Introduction. At this
time, there are at least four talk show programs the Company, directly or
indirectly, is already producing and/or marketing. It is expected that there
will be at least eight talk show programs developed and three more under
development during the next 12 months, thereby offering in excess of 75 hours
of weekday and weekend programming per week. As a result of this dramatic
expansion of activities, the Company and HCC have begun marketing this
line-up of talk show personalities as the Heartland Radio Network, ("HRN").
It is expected that HRN will become a major focus for the Company's
activities, whether or not the Company leases a satellite transponder or
acquires a pre-existing network to effect its own distribution service. (See
"Communications Companies Acquisitions.") In fact, at least 15 talk show
hosts have advised the Company and/or ATB they have an interest in joining
HRN. Specifically, such a range of programming permits radio stations around
the country to pick and choose from the Company's stable of talk shows. Such
an arrangement moreover permits significant economies in production costs and
enhances cross-selling opportunities to maximize advertising revenues.
Future expansion in this area would include producing programs for
possible television and/or cable television syndication as well.
(2) COMMUNICATIONS COMPANIES ACQUISITIONS
As of this date, the Company has been engaged principally in
organizational activities and limited operations. Nonetheless, the Company
has identified a number of investment opportunities that it intends to
continue investigating when capitalized. While the Company has performed
limited due diligence on these projects to date, it intends to continue to
investigate them (and other opportunities) adequately as capital becomes
available. Any specific opportunities pursued will relate to communications,
broadcast or print, and/or management activities.
The Company will continue to identify (and expects to pursue)
acquisitions of communications-related activities in situations where the
Company believes it can successfully apply its operating strategy and where
such businesses can be
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acquired on economically attractive terms. The Company expects to grow by
emphasizing internal growth of its business and by making targeted
acquisitions of companies with above average growth potential at prices
believed by management to be attractive and which fit synergistically in a
regional concept that will aid in the targeted marketing and promotion of the
Company -- i.e., a community newspaper and a community radio station working
together to cross-market programs and products targeted at specific
demographic and/or psychographic niche markets. Management will continue to
emphasize strategic acquisitions and dispositions, internal growth, operating
efficiencies and cost reduction. As a result, management believes that the
Company is positioned to achieve internal growth and to benefit from the
general economic recovery as well as from the current recovery in the
communications industry.
The Company has had preliminary discussions with a competitive talk show
network with regard to possible acquisition. To date, those discussions would
have to be characterized as preliminary. Nonetheless, it is expected that
once at least $5,000,000 has been raised, those discussions could result in
future acquisitions -- for example, other radio network(s) or portions
thereof and/or at least access to another network's transponder. (See
"Application of Proceeds.")
Other communications companies which might be sought would include
community newspapers and Internet-related businesses. (For example, one talk
radio network recently became the first to offer its programming in real time
on the Internet 7 days a week, 24 hours a day.) Because of the current lack
of funding to actively pursue potential targets, possible future acquisitions
might occur fairly rapidly once funding of at least $12,500,000 has been
achieved. Moreover, as a public company, it is possible that Shares of the
Company will be exchanged for interests in those companies or facilities.
As part of this strategy, the Company envisions acquiring certain
properties. This is felt to have certain advantages under a "cluster" theory
that has proven quite successful for other communications companies.
Specifically, if one advertises on talk radio, those same prospective
advertisers may want to advertise in local newspapers, particularly smaller
suburban newspapers. This same principle can be expanded to specific niche
newspapers in certain geographic areas.
One of the Company's contemplated activities is to provide management in
integrated marketing communication services. Because of the breadth of
experience of its principals, this provides tremendous cross-marketing
opportunities across the local spectrum of media -- local newspaper and/or
radio and/or television. This provides a cost-effective mechanism for
products and programs to be advertised. This is typically arranged through a
barter of certain time and space on one medium for time and space for
another. Such practices are complementary rather than competitive since many
advertisers want to engage in a media mix that is viewed as prudent. For such
services, the Company will typically be paid the standard industry
commission/advertising agency rate of 15% of the gross value of the
transaction. Accordingly, even if the media involved are not affiliated and
no money changes hands, the Company would nonetheless be paid its
contemplated commission.
(3) A MAGAZINE FOR TEENS
The Company intends to create a magazine for teens which will be
developed for the purpose of delivering a cost-effective medium for
advertisers to reach the targeted teen and pre-teen (ages 11 - 18) market.
The Company intends to bring such magazine for teens to market through a
joint venture with the creators of the concept, Gerald Garcia and Bradford W.
Baker, both affiliates of the Company, in return for the needed funding
(approximately $2,300,000) (See "Conflicts of Interest.")
While there have been electronic means (such as MTV) to reach the $60
billion teen market (Source: AdWeek's Guide to Media, 1995), the Company is
not aware of one national print publication that can reach a large audience
at one time. Similarly, a 1992 survey reported that teenagers spend their
money on food, electronics, entertainment and health and beauty aids.
(Source: Find/SVP 1994.) Advertisers also desire to establish a relationship
with teens because of not only their buying power but their influence on
household purchases. The 1992 Find/SVP Study revealed teenagers influence
household purchases amounting to more than $161 billion annually.
The Company is now in the development phase of a magazine for teens.
From 1989 to 1991, XPRESS was published for the Knoxville, Tennessee area
teen market as a joint venture between the Knoxville Journal and The Creative
Network,
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Inc., and its two principals, Gerald Garcia and Bradford W. Baker. (XPRESS
was discontinued in 1991 after the sale of the Knoxville Journal). Originally
tested as a monthly, the magazine was distributed in East Tennessee schools.
Written by and for students, XPRESS was the first publication of its kind.
Teen acceptance was extremely high with a circulation of more than 20,000
monthly. This publication also set new standards in the field of computerized
pre-production. XPRESS was one of the first publications in the country to be
produced entirely on computer. (See Specific Opportunities Under
Consideration.)
The proposed magazine for teens will be aimed at middle and high schools
(grades 7-12) and will be published weekly. It will be created at the
magazine's headquarters, then distributed electronically to subscribing
newspapers which will distribute it to students at schools in their market
area as part of their "Newspapers in Education" program.
National advertising will be sold directly by the magazine.
Participating newspapers can add local advertising by either deleting certain
identified editorial content or by adding additional pages. These newspapers
also can add their own local editorial content, if desired.
The targeted advertisers for the magazine are those companies that have
a desire to reach the affluent teen market -- companies such as Coca-Cola,
Taco Bell, Pepsi, Levi's, Blockbuster, The Gap and McDonald's. The Company
believes it can attract advertisers who know teens spend (especially when it
comes to food, clothes and fun) and help such advertising entities to
generate immediate sales and establish future brand loyalty). In turn, this
influences the buying decisions of parents of teens. According to market
research, teens have increasingly more money to spend, do a
disproportionately large portion of the family shopping, and are more apt to
try a new product than would be their parents. (Source: Find/SVP Study,
1994.) The Company business plan was developed on the premise that the
magazine will permit the Company to tap into such favorable demographics.
Future product development by the Company will include the targeting of
other demographic niche market groups such as 50+ adults, African Americans,
Hispanics and Native Americans, as well as other products that can be
distributed in a similar manner to the magazine.
The Company will commit a portion of the offering's net proceeds to:
create the magazine for teens, including hiring an initial editorial and
sales staff to create, distribute and sell the magazine; maximize sales with
an extensive campaign to promote the magazine; build customer support
services to handle the demands created by the influx of advertisers and
participating newspapers; and use research and development to create other
products capable of being distributed through pre-existing newspaper
networks. In addition, a negotiated royalty fee for the magazine's concept
will be paid to its copyright owners. (See "Introduction" and "Application of
Proceeds.")
There is no niche market teen-oriented national publication that can
reach a large teen audience. Magazines such as SASSY and SEVENTEEN reach at
best 1.9 million subscribers per issue and are targeted to females. (Source:
AdWeek's Guide to Media, 1995.) There are even fewer choices in male teen
publications (Boy's Life and Sports Illustrated for Kids), reaching only
1,300,000 and 950,000, respectively. (Source: AdWeek's Guide to Media, 1995.)
Electronic media have been successful at reaching teens; however, their reach
is generally less than commonly perceived -- for example, MTV's audience is
currently approximately 328,000 per quarter hour between 1:00 a.m. and 3:00
a.m. and 656,200 between 7:00 p.m. and 3:00 a.m. (Source: A.C. Nielsen, 1995.)
While the Company believes the magazine for teens will be more
interactive and wider-reaching than MTV-like products, it is also
complementary with them (since the magazine is a printed product) with
respect to their use by major advertisers. For example, the magazine's
printed format allows for couponing and can be used as a cross-selling device.
XPRESS was distributed in Knoxville to 90% of the high schools (18 of
20) and 80% (20,000 of 24,000) of the students at those schools actually read
it. (Source: Knoxville Journal, 1991.) While the market penetration on a
national basis is not expected to be as high as in the Knoxville experience,
the Company believes a reasonable penetration rate of the targeted 37
million, $60 billion teen audience can be achieved. (Source: Ad Week's Guide
to Media, 1995.)
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(4) ALVERY BARTLETT FUND MANAGEMENT CO.
Alvery Bartlett Fund Management Co. ("ABFM") is a Delaware corporation
owned by Bartlett Fund Management Co. and eleven other investors. (For a
biography of ABFM's principal, Alvery A. Bartlett, Jr., see Appendix IV.)
ABFM will operate as an investment adviser and/or commodity trading advisor
(money manager) of three distinctly different targeted market products: the
All Seasons Opportunity Fund (a private investment company or "hedge fund"), an
inflation index fund and the All City Trust ("All City") family of mutual
funds, each as described below. (See "Conflicts of Interest.") ABFM will be
paid a management and/or incentive fee on any or all of the products.
Due to their legal structure and heavily regulated nature, the inflation
fund (an index commodity pool) and especially All City (a mutual fund) would
be much more expensive to launch than the private investment company/hedge
fund. While there has been no independent verification or evaluation, it is
estimated that the inflation fund would require $1.1 million to launch and
All City would require between $1.5 and $3 million, depending on the number
of cities and the method of distribution to raise money. Information
regarding the hedge fund and the inflation fund are described below. All City
will be an equity mutual fund family, each fund investing at least 65% of its
assets in companies that are either headquartered or have a strong
representation in a specific metropolitan area. All City will be offering
multiple city funds associated with selected U.S. and/or foreign cities
(ranked by popularity, interest in the concept and/or participation in the
world market). (All City is not a regional fund since cities in the same
state or region do not necessarily share the same common interests, identity
or economic well-being.) The Company believes All City would be especially
attractive to public institutions, universities and unions as well as
corporations, state and city retirement plans (who for political or economic
reasons wish to support their local community).
While the Company may invest in any or all three, the initial focus will
be on the All Seasons Opportunity Fund since it is the least expensive to
initiate and has the most immediate upside return potential for ABFM in its
management company role. The proceeds of this offering should be adequate to
get the All Seasons Opportunity Fund fully operational. At that time, All
Seasons' assets under management should be substantial enough that ABFM will
generate sufficient revenue to maintain and expand its efforts.
All Seasons would require $380,000 to complete its funding (which amount
would be provided in the form of investment in ABFM). Under its agreement,
the Company, in addition to being fully repaid its $380,000, would obtain a
13% (to as little as 6.5% if certain warrants are exercised) passive
investment interest in ABFM (and thereby in all its future products) as well
as receiving 50% of the associated management fee for All Seasons. The
Company also has the option to fund an additional $1,100,000 for the
Inflation Fund -- receiving 50% of any ABFM management fees resulting from
that fund product. If, however, the decision is made to initiate All City
before the Inflation Fund, then the Company has the option to fund (or
decline to fund) All City, in the alternative (or possibly in addition), on
the same basis. In any event, the Company has the right of first refusal to
fund All City, regardless of the order in which such fund product(s) are
pursued.
a) THE ALL SEASONS OPPORTUNITY FUND
The All Seasons Opportunity Fund will be a private investment company
limited to 100 targeted investors. The limited number is required in order to
comply with Securities and Exchange Commission rules which exempt such funds
from the restrictions and costs of traditional mutual funds. Therefore,
unlike typical mutual funds, which are usually limited to trading from the
long side, a hedge fund can go long or short, can use leverage and can invest
in the full range of investments (such as stocks, bonds, currencies, futures,
options, lettered stock, etc.). ABFM will be paid a management and/or
incentive fee on assets so managed.
The primary goal of a hedge fund is to provide total return to the
investor, regardless of the performance of other indexes (i.e., relative
return). Since hedge funds have the ability to make money in an up or down
market, its performance compared to other funds is less meaningful.
Additionally, with a traditional mutual fund, the portfolio manager is
usually fully invested in the market with only a modest ability to hold
excess cash for a hedge against a declining market.
For hedge fund managers, price volatility is less of a concern than it
is for managers of traditional funds who need to prove risk aversion to their
investors. Sometimes volatile markets present investment opportunities
because traditional
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funds try to avoid them. Rather than worrying about the erratic nature of the
markets in the shorter term, the primary focus for hedge fund managers is the
direction and ultimate price of the markets.
Investing with leverage in the management of a hedge fund is not
necessarily risky or inappropriate. Leverage gets its bad reputation when it
is abused or over used. It can work to the investors' advantage. This is
especially true when investing in markets that have already corrected or have
established long term basing patterns, or where cash flow is secure and
adequate to meet the margin requirements. In markets such as gold, which have
experienced major corrections and are in long periods of base building, the
use of leverage may not present serious risk issues.
Contrary to popular opinion, purchasing currencies or metals is no more
or less risky than buying equities. The advantage of a hedge is that most
anything can be bought or sold if the fund managers deem the decision to be
prudent. In contrast, traditional fund managers have arbitrary buying
limitations placed on them, whereas hedge fund managers have the flexibility
to look at the largest market picture.
The goal of the hedge fund management is to vary its methods and
objectives to the market's current financial circumstance. In those periods
when the markets provide real value, the All Seasons Opportunity Fund could
become relatively aggressive.
b) THE INFLATION INDEX FUND
The inflation fund, a proposed commodity pool based on a widely used
commodity index, is intended to do away with high risks and manager mischief
common to present day commodities trading. The Inflation Fund would obtain
authorization of the sponsor of such index, such as Knight Ridder's Commodity
Research Bureau.
The targeted Inflation Fund would be regulated by the Commodity Futures
Trading Commission as a commodity pool managed by ABFM and/or its hired
sub-advisors. The Fund would be established for the purpose of mirroring the
price behavior of the commodities comprising the commodity index. ABFM, the
pool operator and advisor, would charge a fee of approximately 1% of net
assets per year to the Fund for creating the legal structure and subsequently
managing its assets. ABFM would also be entitled to receive a year-end bonus
if it exceeds its stated investment objective.
The design of the Inflation Fund is believed to service a targeted
market and to take the risk and speculation (which have become synonymous
with commodities trading) out of the equation. ABFM, acting as the Fund
advisor, would employ a long or neutral investment strategy -- i.e., buying
only those commodities that are thought to be in "uptrends" or have the strong
potential to be uptrends. Decisions will not utilize leverage buying, or
allow shorting, nor purchasing of options. During occasional deflationary
periods, money earmarked for weak commodities would be temporarily diverted
into less risky U.S. Treasury bills or bonds which could rise in value as
commodity prices decline.
Until now, the primary way to buy commodities has been principally
through the medium of individual futures contracts, a style of trading often
characterized as speculative. Investors have been relegated to "gambling" on
specific commodities, rather than spreading their investment across the
entire commodities spectrum. The objective of the inflation fund will not be
engaging in risky trading, but rather in long term, sustainable profit which,
for any given period, exceeds the national rate of inflation.
(5) A NATIONAL SPORTS WEEKLY MAGAZINE
Because sports are an integral part of the American way of life, the
Company believes those viewing and participating in sports are a very large,
but underserved, print market niche. The Company believes sports are
universal activities that cut across age, sex, income, ethnic and other
demographics. Like the magazine for teens described above, the Company
intends to bring the proposed national sports weekly to market through a
joint venture with the creators of the concept, Gerald Garcia and Bradford W.
Baker, both affiliates of the Company, in return for the Company providing
needed funding (approximately $4,737,500 if $12,500,000 is raised in this
offering and approximately $11,600,000 if $25,000,000 is raised). (See
"Conflicts of Interest.")
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The proposed national sports weekly (hereinafter called "NSW") will use
distribution channels similar to the proposed magazine for teens, thereby
permitting economies of scale. NSW will be published as a national medium for
advertisers to reach adults 18 - 54. A national sports weekly also would lend
itself to being co-sponsored by commercial networks or companies associated with
sports.
With a staff of top sports editors and writers, NSW will provide a fully
formatted tabloid-size magazine to newspapers on a weekly basis. While most
people's first choice today for printed information is their local newspapers,
those publications cannot afford the staff to report in depth on all of the
major sports beyond the news of franchise and college teams in or near the
newspaper's coverage area, much less provide coverage of the less popular
sports.
The Company anticipates signing up a reasonable percentage of the nation's
newspapers to distribute NSW. The overhead and production structure of NSW is
expected to be highly efficient. The Company expects it will be able to offer
advertisers a media product with a high circulation at a low cost-per-thousand.
In fact, the Company expects its weekly reach will be significantly higher than
other sports-oriented media, including television sports shows, but at a cost-
per-thousand that is highly competitive.
For example, PARADE Magazine, printed independently and then distributed
through newspapers, has a circulation of 37,614,000. (Source: AdWeek's Guide to
Media, 1995. ) Most print publications are printed and distributed
independently, resulting in significantly lower circulation and higher
costs. For example, Sports Illustrated's circulation is 3,465,000,
Inside Sports' circulation is 675,000 and the Sporting News' circulation is
515,000 and Baseball Weekly's circulation is 303,409. (Source: AdWeek's
Guide to Media, 1995 and ABC, 1994.) While the market penetration for NSW may
not be as high as Parade Magazine's 37.614 million circulation, the Company
believes it can achieve a reasonable penetration rate.
Network and cable television also will be considered a competitor of NSW
because it is an efficient means of reaching a large audience cost-effectively.
At the currently projected cost-per-thousand, NSW rate will be very competitive
against all day parts (a media term meaning all segments of the programming
day), delivering a readership that may equal or exceed that of a typical
prime time show.
NSW will be created weekly at NSW's headquarters, then distributed
electronically to subscribing newspapers. National advertising will be sold
directly by the staff of NSW. Participating newspapers can add local advertising
by either deleting certain identified editorial content or by adding more pages.
These newspapers also can add their own local editorial content, if desired.
The targeted advertisers for NSW are those companies that have a desire to
generate immediate sales, have a need to disseminated printed information (for
image, couponing, schedules, etc) and who want to supplement their electronic
advertising.
The Company will commit approximately $11,600,000 of this offering's net
proceeds (or, if only about $12,500,000 of the aggregate offering is achieved,
about $4,737,500) to create NSW. Such funds will be used for purposes relating
to bringing NSW to fruition, including research and development to further fine-
tune our competitive advantages as well as exposing any potential obstacles
among our three target audiences (newspaper publishers, advertisers & readers);
hire an editorial and sales staff to create, sell and distribute NSW; maximize
sales with an extensive advertising and public relations campaign to promote our
product; and build customer support services to handle the demands created by
the influx of advertisers and participating newspapers. In addition, there will
be a negotiated royalty fee to the copyright owners for the national sports
weekly concept. (See "Application of Proceeds.")
(6) MANAGEMENT AND MARKETING SERVICES
While currently a limited activity of the Company, it is expected that
integrated communications management services will constitute a growing
portion of the Company's business. Once funding is in place, for example, it
is anticipated that new personnel will be engaged to complement the Company's
existing personnel. The contemplated activities would be associated with
representing clients for cash fees (and possible equity-based) compensation
for management advisory
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services. Because the Company intends to embark upon an active acquisition
strategy, it is felt that these management and consulting services would
complement the Company's other activities since it would already be seeking
comparable information and generally be in the "information flow." It is
believed attractive economies for upcoming business activities will result,
thereby permitting the Company to acquire poorly managed companies that could
benefit from professional management techniques.
One of the Company's contemplated activities is to provide management in
integrated marketing communication services. Because of the breadth of
experience of its principals, the Company believes there are promising cross-
marketing opportunities across the local spectrum of media -- local newspaper
and/or radio and/or television. This provides a cost effective mechanism for
products and programs to be advertised. This is typically arranged through a
barter of certain time and space on one media for time and space on another.
Such practices are complementary rather than competitive since many advertisers
want to engage in a media mix that is viewed as prudent. For such services, the
Company will typically be paid the standard industry commission/advertising
agency rate of 15% of the gross value of the transaction. Accordingly, even if
the media involved are not affiliated and no money changes hands, the Company
would nonetheless be paid its contemplated commission.
The Company believes this will introduce attractive economies because,
once an advertiser uses a particular medium, it is a good candidate for doing
more advertising on related medium and programming in the community. This
approach also ties into the phenomenon that most advertising (approximately
53%) is done in print and the balance is allocated between television, radio
and other media. (Source: Advertising Age, September 1995.) (See
"Communications Companies Acquisitions.")
One of the principal functions of the marketing services function will
be to develop marketing concepts, ideas and strategies for a fee to
non-affiliated entities. This will constitute the generator of new revenue
sources and provide value-added service to advertisers on the Company's radio
programming. It is believed that the Company can develop new marketing and
promotion strategies based upon this basic concept.
In the same vein, much of the Company's strategy is to avoid traditional
distribution networks but rather to deliver directly in bulk -- whether the
proposed magazine for teens, a contemplated national sports weekly or any other
specialty publication. This permits the Company to get incremental returns in an
existing market with little or no costs.
MANAGEMENT
(1) OFFICERS
GERALD GARCIA, born 1943, President, Chief Executive Officer and
Chairman of the Board of Directors, graduated from Texas A&M University in
1967. Mr. Garcia joined the Company from THE HOUSTON POST, where he was vice
president and editor. During his three-years there, The Post was honored
regularly for journalistic excellence. Prior to his return to his native
Texas, Garcia was editor and publisher of the KNOXVILLE JOURNAL and president
and publisher of the MARYVILLE DAILY TIMES, its nearby sister publication.
Mr. Garcia had a significant impact on both newspapers. He supervised the
transformation of the DAILY TIMES to a morning paper, redesigned the JOURNAL
and led both papers to journalistic excellence and economic vitality. During
his tenure, the JOURNAL was credited with having developed the Best Sports
Section in the Country for newspapers of 50,000 circulation and under and the
DAILY TIMES was named "Tennessee's Best Newspaper" by the Tennessee Press
Association in 1990 and 1991. While Mr. Garcia was editor of the JOURNAL and
DAILY TIMES, respectively, market penetration grew for both newspapers at
rates superior to industry standards for newspapers of comparable size.
Mr. Garcia began his career at the BRENHAM BANNER-PRESS while attending
Texas A&M. He held the positions of reporter, sports editor and managing editor
there. After receiving his BA degree in Journalism, he moved to the CORPUS
CHRISTI CALLER-TIMES as sports reporter and sports news editor and then on
to the FORT WORTH STAR-TELEGRAM as a sports reporter and his first
significant newsroom management responsibilities.
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In 1976, Mr. Garcia went to the KANSAS CITY STAR AND TIMES where he was
director of newsroom operations and assistant to the publisher. He later also
assumed directorship of the Capital Cities' Minority Training Program. Mr.
Garcia moved next to the Gannett Company where he was general executive of
the SAN BERNADINO SUN and then editor and publisher of the TUCSON CITIZEN. In
1983, he was named vice president of Gannett West Newspaper Group.
Mr. Garcia played an integral role in the launch of USA TODAY, supervising
the building of the company's print site in Phoenix. He returned to the home of
his alma mater in 1986 to be publisher of the BRYAN-COLLEGE STATION EAGLE
before moving to Knoxville in 1988.
In 1984, Mr. Garcia received the Ruben Salazar award for his achievements
in publishing. Mr. Garcia has been a community leader wherever he has lived,
most notably in Tucson, where he is credited with creating The New Pueblo
concept. He served a two-year term, in 1989-1991, as chairman of the
American Newspaper Publishers Association's Task Force on Minorities in the
Newspaper Business.
MICHAEL L. FOUDY, born 1951, a principal founder, will be Executive Vice
President of the Company and a member of its Board of Directors. Mr. Foudy is
host of ATB's "America The Beautiful" nationally syndicated talk radio show. He
has diverse experience in public affairs, integrated marketing communications,
strategic planning, management, entrepreneurship, finance, writing and
broadcasting. Mr. Foudy's accomplishments include creation of a thirty thousand
member Utility Shareholder's Association to intervene in rate legal cases and
winning over $400 million in increased rate base. During the 1992 Presidential
primary campaign, he was actively engaged in organizing a movement to draft an
independent candidate for president (which activities generally would permit an
independent candidate for President to obtain ballot access in all U.S.
jurisdictions).
During 1974, while attaining his Juris Doctorate from the University of
Arizona College of Law, Michael Foudy founded a small marketing
communications company in Tucson. When he sold his interest in the company
thirteen years later, WFC/Westcom had grown to be the largest most successful
public affairs/public relations company in Arizona with billings of over $7
million, with offices in Tucson, Phoenix and San Diego, a staff of
twenty-five professionals, a base of "blue chip" clients and a history of
profitability.
Since 1987, Mr. Foudy has undertaken a variety of projects on behalf of
distressed clients. These range from a comprehensive marketing audit for the
owners of Garfinckel's Department Stores in Washington, D.C. to preparation of
promotional and sales materials for the liquidation of $86 million of commercial
property and the auction of 4,000 residential properties once owned by First
City Bank of Houston, Texas. He directed the successful repositioning of a
master planned golf and retirement community owned by Fairfield Homes in Green
Valley, Arizona and designed a comprehensive marketing communications program
which doubled home sales for the troubled home builder. He also supervised the
restructuring/liquidation of Compass Publishing based in Chicago, Illinois and
Sarasota, Florida.
Mr. Foudy wrote the book REINVENTING AMERICA which was published by the
Institute for American Democracy. Michael Foudy serves on the Board of Directors
of Heartland Capital Corporation, which he co-founded, and is Of Counsel to the
DCM Group, an integrated communications strategy firm based in McLean, Virginia.
Michael Foudy has been active in a variety of charitable and community
organizations including the Tucson Free Clinic, Tucson Community Food Bank,
Arizona Opera Company and Southwestern Film Consortium. He currently serves on
the American Initiative Committee Board of Directors and as Editor of the
American Initiative Newsletter.
BRADLEY B. NIEMCEK, born 1940, Vice President-Operations of the Company,
is a 1965 Journalism graduate of Marquette University and is currently
pursuing, on a part-time basis, a graduate degree in International
Telecommunications at George Mason University. In addition to his role as
producer of Michael Foudy's "America The Beautiful" program, he plays an active
role in the Heartland Radio Network, which not only provides marketing and
management services to ATB Productions, L.L.C. but also has other broadcast
activities under development. Mr. Niemcek is a 30-year veteran of the
communications industry. He spent his early years as a newspaper reporter,
television news writer and public relations executive. In addition, Mr.
Niemcek for the past two decades has worked for, or established and built his
own, companies specializing in client services based on emerging
communications technologies. Mr. Niemcek began his career as a reporter
26
<PAGE>
and writer for the Milwaukee Sentinel and the NBC affiliates in that city,
WTMJ radio and TV. He was recruited into the corporate public relations field
in 1967 by Carl Byoir & Associates in Chicago and, after one year there, moved
to its New York headquarters. Mr. Niemcek departed Byoir in 1974 to undertake
a series of entrepreneurial enterprises in the sports promotion field,
television syndication and in newsletter publishing. In 1982, he founded
Newslink, Inc. to develop and market a satellite distribution service to
connect public relations enterprises with the nation's local TV newsrooms. By
1988, the firm had expanded to include offices in New York and Washington,
D.C. and diversified into providing facilities management satellite services
for broadcast and cable TV clients as well; its largest client was Cable News
Network ("CNN"). Mr. Niemcek sold his interest in Newslink in 1988 and formed
TV People, Inc., a television facilities management firm and, from his new
base in the Washington, D.C. area, consulted on the development of a number
of local and regional political campaigns.
BRADFORD W. BAKER, born 1955, Secretary - Treasurer of the Company,
attended the University of Dallas from 1974 - 1975. Mr. Baker's professional
experience spans 20 years of advertising, sales management and marketing. He
is currently President and partner of The Creative Network, Inc., an award
winning full-service advertising agency located in Knoxville, Tennessee.
Prior to helping form Creative Network, Mr. Baker was a VP/Account Supervisor
at Charles Tombras Advertising, Inc. in Knoxville and at Caraway Kemp
Communications in Jacksonville, Florida. He has worked on both the client and
agency sides of the business and won several awards and distinctions
including: Who's Who in Advertising, a Presidential Citation for Private
Sector Initiative, two 1990 Telly Awards, a 1992 National ADDY award from the
American Advertising Foundation and a 1996 Knoxville ADDY Best of Show. Mr.
Baker has extensive experience in creating, marketing and publishing various
media vehicles. These include:
- BOATING Magazine: Creative Network is the agency of record for this
industry-leading publication. Work for this client includes all
marketing facets, with heavy concentration on trade advertising and
positioning.
- XPRESS, a magazine for teens. (See "Specific Opportunities Under
Consideration -- A Magazine for Teens.")
- THE STAR: Published for MasterCraft Boat Company, this quarterly
publication has a circulation of 25,000. THE STAR, generally
recognized as one of the best publications within the boating industry,
is designed, written and produced entirely by Creative Network.
- THE WEEKEND JOURNAL: The Creative Network was responsible for all
research, marketing and publicity for this new weekly newspaper which
was successfully launched in January 1992.
Mr. Baker has also acted as consulting advisor for THE KNOXVILLE JOURNAL and two
Knoxville suburban newspapers, THE OAK RIDGER and the MARYVILLE DAILY TIMES, and
worked extensively on the launch and marketing of several publications for
target marketer, Whittle Communications, L.P. Mr. Baker was also instrumental,
together with Mr. Garcia, in refining the concept and developing the business
plans respectively for the proposed teen magazine and national sports weekly
joint ventures.
LINDA G. MOORE, born 1947, Assistant Treasurer and Chief Financial
Officer of the Company, attended Chico State College from 1965 to 1968.
Ms. Moore has been Chief Administrative Officer of the DCM Group, an affiliate
of Edward S. DeBolt and Company, Inc. ("ESD") since 1978. She was Secretary of
the Republican State Central Committee of California from 1969 when she began
working with Edward S. DeBolt, Chairman of the Board of HCC and, in 1971 and
1972, was Assistant to Mr. DeBolt who served as the Deputy Chairman of the
Republican National Committee. During 1973, Ms. Moore was Office Manager of
Donnelly Marketing's National Political Office. She was Office Manager and
held the office of Secretary-Treasurer from 1974 to 1996 of ESD and has
served on the Board of Directors since 1974.
SHERRI SCHWAMB DENORA, born 1967, Assistant Secretary of the Company, is
a 1983 graduate of Mary Washington College, Fredericksburg, Virginia. During
1983 and 1984, Ms. Denora was a secretary and receptionist of Marinas
International, Ltd. Since 1984, she has been production manager of the DCM
Group, a subsidiary of ESD, responsible (among other activities) for print
production, event management and the training and supervision of new
employees. Ms. Denora is also currently providing production assistance and
on-air commentaries for "America The Beautiful."
27
<PAGE>
RYAN T. SMITH, born 1973, Assistant Secretary of the Company, is a 1995
B.A. in communications graduate of Purdue University. While in college, Mr.
Smith served as director, producer and editor of the first-ever Purdue all
student-run newscasts was considered by its communications faculty as one of
the top three television directors in his senior class and, as an active
volunteer at the West Lafayette, Indiana cable station, performed a variety
of tasks (including directing a live two camera town hall meeting broadcast).
Between semesters at Purdue, among other activities, Mr. Smith worked at
National Empowerment Television in Washington, D.C. as a studio technician
intern where he learned technical facets of production. Currently, he is a
production assistant for "America The Beautiful", a nationally syndicated talk
radio show. His duties entail correspondence, station relations, marketing,
booking guests and technical assistance in the studio.
IT IS EXPECTED THAT ADDITIONAL PERSONNEL WILL BE EMPLOYED TO ASSIST IN
OPERATIONS AND FINANCIAL MANAGEMENT. THE COMPANY HAS ALSO IDENTIFIED SEVERAL
PEOPLE THAT ARE CANDIDATES FOR KEY POSITIONS WITHIN THE ORGANIZATION. THE
COMPANY HAS DISCUSSED OPPORTUNITIES WITH SOME OF THESE PEOPLE AND INTENDS TO
ACTIVELY RECRUIT THEM UPON FUNDING. MANAGEMENT RECOGNIZES THAT THEIR EXPERTISE
AND EXPERIENCE IS ESSENTIAL TO SUCCESS OF ITS BUSINESS PLAN. THE COMPANY INTENDS
TO ALSO CONTINUE TO EXPAND ITS ADVISORY GROUP IN THE AREAS OF BUSINESS AND
FINANCE.
(2) DIRECTORS
GERALD GARCIA. (See "Officers" above.)
MICHAEL L. FOUDY. (See "Officers" above.)
RON ALEXENBURG, born 1942, has been a music business consultant since
1990 for, among others, The Beach Boys, Cabin Fever Entertainment (a division
of U.S. Tobacco), American Re-Insurance Company, Rawkus Entertainment (an
affiliated company of James Murdoch) and Joseph Antonini (past chairman of K
Mart). He also recently taught at New York University as a Professor of
Business Music, Music Promotion and Advertising. From 1988 to 1990, Mr.
Alexenburg was a partner with Cy Leslie at Aegis Entertainment in 1988. From
1980 to 1988, he joined Peter and Trudy Meisel and Ariola (GMB) to establish
Handshake Records in March 1980. In April 1978, Mr. Alexenburg established
Infinity Records, in association with MCA; until he left in 1980. As CEO and
President, he signed entertainers or groups that included Orleans, Hot
Chocolate, Spryo Gyro and Rupert Holmes (all of which had "gold" recordings).
Prior to that association, Mr. Alexenburg was named Senior Vice President and
General Manager of Epic Records, a division of the CBS Records group, in July
1977; at that time, he also started the Portrait label, signing the highly
successful group Heart. Sales increased at Epic and the CBS associated labels
dramatically during the next seven years. For five consecutive years, the
organization signed, developed and successfully marketed more than 25 new
artists, all of which achieved "gold" (sold over half a million units) status,
including two of the most successful album sellers of all time: the artist
Meatloaf and the group Boston. Mr. Alexenburg joined Columbia Records in
December 1965 and was promoted to Vice President of Epic Records in May 1971,
after holding increasingly responsible positions and receiving numerous
industry awards for his achievements.; a year later, in 1972, he was given
full responsibility for the label's growth at which time he brought Michael
Jackson (and "Thriller," the most successful album of all time) and The Jackson
Family to Epic Records. Mr. Alexenburg began his career with Garmisa
Distribution, one of Chicago's leading independent record distributors in
1962, were he held positions in sales, marketing and promotion, while he
represented companies such as ABC Dunhill, Mercury, Phillips and United
Artists.
TIM GIAGO, born 1936, an enrolled member of the Oglala Sioux Tribe, is
the editor and publisher of INDIAN COUNTRY TODAY (the largest Indian-owned
newspaper in America). He writes "Notes from Indian Country," a weekly column
syndicated by Knight-Ridder/Tribune Services, and is the author of THE
ABORIGINAL SIN, as well as serving as editor of "The American Indian and the
Media." After attending elementary and high school at Holy Rosary Indian
Mission (now Red Cloud Indian School) on the Pine Ridge Reservation, Mr.
Giago attended college at San Jose Junior College, the University of Nevada,
Reno and was awarded a Nieman Fellowship to Harvard University in 1990-1991.
He has received the H.L. Mencken Award from the BALTIMORE SUN in 1985; the
Civil and Human Rights Award from the National Education Association in 1988;
the Harvard University Award for Contributions to Minority Journalism in
1990; the University of Missouri School of Journalism Medal of Honor for
Distinguished Journalism; inducted into the South Dakota Hall of Fame
28
<PAGE>
in 1995, the Distinguished Service Award from THE WASHINGTON TIMES and has
been publisher while his newspaper, INDIAN COUNTRY TODAY, has received more
than 70 awards for excellence.
KIRBY S. RALSTON, born 1953, is a 1976 graduate of Texas Christian
University with a B.A. in Journalism. While in college, Mr. Ralston worked in
the sports department at the Fort Worth STAR-TELEGRAM. He also was a staff
member of the TCU student newspaper and radio station. After graduation, Mr.
Ralston joined the family-owned Ralston Advertising in Omaha, Nebraska where
he handled the sales and marketing of promotional advertising products. In
1978, Mr. Ralston formed A Advertising & Supply, a direct mail marketing unit
of Ralston Advertising specializing in the promotion of political campaign
items. In 1990, Mr. Ralston was named President of Ralston Advertising/A
Advertising & Supply. He is a board member of the Mid-America Direct
Marketing Association and an active member of the Greater Omaha America
Marketing Association and the Omaha Federation of Advertising.
B. ERIC SIVERTSEN, born 1953, who graduated from the College of William
& Mary in 1975 and George Mason University School of Law in 1981, serves as
an officer and director of various subsidiaries of DeRand Corporation of
America. Mr. Sivertsen is a member of the Virginia state bar and has
extensive experience creating marketing strategies products and has
coordinated the development of a national securities marketing organization
and selling group. He has performed acquisition due diligence, including
financial and other risk analysis of potential acquisitions, budget
preparation and other pro forma financial analysis. Mr. Sivertsen has
negotiated various acquisition-related agreements, including purchase and
sale, senior and subordinated commercial financing, seller refinancing,
mortgages, leases, employment and credit enhancement agreements. He also
manages operations of a public telecommunications fund, oversees preparation
of budgets, contract negotiations, development of operating strategies, as
well as the review and hiring of personnel. He served as senior deputy to the
chairman of the board of DeRand Corporation of America, serves as in-house
counsel to DeRand and Chief Personnel Manager and Administrator for several
DeRand subsidiaries. During the last several years, he has been selected to
speak at various investment seminars, conferences, and on radio regarding
telecommunications investments and investment banking.
PROFESSIONAL ADVISOR(S)
In order to ensure that the Company takes all steps necessary for its
ultimate success, it has obtained the services of certain professional
advisors. Despite the fact that the Company is still in the development
stage, with the help of its legal, accounting and financial advisors,
management continues to strive for a level of professionalism commensurate
with the Company's strategic plan and goals. The Company's professional
advisors include:
(1) MAX E. MILLER, ESQ., born 1949, has provided legal and financial advice
to the Company since early 1995. He is currently a senior partner at the
Washington, D.C. law firm of Bayh, Connaughton & Malone, founded and chaired
by former U.S. Senator Birch Bayh. Mr. Miller specializes in federal, state
and international tax planning and business consulting and commercial
transactions on behalf of publicly-held and closely-held corporations,
partnerships, trusts, estates and individuals. He has often assisted in the
development of business plans and the financial structure of start-up
companies, and has worked closely with U.S. companies expanding overseas.
Also a certified public accountant, Mr. Miller combines a strong legal
background with a solid understanding of corporate finance and the financial
consequences of business transactions. Prior to joining the firm, Mr. Miller
was a senior tax manager with Coopers & Lybrand, an international accounting
and business consulting firm. He has been a frequent lecturer at tax seminars
and special business programs and has written extensively on tax matters. Mr.
Miller received his B.S. in accounting from Indiana University and his law
degree from Indiana University School of Law. Mr. Miller also attended the
graduate tax law program at Georgetown University Law Center. He is a member
of the District of Columbia, Virginia and Indiana Bars, and is admitted to
practice before the United States Tax Court and the Federal District Court
for the Eastern District of Virginia. He is also a member of the American
Institute of Certified Public Accountants, as well as the Indiana and
Northern Virginia Societies Certified Public Accountants.
(2) JOHN M. NOVACK, born 1951, currently works as a financial consultant.
Previously, he was employed by NHP, Incorporated, as Senior Vice President,
Finance and Accounting from 1993 - 1995, a financial consultant from 1992 -
1993,
29
<PAGE>
Vice President, Controller of Woodward & Lothrop, Incorporated from 1981 -
1992 and an Audit Manager in the Washington, D.C. office of Arthur Andersen,
L.L.P. from 1973 - 1981. He holds a B.B.A. degree in Accounting from the
College of William and Mary.
(3) FRANK CALLAHAN, born 1928, who graduated from Baker University in 1950 is
a professor at the Thunderbird Graduate School of International Management in
Glendale, Arizona. Mr. Callahan is a former officer of the advertising agency
Young and Rubicam, owner of Winters, Francheski and Callahan Advertising and
partner in WFC Public Relations. He has a long and successful career
introducing new products and services. Among his successful introductions are
Duncan Hines Cake Mixes, Purina Dog Chow, Gallo Wines, Pentel Pens,
Scotchguard, Club Med, Hyundai Personal Computers and various products for
Amour foods. Mr. Callahan has an extensive history relating to new product
introduction, including careful consideration of positioning issues,
marketing strategies, obstacles to success, competitive forces, prospect
definition, channels of distribution, advertising, public relations, and sales.
REMUNERATION
The Company was formed on March 27, 1996 and therefore paid no
compensation prior to that time. Under the current compensation agreement,
dated as of May 1, 1996 with the Company, each of Gerald Garcia, Michael L.
Foudy and Bradley B. Niemcek earns compensation at the annual rate of
$130,000, $120,000 and $60,000, respectively, plus certain out of pocket
expenses during this start-up period. Finally, Bradford W. Baker has an
employment agreement with the Company which does not provide for direct
compensation but does make him eligible for certain employee benefits,
including a bonus and/or stock options.
If only the minimum funding is subscribed for in this offering and no
other funds are available, it is intended that the amount of salaries will be
reduced sufficiently until cash flow is available to adequately pay these
amounts. However, it is intended that the difference between the full
compensation level and what is paid will be accrued and ultimately paid when
funds are available. This compensation plan is based on an assumed full time
effort for the Company by these individuals. As the Company's operations
develop, it is anticipated that additional personnel and outside consultants
may be hired. It is currently anticipated that each of these individuals will
devote up to approximately 50% of their time to either HCC or ATB
Productions, L.L.C. for which the Company will be reimbursed for that portion
of the individual's base salary. Determination of time allocation will be at
the discretion of the Board of Directors.
EMPLOYEE BENEFITS
It is anticipated that the Company will implement, in the near future, a
Restricted Employee Stock Option plan under which its Board of Directors may
grant employees, directors and certain advisors of the Company options to
purchase its Shares at rates that may be below market price at the date of
the grant. Any income from such options are not expected to be tax
deferrable. As of the date of this Prospectus, the plan has not been defined
and no options have been granted but 600,000 Shares have been reserved.
The Company anticipates that it will adopt in the future an employee
cash bonus program to provide incentive to the Company's employees. It is
anticipated that such a plan would pay bonuses to employees based upon the
Company's pre-tax or after-tax profit for a particular period. It is
anticipated that the Company will adopt a retirement plan such as a 401(k)
retirement plan and that it will implement an employee health plan comparable
to the industry standard. Establishment of such plans and their
implementation will be at the discretion of the Board of Directors; any such
bonus plan will be based on annual objective, goal-based criteria developed
by the Board of Directors for eligible participants.
EMPLOYMENT AGREEMENTS
As of May 1, 1996, Messrs. Garcia, Foudy, Baker and Niemcek each entered
into a three-year employment agreement with the Company (collectively, the
"Employment Agreements") that provides for a base salary, bonuses and such
other benefits as set forth in their agreements. Messrs. Garcia, Foudy, Baker
and Niemcek and the Boards of Directors each
30
<PAGE>
have the right to terminate the Employment Agreements with or without cause
at any time; provided, however, that termination by the Board of Directors
without cause or termination by Messrs. Garcia, Foudy, Baker and Niemcek with
cause would obligate the Company to pay the compensation due under the
applicable Employment Agreement for the remainder of its term. Pursuant to
the terms of the Employment Agreements, Messrs. Garcia, Foudy, Baker and
Niemcek have agreed that they will not compete with the Company during the
period of their employment and for a one-year period after termination of the
applicable Employment Agreement.
EMPLOYEES
As of May 31, 1996, the Company had one full-time and six part-time
employees, six of which employees are located in its McLean, Virginia
offices. None of such employees is represented by employee union(s). The
Company believes its relations with all of its employees are good.
PROPERTY
The Company rents office facilities at 1320 Old Chain Bridge Road,
McLean, Virginia, at market rates. (However, see, "Conflicts of Interest --
Certain Related Party Transactions.") Such leased office space is adequate,
the Company believes, to satisfy its needs for the foreseeable future.
LITIGATION
There has not been any material civil, administrative or criminal
proceedings concluded, pending or on appeal against the Company or its
affiliates and principals.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table summarizes certain information with respect to the
beneficial ownership of the Company's Shares, immediately prior to and after
this Offering.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK.]
31
<PAGE>
<TABLE>
<CAPTION>
AFTER THE OFFERING
PRIOR TO THE ----------------------------------------
OFFERING MINIMUM(2) MAXIMUM(3)
-------------------- ----------------- -----------------
NAME OF BENEFICIAL OWNER: NUMBER(1) % NUMBER % NUMBER %
- ------------------------- --------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND OFFICERS
Michael L. Foudy 1,885,000 20.86 1,885,000 19.97 1,885,000 13.43
Gerald Garcia 364,000 4.03 364,000 3.86 364,000 2.50
Eric B. Sivertsen
(warrants only) 25,000 0.28 25,000 0.27 25,000 0.18
Bradford W. Baker - - - - - -
Bradley B. Niemcek 112,500 1.24 112,500 1.19 112,500 0.80
Ron Alexenburg - - - - - -
Tim Giago - - - - - -
Kirby Ralston - - - - - -
---------- ----- --------- ----- --------- -----
ALL DIRECTORS AND OFFICERS
AS A GROUP 2,386,500 26.41% 2,386,500 25.29% 2,386,500 17.00%
---------- ----- --------- ----- --------- -----
---------- ----- --------- ----- --------- -----
ALL 10% SHAREHOLDERS
Michael Foudy 1,885,000 20.86 1,885,000 19.97 1,885,000 13.43
Heartland Capital
Corporation (warrants
only) 1,236,000 13.08 1,236,000 13.10 1,236,000 8.80
---------- ----- --------- ----- --------- -----
ALL 10% SHAREHOLDERS AS
A GROUP 3,121,000 34.54 3,121,000 33.07 3,121,000 22.23
---------- ----- --------- ----- --------- -----
---------- ----- --------- ----- --------- -----
ALL BENEFICIAL OWNERS AS
A GROUP 3,622,500 40.09% 3,622,500 38.39% 3,622,500 25.80
---------- ----- --------- ----- --------- -----
---------- ----- --------- ----- --------- -----
</TABLE>
(1) Reflects total outstanding Shares of 4,758,000 and the assumed issuance
of 75,000 contingent shares and the assumed exercise of warrants to
purchase 4,204,000 shares, all as of May 18, 1996. Detail by director
and/or officer follow:
<TABLE>
<CAPTION>
SHARES UNDER SHARES UNDER
OUTSTANDING NON-CONTINGENT CONTINGENT SHARES
DIRECTOR AND/OR OFFICER SHARES WARRANTS WARRANTS TOTAL
- ----------------------- ----------- -------------- ------------ ------
<S> <C> <C> <C> <C>
Michael L. Foudy 992,500 892,500 - 1,885,000
Gerald Garcia 198,500 165,500 - 364,000
Bradley B. Niemcek 25,000 12,500 75,000 112,500
Eric B. Sivertsen - 25,000 - 25,000
-------- --------- ------- ---------
TOTAL 1,216,000 1,095,000 75,000 2,386,500
-------- --------- ------- ---------
-------- --------- ------- ---------
</TABLE>
32
<PAGE>
(2) Assumes issuance and sale of 400,000 of the Company's shares during this
Offering Period (the "Minimum" Offering), in addition to the 4,758,000
Company shares currently outstanding, the issuance of 75,000 contingent
shares and the assumed exercise of warrants to purchase 4,204,000
additional Shares, all as of May 18, 1996.
(3) Assumes issuance and sale of 5,000,000 of the Company's shares during this
Offering Period (the "Maximum" Offering), in addition to the 4,758,000
Company Shares currently outstanding, the issuance of 75,000 contingent
shares and the assumed exercise of warrants to purchase 4,204,000
additional Shares, all as of May 18, 1996.
SELECTED FINANCIAL DATA
The following table sets forth certain financial data for the Company.
The selected financial data should be read in conjunction with the Company's
and Heartland Capital Corporation's (HCC) "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements of the Company and Notes thereto and the Financial Statements of
HCC and Notes thereto included elsewhere in the Prospectus. The selected
financial data for the periods ended December 31, 1994 and 1995, and
March 31, 1996, have been derived from the Company's and HCC's financial
statements, which have been audited by independent certified public
accountants, and which are included elsewhere in this Prospectus. The
selected financial data for the three months ended March 31, 1995 have been
derived from unaudited financial statements which are included elsewhere in
this Prospectus. In the opinion of management of the Company, the unaudited
financial statements of the Company and HCC have been prepared on the same
basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and the results of operations for this
period. Operating results for the three months ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996. This data should be read in conjunction with the
Company's and HCC's "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements, and related
notes thereto, included elsewhere in this Prospectus.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK.]
33
<PAGE>
<TABLE>
<CAPTION>
HCMI --
(SUCCESSOR
HCC (PREDECESSOR COMPANY)(1)(2) CO.)(1)(2)
---------------------------------------------------------------- -----------
FROM
6/23/94 6/23/94 3/27/96
(DATE OF (DATE OF (DATE OF
FORMATION) 3 MONTHS 3 MONTHS FORMATION) FORMATION)
THROUGH YEAR ENDED ENDED ENDED THROUGH THROUGH
12/31/94 12/31/95 3/31/95 3/31/96 3/31/96 4/30/96
----------- ----------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUE $ - $ 647 $ - $ 2,106 $ 2,753 $ -
COSTS AND EXPENSES $ 211,172 $ 506,092 $ 71,643 $ 160,318 $ 877,582 $ -
LOSS FROM OPERATIONS $ (211,172) $ (505,445) $ (71,643) $ (158,212) $ (874,829) $ -
INTEREST EXPENSE, NET $ 8,342 $ 10,720 $ 3,709 $ 1,514 $ 20,576 $ -
NET LOSS (5) $ (219,514) $ (516,165) $ (75,352) $ (159,726) $ (895,405) $ -
NET LOSS PER SHARE $ (.03) $ (.07) $ (.01) $ (.02) $ (.11) $ -
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING(2) 7,851,000 7,851,000 7,851,000 7,851,000 7,851,000 -
</TABLE>
<TABLE>
<CAPTION>
HCC (PREDECESSOR COMPANY)(1)(2) HCMI (SUCCESSOR COMPANY)(1)(2)
-------------------------------------------------------- ---------------------------------
AS OF AS ADJUSTED(4)
-------------------------------------------------------- AS OF --------------------
12/31/94 12/31/95 3/31/95 3/31/96 4/30/96 MINIMUM MAXIMUM
-------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
WORKING CAPITAL (DEFICIENCY) $(245,214) $(333,529) $(308,179) $(266,989) $(91,180) $53,820 $723,820
TOTAL ASSETS $ 36,274 $ 184,800 $ 36,913 $ 338,667 $100,696 $1,685,696 $21,420,696
STOCKHOLDERS' EQUITY
(DEFICIT) $(217,714) $(171,379) $(293,066) $(35,051) $ 4,758 $1,614,758 $22,074,758
ACCUMULATED DEFICIT $(219,514) $(735,679) $(294,866) $(895,405) $ - $ - $ -
</TABLE>
(1) Effective May 17, 1996, the Company was assigned certain development
rights and obligations by HCC, its parent company at that time. Effective
May 18, 1996, the Company was spun off via a dividend to the HCC
shareholders. Consequently, the Company has yet to commence operations
and is presented as the "Successor" to HCC which, in turn, is deemed the
Predecessor in the above table.
(2) Common and common equivalent shares outstanding is based on the weighted
average number of shares of common stock equivalents outstanding each
period, as adjusted for the effects of Securities and Exchange Commission
Staff Accounting Bulletin ("SAB") No. 83. Pursuant to SAB No. 83, "cheap"
stock and warrants (that is, stock or warrants issued for consideration or
with exercise prices below the initial public offering ("IPO") price within
a year prior to the initial filing, or in contemplation of the IPO, should
be treated as outstanding for all reported periods. Consequently,
7,851,000 shares are the common and common equivalent shares outstanding
for all reported periods for purposes of computing net loss per share
for HCC.
(3) The financial statements from which the above information has been derived
have been prepared assuming the Company and HCC will continue as going
concerns. However, HCC has incurred losses since inception and both the
Company and HCC have negative working capital. Such factors, among others,
raise substantial doubt about the Company's and HCC's ability to continue
as going concerns. In this regard, see Reports of the Independent
Certified Public Accountants accompanying the Company's and HCC's audited
financial statements appearing elsewhere herein which cite substantial
doubt about the Company's and HCC's ability to continue as going concerns.
34
<PAGE>
There can be no assurance that the Company and HCC will achieve
profitability and adequate financing in the future. If the Company or HCC
fail to achieve profitability and/or adequate financing, their growth
strategies could be materially adversely affected.
(4) Assumes completion of the Offering and application of the net proceeds of
$1,610,000 in the case of the "Minimum" Offering and $22,070,000 in the
case of the "Maximum" Offering.
(5) There have been no, nor is there expected to be, cash dividends.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(1) HEARTLAND COMMUNICATIONS & MANAGEMENT, INC. (THE "COMPANY") (A Development
Stage Company)
(A) LIQUIDITY AND CAPITAL RESOURCES
The Company was incorporated as a wholly-owned subsidiary of Heartland
Capital Corporation ("HCC") on March 27, 1996 for the purpose of raising
capital to develop several print and electronic media and investment concepts
(the "Media Concepts") and bring them to market. The development rights to
these Media Concepts had been owned by HCC and were assigned to the Company
on May 17, 1996 simultaneously with payment by HCC of its $4,758 subscription
for the stock of the Company to which it subscribed on March 27, 1996.
The Company has not yet commenced operations. The Company expects to
fund development expenditures and incur losses until it is able to generate
sufficient income and cash flows to meet such expenditures and other
requirements. The Company does not currently have any cash reserves to cover
such anticipated expenditures and cash requirements. In addition, as April
30, 1996, the Company has a working capital deficiency, as indicated by
current liabilities exceeding current assets by $91,180. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
In this regard, see the Independent Certified Public Accountants' Report
appearing elsewhere herein which cites substantial doubt about the Company's
ability to continue as a going concern.
The Company and HCC have been evaluating financing and capitalization
alternatives as part of their long-term business plans. These alternatives
include HCC's sale of preferred stock and other alternatives, including the
formation of the Company, including the transfer thereto of many of HCC's
development options, with the Company, in turn, undertaking an initial public
offering (the IPO) of a portion of its common stock. To preserve operating
funds, HCC and the Company have developed a strategic plan which provides for
reductions of expenditures and a prioritization of development options, as
discussed below.
The development rights, which are discussed in more detail below under
"Anticipated Operations," have only a nominal intrinsic net value as of the
date they were assigned to the Company because of the anticipated future
development costs and have no carrying value in the Company's balance sheet.
The Media Concepts cannot be developed without the capital expected to be
raised by the Company's IPO. The extent to which the Company can realize any
return on the development rights is directly related to the amount of funding
obtained through the Company's offering of its shares to the public, as well
as its ability to successfully develop the Media Concepts.
Subsequent to the assignment, ownership of the Company was "spun off" to
the shareholders of HCC and HCC's stock ownership was retired. As part of the
"spin-off", the Company issued shares of its common stock (the "Shares") to
HCC's common and preferred shareholders equal to shares they currently held
in HCC on a one-for-one basis. Holders of HCC preferred stock also received
warrants to buy the Company's common stock on the basis of one warrant for
each two HCC preferred shares held. Holders of non-contingent warrants to
purchase HCC shares were likewise provided the same
35
<PAGE>
number of warrants to purchase shares of the Company, at exercise prices
identical to those contained in the HCC warrants. After the "spin-off," a
total of 4,758,000 Shares and warrants for the purchase of 4,204,000 Shares
at prices ranging from $.001 per share to $.50 per share and 75,000 contingent
warrants were outstanding.
While the Company anticipates that it will finance the development of
the Media Concepts initially through use of funds raised by the IPO, a total
of $1,647,190 of additional funds would be made available to the Company
should all holders of outstanding stock purchase warrants exercise them. Even
if the warrants are exercised, at the conclusion of this development effort,
which for some of the Media Concepts will require as much as nine months, the
Company may still need to obtain additional financing to begin operations.
There can be no assurance that the Company will complete the necessary work
on the Media Concepts on schedule or that bank or additional equity financing
will be available to the Company as it seeks to develop the Media Concepts
and begin operations.
(B) ANTICIPATED OPERATIONS
The Company has not yet started operations and is not expected to do so
until the $1,000,000 minimum offering is achieved and the funds are released
from escrow. At that time, additional employees will be hired who will begin
the work necessary to develop the Media Concepts.
The Company will structure its operations based on both the amount of
capital raised in the IPO and the timing of the receipt of the proceeds. The
Company has developed an action plan geared to varying amounts of capital
being raised. Assuming that only $1,000,000 of capital is raised, the
Company's goals will be to develop additional programming and broadcast
capabilities for the Heartland Radio Network (the "Network") and to make media
acquisitions which will help develop the Network. If a total of $5,000,000 is
raised, then the Company also would plan to develop a weekly publication
aimed at the youth (ages 11 to 18) market that would be distributed free to
students in schools. Based on preliminary discussions, it is expected that
several major national companies would be prominent advertisers in the
publication. Additionally, at the $5,000,000 level, the Company also would
plan to invest in an investment fund management company. If a total of
$12,500,000 is raised, the Company also would expect to devote additional
capital to investments in the fund management venture as well as to partially
fund the creation of a sports-based weekly newspaper insert which would be
provided to newspapers around the country. This publication also is expected
to be supported by advertising revenue from major national companies. If the
complete offering amount of $25,000,000 is raised in the IPO, then the
Company expects that, in addition to the projects funded at lower levels, the
sports-based newspaper insert concept would be fully funded and that
additional as yet unidentified synergistic print, electronic media and
Internet-based investments would be made.
Because the Company has no history of operations, there is no assurance
that the Media Concepts can be successfully developed and put into operation
within the anticipated levels described above. Additionally, there is no
assurance that the Media Concepts would in fact be acceptable to the general
public and, as a result, no assurance that revenues would ever be generated
sufficient to recover the capital raised in the IPO, let alone provide a
return to shareholders on invested capital.
(C) RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements and their effect on the Company are
discussed below.
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," was issued. The Company
adopted SFAS No. 121 as of March 27, 1996, and its implementation did not
have a material effect on the Company's financial statements.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation,"
was issued. SFAS No. 123 establishes a fair value method for accounting for
stock-based compensation plans either through recognition or disclosure. The
Company intends to adopt the employee stock-based compensation provisions of
SFAS No. 123 by disclosing the pro forma net income and pro forma net income
per share amounts assuming the fair value method is adopted at the date it
grants stock options to officers, employees and directors. The adoption of
this standard will not impact the Company's financial position or cash flows.
36
<PAGE>
(2) HEARTLAND CAPITAL CORPORATION (A Development Stage Company)
(A) LIQUIDITY AND CAPITAL RESOURCES
Heartland Capital Corporation ("HCC"), the original shareholder of the
Company, was incorporated on June 23, 1994, and provides merchant banking,
marketing and consulting services to companies primarily based in the
electronic and print media.
HCC incurred a net loss of $516,165 in 1995, and has incurred losses
since formation resulting in an accumulated deficit of $895,405 at March 31,
1996. At December 31, 1995 and March 31, 1996, HCC had negative working
capital, as indicated by current liabilities exceeding current assets by
$333,529 and $266,989, respectively. Furthermore, HCC expects to incur
additional losses until it is able to generate sufficient income to cover
operating expenses. HCC does not currently have sufficient cash reserves to
cover such anticipated losses. In addition, HCC has significant receivables
of $306,613, as of March 31, 1996, from the Company and ATB which, in turn,
are both development stage companies whose most recent audit reports, dated
May 18, 1996, have expressed concern about those companies' "abilities to
continue as going concerns." These factors raise substantial doubt about
HCC's ability to continue as a going concern. In this regard, see the
Independent Certified Public Accountants' Report appearing elsewhere herein
which cites substantial doubt about HCC's ability to continue as a going
concern.
HCC has been evaluating financing and capitalization alternatives in its
long-term business plan. These include the sale of the 12% Preferred Stock,
and other alternatives, such as the formation of the Company, including the
transfer thereto of many of HCC's development options with the Company, and
in turn, undergoing an IPO of common stock. To preserve operating funds, HCC
has furthermore developed a strategic plan which provides for the reduction
of expenditures and a prioritization of development options as discussed
below.
The following table sets forth certain data from the Statement of Cash
Flows for HCC.
<TABLE>
<CAPTION>
FOR THE FOR THE THREE
PERIOD MONTHS ENDED FOR THE PERIOD
6/23/94 (DATE FOR THE MARCH 31, 6/23/94 (DATE OF
OF FORMATION) YEAR ENDED ------------------ FORMATION) THRU
THRU 12/31/94 12/31/95 1995 1996 3/31/96
--------------- ------------ ----- ---- ----------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(101,728) $(394,925) $ 7,428 $(126,174) $(622,827)
Net cash used in investing
activities, principally loans
to ATB -- (147,875) -- (74,375) (222,250)
Net cash provided by financing
activities, principally from
loans from investors and sales
of preferred stock 101,800 562,415 12,500 195,650 859,865
---------- ---------- -------- --------- ---------
Increase (decrease) in cash $ 72 $ 19,615 $19,928 $ (4,899) $ 14,788
---------- ---------- -------- --------- ---------
---------- ---------- -------- --------- ---------
</TABLE>
37
<PAGE>
In 1994, HCC's operations were funded primarily by loans from investors.
In 1995, HCC began raising capital through the sale of 12% non-cumulative
convertible preferred stock in a private placement. As of December 31, 1995,
$686,000 (before commissions and related costs) of preferred stock had been
sold and during the three months ended March 31, 1996, an additional $215,000
(before commissions and related costs) of preferred stock was sold. An
additional $493,500 (before commissions and related costs) was raised during
April 1996, before the offering was closed on April 19, 1996.
Even with the proceeds of preferred stock sales received through April
1996, HCC does not have adequate resources to continue operating throughout
1996 at the same level as 1995. However, certain changes are anticipated in
HCC's operations in 1996 which increase the likelihood of HCC being able to
fund its operations in 1996 without obtaining additional capital. First ,
effective May 17, 1996, HCC transferred certain contract and development
rights to the Company which has undertaken plans for an initial public
offering ("IPO") in 1996. If HCMI is successful in its IPO, it is anticipated
that several employees previously on HCC's payroll will transfer to the
Company, reducing HCC's operating costs. Additionally, it is anticipated that
the Company will reimburse HCC for funding provided to the Company in
anticipation of the IPO. Second, HCC has funded certain not-for-profit
initiatives, the Institute for American Liberty, the American Initiative
Committee and the Philadelphia II initiative, expecting to be repaid as these
organizations begin operations and raise working capital. As a matter of
accounting policy, advances to these organizations have been expensed when
made and revenue will be recorded to the extent that any repayments are ever
received. If necessary to preserve operating funds, HCC could cease funding
these organizations for the remainder of 1996. Through March 31, 1996, HCC
has advanced a total of $242,191 to these organizations.
(B) RESULTS OF OPERATIONS
Since its inception, HCC has been engaged in merchant banking and
related activities to develop certain media concepts into viable standalone
businesses. HCC has received a small amount of revenue ($647 for the year
ended December 31, 1995 and $2,106 for the three months ended March 31, 1996)
while incurring costs to develop the various media concepts. HCC's net loss
for the year ended December 31, 1995 was $516,165 compared to a net loss of
$219,514 for the period from inception (June 23, 1994) through December 31,
1994. Because 1994 was not a full year of operations, results for the 1994
partial year can not be meaningfully compared to results for 1995. Net loss
was $159,725 and $75,352 for the three months ended March 31, 1996 and 1995,
respectively. The increased loss in the first quarter of 1996 over 1995 is
attributable to higher general and administrative expenses in 1996, primarily
for consulting services, higher salaries in 1996, and more funding of the
not-for-profit initiatives, discussed above, in 1996. The increase in net
loss for the quarters between years was reduced somewhat by revenue generated
in 1996 on the marketing agreement with ATB Productions, L.L.C., a related
entity, which did not occur in the first quarter of 1995.
HCC also has $422,674 of net operating loss carryforwards ("NOLs") which
expire in 2009 and 2010. A valuation allowance equal to the tax benefit of
the NOLs was established reflecting the uncertainty of realizing these
benefits in future years. Furthermore, as a result of an ownership change due
to the sale of preferred stock, the use of the NOLs is restricted to an
annual limitation of $65,119.
(C) RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements and their effect on HCC are discussed
below.
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," was issued. HCC adopted
SFAS No. 121 as of January 1, 1996, and its implementation did not have a
material effect on HCC's financial statements.
In October 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation," was issued. SFAS No. 123 establishes a fair value method for
accounting for stock-based compensation plans either through recognition or
disclosure. HCC intends to adopt the employee stock-based compensation
provisions of SFAS No. 123 by disclosing the pro forma net income and pro
forma net income per share amounts assuming the fair value method was adopted
January 1, 1995. The adoption of this standard will not impact HCC's results
of operations, financial position or cash flows.
38
<PAGE>
(3) ATB PRODUCTIONS, L.L.C. (A Development Stage Company)
(A) LIQUIDITY AND CAPITAL RESOURCES
ATB Productions, L.L.C. ("ATB") was formed as a Virginia limited liability
company on April 17, 1995 as successor to a sole proprietorship of the same
name. Under its operating agreement, ATB restricts its activities to the
businesses of producing radio shows and publishing.
ATB incurred a net loss of $218,637 in 1995 and has incurred losses
since formation, resulting in an accumulated deficit of $293,604 as of March
31, 1996. At March 31, 1996, ATB had negative working capital, as indicated
by current liabilities exceeding current assets by $31,294 as well as
$229,064 of noncurrent liabilities. Furthermore, ATB expects to incur
additional losses until it is able to generate sufficient income to cover
operating expenses. ATB does not currently have sufficient cash reserves to
cover such anticipated losses. Borrowings under ATB's line of credit with HCC
amount to $219,225 at March 31,1996, leaving only $140,775 available for
future use. And HCC, in turn, has similar problems with significant doubt as
to its own ability to continue as a going concern as well as its ability to
fund the balance of the line of credit and provide marketing services to ATB.
These factors raise substantial doubt about ATB's ability to continue as a
going concern. In this regard, see Independent Certified Public Accountants'
Report appearing elsewhere herein which cites substantial doubt about the
Company's ability to continue as a going concern.
According to ATB's long-term business plan, ATB has been evaluating
financing and capitalization alternatives with HCC and the Company. These
alternatives include the sale of preferred stock by HCC and other
alternatives,, such as the formation of the Company and the transfer thereto
of many of HCC's development options, including the ATB contract, with the
Company, in turn, undergoing an initial public offering of its common stock.
Additionally, ATB continues to expand the radio shows it produces and
broadcasts in an attempt to increase its own revenues. To preserve operating
funds, ATB has furthermore developed a strategic plan which provides for the
reduction of expenditures and a prioritization of development options, as
discussed below.
The following table sets forth certain data from the Statement of Cash
Flows for ATB.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK.]
39
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THREE FOR THREE 1/1/95 (DATE OF
YEAR ENDED MONTHS ENDED MONTHS ENDED FORMATION) THRU
12/3/95 3/31/1995 3/31/1996 3/31/96
----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Net cash used in operating
activities $(182,523) $(34,970) $(71,127) $(253,650)
Net cash used in investing
activities (4,824) -- (4,751) (9,575)
Net cash provided by financing
activities, principally proceeds
from HCC line of credit and initial
capital 188,907 42,557 74,318 263,225
--------- -------- -------- ---------
Increase (decrease) in cash $ 1,560 $ 7,587 $ (1,560) $ --
--------- -------- -------- ---------
--------- -------- -------- ---------
</TABLE>
A total of $42,500 was contributed to equity by ATB's founding members
at the time ATB was formed. There are at present no plans to raise additional
capital through subscriptions from members, although ATB's operating
agreement provides that its managing member may solicit additional
contributions from members; the members are, however, not legally compelled
to invest additional funds in ATB. Effective January 15, 1995, ATB entered
into a line of credit agreement with Heartland Capital Corporation ("HCC"), a
related organization having shareholders similar to those of ATB, whereby ATB
is able to borrow up to $360,000 from HCC at a fixed interest rate of 8% per
annum. Payment of interest on any borrowings is deferred until January 15,
1997, and any borrowings under the agreement must be repaid no later than
December 31, 1999. As of December 31, 1995, ATB had borrowed $144,850 against
the line. The amount borrowed increased to $219,225 as of March 31, 1996.
Cash used in operations was $182,523 for the year ended December 31,
1995, and $34,970 and $71,127 for the respective three month periods ended
March 31, 1995 and 1996. The comparison of uses of cash between the first
quarters of 1995 and 1996 is not meaningful because ATB was not fully
operational for the entire three month period ended March 31, 1995. ATB has
funded its cash used in operations through the capital raised in the original
offering of membership units and through borrowings under its line of credit.
ATB is wholly dependent on its line of credit to fund its future operations,
and there can be no assurance that the remaining balance under the line of
credit will be sufficient to fund its operations for 1996. Additionally,
there is no assurance that additional funds will be available to ATB through
an increase in the line of credit, sale of additional membership units or
borrowings from lending institutions, should ATB exhaust its present credit
line. The Company, which now has a marketing agreement with ATB, is
attempting to raise capital through an initial public offering ("IPO") of its
stock. If the IPO is successful, the Company has indicated that it will
invest approximately $250,000 in funding ATB's operations. There can be no
assurance that the Company's IPO will be successful or that, if successful,
the Company will, in fact, invest funds in ATB.
(B) RESULTS OF OPERATIONS
ATB's primary line of business is the creation and production of the
radio show "America the Beautiful", hosted by Mike Foudy, a well known
commentator on America's political scene. ATB pays a broadcasting network to
broadcast the show and provides both the broadcasting company and radio
stations carrying the show with approximately half of the available
advertising time per hour as additional compensation for carrying the show.
ATB also produces other "talk" radio shows on behalf of talk hosts, charging a
fixed rate per hour for broadcast time and production costs.
For the year ended December 31, 1995, ATB has revenues of $62,940, an
operating loss of $213,059 and a net loss of $218, 637. These results should
not be considered as being indicative of future performance, as ATB was
beginning operations and did not operate fully for the entire year.
Additionally in the second quarter of 1995, a related entity, HCC,
40
<PAGE>
paid ATB $50,000 for advertising time on the "America the Beautiful" show. It
is not expected that HCC will continue to advertise on any of the shows
produced by ATB. For the three month periods ended March 31, 1995 and 1996,
ATB had revenues of $-0- and $35, 190, operating losses of $20,370 and
$71,006 and net losses of $20,370 and $74,967, respectively. The comparison
to the first quarter of 1995 is not meaningful because ATB was not fully
operational during that quarter. Excluding the $50,000 in advertising paid by
HCC, virtually all of ATB's revenues have come from producing radio shows for
other radio hosts, as opposed to advertising. While ATB enters into contracts
with hosts of other radio shows that it produces, there can be no assurance
that ATB will continue to be able to produce radio shows on behalf of other
hosts. Additionally, there is no assurance that ATB will be able to attract
advertisers to its primary show, "America the Beautiful."
To promote its shows, ATB entered into a marketing agreement with HCC
(which was transferred to the Company effective May 17, 1996) to promote the
"America the Beautiful" show and to seek out additional shows that could be
produced or carried by ATB, under its contract with a radio broadcasting
firm. While commitments have been signed to carry several additional shows,
there is no certainty at present that the revenues from such additional
ventures, whether from advertising or broadcast/production, will be adequate
to cover its operating costs.
(C) RECENT ACCOUNTING PRONOUNCEMENTS
A recent accounting pronouncement and its effect on ATB is discussed
below.
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," was issued. ATB adopted
SFAS No. 121 as of January 1, 1996, and its implementation did not have a
material effect on the financial statements.
APPLICATION OF PROCEEDS
The net proceeds to the Company from the sale of the shares of common
stock (the "Shares") offered hereby (after selling commissions and associated
organization and offering expenses) are estimated to be approximately
$22,070,000 million if the maximum offering is achieved and $1,610,000 if the
minimum offering is achieved. The Company expects that such net proceeds will
be used to finance expansion of existing activities and future acquisitions
as well as for general corporate purposes. The Company reviews potential
acquisition opportunities on an ongoing basis, and periodically engages in
discussions with acquisition candidates. The Company has not, however,
entered into any definitive agreements with respect to the acquisition of any
properties.
Funds expended are anticipated to be used over a 6 to 24 month period.
In the event only the minimum amount of funding is subscribed, the Company
will concentrate its efforts primarily on expanding its Heartland Radio
Network and a possible communications-related acquisition. In the event that
more than the minimum is subscribed, the Company intends to be more
aggressive in implementing its business plan and further develop operations,
personnel and projects. Anticipated application of proceeds below does not,
however, include cash flow from revenue. The Company anticipates receiving
revenues from operations, but there can be no assurance that such revenues
will be sufficient to generate positive cash flow before proceeds from this
offering are expended. (See "Risk Factors.")
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK.]
41
<PAGE>
<TABLE>
<CAPTION>
GROSS PROCEEDS
--------------
$2,000,000 $5,000,000 $12,500,000 $25,000,000
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Selling Commissions $170,000 $425,000 $1,062,500 $2,125,000
Legal Fees 40,000 70,000 100,000 100,000
Other Fees 30,000 30,000 30,000 30,000
Printing Costs/Other Fees 25,000 25,000 25,000 25,000
HCC Indirect Expense
Reimbursement (1) 75,000 400,000 600,000 600,000
Accounting Fees 50,000 50,000 50,000 50,000
Working Capital 145,000 225,000 490,000 815,000
Proposed Investment
Opportunities (1):
Heartland Radio Network 250,000 250,000 250,000 250,000
Communications Companies
Acquisition(s) 390,000 720,000 1,000,000 4,875,000
A Magazine for Teens 800,000 2,300,000 2,300,000 2,300,000
Alvery Bartlett Fund
Management Co. 0 380,000 1,480,000 1,480,000
A National Sports Weekly 0 0 4,737,500 11,600,000
Management and Marketing
Services 25,000 125,000 375,000 750,000
---------- ---------- ----------- -----------
$2,000,000 $5,000,000 $12,500,000 $25,000,000
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
(1) HCC has incurred costs, principally indirect, such as salaries and
apportioned rent, relating to the Company's public offering. By the
completion of the public offering, it is expected that such costs will
aggregate approximately $600,000. It is the intent of the Company to
reimburse HCC for these costs, or at least a portion thereof, on a sliding
scale basis as reflected in the above tables.
THE COMPANY RESERVES THE RIGHT TO CHANGE THE APPLICATION OF PROCEEDS
DEPENDING ON UNFORESEEN CIRCUMSTANCES AT THE TIME OF THIS OFFERING. THE
INTENT IS TO IMPLEMENT THE COMPANY'S BUSINESS PLAN TO THE EXTENT POSSIBLE
WITH FUNDS RAISED IN THIS OFFERING. UNFORESEEN EVENTS, TIMING, THE GENERAL
STATE OF THE ECONOMY AND THE COMPANY'S ABILITY OR INABILITY TO GENERATE
REVENUE COULD GREATLY ALTER THE APPLICATION OF PROCEEDS FROM THAT SHOWN ABOVE.
As part of the Company's business strategy, the Company will evaluate
potential acquisitions of communications and/or management-related activities
and businesses. However, the Company has no present understanding, commitment
or agreement with respect to any acquisitions. Future acquisitions of
communications properties effected in connection with the implementation of
the Company's expansion strategy are expected to be financed from cash flow
from operations, bank or other financial institution borrowings, debt or
additional equity financings or a combination of those methods.
42
<PAGE>
ABSENCE OF PUBLIC MARKET AND DIVIDEND POLICY
There is no public trading market for the Shares nor is any expected to
develop for at least 6 - 24 months after the offering commences.
The Company intends to retain future earnings for use in its business
and does not anticipate paying any dividends on Shares in the foreseeable
future. While not currently so restricted, the Company may be prohibited from
paying dividends on the Shares in the future under credit or other financing
agreement(s) unless certain amounts are available and certain other
conditions are satisfied. (See "Description of Capital Stock -- Common
Stock -- Dividends.")
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as
of April 30, 1996, and (ii) the pro forma capitalization of the Company on
the same date, reflecting (a) the sale of the 400,000 shares of Common Stock
offered by the Company hereby for estimated net proceeds of $4.03 per share
(the "Minimum Offering") and (b) the sale of 5,000,000 shares of Common Stock
(maximum) offered by the Company for estimated net proceeds of $4.41 per
share (the "Maximum Offering"). (See "Application of Proceeds" and
"Description of Capital Stock.")
<TABLE>
<CAPTION>
APRIL 30, 1996
-------------------------------------------
ACTUAL AS ADJUSTED
------ ------------------------
MINIMUM MAXIMUM
------- -------
<S> <C> <C> <C>
Shareholders' equity
Common stock, $.001 par value,
50,000,000 Shares authorized,
4,758,000 Shares issued and
outstanding; 5,158,000 (Minimum)
and 9,758,000 (Maximum) to be
issued and outstanding, as adjusted $4,758 $ 5,158 $ 9,758
Paid-in capital - $1,609,600 $22,065,000
--------- ----------- ------------
Total shareholders' equity $4,758 $1,614,758 $22,074,758
--------- ----------- ------------
Total capitalization $4,758 $1,614,758 $22,074,758
--------- ----------- ------------
--------- ----------- ------------
</TABLE>
DILUTION
The following table sets forth the percentage of equity the investors in
this offering will own compared to the percentage of equity owned by the
present stockholders, and the comparative amounts paid for the Shares by the
investors as compared to the total consideration paid by the present
stockholders of the Company. (See "Description of Capital Stock," "Risk
Factors" and "Capitalization" for a more complete discussion of total number
of Shares and associated rights and consequences.)
<TABLE>
<S> <C> <C>
DILUTION FOR $2,000,000 OFFERING (1)
Initial public offering price per Share $5.00
Net tangible book value per Share before
offering $0.001
Increase per Share attributable to new
Shareholders 0.389
------
Pro forma net tangible book value per Share after
offering 0.39
-----
Total dilution per Share to new Shareholders $4.61
-----
-----
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
---------------------- ----------------------
AVERAGE PRICE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shares 4,758,000 92.25 $ 4,758 0.24 $0.001
New Shares 400,000 7.75 2,000,000 99.76 $ 5.00
--------- ------ ---------- ------ -------
5,158,000 100.00 $2,004,758 100.00 $ 0.39
--------- ------ ---------- ------ -------
--------- ------ ---------- ------ -------
</TABLE>
(1) Assumes issuance and sale of 400,000 of the Company's Shares during this
Offering Period in addition to the 4,758,000 Company Shares currently
outstanding.
(2) If, in addition to the Shares described in (1) above, one assumes the
issuance of 75,000 contingent Shares and the exercise of warrants to
purchase 4,204,000 additional Shares with related proceeds of $1,647,190,
the dilution for a $2,000,000 offering would be as follows:
<TABLE>
<S> <C> <C>
Initial public offering price per Share $5.00
Net tangible book value per Share
before offering $0.18
Increase per Share attributable to new
Shareholders 0.21
-----
Pro forma net tangible book value per Share
after offering 0.39
-----
Total dilution per Share to new Shareholders $4.61
-----
-----
</TABLE>
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------
AVERAGE PRICE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shares 9,037,000 95.76 $1,651,948 45.23 $0.18
-----
-----
New Shares 400,000 4.24 2,000,000 54.77 $5.00
--------- ------ ---------- ------ -----
-----
9.437,000 100.00 $3,651,948 100.00 $0.39
--------- ------ ---------- ------ -----
--------- ------ ---------- ------ -----
</TABLE>
<TABLE>
<S> <C> <C>
DILUTION FOR $25,000,000 OFFERING (1)
Initial public offering price per Share $5.00
Net tangible book value per Share
before offering $0.001
Increase per Share attributable to
new Shareholders 2.559
------
Pro forma net tangible book value per Share
after offering 2.56
-----
Total dilution per Share to new Shareholders $2.44
-----
-----
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
---------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shares 4,758,000 48.76 $4,758 0.02 $0.001
------
------
New Shares 5,000,000 51.24 25,000,000 99.98 $5.00
---------- ------ ----------- ------ ------
------
9,758,000 100.00 $25,004,758 100.00 $2.56
---------- ------ ----------- ------ ------
---------- ------ ----------- ------ ------
</TABLE>
(1) Assumes issuance and sale of 5,000,000 of the Company's Shares during
this Offering Period in addition to the 4,758,000 Company Shares
currently outstanding.
(2) If, in addition to the Shares described in (1) above, one assumes the
issuance of 75,000 contingent Shares and the exercise of warrants to
purchase 4,204,000 additional Shares with related proceeds of
$1,647,190, the dilution for a $25,000,000 offering would be as
follows:
<TABLE>
<S> <C> <C>
Initial public offering price per Share $5.00
Net tangible book value per Share
before offering $0.18
Increase per Share attributable to
new Shareholders 1.72
-----
Pro forma net tangible book value per Share
after offering 1.90
-----
Total dilution per Share to new Shareholders $3.10
-----
-----
</TABLE>
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
---------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shares 9,037,000 64.38 $1,651,948 6.20 $0.18
-----
-----
New Shares 5,000,000 35.62 25,000,000 93.80 $5.00
---------- ------ ----------- ------ -----
-----
14,037,000 100.00 $26,651,948 100.00 $1.90
---------- ------ ----------- ------ -----
---------- ------ ----------- ------ -----
</TABLE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of (i) 50,000,000 shares
of $.001 par value common stock, the only class of stock outstanding at this
time (the "Shares") and (ii) 10,000,000 shares of $.001 par value preferred
stock, none of which is outstanding at this time. Shareholders are entitled
to one vote per share on all matters to be voted upon by Shareholders and,
upon issuance in consideration of full payment, are non-assessable.
Shareholders are entitled to receive such dividends, if any, as may be
declared from time to time by the board of directors of the Company out of
funds legally available. In the event of liquidation, dissolution or winding
up of the Company, the Shareholders are entitled to share ratably in all
assets remaining after payment of liabilities. Shares do not have cumulative
voting rights with respect to the election of directors and, accordingly, the
holders of more than 50% of the Shares could elect all the directors of the
Company. There are no redemption or sinking fund provisions or preemptive
rights with respect to the Shares, and Shareholders have no right to require
the Company to redeem or purchase Shares.
45
<PAGE>
DIVIDEND RIGHTS
Each Share is entitled to dividends if, as and when dividends are
declared by the Company's board of directors. It is not the current
expectation of the Company to pay dividends.
ANTI-TAKEOVER STATUTE
Section 203 of the Delaware General Corporation Law (the "DGCL") generally
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless: (i) prior to the date of the business combination, the
transaction is approved by the board of directors of the corporation; (ii)
upon consummation of the transaction which resulted in the Shareholder
becoming an interested stockholder, the interested stockholder owns at least
85% of the outstanding voting stock; or (iii) on or after the date such
Shareholder became an interested stockholder, the business combination is
approved by the board and by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. A
"business combination" includes mergers, certain asset sales and certain other
transactions resulting in a financial benefit to the Shareholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. Section 203 of the DGCL applies to the Company
since it has not elected to opt out of coverage under Section 203 of the DGCL.
DIRECTORS' LIABILITY
As authorized by Section 145 of the DGCL, each director or officer of
the Company will be indemnified by the Company against expenses (including
attorneys' fees), judgment, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the defense or settlement of
any threatened, pending or completed action, suit or proceeding whether
civil, criminal, administrative or investigative in which he is involved by
reason of the fact that he is or was a director or officer of the Company;
such indemnification of course, is conditioned upon such officer or director
having acted in good faith and in a manner that he reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to
any criminal action or proceeding, if he had no reasonable cause to believe
that his conduct was unlawful. If, however, any threatened, pending or
completed action, suit or proceeding is by or in the right of the Company,
the director or officer shall not be indemnified in respect to any claim,
issue or matter as to which he is adjudged to be liable to the Company unless
a court determines otherwise.
The Certificate of Incorporation of the Company provides that no
director of the Company shall be personally liable to the Company or any of
its Shareholders for monetary damages for any breach of fiduciary duty as a
director, except with respect to: (i) any breach of the director's duty of
loyalty to the Company or its Shareholders; (ii) for acts or omissions that
are not in good faith or involve intentional misconduct or a knowing
violation of the law; (iii) violation of the DGCL; or (iv) for any
transaction from which the director derived an improper personal benefit. In
addition, such Certificate of Incorporation authorizes the Company to
indemnify any person to the fullest extent permitted by Sections 102(b)(7)
and 145 of the DGCL.
PREFERRED STOCK
The Company's articles of incorporation also authorize 10,000,000 shares
of preferred stock (the "Preferred Stock"). The rights of any preferred stock
issue will be determined by the Board of Directors at the time a preferred
series is authorized.
The Company issued 2,789,000 shares of common stock to the holders of
2,789,000 shares of HCC Preferred Stock on May 18, 1996. In addition, the
Company issued 1,394,500 warrants of the Company to the holders of the HCC
Preferred Stock on the basis of one warrant for each two HCC Preferred
Shares. The issuance of the Company's common stock and warrants does not
affect the rights of holders of HCC preferred stock and warrants previously
issued.
46
<PAGE>
TRANSFER AGENT
The Company initially will act as its own transfer agent and registrar.
PLAN OF DISTRIBUTION
The Shares are offered on a best efforts basis by ___________________,
an SEC registered broker-dealer and a member firm of the NASD (the "Selling
Agent"). The Selling Agent will be paid (out of Shares sold) at any closing
8 1/2% of the subscription amount. During this Offering Period, whether the
Initial or Continuous Offering Periods, Shares will be sold at $5.00 (the
"Selling Price"). If any Additional Selling Agents (other SEC-registered, NASD
member broker-dealer firms) are engaged to offer Shares, they will be paid a
negotiated portion of the 8 1/2% selling commission. In such capacity in
connection with this offering, such Selling and/or Additional Selling Agents
are underwriters as defined by the Securities Act of 1933, as amended, and
the rules promulgated thereunder.
The Initial Offering Period will be up to nine (9) months from the date
of this Prospectus unless earlier terminated. Shares having as an aggregate
selling price of $25,000,000 are being offered pursuant to this Registration
Statement. Unless earlier terminated, the Initial Offering Period will be up
to two (2) months from the date hereof unless extended for periods up to a
total of seven (7) additional months. The Company is offering a minimum of
$2,000,000 up to a maximum of $25,000,000 of Shares. The date that (1)
subscriptions for a minimum of $2,000,000 in Shares have been received and
(2) the Company has closed the initial escrow on the offering will mark the
end of the Initial Offering Period. If a minimum of $2,000,000 in Shares is
not sold during the Initial Offering Period (as it may be extended), investor
funds will be promptly returned with all net interest earned thereon. Unless
the minimum offering is not achieved, all net interest earned on
subscriptions pending their month-end acceptance will be paid to the Company,
not the individual subscribers. Similarly, if the subscription is rejected,
in whole or in part (which is in the sole discretion of the Company), the
subscription funds or the rejected portion thereof will be returned within 20
days to the subscriber without interest. The up to $25,000,000 offering being
made pursuant to this Registration Statement may be extended for additional
periods, once the Initial Offering Period is concluded, which in the
aggregate will not exceed 18 months from the date of this Prospectus (defined
herein as the "Continuous Offering Period").
The minimum purchase during Initial and Continuous Offering Periods is
$5,000 except that the Company in its discretion (IRA accounts, for example)
may accept less; additional purchases by existing Shareholders may be made in
the amount of $1,000 or more. Subject to pertinent securities requirements,
the Company expects to update periodically the Prospectus after its initial
nine (9) month Offering Period -- but no more than 18 months in the
aggregate from the date of this Prospectus -- and continue the offering if,
as expected, the $25,000,0000 maximum offering is not achieved during that
period; in no case will this offering under its current Registration
Statement extend for more than two years from the date of this Prospectus nor
will more than $25,000,000 be raised by the Company during this period.
SUBSCRIPTION PROCEDURE
In order to purchase Shares:
(1) An investor must complete and execute a copy of the Subscription
Agreement and Power of Attorney (hereafter the "Subscription Agreement")
(Exhibit A).
(2) CHECKS (WHICH SHOULD BE AT LEAST $5,000 FOR INITIAL PURCHASES UNLESS THE
COMPANY CHOOSES TO ACCEPT LESS AND ADDITIONAL PURCHASES BY EXISTING
SHAREHOLDERS MAY BE IN THE AMOUNT OF $1,000 OR MORE) SHOULD BE MADE PAYABLE
AS FOLLOWS: HEARTLAND COMMUNICATIONS & MANAGEMENT, INC. -- GEORGE MASON
BANK ESCROW ACCOUNT.
(3) The check and the Subscription Agreement should be mailed or delivered to
the Selling Agent or Additional Selling Agent through whom your subscription
was solicited.
Each individual subscriber must represent and warrant in the
Subscription Agreement that he has either a net worth (exclusive of home,
furnishings and automobile) of at least $100,000 or a net worth (similarly
calculated) of at least $50,000 and an annual adjusted gross income of at
least $25,000. (See "Investment Requirements.") Under the securities laws of
47
<PAGE>
certain states, residents of those states may be subject to higher standards
as stated in the Annex to the Subscription Agreement. In addition, the
subscriber must represent, among other things, that: (a) the subscriber has
received this Prospectus; and (b) the subscriber is (or is not) a citizen or
permanent resident of the United States.
The management and any Selling and/or additional Selling Agents must
have reasonable grounds to believe on the basis of information obtained from
the Shareholder concerning his investments, financial situation and needs,
and any other information known by the undersigned, that: (i) the purchaser
is or will be in a financial position appropriate to enable him to realize to
a significant extent the benefits described in the Prospectus; (ii) the
purchaser has a net worth sufficient to sustain the risks inherent to the
Company, including losses of investment and lack of liquidity; and (iii) the
Company is otherwise a suitable investment for the purchaser.
ESCROW ACCOUNT
All monies remitted by subscribers during the Initial Offering Period
will be deposited in an escrow account maintained by the Company at George
Mason Bank until the $2,000,000 minimum offering is achieved. The bank is not
guaranteeing that any interest will accrue on the subscription funds
deposited with it. To the extent practicable, the funds held in the account
during the Initial Offering Period will be invested at the direction of the
management in short-term U.S. Treasury securities and other high quality
interest-earning obligations. Unless the minimum is not achieved, all net
interest earned during the Initial Offering Period on the proceeds of the
subscriptions held in such account maintained by the Company with the escrow
bank will be retained by the Company. (See "Application of Proceeds" and "The
Company -- Management.") Subscriptions for Shares sold during the Continuous
Offering Period will continue to be escrowed (with all net interest earned
thereon retained by the Company) until accepted at the respective month-end
or $250,000 in subscriptions are received, whichever first occurs.
ERISA CONSIDERATIONS
Persons who contemplate purchasing Shares on behalf of Qualified Plans
are urged to consult with tax and ERISA counsel regarding the effect of such
purchase and, further, to determine that such a purchase will not result in a
prohibited transaction under ERISA, the Code or a violation of some other
provision of ERISA, the Code or other applicable law. The management and the
Company necessarily will rely on such determination made by such persons,
although no Shares will be sold to any Qualified Plans if the management
believes that such sale will result in a prohibited transaction under ERISA
or the Code.
LEGAL MATTERS
The validity of Shares being offered by this Prospectus will be passed
upon for the Company by Bayh, Connaughton & Malone, P.C., 1350 I Street,
N.W. -- Suite 200, Washington, D.C. 20005. Certain legal matters will be
passed upon for the Selling Agent by ______________, _________, ______________.
EXPERTS
The financial statements included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports, which contain an explanatory paragraph regarding the
companies' abilities to continue as going concerns, appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon
such reports given upon the authority of said firm as experts in auditing and
accounting.
48
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-1 with respect to the securities
offered hereby. This Prospectus does not contain all the information set
forth in such Registration Statement, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. Reference is made
to such Registration Statement, including the amendment(s) and exhibits
thereto, for further information with respect to the Company and such
securities. The Registration Statement can be inspected and copied at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the Commission's following regional
offices: at Seven World Trade Center, 13th Floor, New York, New York 10048;
and 500 West Madison, Suite 1400, Chicago, Illinois 60601. Copies of the
Registration Statement can be obtained from the Public Reference Section of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. For further information with respect to the Company and
the shares of common stock offered hereby, reference is made to the
Registration Statement and the exhibits and the financial statements, notes
and schedules filed as a part thereof or incorporated by reference therein,
which may be inspected at the public reference facilities of the Commission,
at the addresses set forth above. Statements made in this Prospectus
concerning the contents of any documents referred to herein are not
necessarily complete, and in each instance are qualified in all respects by
reference to the copy of such document filed as an exhibit to the
Registration Statement.
The Company is not currently subject to the informational and periodic
reporting requirements of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"). However, as a result of the offering (assuming that the
$2,000,000 minimum offering is achieved), the Company will become subject to
such requirements.
49
<PAGE>
APPENDIX I
FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAGE
----
<S> <C>
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
(A Development Stage Company and Successor Company)
Independent Certified Public Accountants' Report F-3
Balance sheet as of April 30, 1996 F-5
Statements of changes in shareholder's equity for the period March 27, 1996
(date of formation) through April 30, 1996 F-6
Summary of accounting policies F-7
Notes to financial statements F-10
HEARTLAND CAPITAL CORPORATION AND SUBSIDIARY
(A Development Stage Company and Predecessor Company)
Independent Certified Public Accountants' Report F-17
Consolidated balance sheets as of December 31, 1994 and 1995
and March 31, 1996 F-19
Consolidated statements of operations for the period June 23, 1994
(date of formation) through December 31, 1994, the year ended
December 31, 1995, the three months ended March 31, 1995 and 1996
and the period June 23, 1994 (date of formation) through March 31, 1996 F-20
Consolidated statements of changes in shareholders' equity (deficit)
for the period June 23, 1994 (date of formation) through
December 31, 1994, the year ended December 31, 1995 and the three
months ended March 31, 1996 F-21
Consolidated statements of cash flows for the period June 23, 1994
(date of formation) through December 31, 1994, the year ended
December 31, 1995, the three months ended March 31, 1995 and 1996
and the period June 23, 1994 (date of formation)
through March 31, 1996 F-22
F-1
<PAGE>
Summary of accounting policies F-23
Notes to consolidated financial statements F-28
ATB PRODUCTION, L.L.C.
(A Development Stage Company)
Independent Certified Public Accountants' Report F-40
Balance sheets as of December 31, 1995 and March 31, 1996 F-42
Statements of operations for the year ended December 31, 1995,
the three months ended March 31, 1995 and 1996 and the period
January 1, 1995 (date of formation) through March 31, 1996 F-43
Statements of changes in members' capital (deficit) for the period
January 1, 1995 (date of formation) through March 31, 1996 F-44
Statements of cash flows for the year ended December 31, 1995,
the three months ended March 31, 1995 and 1996 and the period
January 1, 1995 (date of formation) through March 31, 1996 F-45
Summary of accounting policies F-47
Notes to financial statements F-50
</TABLE>
F-2
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
(A Development Stage Company and Successor Company)
We have audited the accompanying balance sheet of HEARTLAND COMMUNICATIONS &
MANAGEMENT, INC. (A Development Stage Company and Successor Company) as of April
30, 1996, and the related statement of changes in shareholder's equity for the
period March 27, 1996 (date of formation) through April 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HEARTLAND COMMUNICATIONS &
MANAGEMENT, INC. (A Development Stage Company and Successor Company) as of April
30, 1996, and the changes in its shareholder's equity for the period March 27,
1996 (date of formation) through April 30, 1996 in conformity with generally
accepted accounting principles.
F-3
<PAGE>
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has had no operations and has no
revenue through April 30, 1996. In addition, the Company expects to fund
development expenditures and incur losses until its operations are able to
generate sufficient revenue and cash flows to meet anticipated expenditures and
other cash requirements. The Company does not currently have cash reserves to
cover such anticipated expenditures and cash requirements, necessitating
additional capital or financing. The Company also has a working capital
deficiency as of April 30, 1996. These factors, in addition to other factors
discussed in Note 2 to the financial statements, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
regarding these matters are also discussed in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/BDO Seidman, LLP
BDO Seidman, LLP
Washington, D.C.
May 18, 1996, except as to certain of
the information in Note 6 as to which
the date is June 24, 1996
F-4
<PAGE>
HEARTLAND COMMUNICATIONS &
MANAGEMENT, INC.
(A Development Stage Company and Successor Company)
BALANCE SHEET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APRIL 30, 1996
- --------------------------------------------------------------------------------
ASSETS
SUBSCRIPTIONS RECEIVABLE (Note 4) $ 4,758
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,758
- --------------------------------------------------------------------------------
Deferred offering costs (Notes 6 and 7) 95,938
- --------------------------------------------------------------------------------
TOTAL ASSETS $100,696
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable - related parties $ 95,938
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 95,938
- --------------------------------------------------------------------------------
COMMITMENTS (Notes 5 and 6)
SHAREHOLDERS' EQUITY (Notes 1, 4, 5 and 6)
Preferred stock, $.001 par value,
10,000,000 shares authorized; none issued -
Common stock, $.001 par value,
50,000,000 shares authorized;
4,758,000 shares subscribed 4,758
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 4,758
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $100,696
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOUNTING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS.
F-5
<PAGE>
HEARTLAND COMMUNICATIONS &
MANAGEMENT, INC.
(A Development Stage Company and Successor Company)
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (NOTES 1, 4 AND 6)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOR THE PERIOD MARCH 27, 1996 (DATE OF FORMATION) THROUGH APRIL 30, 1996
- --------------------------------------------------------------------------------
$ 0.001
Subscribed Par
Common Shares Value
- --------------------------------------------------------------------------------
SUBSCRIPTION TO COMMON SHARES BY
HEARTLAND CAPITAL CORPORATION 4,758,000 $ 4,758
- --------------------------------------------------------------------------------
BALANCE, April 30, 1996 4,758,000 $ 4,758
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS.
F-6
<PAGE>
HEARTLAND COMMUNICATIONS &
MANAGEMENT, INC.
(A Development Stage Company and Successor Company)
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE COMPANY AND NATURE OF BUSINESS
Heartland Communications & Management, Inc. ("HCMI" or the "Company") was
formed on March 27, 1996 to be a broad-based communications and management
business, including the development, production and syndication of
advertising-supported broadcast programs and print products. Upon formation,
Heartland Capital Corporation ("HCC") subscribed to 4,758,000 shares of HCMI's
common stock. The accompanying financial statements include the balance sheet
of HCMI as of April 30, 1996 and the statement of changes in shareholder's
equity for the period from the date of formation, March 27, 1996, through April
30, 1996. HCMI has had no operations nor cash transactions through April 30,
1996 and, accordingly, the accompanying financial statements do not include
statements of operations or cash flows. Furthermore, since HCMI's activities to
this point have been organizational and devoted to financial planning and
raising capital, HCMI's activities have been accounted for as those of a
"development stage enterprise" as set forth in Statement of Financial Accounting
Standards (SFAS) No. 7.
On May 17, 1996, HCC paid its $4,758 stock subscription and HCMI ("Successor
Company") was simultaneously assigned certain development and contract rights
and obligations by HCC ("Predecessor Company") (see Note 1). HCMI is also
related to another entity, ATB Productions, L.L.C. ("ATB"), with which it shares
common, but not identical, ownership, and to which it will provide marketing
services (see Note 3).
RISKS AND UNCERTAINTIES
Since HCMI has had no operations, it is still in the development stage.
Consequently, HCMI's activities will be subject to the risks inherent in a new
business enterprise, including among others, limited capital, uncertain market
acceptance and the inability to obtain financing. Additionally, HCMI faces
substantial competition from a number of well established, well financed
companies. HCMI's principal source of revenue, a participation in advertising
revenue, is often cyclical and dependent upon general economic conditions,
rising in good economic times and declining in economic downturns. HCMI
believes it has properly identified the risks in the environment in which it
operates and plans to implement strategies to effectively reduce the financial
impact of these risks on HCMI.
F-7
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires HCMI to make certain estimates and assumptions
particularly as it relates to the recoverability of assets and disclosure of
contingent assets and liabilities. Actual results could differ from those
estimates.
TRANSFERS BETWEEN AFFILIATES
All transfers among affiliates are recorded on the books of the transferee at
the same basis that it was carried by the transferror.
DEFERRED OFFERING COSTS
Direct, incremental costs incurred with respect to the HCMI offering of common
stock (see Notes 1 and 6) are deferred and included as a asset in the
accompanying balance sheet until the proceeds of the offering are received,
whereupon these costs will be recognized as a reduction to the respective
capital accounts. If the offering is not completed, the deferred offering costs
will be expensed. Indirect offering costs will be expensed when such costs
become an obligation of HCMI (see Note 6).
FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of SFAS No. 107, "Disclosure About Fair
Value of Financial Instruments," HCMI must disclose the fair value of its
financial instruments as of April 30, 1996. In the opinion of management, the
fair values of the Company's financial instruments as of April 30, 1996 are not
materially different from the carrying amounts shown in the accompanying
financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," was issued. HCMI adopted SFAS No.
121 as of March 27, 1996 and its implementation did not have a material effect
on HCMI's financial statements.
F-8
<PAGE>
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation," was
issued. SFAS No. 123 establishes a fair value method for accounting for stock-
based compensation plans either through recognition or disclosure. The Company
intends to adopt the employee stock-based compensation provisions of SFAS No.
123 by disclosing the pro forma net income and pro forma net income per share
amounts, assuming the fair value method is adopted at the date it grants stock
options to officers, employees and directors. The adoption of this standard
will not impact HCMI's results of operations, financial position or cash flows.
F-9
<PAGE>
HEARTLAND COMMUNICATIONS &
MANAGEMENT, INC.
(A Development Stage Company and Successor Company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. REORGANIZATION AND TRANSFER OF CERTAIN RIGHTS
As part of its merchant banking operations, HCC identifies investment
opportunities which can be developed into viable operations. Several
opportunities were identified in 1994 and 1995, including talk radio, a youth
oriented newspaper, a newspaper insert aimed at sports enthusiasts and an
investment fund management company. The talk radio venture was furthest along
in the development process, with HCC having provided a line of credit as well as
marketing expertise to ATB. The other ventures identified are only development
options and are intended to be pursued only if funding is achieved (see below)
and appropriate due diligence, supporting the feasibility of the acquisitions,
has been completed. Neither HCC nor HCMI has entered into any definitive
agreements with respects to the investment options.
HCC determined that these ventures could not be adequately developed without
additional capital and, to that end, on May 17, 1996, HCC assigned its option
and, in the case of ATB, (see Note 3) its contract rights to HCMI, its wholly-
owned subsidiary on that date. On May 18, 1996, HCC spun off HCMI via a
dividend to HCC shareholders, with HCMI effectively replicating the HCC capital
structure by issuing a share of its common stock for each share of HCC common
and preferred stock outstanding as of May 18, 1996. Warrants to purchase HCMI
stock were granted to holders of non-contingent HCC stock purchase warrants,
including warrants to the HCC preferred shareholders (see Note 4), as of May 18,
1996. Additionally, on April 17, 1996, HCMI granted HCC warrants to purchase
1,236,000 shares of its common stock for $.50 per share. The contracts and
option rights transferred to HCMI have no carrying value because the cost of
developing, or servicing, the rights is expected to require a substantial
infusion of capital. It is HCMI's intention to obtain the necessary capital
through an initial public offering of its common stock (see Note 6).
2. GOING CONCERN
As shown in the accompanying financial statements, HCMI has not yet commenced
operations. Furthermore, HCMI expects to fund development expenditures and incur
losses until it is able to generate sufficient income and cash flows to meet
such expenditures and other requirements. HCMI does not currently have any cash
reserves to cover such anticipated expenditures and cash requirements. In
addition, as April 30, 1996, HCMI has a working
F-10
<PAGE>
capital deficiency, as indicated by current liabilities exceeding current assets
by $91,180. These factors raise substantial doubt about HCMI's ability to
continue as a going concern.
HCMI and HCC have been evaluating financing and capitalization alternatives as
part of their long-term business plans. These alternatives include HCC's sale
of preferred stock and other alternatives, including the formation of HCMI,
including the transfer thereto of many of HCC's development options, with HCMI,
in turn, undertaking an initial public offering of a portion of its common
stock. To preserve operating funds, HCC and HCMI have developed a strategic
plan which provides for reductions of expenditures and a prioritization of
development options.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets or the amounts and
classification of liabilities that might be necessary should HCMI be unable to
complete its proposed public offering and continue as a going concern.
3. HCC MARKETING AGREEMENT
Effective January 1, 1995, HCC entered into a marketing agreement with ATB ("the
HCC Agreement") whereby HCC provides marketing services on behalf of ATB. Such
services include presenting programs to sponsors on a worldwide basis,
negotiating sponsorship agreements, etc. In return for receiving the marketing
services, ATB is obligated to pay HCC 40% of its gross advertising cash receipts
and 5% of its non-advertising gross receipts. The agreement was transferred
from HCC to HCMI on May 17, 1996. The HCC Agreement automatically terminates on
January 1, 1999, unless extended by mutual agreement, and it is terminable at
earlier dates under certain specified conditions. In the event of termination
for whatever reason, the amounts due under the HCC Agreement for sponsorship
existing at the time of termination shall remain due and payable,
notwithstanding the termination (if certain other conditions are met), for a
period ending the later of the automatic termination of the HCC Agreement or two
years after the date of other termination. Revenues recognized by HCC under the
HCC Agreement aggregated $647 and $2,106 during 1995 and the three months ended
March 31, 1996, respectively.
F-11
<PAGE>
4. SHAREHOLDERS' EQUITY
PREFERRED STOCK
The total number of shares of stock that HCMI has the authority to issue is
60,000,000 consisting of 10,000,000 shares of Preferred Stock, par value $.001
per share, and 50,000,000 shares of Common Stock, par value $.001 per share.
The Board of Directors of HCMI is authorized to issue shares of Preferred Stock
in series, to establish the number of shares to be included in each series and
to fix the designations, powers, preferences and rights of the shares of each
such series. To date, no series has been provided.
COMMON STOCK
In conjunction with HCMI's formation as a subsidiary of HCC, HCC subscribed to
4,758,000 shares of HCMI common stock on March 27, 1996. On May 17, 1996, HCC
contributed the par value ($.001) of those shares (4,758,000) to HCMI in cash
($4,758) in full payment of its subscription receivable and the 4,758,000 shares
were issued to HCC. In conjunction with HCMI's spinoff to the shareholders of
HCC, on May 18, 1996, HCMI retired those shares and issued 4,758,000 shares of
common stock as follows: 1,969,000 shares to the existing common shareholders
of HCC and 2,789,000 shares to the preferred shareholders of HCC.
In addition, HCMI issued 1,394,500 HCMI warrants to the HCC Preferred
Shareholders who held contingent HCC warrants on the basis of 1 warrant for each
two HCC Preferred Shares. Each warrant shall entitle the holder to purchase an
additional share of Common Stock. During May 1996, HCMI notified these warrant
holders of its intent to do an initial public offering ("IPO") stating that the
holders have until July 6, 1996 to exercise their warrants at $.50 per share
versus $4 per share thereafter (80% of the expected IPO price of $5 per share).
Warrants to purchase HCMI stock were also granted on May 18, 1996 to the holders
of non-contingent HCC stock purchase warrants. Additionally, on April 17, 1996,
HCMI granted HCC warrants to purchase 1,236,000 shares of its common stock.
F-12
<PAGE>
OUTSTANDING WARRANTS
A summary of the outstanding warrants to purchase HCMI Common Stock is as
follows:
<TABLE>
<CAPTION>
Exercise
Warrant Date Date Price
Holder Issued Expires Shares Per Share
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HCC
non-contingent
warrant holders May 18, 1996 May 17, 2001 190,000 $ .001
900,000 $ .10
483,500 $ .50
---------
1,573,500
Issued to
HCC Preferred
Shareholders May 18, 1996 December 31, 1996 1,394,500 $ .50
HCC April 17,1996 April 16, 2001 1,236,000 $ .50
---------
4,204,000
---------
---------
</TABLE>
F-13
<PAGE>
CONTINGENT WARRANTS
HCMI Common Stock which is contingently issuable upon the occurrence of a
specified event is as follows:
Shares
Event Requiring of
Stock Common
Issuance Stock
- --------------------------------------------------------------------------------
Employment Performance
(See Note 5) 75,000
- --------------------------------------------------------------------------------
TOTAL 75,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STOCK OPTION PLAN
On March 27, 1996, HCMI's incorporators reserved 600,000 shares of Common Stock
for a Stock Option Plan. Conditions of grants, terms, exercise prices, etc. are
yet to be determined by the Board of Directors. The shareholders would be
required to approve the plan prior to granting options.
5. EMPLOYMENT AGREEMENTS
HCMI has employment agreements (the "Agreements") with four officers and
employees. The Agreements provide for base annual salaries aggregating $310,000
and permit participation in an annual bonus pool, the amount and conditions of
which shall be determined by HCMI's Board of Directors. In addition, the
Agreements provide that these employees are eligible to annually receive options
to buy up to 100,000 shares of Common Stock at $.10 per share with terms, other
than price, to be determined by the Board of Directors. One of the Agreements
also provides for the issuance of 75,000 shares of common stock to the employee
if he is employed by HCMI
F-14
<PAGE>
for three years from May 1, 1996. The Agreements are effective as of May 1,
1996, have a term of three years and provide for termination for cause
with a cessation in compensation payments. If terminated by HCMI without cause,
or by the employees with cause, prior to the end of their term, the Agreements
require base salary payments to be continued from the date of termination
through the end of the original term of the Agreements.
In addition, the Board of Directors has agreed to annually provide certain
directors with options to buy up to 12,500 shares of Common Stock per director.
Terms, including price, are yet to be determined by the Board of Directors.
6. INITIAL PUBLIC OFFERING
On June 24, 1996, HCMI entered into a letter of intent with an underwriter (the
"Placement Agent") under which HCMI proposes to offer in a Public Offering
through the Placement Agent on a best-efforts basis a minimum of 400,000 shares
and a maximum of 5,000,000 shares of common stock at $5 per share. The
Placement Agent's commitment is subject to the receipt of a fairness opinion
that the $5 per share price to the public shareholders is fair. If shares
providing a minimum of $2,000,000 of proceeds are not sold during the initial
offering period, as defined, investors' funds will be returned.
HCMI shall pay the Placement Agent an aggregate selling commission of 8.5% of
the gross proceeds of the Public Offering. HCMI shall also reimburse the
Placement Agent for its expenses on a non-accountable basis in the amount of
1.5% of the gross proceeds. In addition, HCMI will, upon termination of the
offering, sell to the Placement Agent common stock purchase warrants for $100
entitling the Placement Agent to purchase one share of HCMI's common stock for
each 10 shares that have been sold in the Public Offering. The warrants will be
exercisable for a period of four years, such period to commence 24 months after
the date of the definitive Prospectus. The exercise price of the warrants shall
be 120% of the per share offering price. Under certain circumstances, the
shares of common stock to be issued upon exercise of the Warrants are required
to be registered with the Securities and Exchange Commission.
Subject to the sale of at lease 200,000 shares in the Public Offering, the
Placement Agent shall, for a period of two years, act as exclusive financial
advisor to HCMI for a fee of .001% of the gross proceeds of the Public Offering.
In conjunction with the public offering, HCC has incurred indirect costs, such
as salaries, apportioned rent, etc. By the completion of the public offering,
it is expected that such costs will aggregate approximately $600,000. It is the
intent of HCMI to reimburse HCC for these costs, or at least a portion thereof,
on a sliding scale basis (from $75,000 if $2,000,000 is raised to $600,000 if
$12,500,000 is raised) solely from the offering proceeds. Such costs will be
accrued as expenses when the related proceeds are raised.
7. OTHER RELATED PARTY TRANSACTIONS
One of HCMI's shareholders is a partner in a law firm which provides services to
HCMI. Amounts recorded for legal services provided by this firm in conjunction
with the public offering amounted to $46,835 as of April 30, 1996. Another HCMI
shareholder is the principal stockholder of a
F-15
<PAGE>
company that provides professional services to HCMI. Amounts recorded for
professional services provided by this company to HCMI in conjunction with the
public offering amounted to $24,000 as of April 30, 1996. These amounts are
contained in Deferred Offering Costs in the accompanying balance sheets.
F-16
<PAGE>
Independent Certified Public Accountants' Report
To the Board of Directors and Shareholders
HEARTLAND CAPITAL CORPORATION
(A Development Stage Company and Predecessor Company)
We have audited the accompanying consolidated balance sheets of HEARTLAND
CAPITAL CORPORATION (A Development Stage Company and Predecessor Company) and
Subsidiary as of December 31, 1994 and 1995 and March 31, 1996, and the related
consolidated statements of operations, changes in shareholders' equity
(deficit), and cash flows for the period June 23, 1994 (date of formation)
through December 31, 1994, the year ended December 31, 1995, the three months
ended March 31, 1996 and the period June 23, 1994 (date of formation) through
March 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of HEARTLAND CAPITAL
CORPORATION (A Development Stage Company and Predecessor Company) and Subsidiary
as of December 31, 1994 and 1995 and March 31, 1996, and the consolidated
results of operations and their cash flows for the period June 23, 1994 (date of
formation) through December 31, 1994, the year ended December 31, 1995, the
three months ended March 31, 1996 and the period June 23, 1994 (date of
formation) through March 31, 1996 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company has incurred
significant operating losses and working capital deficiencies since formation.
In addition, the Company expects to fund development expenditures and incur
additional losses until its operations are able to generate sufficient revenues
to cover such expenditures and losses. The Company does not currently have
sufficient cash reserves to cover such expenses, necessitating additional
capital or financing.
F-17
<PAGE>
These factors, in addition to other factors discussed in Note 2 to the financial
statements, raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are discussed in Note
2. The financial statements do not include any adjustments that might result
from this outcome of the uncertainty.
/s/BDO Seidman, LLP
BDO Seidman, LLP
Washington, D.C.
May 18, 1996
F-18
<PAGE>
Heartland Capital Corporation and Subsidiary
(A Development Stage Company and Predecessor Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
----------------------- ----------
1994 1995 1996
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and cash equivalents $ 72 $ 19,687 $ 14,788
Accounts and notes receivable from related parties (Note 1) 1,800 2,963 91,941
Prepaid expenses 6,902 - -
- -------------------------------------------------------------------------------------------------------
Total current assets 8,774 22,650 106,729
- -------------------------------------------------------------------------------------------------------
Property and equipment, net of accumulated depreciation
of $151 as of March 31, 1996 - 3,025 2,874
Note receivable from related party (Note 3) - 144,850 219,225
Accrued interest receivable from related party - 5,878 9,839
Other assets, principally deferred offering costs 27,500 8,397 -
- -------------------------------------------------------------------------------------------------------
Total assets $ 36,274 $ 184,800 $ 338,667
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Deficit
Accounts payable $ 44,502 $ 105,800 $ 41,827
Accrued salaries 105,000 140,152 100,150
Accrued expenses - 2,357 57,959
Notes payable to related parties (Note 6) 100,000 100,000 160,000
Accrued interest payable to related parties (Note 6) 4,486 7,870 13,782
- -------------------------------------------------------------------------------------------------------
Total current liabilities 253,988 356,179 373,718
- -------------------------------------------------------------------------------------------------------
Commitments (Note 8)
Shareholders' deficit (Note 5)
Preferred stock, $.001 par value, 10,000,000 shares authorized:
Series A 12% Noncumulative convertible preferred stock,
3,600,000 shares authorized, 1,372,000 shares and
1,802,000 shares issued and outstanding at December 31,
1995 and March 31, 1996, respectively - 1,372 1,802
Common stock, $.001 par value, 50,000,000 shares authorized:
1,800,000 shares, 1,365,000 shares and 1,969,000
shares outstanding at December 31, 1994, December 31, 1995
and March 31, 1996, respectively 1,800 1,365 1,969
Additional paid-in capital - 561,563 856,583
Deficit accumulated during the development stage (219,514) (735,679) (895,405)
- -------------------------------------------------------------------------------------------------------
Total shareholders' deficit (217,714) (171,379) (35,501)
- -------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' deficit $ 36,274 $ 184,800 $ 338,667
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-19
<PAGE>
Heartland Capital Corporation and Subsidiary
(A Development Stage Company and Predecessor Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the period For the
June 23, 1994 (date three months ended For the period
of formation) For the MARCH 31, June 23, 1994 (date
through year ended ---------------------------- of formation)
December 31, December 31, 1995 through March 31,
1994 1995 (Unaudited) 1996 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Marketing commission received from
related party (Note 3) $ - $ 647 $ - $ 2,106 $ 2,753
Operating expenses
Salaries 112,174 197,410 53,545 65,154 374,738
General and administrative (Notes 8 and 9) 56,826 127,727 16,250 75,949 260,502
Write-off of working capital advances (Note 4) 42,172 180,955 1,848 19,064 242,191
Depreciation - - - 151 151
- ------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 211,172 506,092 71,643 160,318 877,582
- ------------------------------------------------------------------------------------------------------------------------------
Operating loss (211,172) (505,445) (71,643) (158,212) (874,829)
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense, net
of interest income of $4,775 in 1995,
and $3,930 for the three months ended
March 31, 1996 and $8,705 from June 23, 1994
(date of formation) through March 31, 1996
(Notes 3 and 6) 8,342 10,720 3,709 1,514 20,576
- ------------------------------------------------------------------------------------------------------------------------------
Net loss $ (219,514) $ (516,165) $(75,352) $ (159,726) $ (895,405)
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding 7,851,000 7,851,000 7,851,000 7,851,000 7,851,000
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Net loss per share $ (.03) $ (.07) $ (.01) $ (.02) $ (.11)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-20
<PAGE>
Heartland Capital Corporation and Subsidiary
(A Development Stage Company and Predecessor Company)
Consolidated Statements of Changes in Shareholders' Equity (Deficit) (Note 5)
<TABLE>
<CAPTION>
Series A 12%
Noncumulative
Convertible
Preferred Stock Common Stock
-------------------------- ------------------------- Deficit
Issued and Issued and Additional Accumulated
Outstanding $.001 Outstanding $.001 Paid-in Treasury During the
Shares Par Value Shares Par Value Capital Stock Development Stage Total
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial issuance of common stock - $ - 1,800,000 $ 1,800 $ - $ - $ - $ 1,800
Net loss - - - - - - (219,514) (219,514)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 - - 1,800,000 1,800 - - (219,514) (217,714)
Repurchase of common stock - - - - - (700) - -
Retirement of common stock - - (700,000) (700) - 700 - (700)
Sale of common stock - - 180,000 180 - - - 180
Issuance of stock for services - - 85,000 85 - - - 85
Sale of preferred stock, net of
offering costs of $123,065 1,372,000 1,372 - - 561,563 - - 562,935
Net loss - - - - - - (516,165) (516,165)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,372,000 1,372 1,365,000 1,365 561,563 - (735,679) (171,379)
Issuance of stock for services - - 404,000 404 - - - 404
Sale of preferred stock, net
of offering costs of $19,350 430,000 430 - - 195,220 - - 195,650
Issuance of stock for
reduction of liability - - 200,000 200 99,800 - 100,000
Net loss - - - - - - (159,726) (159,726)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 1,802,000 $ 1,802 1,969,000 $ 1,969 $856,583 $ - $ (895,405) $(35,051)
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-21
<PAGE>
Heartland Capital Corporation and Subsidiary
(A Development Stage Company and Predecessor Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the period
June 23, 1994
(date of formation) For the year
through ended
December 31, 1994 December 31, 1995
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (219,514) $ (516,165)
Adjustments to reconcile net loss to
net cash provided by operations
Depreciation - -
Stock issued for compensation - 85
(Increase) in receivables (1,800) (7,041)
(Increase) decrease in prepaid expense (6,902) 6,902
(Increase) decrease in other assets (27,500) 19,103
Increase in accounts payable 44,502 61,298
Increase in accrued salaries 105,000 35,152
Increase in accrued expenses - 2,357
Increase in accrued interest payable to related parties 4,486 3,384
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (101,728) (394,925)
- --------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of equipment - (3,025)
Loan to related party - (144,850)
- --------------------------------------------------------------------------------------------
Net cash used in investing activities - (147,875)
- --------------------------------------------------------------------------------------------
Cash flows from financing activities
Sale (retirement) of common stock, net 1,800 (520)
Sale of preferred stock, net of issuance cost - 562,935
Proceeds from related party loans 100,000 29,600
Principal repayments to related parties - (29,600)
- --------------------------------------------------------------------------------------------
Net cash provided by financing activities 101,800 562,415
- --------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 72 19,615
Cash and cash equivalents, beginning of period - 72
- --------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 72 $ 19,687
- --------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash interest payments $ 3,856 $ 12,111
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Noncash investing and financing activities consisted of
the following:
Issuance of common stock for services $ - $ 85
Issuance of stock for reduction of liability - -
Conversion of accrued salaries to note payable - -
- --------------------------------------------------------------------------------------------
$ - $ 85
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the
three months ended For the period
March 31, June 23, 1994 (date
------------------------------- of formation)
1995 through March 31,
(Unaudited) 1996 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (75,352) $ (159,726) $ (895,405)
Adjustments to reconcile net loss to
net cash provided by operations
Depreciation - 151 151
Stock issued for compensation - 404 489
(Increase) in receivables - (92,939) (101,780)
(Increase) decrease in prepaid expense 6,902 - -
(Increase) decrease in other assets 12,387 8,397 -
Increase in accounts payable 11,274 36,027 141,827
Increase in accrued salaries 50,000 19,998 160,150
Increase in accrued expenses - 55,602 57,959
Increase in accrued interest payable to related parties 2,217 5,912 13,782
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 7,428 (126,174) (622,827)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of equipment - - (3,025)
Loan to related party - (74,375) (219,225)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities - (74,375) (222,250)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Sale (retirement) of common stock, net - - 1,280
Sale of preferred stock, net of issuance cost - 195,650 758,585
Proceeds from related party loans 12,500 - 129,600
Principal repayments to related parties - - (29,600)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 12,500 195,650 859,865
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 19,928 (4,899) 14,788
Cash and cash equivalents, beginning of period 72 19,687 -
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 20,000 $ 14,788 $ 14,788
- -------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash interest payments $ 1,491 $ - $ 15,967
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Noncash investing and financing activities consisted of
the following:
Issuance of common stock for service $ - $ 404
Issuance of stock for reduction of liability - 100,000
Conversion of accrued salaries to note payable - 60,000
- -------------------------------------------------------------------------------------------------------------------
$ - $ 160,404
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-22
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
THE COMPANY AND Heartland Capital Corporation ("HCC") was incorporated on
NATURE OF BUSINESS June 23, 1994 as a Delaware corporation. HCC provides
merchant banking, marketing and consulting services to
companies primarily engaged in the electronic and print
media industries (see Note 3). HCC also provides consulting
and support services to not-for-profit organizations,
assisting certain organizations by planning start-up
operations, and advancing temporary working capital (see
Note 4). To this point in time, HCC has not generated
significant revenues from its operations, and a majority of
its activities have been devoted to developing its own
programs and starting up operations. Accordingly, HCC's
activities have been accounted for as those of a
"development stage enterprise" as set forth in Statement of
Financial Accounting Standards ("SFAS") No. 7.
Heartland Communications and Management, Inc. ("HCMI") was
formed on March 27, 1996 as a wholly owned subsidiary of HCC
with HCC subscribing to 4,758,000 shares of HCMI's common
stock at its par value of $.001 per share. On May 17, 1996,
HCC ("Predecessor Company") paid its $4,758 stock
subscription and simultaneously assigned certain of its
development and contract rights and obligations to HCMI
("Successor Company") (see Note 1). HCC is also related to
another entity, ATB Productions, L.L.C. ("ATB"), with which
it shares common, but not identical, ownership and to which
it provides marketing services and a line of credit (see
Note 3).
RISKS AND While HCC has had limited operations, it is still in the
UNCERTAINTIES development stage and has not had a significant history of
operations. Consequently, HCC's activities will be subject
to the risks inherent in a new business enterprise,
including among others, limited capital, uncertain market
acceptance and the inability to obtain additional financing.
Additionally, HCC faces substantial competition from a
number of well established, well financed companies. HCC's
principal source of revenues, advertising, is often cyclical
and dependent upon general economic conditions, rising in
good economic times and declining in economic downturns. In
addition, HCC has significant transactions with, including
significant receivables from, related parties who are
likewise in the development stage and subject to the same
risks and
F-23
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
uncertainties as HCC. HCC believes it has properly
identified the risks in the environment in which it operates
and implemented strategies to effectively reduce the
financial impact of these risks on HCC.
USE OF ESTIMATES The preparation of financial statements in accordance with
generally accepted accounting principles requires HCC to
make certain estimates and assumptions particularly as it
relates to the valuation of accounts receivable and
disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
PRINCIPLES OF The accompanying financial statements include the accounts
CONSOLIDATION of HCC and its wholly owned subsidiary, HCMI, from HCMI's
formation on March 27, 1996 through March 31, 1996.
Intercompany transactions and balances have been eliminated
in consolidation.
PROPERTY AND Additions to property and equipment are recorded at cost and
EQUIPMENT include all major renewals and betterments. Maintenance,
repairs and minor replacements are expensed as incurred.
Depreciation expense in provided on the straight line basis
over the five year estimated life of the related assets.
REVENUES Marketing commissions are recognized as commercials are
broadcast and the related advertising revenues are earned.
ADVANCES OF As part of its services to not-for-profit organizations, HCC
TEMPORARY WORKING makes working capital advances which call for repayment.
CAPITAL Due to the start-up nature of these not-for-profit entities
and uncertainty regarding the ultimate collectibility of the
working capital advances, HCC expenses these advances as
funded. Repayment, if received, will be recorded as revenue
when received.
F-24
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Also, interest income related to the working capital
advances is recorded as received.
INCOME TAXES HCC accounts for income taxes in accordance with the
requirements of Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Deferred
taxes result from temporary differences between financial
and income tax bases of assets and liabilities. Deferred
tax assets not projected to be recovered are reserved for as
part of the deferred tax provision.
NET LOSS PER SHARE Net loss per share is based on the weighted average number
of shares of common stock equivalents outstanding during
each period, as adjusted for the effects of the application
of Securities and Exchange Commission ("SEC") Staff
Accounting Bulletin ("SAB") No. 83. Pursuant to SEC SAB No.
83, "cheap" stock and warrants (that is, stock or warrants
issued for consideration or with exercise prices below the
initial public offering ("IPO") price) within a year prior
to the initial filing of the IPO must be treated as
outstanding for all reported periods. Accordingly, the
following equivalent shares have been assumed to be
outstanding, and used in computing net loss per share, for
all reported periods:
"CHEAP" STOCK
Common shares outstanding as of March 31, 1996 1,969,000
-----------------------------------------------------------
Convertible Preferred Stock
Outstanding as of March 31, 1996 1,802,000
Issued between March 31, 1996 and
April 19, 1996 (date of closing of
the private offering) 987,000
-----------------------------------------------------------
2,789,000
-----------------------------------------------------------
F-25
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
"CHEAP" WARRANTS
Outstanding as of March 31, 1996 1,698,500
(including 125,000 shares subject
to contingent warrants)
Available upon conversion of
convertible preferred stock 1,394,500
-----------------------------------------------------------
3,093,000
------------------------------------------------------------
Total weighted average shares considered to be
outstanding for all reported periods 7,851,000
-----------------------------------------------------------
-----------------------------------------------------------
CASH EQUIVALENTS HCC considers all highly liquid investments purchased with
initial maturities of 90 days or less to be cash
equivalents.
ACCOUNTS HCC provides a reserve for doubtful accounts based on a
RECEIVABLE specific review of the expected collectibility of individual
outstanding accounts.
FAIR VALUE OF In accordance with the requirements of SFAS No. 107,
FINANCIAL INSTRU- "Disclosure About Fair Value of Financial Instruments," HCC
MENTS must disclose the fair value of its financial instruments.
In the opinion of management, the fair values of the
Company's financial instruments as of December 31, 1995 and
March 31, 1996 are not materially different from the
carrying amounts shown in the accompanying financial
statements.
F-26
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
DEFERRED OFFERING Costs incurred with respect to HCC's offering of preferred
COSTS stock were deferred and included in other assets in the
accompanying financial statements until the proceeds of the
offerings were received, whereupon these costs were
recognized as a reduction of the respective capital
accounts. Indirect costs incurred in conjunction with
HCMI's IPO have been expensed and reimburse-ment thereof
will be recorded as revenue if and when received (see Note
10).
INTERIM FINANCIAL The accompanying interim financial statements for the three
STATEMENTS months ended March 31, 1995 are unaudited but, in the
opinion of management, reflect all adjustments (consisting
primarily of normal recurring adjustments) necessary for a
fair presentation of the results of operations for the
periods presented. The results for the three months ended
March 31, 1996 are not necessarily indicative of the results
to be obtained for the full fiscal year.
Recent Accounting Pronouncements
In March 1995, SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," was issued. HCC adopted SFAS No. 121 as of
January 1, 1996 and its implementation did not have a
material effect on the financial statements.
In October 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation," was issued. SFAS No. 123 establishes a fair
value method for accounting for stock-based compensation
plans either through recognition or disclosure. The Company
intends to adopt the employee stock-based compensation
provisions of SFAS No. 123 by disclosing the pro forma net
income and pro forma net income per share amounts assuming
the fair value method was adopted January 1, 1995. The
adoption of this standard will not impact HCC's results of
operations, financial position or cash flows.
F-27
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL SYSTEMS
- --------------------------------------------------------------------------------
1. REORGANIZATION As part of its merchant banking operations, HCC identifies
AND TRANSFER OF investment opportunities which can be developed into viable
CERTAIN RITHTS operations. In 1994 and 1995, HCC identified several
opportunities, including talk radio, a youth oriented
newspaper, a newspaper insert aimed at sports enthusiasts
and an investment fund management company. The talk radio
venture was furthest along in the development process, with
HCC having provided a line of credit as well as marketing
expertise to ATB (see Note 3). The other ventures
identified to date are only development options and are
intended to be pursued only if funding is obtained (see
below) and appropriate due diligence, supporting the
feasibility of the acquisitions, has been completed. HCC or
HCMI have not entered into any definitive agreements with
respect to the investment options.
HCC has determined that these ventures can not be adequately
developed without additional capital and, to that end, on
May 17, 1996, HCC assigned its option (and in the case of
ATB, (see Note 3) its contract) rights to HCMI, its wholly
owned subsidiary at that time. The contract and option
rights transferred to HCMI have no carrying value because
developing or servicing the rights is expected to require a
substantial infusion of capital. It is HCMI's intention to
obtain the necessary capital through an IPO of its common
stock. In this regard, HCC has incurred $87,388 of direct
costs through March 31, 1996 relating to HCMI's IPO and has
reflected this amount in "Accounts Receivable from Related
Parties" in the accompanying balance sheet as of March 31,
1996. On May 18, 1996, HCC spun off HCMI via a dividend to
the HCC stockholders with HCMI cancelling the shares that
had been issued to HCC and effectively replicating the HCC
capital structure by issuing a share of HCMI common stock to
each HCC common and preferred shareholder for each share of
HCC common and preferred stock outstanding. Warrants to
purchase HCMI stock were granted to holders of
non-contingent HCC stock purchase warrants, including
warrants to the HCC preferred shareholders, on May 18, 1996.
Additionally, on April 17, 1996, HCMI granted HCC warrants
to purchase 1,236,000 shares of its common stock for $.50
per share.
F-28
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL SYSTEMS
- --------------------------------------------------------------------------------
2. GOING CONCERN As shown in the accompanying financial statements, HCC
incurred a net loss of $516,165 in 1995 and has incurred
losses since formation resulting in an accumulated deficit
of $895,405 at March 31, 1996. At December 31, 1995 and
March 31, 1996, HCC had negative working capital, as
indicated by current liabilities exceeding current assets by
$333,529 and $266,989, respectively. Furthermore, HCC
expects to incur additional losses until it is able to
generate sufficient income to cover operating expenses. HCC
does not currently have sufficient cash reserves to cover
such anticipated losses. HCC also has significant
receivables of $306,613 as of March 31, 1996 from HCMI and
ATB who, in turn, are both development stage companies whose
most recent audit reports, dated May 18, 1996, have
expressed concern about those companies'" abilities to
continue as going concerns". These factors raise
substantial doubt about HCC's ability to continue as a going
concern.
HCC has been evaluating financing and capitalization
alternatives in its long-term business plan. These
alternatives include the sale of the 12% Preferred Stock
(See Note 5), and other alternatives, such as the formation
of HCMI, including the transfer thereto of many of HCC's
development options with HCMI, in turn, undergoing an IPO of
common stock. To preserve operating funds, HCC has
furthermore developed a strategic plan which provides for
the reduction of expenditures and a prioritization of
development options.
The financial statements do not include any adjustments
relating to the recoverability and classification of
recorded assets or the amounts and classification of
liabilities that might be necessary should HCC be unable to
continue as a going concern.
3. HCC MARKETING Effective January 1, 1995, HCC entered into a marketing
AND LINE OF agreement with ATB ("the HCC Agreement") whereby HCC will
CREDIT AGREE- provide marketing services on behalf of ATB. In return for
MENT receiving the marketing services, ATB is obligated to pay
HCC 40% of its gross advertising cash receipts and 5% of its
non-advertising gross receipts. The HCC Agreement
automatically terminates on January 1, 1999 unless extended
by mutual agreement, and it is terminable at earlier dates
under certain specified conditions. In the event of
termination for whatever reason, the amounts due under the
HCC
F-29
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL SYSTEMS
- --------------------------------------------------------------------------------
Agreement for sponsorship existing at the time of
termination shall remain due and payable, notwithstanding
the termination (if certain other conditions are met), for a
period ending the later of the automatic termination date of
the HCC Agreement or two years after the date of other
termination. Revenues recognized under the HCC Agreement
aggregated $647 and $2,106 during 1995 and the three months
ended March 31, 1996, respectively.
On January 15, 1995, HCC executed a noncollateralized line
of credit agreement with ATB (the "Credit Agreement") which
provides ATB with a standby line of credit in the amount of
$360,000. Borrowings under the Credit Agreement bear
interest at a fixed rate of 8% per annum, with payment of
interest on any borrowing being deferred until January 15,
1997, whereupon monthly interest payment will be required.
Any principal and interest outstanding on the line of credit
must be repaid on December 31, 1999. During the year ended
December 31, 1995, the average amount borrowed under the
Credit Agreement was $42,000 and the maximum amount of
month-end borrowing during the period was $144,850. During
the three months ended March 31, 1996, HCC advanced an
additional $74,375 under this line of credit. Interest
income on the line of credit amounted to $3,364 and $3,930
for the year ended December 31, 1995 and three months ended
March 31, 1996, respectively.
HCC intends to continue to provide the line of credit to ATB
after the assignment to HCMI of its contract with ATB.
4. FUNDING AND In 1994 and 1995 and during the three months ended March 31,
SERVICES 1996, HCC provided management assistance and funding to
PROVIDED TO not-for-profit organizations. These organizations are
NOT-FOR-PROFIT separate entities and their operations are not reflected in
ORGANIZATIONS the accompanying financial statements. In 1994 and 1995,
HCC advanced a total of $42,172 and $180,955, respectively,
to these organizations. For the three months ended March
31, 1995 and 1996, such advances amounted to $1,848 and
$19,064, respectively. These amounts are reflected as
"Write-off of working capital advances" in the accompanying
Statements of Operations. Included in these amounts was
$50,000 in 1995 that was paid to ATB
F-30
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL SYSTEMS
- --------------------------------------------------------------------------------
on behalf of one of these nonprofit organizations for
advertising on a radio program produced by ATB.
5. SHAREHOLDERS' The total number of shares of stock that HCC has the
EQUITY authority to issue is 60,000,000, consisting of 10,000,000
PREFERRED shares of preferred stock, par value $.001 per share, and
STOCK 50,000,000 shares of common stock, par value $.001 per
share. The preferred stock may be issued from time to time
in one or more series. The Board of Directors of HCC is
empowered to provide for the issuance of shares of preferred
stock in series, to establish the number of shares to be
included in each series and to fix the designations, powers,
preferences and rights of the shares in each such series.
On January 6, 1995, the Board of Directors created a series
of Noncumulative Convertible 12% Preferred Stock, par value,
$.001 per shares, to consist of 1,800,000 shares. On
September 18, 1995, the number of authorized shares of the
Convertible 12% Preferred Stock was increased to 3,600,000.
The series was designated the "Series A 12% Noncumulative
Convertible Preferred Stock" (the "12% Preferred Stock").
No other series has been created.
The 12% Preferred Stock is senior in right to all shares of
HCC's common stock. With the written consent of a least a
majority of the shareholders of the 12% Preferred Stock, HCC
may issue one or more series of preferred stock with right,
rank and priority senior to the 12% Preferred Stock.
Beginning April 1, 1995, the 12% Preferred Stock is entitled
to receive, when and as declared by HCC's Board of
Directors, noncumulative cash dividends at the rate of $.06
per share per annum. Accrued dividends on the 12% Preferred
Stock shall be paid before any dividends shall be paid upon
the Common Stock and before any repurchase, retirement or
other acquisition of any shares of Common Stock.
In the event of the voluntary or involuntary liquidation,
dissolution or winding up of HCC, the holders of the 12%
Preferred Stock shall be entitled, before any payment with
respect to Common Stock, to receive in cash for
F-31
<PAGE>
their shares from the assets of HCC then available for
distribution a proportional amount, as defined, up to $.50
for each share of 12% Preferred Stock plus any unpaid and
accrued dividends.
On March 31, 1997, each share of 12% Preferred Stock shall
automatically be converted into one share of common stock.
At any time prior to March 31, 1997, the Holder may convert
the 12% Preferred Shares into common stock. In addition to
the one-for-one conversion, the Holder shall, upon
conversion, receive a purchase warrant for one share of
common stock for each two shares of the 12% Preferred Stock
converted. Each warrant shall entitle the holder to
purchase an additional share of common stock for (i) $.50 up
to and including 20 days after the Company notifies the
Holder that it has signed a letter of intent with an
underwriter to do an IPO of HCC's common stock or (ii) 80%
of the IPO price for a period of one year subsequent to the
effective date of a registration statement filed for the IPO
of HCC's common stock. Between the two dates (20 days after
notification and the effective day of the Registration
Statement), the 12% Preferred Stock shall not be convertible
into common stock. The 12% Preferred Stock will be
automatically converted into common stock immediately prior
to the completion of any IPO.
On January 16, 1995, HCC entered into an agreement with an
underwriter to sell the 12% Preferred Stock. As of April
19, 1996, 2,789,000 shares of the 12% Preferred Stock, at a
price of $.50 per share, had been sold, for total proceeds
of $1,394,500, and the offering was terminated. Through
December 31, 1995 and from January 1, 1996 through March 31,
1996, 1,372,000 shares and 430,000 shares, respectively, of
12% Preferred Stock had been sold.
COMMON STOCK/WARRANTS
On June 23, 1994, HCC's three founding investors purchased
1,800,000 shares of HCC common stock (the "Common Stock") at
a price of $.001 per share, for a total of $1,800. The
founding investors also received warrants (expiring June 23,
1999) to purchase 900,000 shares of the Company's
F-32
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL SYSTEMS
- --------------------------------------------------------------------------------
Common Stock at $.10 per share. Two of the founding
investors were employed by the Company in senior management
positions.
In 1995, one of the two employees (the "Selling Employee")
left the Company and the remaining employee (the "Purchasing
Employee") agreed to purchase the Selling Employee's common
stock (700,000 shares) and warrants (to purchase 350,000
shares) for $75,000. As part of this sale, the Selling
Employee also waived his rights to approximately $100,000 of
unpaid compensation. The Purchasing Employee then entered
into an agreement with HCC to sell HCC the 700,000 shares of
common stock purchased from the Selling Employee for
$75,000. The Purchasing Employee retained ownership of the
warrants to purchase 350,000 shares of the Company's common
stock. Because the $75,000 cost of acquiring the 700,000
shares was in excess of the par value of the shares (the
amount at which originally issued), the excess cost
($74,300) has been reflected as compensation expense (to the
Selling Employee) in the accompanying Statement of
Operations in 1995.
On May 3, 1995, HCC issued warrants to purchase 100,000
shares of common stock to a radio talk show host (otherwise
unaffiliated with HCC) as partial consideration for his
doing the show. These warrants are exercisable for a five
year period and have an exercise price of $.001 per share.
On July 24, 1995, 180,000 shares of common stock were sold
to a company assisting with the private placement of the
Preferred Stock. The amount paid was $.001 per share, for a
total of $180. Also, on July 24, 1995, HCC issued warrants
to purchase 90,000 shares of Common Stock in conjunction
with the sale of 180,000 shares of the Company's common
stock. The warrants allow the holder to purchase the HCC's
common stock for $.001 per share for five years.
COMMON STOCK/WARRANTS ISSUED FOR SERVICES RENDERED
Certain employees, officers, lenders, board members and
contractors (the "Suppliers") were issued common stock in
partial consideration for services
F-33
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL SYSTEMS
- --------------------------------------------------------------------------------
rendered or for loans made to the Company. In 1995, a total
of 85,000 shares were issued. During the three months ended
March 31, 1996, a total of 404,000 shares were similarly
issued. Related compensation expense, based on a nominal
fair value, of $85 and $404 has been recognized in the
accompanying Statements of Operations for the year ended
December 31, 1995 and the three months ended March 31, 1996,
respectively.
Along with the 404,000 shares of common stock issued during
the three months ended March 31, 1996, warrants to purchase
333,500 shares of common stock were also issued. HCC also
issued warrants to purchase 60,000 shares of common stock to
two employees who had loaned money to HCC. These warrants
were issued on January 29, 1996, are exercisable for a five
year period and have an exercise price of $.50 per share.
Additionally, on January 29, 1996, HCC issued to an
underwriter warrants to purchase 90,000 share of common
stock at $.50 per share, contingent on the underwriter
raising at least $1,350,000 in the private placement of
HCC's preferred stock. As of April 19, 1996, the goal was
met and the warrants were issued and are exercisable for a
five year period. The underwriter also will receive, in
addition to normal sales commissions, an additional 2% of
all capital raised in excess of $1,350,000.
In 1995, HCC entered into an agreement with the placement
agent of its 12% Preferred Stock allowing HCC to convert
$100,000 of outstanding fees due to the placement agent into
common stock at a price of $.50 per share. On March 31,
1996, HCC issued 200,000 shares of common stock in lieu of
paying $100,000 to the placement agent.
F-34
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
OUTSTANDING WARRANTS
A summary of the outstanding warrants described above is as
follows:
<TABLE>
<CAPTION>
Exercise
Warrant Date Date Price
Holder Issued Expires Shares Per Share
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Founders June 23, 1994 June 22, 1999 900,000 $ .10
Show Host May 3, 1995 May 2, 1990 100,000 $ .001
Underwriter July 24, 1995 July 23, 2000 90,000 $ .001
Underwriter January 29,1996 January 28, 2001 90,000 $ .50
Suppliers
(with stock) January 29, 1996 January 28, 2001 333,500 $ .50
Suppliers
(without
stock) January 29, 1996 January 28, 2001 60,000 $ .50
---------
1,573,500
---------
---------
</TABLE>
In 1995, HCC entered into agreements with two contract
service providers to issue warrants if various performance
goals were met. The goals that have been established are
specifically measurable and performance-based which, if met
in whole or in part, would result in the issuance of warrants
to purchase up to 125,000 of common stock at prices of $.001
(50,000 shares) and $.40 (75,000 shares) per share. The
warrants, if issued, would have an exercise term of five
years.
F-35
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINGENT WARRANTS
A summary of warrants described above which are contingently
issued upon the occurrence of specified events is as
follows:
Event Requiring
Warrants
Issuance Shares of Common Stock Exercise Price
Per Share
-----------------------------------------------------------
Conversion of
Preferred Stock 1,394,500 $.50
Employment
Performance 75,000 $.40
Employment
Performance 50,000 $.001
-----------------------------------------------------------
Total 1,519,500
-----------------------------------------------------------
-----------------------------------------------------------
The non-contingent and contingent warrants described above
have not been given accounting recognition in the
accompanying financial statements, other than as a
commitment to issue stock, due to the impractability of
determining fair market value of the underlying service or
Common Stock.
6. NOTES PAYABLE On June 1, 1994, HCC entered into a promissory note
agreement with an officer who is also a director. Under the
terms of the note agreement, HCC borrowed $100,000, at a
rate of 14.875% per annum. The note is now payable on
demand.
On February 1, 1995, HCC executed a promissory note
agreement with an officer who is also a director. Under the
terms of the note agreement, HCC borrowed $14,600, at an
interest rate of 13.75% per annum, and repaid the amount
borrowed during 1995. As additional consideration for
making the note, HCC also agreed to issue 30,000 shares of
common stock and provide warrants to purchase an additional
15,000 shares of common stock at $.50 per share.
F-36
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On May 8, 1995, HCC executed a promissory note agreement
with another director. Under the terms of the note
agreement, HCC borrowed $15,000, at a rate of 14.875% per
annum, and repaid the amount borrowed during 1995. In
consideration for making the note, HCC also agreed to issue
the director 30,000 shares of common stock and provide
warrants to purchase an additional 15,000 shares of common
stock at $.50 per share.
On January 20, 1996, HCC executed a promissory note
agreement with another officer who is also a director.
Under the terms of the Note agreement, HCC converted $60,000
of accrued compensation into a $60,000 note payable, with an
interest rate of 14.875% per annum. The note is payable on
the earlier of July 20, 1996 or the date that the Company,
through its equity capital development on behalf of HCMI,
raises in excess of $1,000,000. In consideration for making
the note, HCC also agreed to issue the employee 120,000
shares of common stock and provide warrants to purchase an
additional 120,000 shares of common stock at $.50 per share.
All of these notes are non-collateralized. Interest expense
on these notes aggregated $8,342, $15,495, $3,709 and $5,444
during the period June 23, 1994 through December 31, 1994,
the year ended December 31, 1995 and the three months ended
March 31, 1995 and 1996, respectively.
7. INCOME TAXES Deferred taxes are attributable primarily to the timing of
revenues and expenses which are different for income tax
reporting than for financial reporting.
The sources of these differences and the tax effect of each
are as follows:
December 31,
----------------------------------
1994 1995
-----------------------------------------------------------
Cash/accrual difference $ 45,360 $ 68,160
Change in valuation allowance 15,120 35,640
Other 3,926 693
-----------------------------------------------------------
Tax effect of timing
differences $ 64,406 $ 104,493
-----------------------------------------------------------
-----------------------------------------------------------
F-37
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
HCC has no current or deferred provision or benefit for
income taxes for either 1994 or 1995 or for the three months
ended March 31, 1995 and 1996, primarily because of net
operating losses ("NOLs") generated in those periods. A
valuation allowance equal to the net deferred tax asset was
established reflecting the uncertainty of realizing these
benefits in future years. The net change in the valuation
allowance between years is reflected as an adjustment which
reduces the annual benefit for income taxes to zero each
year.
The following table summarizes the tax effect related to
HCC's NOLs, temporary differences and the valuation
allowance as of December 31, 1994 and 1995. HCC's NOLs
expire in 2009 and 2010.
December 31,
---------------------------
1995 1996
-----------------------------------------------------------
Net operating loss
carryforwards $ 14,347 $ 160,616
Temporary differences between
book and tax accounting 64,406 104,493
Valuation allowance (78,753) (265,109)
-----------------------------------------------------------
Net deferred tax asset $ - $ -
-----------------------------------------------------------
-----------------------------------------------------------
There are $422,674 of net operating loss carryfowards which
expire in 2009 and 2010. As a result of ownership changes
due to the sale of Preferred Stock (see Note 5), the use of
the net operating loss carryfowards is restricted to an
annual limitation of $65,119.
8. LEASES HCC leases office space and furniture from a company
controlled by a Board member under operating leases
cancelable on sixty days notice. Net rent expense under
operating leases was $8,000 and $17,500 in 1994 and 1995,
respectively, and $3,000 and $7,500 for the three months
ended March 31, 1995 and 1996 respectively.
F-38
<PAGE>
HEARTLAND CAPITAL CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY AND PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. OTHER RELATED One of HCC's shareholders is a partner in a law firm which
PARTY TRANSAC- provides legal services to HCC. Amounts recorded for legal
TIONS services provides by this firm were $3,959 and $919, for
1995 and the three months ended March 31, 1996,
respectively.
Another of HCC's shareholders who is also a director of HCC
is the principal stockholder of a company that provides
professional services to HCC. Amounts recorded for
professional services provided by this Company were $2,250
and $13,200 for 1995 and the three months ended March 31,
1996, respectively.
10. HCMI INITIAL HCMI intends to offer 5,000,000 shares of Common Stock
PUBLIC in a public offering at $5 per share, or an aggregate
OFFERING maximum of $25,000,000, including a selling commission of 8
1/2% on all shares sold and a nonaccountable expense
allowance of 1.5% of the gross proceeds. Sales of HCMI
shares will be made on a best efforts basis. If shares
providing a minimum of $2,000,000 of proceeds are not
sold during the initial offering period, as defined,
investors' funds will be returned.
In conjunction with this public offering, HCC has incurred
indirect costs, such as salaries, apportioned rent etc., all
of which have been expensed in the accompanying financial
statements. By the completion of the HCMI public offering,
it is expected that such cost will aggregate approximately
$600,000. It is the intent of HCMI to reimburse HCC for
these costs, or at least of portion thereof, on a sliding
scale basis (from $75,000 if $2,000,000 is raised to
$600,000 if $125,000 is raised) from the offering proceeds.
Such reimbursements will be reflected as a reduction of the
related expense or as revenue if the expense was recognized
in a prior period if and when the related proceeds are
raised.
F-39
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
To the Members
ATB PRODUCTIONS, L.L.C.
(A Development Stage Company)
We have audited the accompanying balance sheets of ATB PRODUCTIONS, L.L.C. (A
Development Stage Company) as of December 31, 1995 and March 31, 1996, and the
related statements of operations, changes in members' capital (deficit), and
cash flows for the year ended December 31, 1995, the three months ended March
31, 1996 and the period January 1, 1995 (date of formation) through March 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ATB PRODUCTIONS, L.L.C. (A
Development Stage Company) as of December 31, 1995 and March 31, 1996, and the
results of its operations and its cash flows for the year ended December 31,
1995, the three months ended March 31, 1996 and the period January 1, 1995 (date
of formation) through March 31, 1996 in conformity with generally accepted
accounting principles.
F-40
<PAGE>
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company incurred a net loss in 1995 and
has an accumulated deficit from formation through March 31, 1996, In addition,
the Company expects to incur additional losses until its operations are able to
generate sufficient revenues to cover operating expenses. The Company does not
currently have sufficient cash reserves to cover such expenses, necessitating
additional capital or financing. At March 31, 1996, the Company had negative
working capital, as well as significant noncurrent liabilities. These factors,
in addition to other factors discussed in Note 1 to the financial statements,
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans regarding these matters are discussed in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ BDO Seidman, LLP
--------------------
BDO Seidman, LLP
Washington, D.C.
May 18, 1996
F-41
<PAGE>
ATB Productions, L.L.C.
(A Development Stage Company)
Balance Sheets
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December MARCH 31,
31, 1995 1996
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 1,560 $ -
Accounts receivable 3,200 -
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,760 -
- --------------------------------------------------------------------------------
Property and equipment, net of
accumulated deprecation of $40
and $321 as of December 31, 1995
and March 31, 1996, respectively 4,784 9,254
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 9,544 $ 9,254
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES
Accounts payable - trade $ 31,349 $ 20,141
Accounts payable to related parties 647 2,753
Note payable to Member - Manager
(related party) (Note 2) 1,557 1,500
Deferred revenue 1,400 6,900
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 34,953 31,294
Accrued interest payable to related parties (Note 3) 5,878 9,839
Long-term note payable to HCC (Note 3) 144,850 219,225
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 185,681 260,358
COMMITMENTS (Notes 2, 3 and 4)
MEMBERS' DEFICIT (Notes 2 and 3)
Members' capital contribution
(100 member units authorized,
issued and outstanding) 42,500 42,500
Deficit accumulated during
the development stage (218,637) (293,604)
- --------------------------------------------------------------------------------
TOTAL MEMBERS' deficit (176,137) (251,104)
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND MEMBERS' deficit $ 9,544 $ 9,254
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICES AND NOTES TO FINANCIAL
STATEMENTS.
F-42
<PAGE>
<TABLE>
<CAPTION>
ATB Productions, L.L.C.
(A Development Stage Company)
Statements of Operations
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
For the three
months ended FOR THE PERIOD
For the ------------------------ JANUARY 1, 1995
year ended March 31, (DATE OF FORMATION)
December 1995 THROUGH
31, 1995 (unaudited) 1996 MARCH 31, 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVERTISING AND OPERATIONAL REVENUES,
including revenues from a related
party of $50,000 in 1995 (Note 3) $ 62,940 $ - $ 35,190 $ 98,130
- ---------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Broadcast costs 152,056 16,242 37,061 189,117
Salaries to Members
(related parties) 71,572 1,750 27,300 98,872
General and administrative
expenses (Notes 3 and 4) 54,778 2,378 26,554 81,332
Bad debt expense - - 15,000 15,000
Depreciation 40 - 281 321
- ---------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 278,446 20,370 106,196 384,642
- ---------------------------------------------------------------------------------------------------------
OPERATING LOSS (215,506) (20,370) (71,006) (286,512)
- ---------------------------------------------------------------------------------------------------------
INTEREST EXPENSE, net of $400 interest
income in 1995, to related parties (Note 3) 3,131 - 3,961 7,092
- ---------------------------------------------------------------------------------------------------------
NET LOSS (218,637) (20,370) (74,967) (293,604)
MEMBERS' DEFICIT, beginning of period - - (218,637) -
- ---------------------------------------------------------------------------------------------------------
MEMBERS' DEFICIT, end of period $(218,637) $(20,370) $(293,604) $(293,604)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE MEMBERSHIP
UNITS OUTSTANDING 100 100 100 100
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
NET LOSS PER MEMBERSHIP UNIT $ (2,186) $ (204) $ (750) $ (2,936)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS.
</TABLE>
F-43
<PAGE>
ATB PRODUCTIONS, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL (DEFICIT)
FOR THE PERIOD JANUARY 1, 1995 (DATE OF FORMATION) THROUGH MARCH 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INITIAL CASH CONTRIBUTIONS (Note 2) $ 42,500
Net loss for year ended December 31, 1995 (218,637)
- --------------------------------------------------------------------------------
BALANCE, December 31, 1995 (176,137)
Net loss for the three months ended March 31, 1996 (74,967)
- --------------------------------------------------------------------------------
BALANCE, March 31, 1996 $ (251,104)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS.
F-44
<PAGE>
<TABLE>
<CAPTION>
ATB PRODUCTIONS, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
For the three For the period
For the months ended January 1, 1995
year ended March 31, (date of formation)
Decmeber 1995 through
31, 1995 (unaudited) 1996 March 31, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(218,637) $(20,370) $(74,967) $(293,604)
Adjustments to reconcile net loss to
net cash provided by operations
Depreciation 40 - 281 321
(Increase) decrease in accounts receivable (3,200) (14,600) 3,200 -
Increase (decrease) in accounts payable 31,996 - (9,102) 22,894
Increase in accrued interest payable 5,878 - 3,961 9,839
Increase in deferred revenue 1,400 - 5,500 6,900
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (182,523) (34,970) (71,127) (253,650)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (4,824) - (4,751) (9,575)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of members units 42,500 42,500 - 42,500
Proceeds from notes payable to
related parties 171,407 25,457 74,375 245,782
Principal repayments to
related parties (25,000) (25,400) (57) (25,057)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 188,907 42,557 74,318 263,225
- -----------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS.
</TABLE>
F-45
<PAGE>
<TABLE>
<CAPTION>
ATB PRODUCTIONS, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
For the three
months ended FOR THE PERIOD
For the ----------------------- JANUARY 1, 1995
year ended March 31, (DATE OF FORMATION)
Decmeber 1995 THROUGH
31, 1995 (unaudited) 1996 MARCH 31, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,560 7,587 (1,560) -
CASH AND CASH EQUIVALENTS,
beginning of period - - 1,560 -
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
end of period $1,560 $7,587 $ - $ -
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash interest paid $ 100 $ - $ - $ -
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS.
</TABLE>
F-46
<PAGE>
ATB PRODUCTIONS, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE COMPANY AND ATB Productions, L.L.C. ("ATB") was formed on April 19, 1995
NATURE OF as a Virginia Limited Liability Company, as successor to a
BUSINESS sole proprietorship of the same name that was formed January
1, 1995. The accompanying financial statements include the
financial position, the results of operations and the cash
flows of both ATB and its predecessor sole proprietorship.
Under its operating agreement, ATB restricts its activities
principally to the businesses of producing radio shows.
During 1995, ATB's primary activity was to produce and
broadcast the radio show "America the Beautiful", which is
hosted by ATB's Member Manager. To this point, ATB has not
generated significant revenue from its operations, and a
majority of its activities have been devoted to developing
programs and starting up production. Accordingly, ATB's
activities have been accounted for as those of a
"development stage enterprise" as set forth in Statement of
Financial Accounting Standards ("SFAS") No. 7.
ATB is related to two separate companies, Heartland Capital
Corporation ("HCC") and Heartland Communications &
Management, Inc. ("HCMI") through common, although not
identical, ownership and through marketing and borrowings
agreements (See Notes 2 and 3).
RISK AND While ATB has had limited operations, it is still in the
UNCERTAINTIES development stage. Consequently, ATB's activities will be
subject to the risks inherent in a new business enterprise
including, among others, limited capital, uncertain market
acceptance and the inability to obtain additional financing.
Additionally, ATB faces substantial competition from a
number of well-established, well financed companies. ATB's
principal source of revenues, advertising, is often cyclical
and dependent upon general economic conditions, rising in
good economic times and declining in economic downturns. In
addition, ATB is highly dependent upon affiliates, which are
likewise in the development stage, for services and
financing. ATB believes it has properly identified the
risks in the environment in which it operates and has
implemented strategies to effectively reduce the financial
impact of these risks.
F-47
<PAGE>
ATB PRODUCTIONS, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
USE OF ESTIMATES The preparation of financial statements in accordance with
generally accepted accounting principles requires ATB to
make certain estimates and assumptions particularly as it
relates to the valuation of accounts receivable and
disclosures of contingent assets and liabilities. Actual
results could differ from these estimates.
REVENUES AND ATB recognizes advertising and operational revenues as
EXPENSES commercials or programs are broadcast and related
services are rendered. Prepayments received on service
contracts are deferred and recognized as revenue when
the related advertising/program is broadcast.
Amounts payable to HCC under ATB's marketing agreement
are recognized as expense at the time the related
revenues are recorded as earned.
ACCOUNTS ATB provides a reserve for doubtful accounts based on a
RECEIVABLE specific review of the expected collectibility of individual
outstanding accounts.
INCOME TAXES As a Limited Liability Corporation, ATB is treated as a
partnership for federal and state income tax purposes.
Consequently, ATB's earnings and losses are recognized in
the individual income tax returns of ATB's Members
(investors) in accordance with the operating agreement.
Therefore, no provision for income taxes has been reflected
in the accompanying financial statements.
NET LOSS PER Net loss per membership unit has been computed based on the
UNIT weighted average of 100 investment units outstanding during
the year ended December 31, 1995, the three months ended
March 31, 1995 and 1996 and the period January 1, 1995 (date
of formation) through March 31, 1996.
CASH EQUIVALENTS ATB considers all highly liquid investments purchased with
initial maturities of 90 days or less to be cash
equivalents.
F-48
<PAGE>
ATB PRODUCTIONS, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY AND Additions to property and equipment are recorded at cost
EQUIPMENT and include all major renewals and betterments.
Maintenance, repairs and minor replace-ments are
expensed as incurred.
Depreciation expense is provided on the straight line
basis over the five year estimated life of the related
assets.
INTERIM The accompanying interim financial statements for the
FINANCIAL three months ended March 31, 1995 are unaudited but, in
STATEMENTS the opinion of management, reflect all adjustments
(consisting primarily of normal recurring adjustments)
necessary for a fair presentation of the results of the
period presented. The results of the three months ended
March 31, 1996 are not necessarily indicative of the
results to be obtained for the full fiscal year.
FAIR VALUE OF In accordance with the requirements of SFAS No. 107,
FINANCIAL "Disclosure About Fair Value of Financial Instruments,"
INSTRUMENTS the Company must disclose the fair value of its
financial instruments as of December 31, 1995 and March
31, 1996. In the opinion of management, the fair values
of the Company's financial instruments are not
materially different from the carrying amounts shown in
the accompanying financial statements.
RECENT In March 1995, SFAS No. 121, "Accounting for the
ACCOUNTING Impairment of Long-Lived Assets and for Long-Lived
PRONOUNCEMENTS Assets to be Disposed of," was issued. The Company
adopted SFAS No. 121 as of January 1, 1996 and its
implementation did not have a material effect on the
Company's financial statements.
F-49
<PAGE>
ATB Productions, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. GOING As shown in the accompanying financial statements, ATB
CONCERN incurred a net loss of $218,637 in 1995 and has incurred
losses since formation, resulting in an accumulated deficit
of $293,604 as of March 31, 1996. At March 31, 1996, ATB
had negative working capital, as indicated by current
liabilities exceeding current assets by $31,294 as well as
$229,064 of noncurrent liabilities. Furthermore, ATB
expects to incur additional losses until it is able to
generate sufficient income to cover operating expenses.
ATB does not currently have sufficient cash reserves to
cover such anticipated losses. Borrowings under ATB's line
of credit with HCC (see Note 3) amount to $219,225 at March
31, 1996 leaving only $140,775 available for future use.
And HCC, in turn, has similar problems with significant
operating deficits and working capital deficiencies,
raising substantial doubt as to its own ability to continue
as a going concern as well as its ability to fund the
balance of the line of credit and provide marketing
services to ATB. These factors raise substantial doubt
about ATB's ability to continue as a going concern.
According to ATB's long-term business plan, ATB has been
evaluating financing and capitalization alternatives with
HCC and HCMI. These alternatives include the sale of
preferred stock by HCC and other alternatives, such as the
formation of HCMI and the transfer thereto of many of HCC's
development options, including the ATB contract, with HCMI,
in turn, undergoing an initial public offering of its
common stock. Additionally, ATB continues to expand the
radio shows it produces and broadcasts in an attempt to
increase its own revenues. Further, to preserve operating
funds, ATB has furthermore developed a strategic plan which
provides for the reduction of expenditures and a
prioritization of development options.
The financial statements do not include any adjustments
relating to the recoverability and classification of
recorded assets or the amounts and classification of
liabilities that might be necessary should ATB be unable to
continue as a going concern.
F-50
<PAGE>
ATB Productions, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. OPERATING ATB's operations are governed by the Operating
AGREEMENT Agreement (the "Agreement") which sets forth the rights and
responsibilities of the investors and others, defined as
"Members", entering into the Agreement. As part of the
Agreement, members contributed $42,500 in cash to the
capital of ATB. Members have sharing ratios in proportion
to units owned which do not necessarily relate to the
capital contributed. Key provisions of the Agreement are
as follows:
- One member was named the "Member-Manager", with
rights, up to certain limits, to contractually bind
ATB, without consent of ATB's remaining Members.
- The Member Manager is entitled to compensation in the
amount of $5,000 per month for management of ATB.
- Net profits and losses are to be apportioned among the
Members in proportion to their sharing ratios. Member
are responsible for any income taxes relating to
apportioned profits and losses.
- No distributions to Members may be made unless, after
the distribution, ATB's assets will be in excess of
liabilities.
- A Member dissociating from ATB will be paid the
product of (i) the Member's sharing ratio and (ii) the
greater of ATB's (a) net book value or (b) appraised
fair market value.
- ATB's term of operations will end on December 31,
2050, unless the term is either extended or ended
sooner via amendment to the Agreement.
F-51
<PAGE>
ATB Productions, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. HCC Effective January 1, 1995, ATB entered into a marketing
MARKETING agreement with HCC ("HCC Agreement") whereby HCC will
AND LINE OF provide marketing services on behalf of ATB. On May 18,
CREDIT 1996, HCC assigned the HCC agreement to HCMI. Services
AGREEMENTS under the HCC agreement include presenting programs to
prospective sponsors on a worldwide basis, negotiating
sponsorship agreements, etc. In return for providing the
marketing services, ATB is obligated to pay HCC 40% of its
gross advertising cash receipts and 5% of its non-
advertising gross receipts. The HCC Agreement
automatically terminates on January 1, 1999, unless
extended by mutual agreement, and is terminable at earlier
dates under certain specified conditions. In the event of
termination for whatever reason, the amount due under the
HCC agreement for sponsorship existing at the time of
termination shall remain due and payable, notwithstanding
the termination, (if certain other conditions are met), for
a period ending the later of the automatic termination of
the HCC Agreement or two years after the date of other
termination. Amounts recorded under the HCC agreement
aggregated $647 and $2,106 during 1995 and the three months
ended March 31, 1996, respectively.
Additionally, ATB received $50,000 in advertising revenue
from HCC in 1995, which was not subject to the HCC
agreement.
On January 15, 1995, ATB executed a noncollateralized line
of credit agreement with HCC (the "Credit Agreement") which
provides ATB with a standby line of credit in the amount of
$360,000. Borrowings under the Credit Agreement bear
interest at a fixed rate of 8% per annum, with payment of
interest on any borrowings being deferred until January 15,
1997, whereupon monthly interest payments will be required.
Any principal and interest outstanding on the line of
credit must be repaid on December 31, 1999. During the
year ended December 31, 1995, the average amount borrowed
under the Credit Agreement was $42,000 and the maximum
amount of month-end borrowing during the period was
$144,850. During the three months ended March 31, 1996, an
additional $74,375 was borrowed under this Credit
Agreement. Interest expense under the Credit Agreement
aggregated $3,364 and $3,930 during 1995 and the three
months ended March 31, 1996, respectively.
F-52
<PAGE>
ATB Productions, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
On March 30, 1995, ATB executed a promissory note agreement
with a Member who is also an officer of HCC and HCMI.
Under the terms of the note agreement, ATB borrowed $20,000
from the Member on March 30, 1995, repaying it 15 days
later, at an interest rate of 8% per annum. As additional
consideration, the Member received eight investment units
in ATB.
On May 29, 1995, ATB borrowed $5,000 from another Member,
who is also a director of HCC, repaying the balance on June
12, 1995 plus $100 in interest and fees.
On December 15, 1995, ATB executed a note agreement with
its Member-Manager (who is also an officer of HCC and
HCMI) whereby ATB borrowed $1,557 at an interest rate of 8%
per annum, payable on a monthly basis. The principal
balance is due on June 15, 1996.
Interest expense on these notes payable to members
aggregated $167 and $30 for 1995 and the three months
ended March 31, 1996, respectively.
Long-term notes payable as of December 31, 1995 and March
31, 1996 consist of the following:
December March
31, 1995 31, 1996
-----------------------------------------------------------
Borrowing under Credit Agreement $144,850 $219,225
Note payable to Managing Member 1,557 1,500
-----------------------------------------------------------
146,407 220,725
-----------------------------------------------------------
Less current portion 1,557 1,500
-----------------------------------------------------------
$144,850 $219,225
-----------------------------------------------------------
-----------------------------------------------------------
F-53
<PAGE>
ATB Productions, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. LEASE ATB leases office space and furniture from a Member (who is
COMMITMENTS also a director of HCC) under an operating lease cancelable
on sixty days notice. Net rent expense under this lease was
$12,425 for 1995 and $6,500 for the three months ended March
31, 1996.
5. TAX For income tax purposes, ATB reports on the cash basis
LOSSES whereby (1) certain revenue and the related assets are
recorded when received rather than when earned and (2)
certain costs are deducted when paid rather than when
incurred. A reconciliation of the financial statement net
loss to the income tax loss follows:
For the three
months ended
March 31,
----------------
1995
1995 (unaudited) 1996
-------------------------------------------------------------
-------------------------------------------------------------
Financial statement
net loss $(218,637) $(20,370) $(74,967)
Adjustments
Accrual to cash
conversion 30,196 (14,600) 14,002
Other temporary differences 7,572 - 15,000
-------------------------------------------------------------
Income tax loss $(180,869) $(34,970) $(45,965)
-------------------------------------------------------------
-------------------------------------------------------------
F-54
<PAGE>
APPENDIX II
ALVERY A. BARTLETT, JR. BIOGRAPHY
(See "The Company -- Specific Opportunities Under Consideration")
Alvery A. Bartlett, Jr., born 1943, graduated from Georgetown University
with a B.A. in Economics in 1965. Following service in the Army, Mr. Bartlett
began his career in the field of finance in 1968 when he joined Merrill Lynch
in Pittsburgh as a securities broker. In 1970, he was transferred to Merrill
Lynch in Cleveland where, in 1974, he became an Institutional Futures Unit
Manager. He joined Clayton Brokerage Co. in St. Louis in 1976 as the Branch
Manager of the Headquarters Sales Office. For five consecutive years he was
elected by its branch managers to that company's Management Advisory Council
where he also functioned as such Council's chairman. As a result of his
activities within the industry, in 1981 he was one of the final contenders
for the presidency of the New York Futures Exchange (the "NYFE"), then a
subsidiary of the New York Stock Exchange.
Mr. Bartlett formed Stock Index Futures Co., Inc. ("SIFC") with 18
employees in 1982. Mr. Bartlett has advised the Company that he believes SIFC
was the first retail brokerage firm in the country to specialize in the
buying and selling of stock index futures. SIFC functioned as a futures
commission merchant and an introducing broker, clearing its business through
Oppenheimer & Co. It sold all types of futures and options contracts
including, but not limited to, stock index futures. Even with its futures
slant, the firm's more traditional stock, bond, mutual fund, and CD brokerage
business continued to grow, and in fact, became the dominant focus. In
recognition of that trend and due to a re-assessment of its long term goals,
the firm decided to restructure. In 1986, the founding company moved to its
current location and was divided into affiliates based on product
orientation. SIFC continued to function as a futures commission merchant;
Rate Search, Inc. was set up as an unregistered CD broker; Alvery Bartlett
Brokerage Company ("ABBC") was formed to act as an NASD firm offering a full
range of security services. It cleared on a fully disclosed basis through
Broadcort Capital Corp., a subsidiary of Merrill Lynch, Pierce, Fenner and
Smith. In February 1990, Mark Twain Brokerage Services, Inc., a subsidiary of
Mark Twain Bancshares, Inc., purchased the production of SIFC and ABBC. Rate
Search, Inc. continues the founding company's jumbo CD efforts; Mr. Bartlett
remains a shareholder but is not involved in the functioning of the business.
Alvery Bartlett served on the NYFE's Board of Directors between 1985 and
1990, during which time he chaired its Quality of Markets committee for three
years and also served respectively on the Finance, Audit, Margin and
Compliance/Surveillance committees. Mr. Bartlett has been a contributor to
BARRON'S and FUTURES magazines and has been quoted in the WALL STREET
JOURNAL, BARRON'S, FUTURES, FUTURES WORLD and other national and local
publications. He has also appeared as a featured speaker at institutional
investment seminars and NYFE product inauguration ceremonies in Chicago, New
York and London.
IV-1
<PAGE>
EXHIBIT A
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
1320 Old Chain Bridge Road -- Suite 220
McLean, Virginia 22101
By executing this Subscription Agreement and Power of Attorney
(hereafter, the "Subscription Agreement") of Heartland Communications &
Management, Inc. (hereafter, the "Company"), the undersigned purchaser
(hereafter, the "Purchaser") hereby irrevocably subscribes for shares of
common stock ("Shares") in the Company. Purchaser herewith encloses the sum
of $___________ ($5,000 initial minimum unless the Company accepts less while
additional purchases by existing Shareholders may be in the amount of $1,000
or more). Subscriptions, whether checks or wire transfers, should be made
payable to Heartland Communications & Management, Inc. -- George Mason Bank
Escrow Account. If this Subscription Agreement is accepted, the Purchaser
agrees to contribute the amount enclosed to the Company.
Purchaser represents that he, she or it has (i) a net worth of at least
$100,000 (exclusive of home, furnishings and automobiles) or (ii) a net worth
(similarly calculated) of at least $50,000 and an annual adjusted gross
income of at least $25,000. Certain states may impose greater net worth or
net income requirements, as set forth in the attached Annex to this
Subscription Agreement. Purchaser represents that he meets these financial
requirements and that he is of legal age. Purchaser is urged to review
carefully the responses, representations and warranties he is making herein.
Purchaser agrees that this subscription may be accepted or rejected in whole
or in part by the Company in its sole and absolute discretion.
READ THIS PROSPECTUS CAREFULLY BEFORE YOU SUBSCRIBE. CONTAINED HEREIN ARE
DISCLOSURES CONCERNING VARIOUS RISKS, CONFLICTS, FEES AND EXPENSES RELATING
TO OR TO BE PAID BY THE COMPANY. YOU SHOULD BE AWARE THAT THE DISCLOSURES
MADE MAY BE USED AS A DEFENSE IF PROCEEDINGS ARE BROUGHT BY SHAREHOLDERS
RELATING TO THE COMPANY.
REPRESENTATIONS AND WARRANTIES
Purchaser makes the following representations and warranties in order to
permit the Company to determine his suitability as a purchaser of Shares:
(1) The undersigned has received the Company's Prospectus and the exhibits
thereto and is aware of and can afford the risks of an investment in the
Company as described in such Prospectus.
(2) The undersigned understands that the Company has made all documents
pertaining to the transactions described in the Company's Prospectus
available to the undersigned in making the decision to purchase the Shares
subscribed for herein and that no representations or agreements other than
those set forth in the Prospectus and the exhibits thereto have been made to
the undersigned in respect thereto.
(3) The undersigned is reminded that:
(a) The Shares are speculative investments, the purchase of which involves
a high degree of risk of loss of the entire investment of the undersigned
in the Company.
(b) S/he is encouraged to discuss the proposed purchase with her/his
attorney, accountant or a Purchaser Representative (as defined under
Regulation D, promulgated under the Securities Act of 1933, as amended)
or take the opportunity to do so, is aware of and can afford the risks of
an investment in the Company, and is satisfied that s/he has had an
adequate opportunity to ask questions concerning the Company, the Shares
and the offering described in the Prospectus.
(c) No federal or state agency has passed upon the adequacy or accuracy of
the information set forth in the Prospectus or made any finding or
determination as to the fairness of the investment, or any recommendation
or endorsement of the Shares as an investment.
A-1
<PAGE>
(d) S/he must not be dependent upon a current cash return with respect to
her/his investment in the Shares. S/he understands that distributions are
not required (and are not expected) to be made.
(e) The Company is not a "tax shelter" and the specific tax consequences to
her/him relative to as an investment in the Company will depend on her/his
individual circumstances.
(4) If the Shares are being subscribed for by a pension or profit-sharing
plan, the undersigned independent trustee represents that s/he has reviewed
the plan's portfolio and finds (considering such factors as diversification,
liquidity and current return and projected return of the portfolio) this
purchase to be a prudent investment under applicable rules and regulations,
and acknowledges that no representation is made on behalf of the Company that
an investment in the Company by such plan is suitable for any particular plan
or constitutes a prudent investment thereby. Moreover, the undersigned
independent trustee represents that s/he understands that income generated by
the Company may be subject to tax, that s/he is authorized to execute such
subscription on behalf of the plan or trust and that such investment is not
prohibited by law or the plan's or trust's governing documents.
The undersigned understands and agrees that this subscription may be
accepted or rejected by the Company in whole or in part, in its sole and
absolute discretion. The undersigned hereby acknowledges and agrees that this
Subscription Agreement shall survive (i) non-material changes in the
transactions, documents and instruments described in the Prospectus, (ii)
death or disability of the undersigned and (iii) the acceptance of this
subscription by the Company.
By executing this Subscription Agreement below, the undersigned (i)
acknowledges the accuracy of all statements and (ii) appoints the management
of the Company to act as his true and lawful attorney to file any documents
or take any action required by the Company to carry out its business
activities. In addition, the undersigned by executing this Subscription
Agreement waives on behalf of her/himself and her/his estate the furnishing
of any inventory, accounting or appraisal of the assets of the Company;
providing that such waiver does not extend to any rights granted a
Shareholder under pertinent federal or state law.
The foregoing information which the undersigned has provided to the
Company is true and accurate as of the date hereof and shall be true and
accurate as of the date of the undersigned's admission as a Shareholder. If
in any respect such representations, warranties or information shall not be
true and accurate at any time prior to the undersigned's admission as a
Shareholder, s/he will give written notice of such fact to the Company,
specifying which representation, warranty or information is not true and
accurate and the reason therefor.
By executing this Subscription Agreement, the undersigned certifies, under
penalty of perjury:
(1) That the Social Security Number or Taxpayer Identification Number
provided below is correct; and
(2) That the IRS has never notified him that s/he is subject to 20% backup
withholding, or has notified her/him that s/he is no longer subject to such
backup withholding. (NOTE: IF THIS PART (2) IS NOT TRUE IN YOUR CASE, PLEASE
STRIKE OUT THIS PART BEFORE SIGNING.)
(3) The undersigned is a U.S. citizen or resident, or is a domestic
corporation, partnership or trust, as defined in the Internal Revenue Code of
1986, as amended. (NOTE: IF THIS PART (3) IS NOT TRUE IN YOUR CASE, PLEASE
STRIKE OUT THIS PART BEFORE SIGNING.)
(4) That the undersigned acknowledges and agrees that this information may be
disclosed to the Internal Revenue Service by the Company and that any false
statement contained herein is punishable by fine, imprisonment or both. The
undersigned will notify the Company within sixty (60) days of the date upon
which any of the information contained herein becomes false or otherwise
changes in a material manner, or the undersigned becomes a foreign person.
The undersigned agrees to update this information whenever requested by the
Company. Under penalties of perjury, the undersigned declares that the
undersigned has examined the information contained herein and to the best of
the undersigned's knowledge and belief, it is true, correct and complete, and
that the undersigned has the authority to execute this Subscription Agreement.
A-2
<PAGE>
This Subscription Agreement and the representations and warranties contained
herein shall be binding upon the heirs, executors, administrators and other
successors of the undersigned. If there is more than one signatory hereto,
the obligations, representations, warranties and agreements of the
undersigned are made jointly and severally.
The undersigned is the following kind of entity (please check):
________Individual _________IRA
________Joint Account - JTWROS _________Pension Plan
________Joint Account - TENCOM _________Trust
________UGMA (Gift to Minor) _________Non-Profit Organization
________Partnership _________Employee of NASD member firm
________Corporation _________Other (Specify)
Dated this ____ day of __________ of 199__
Mr./Ms.
----------------------------- ----------------------------------
Purchaser's Name Social Security or Tax ID#
Mr./Ms.
----------------------------- ----------------------------------
Name of Second Purchaser Date of Birth of First Purchaser
( )
- ------------------------------------ ----------------------------------
Street Address of First Purchaser Business Phone (Day)
( )
- ------------------------------------ ----------------------------------
City State and Zip Code Home Phone
- ------------------------------------ ----------------------------------
Signature of First Purchaser (Individual, Signature of Second Purchaser
Custodian or Officer or Partner of Entity)
NOTE: IF A JOINT SUBSCRIPTION, PLEASE INDICATE WHETHER JOINT TENANTS WITH
RIGHT OF SURVIVORSHIP (JTWROS) OR TENANTS IN COMMON (TENCOM). EACH JOINT
TENANT OR TENANT IN COMMON MUST SIGN IN THE SPACE PROVIDED. IF PURCHASER IS A
TRUST, PARTNERSHIP, CORPORATION OR OTHER BUSINESS ASSOCIATION, THE SIGNING
TRUSTEE, PARTNER OR OFFICER REPRESENTS AND WARRANTS THAT HE/SHE/IT HAS FULL
POWER AND AUTHORITY TO EXECUTE THIS SUBSCRIPTION AGREEMENT ON ITS BEHALF. IF
PURCHASER IS A TRUST OR PARTNERSHIP, PLEASE ATTACH A COPY OF THE TRUST
INSTRUMENT OR PARTNERSHIP AGREEMENT. IF PURCHASER IS A CORPORATION, PLEASE
ATTACH CERTIFIED CORPORATE RESOLUTION AUTHORIZING SIGNATURE.
TO BE COMPLETED BY REGISTERED REPRESENTATIVE
The undersigned certifies that s/he has informed the Purchaser of all
pertinent facts relating to the liquidity and marketability of the Shares as
set forth in the Prospectus. In addition, the undersigned has reasonable
grounds to believe on the basis of information obtained from the Purchaser
concerning his investment objectives, other investments, financial situation
and needs, and any other information known by the undersigned, that: (i) the
Purchaser is or will be in a financial position appropriate to enable her/him
to realize to a significant extent the benefits described in the Prospectus;
(ii) the Purchaser has a fair market net worth sufficient to sustain the
risks inherent in the Company, including losses of investment and lack of
liquidity; and (iii) the Company is otherwise a suitable investment for the
Purchaser.
Accepted by:
____________________________________________
_________________, Authorized Officer
__________(Name of Registered Broker-Dealer)
A-3
<PAGE>
ANNEX TO
SUBSCRIPTION AGREEMENT
AND
POWER OF ATTORNEY
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
SUPPLEMENTAL SUBSCRIPTION REQUIREMENTS
The purchase of Shares in Heartland Communications & Management, Inc.
may be made only by persons who have (i) a net worth of at least $100,000
(exclusive of home, furnishings and automobiles) or (ii) net worth (similarly
calculated) of at least $50,000 and an annual gross income of at least
$25,000. Subscribers in the following states, in which Shares may be
qualified for sale, are subject to greater net worth (similarly calculated),
annual income and other financial requirements as shown below:
I understand that the investment requirements, as to net worth ("NW")
(exclusive of home, furnishings and automobiles) and past and anticipated
annual income ("AI") or annual taxable income ("TI") set forth below opposite
the state in which I purchase, apply to my subscription:
_______________ $_________ NW* or $___________ NW and $___________
AI*
_______________ $_________ NW or $___________ NW and $___________
TI
* In addition, my investment in Shares of the Company will represent no more
than 10% of my net worth.
A-4
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING AGENT. THIS PROSPECTUS DOES NOT
CONSTITUTE AS AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-------------------------
TABLE OF CONTENTS
DESCRIPTIVE TITLE PAGE
- ----------------- ----
Investment Requirements...................................
Prospectus Summary........................................
Summary Financial Data....................................
Pro Forma Financial Information...........................
Introductory Statement: Who Should Invest.................
Risk Factors..............................................
Conflicts Of Interest.....................................
Fiduciary Responsibility
Of The Company's Management..............................
The Company...............................................
Application Of Proceeds...................................
Absence Of Public Market And Dividend Policy..............
Capitalization............................................
Dilution..................................................
Description Of Capital Stock..............................
Plan Of Distribution......................................
ERISA Considerations......................................
Legal Matters.............................................
Experts...................................................
Available Information.....................................
Appendix I (Financial Statements).........................
Appendix II (Alvery Bartlett Biography)...................
Exhibit A-Subscription Agreement and
Power of Attorney........................................
$25,000,000 OF SHARES OF
COMMON STOCK
HEARTLAND
COMMUNICATIONS
& MANAGEMENT, INC.
---------------------------
PROSPECTUS
---------------------------
September ___, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of the fees and
expenses paid by the Registrant and affiliates as described in the Prospectus.
APPROXIMATE AMOUNT
--------------------------------
MINIMUM (1) MAXIMUM(2)
----------- ----------
Securities and Exchange Commission
registration fee............................. $ 8,610 $ 8,610
National Association of Securities
Dealers, Inc. filing fee..................... 3,000 3,000
Printing expenses............................. 25,000 25,000
HCC indirect expense reimbursement(3)......... 75,000 600,000
Accounting fees and expense................... 50,000 50,000
Blue Sky filing fees.......................... 16,250 16,250
Legal (including Blue Sky) fees and expenses.. 40,000 100,000
Escrow expenses............................... 750 750
Miscellaneous expenses........................ 1,390 1,390
-------- --------
TOTAL................................ $220,000 $805,000
-------- --------
-------- --------
(1) Costs if the minimum amount of $2,000,000 is raised.
(2) Costs if the maximum amount of $25,000,000 is raised.
(3) HCC has incurred costs, principally interest, such as salaries and
apportioned rent, relating to the Company's public offering. By the
completion of the public offering, it is expected that such costs will
aggregate approximately $600,000. It is the intent of the Company to
reimburse HCC for these costs, or at least a portion thereof, on a sliding
scale basis as reflected in the above table.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to "Fiduciary Responsibility of the Company's
Management" and "Description of Capital Stock" contained in the Prospectus
relating to the indemnification of the Registrant's officers, directors,
stockholders, employees and affiliates. The Registrant is prohibited from
indemnifying its affiliates for liabilities resulting from violations or
alleged violations of the Securities Act of 1933 or any state securities laws
in connection with the issuance or sale of the shares of common stock, except
in the case of successful defense of an action in which such violations are
alleged, and then only if a court approved such indemnification after being
apprised of relevant regulatory positions on indemnification.
Section 8 of the Managing Placement Agent Agreement (Exhibit 1.1 to the
Registration Statement) provides for the indemnification of the Registrant
and its affiliates by the Selling Agent(s), under certain circumstances.
Section 7 of the Selected Dealer Agent(s) Agreement (Exhibit 1.2 to the
Registration Statement) provides for indemnification of the Selling Agents
and Registrant by the Additional Selling Agents under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In conjunction with the Company's formation as a subsidiary of Heartland
Capital Corporation ("HCC"), HCC subscribed to 4,758,000 shares of the
Company's common stock on March 27, 1996. On May 17, 1996, HCC contributed
the par value ($.001) of those shares (4,758,000) to the Company in cash
($4,758) in full payment of its subscription receivable and the 4,758,000
shares were issued to HCC. In conjunction with the Company's spinoff to the
shareholders of HCC, on May 18, 1996, the Company retired those
S-1-1
<PAGE>
shares and issued as a dividend 4,758,000 shares of common stock as follows:
1,969,000 shares to the existing 17 common shareholders of HCC and 2,789,000
shares to the 83 preferred shareholders of HCC (all as described in greater
detail in the Prospectus, "Certain Related Party Transaction"). All such
Shareholders were accredited investors (as defined in Regulation D
promulgated pursuant to the Securities Act of 1933). The Registrant claims an
exemption from registration based on Section 4(2) of the Securities Act of
1933, as amended, as a sale by an issuer not involving a public offering.
On May 17, 1996, the Company also issued 1,394,500 of its warrants to
the HCC preferred shareholders who held contingent HCC warrants on the basis
of one warrant for each two HCC preferred shares. Each warrant entitled the
holder to purchase an additional share of the Company's common stock. During
May 1996, the Company notified the holders of its intent to make an initial
public offering (IPO) and that the Shareholders had until July 23, 1996 to
exercise their warrants at $.50 per share -- versus $4 per share thereafter
(80% of the $5 per share IPO price). Through July 24, 1996, 1,160,400
warrants were exercised for an aggregate purchase price of $580,200, leaving
234,000 warrants outstanding and excisable under the terms outlined above.
All such Shareholders were accredited investors (as defined). The Registrant
claims an exemption from registration based on Section 3(a)(9) of the
Securities Act of 1933, as amended, as an exchange of securities by an issuer
with its existing shareholders.
ITEM 16. FINANCIAL STATEMENTS AND EXHIBITS
(A)(1) FINANCIAL STATEMENTS -- INCLUDED IN PROSPECTUS:
(i) HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
Independent Certified Public Accountants' Report.
Balance Sheet as of April 30, 1996.
Statement of Changes in Shareholder's Equity for the Period
March 27, 1996 (Date of Formation) through April 30, 1996.
Notes to Financial Statements.
(ii) HEARTLAND CAPITAL CORPORATION AND SUBSIDIARY
Independent Certified Public Accountants' Report.
Consolidated Balance Sheets as of December 31, 1994 and 1995
and March 31, 1996.
Consolidated Statements of Operations for the Period June 23,
1994 (Date of Formation) through December 31, 1994, the Year
Ended December 31, 1995, the Three Months Ended March 31, 1995
(unaudited) and 1996 and the Period June 23, 1994 (Date of
Formation) through March 31, 1996.
Consolidated Statements of Changes in Shareholders' Equity for
the Period June 23, 1994 (Date of Formation) through
December 31, 1994, the Year Ended December 31, 1995, the Three
Months Ended March 31, 1996 and the Period June 23, 1994 (Date
of Formation) through March 31, 1996.
Consolidated Statement of Cash Flows for the Period June 23,
1994 (Inception) through December 31, 1994 and for the Year
Ended December 31, 1995, the Three Months Ended March 31, 1995
(unaudited) and 1996, and the Period June 23, 1995 (Date of
Formation) through March 31, 1996.
Notes to Consolidated Financial Statements.
(iii) ATB PRODUCTIONS, L.L.C.
Independent Certified Public Accountants' Report.
S-1-2
<PAGE>
Balance Sheets as of December 31, 1995 and March 31, 1996.
Statements of Operations for the Year Ended December 31, 1995,
the Three Months ended March 31, 1995 (unaudited) and 1996,
and the Period January 1, 1995 (Date of Formation) through
March 31, 1996.
Statements of Changes in Members' Capital (Deficit) for the
Year Ended December 31, 1995 and the Three Months Ended
March 31, 1996.
Statement of Cash Flows for the Year Ended December 31, 1995,
the Three Months Ended March 31, 1995 (unaudited) and 1996,
and the Period January 1, 1995 (Date of Formation) through
March 31, 1996.
Notes to Financial Statements.
(a)(2) INCLUDED SEPARATELY FROM PROSPECTUS: Consent of Independent Public
Accountants.
Schedules are omitted for the reason that all required information is
contained in the financial statements included in the Prospectus.
(b) Exhibits:
1.1 Form of Managing Placement Agent Agreement between the Registrant
and Selected Agent(s) to be named.
1.2 Form of Selected Dealer Agreement between Selected Agent(s) to be
named and certain Additional Selling Agents.
3.1 Certificate of Incorporation.
3.2 Amendments to Certificate of Incorporation.
3.3 Bylaws of Registrant
3.4 Form of stock certificate
3.5 Subscription Agreement and Power of Attorney (attached to the
Prospectus as Exhibit A).
5.1 Opinion of Counsel as to the legality of the Shares.
10.1 Form of Escrow Agreement between the Selling Agent and George
Mason Bank, McLean, Virginia (the Escrow Agent).
10.2 Employment Agreement between Registrant and Gerald Garcia.
10.3 Employment Agreement between Registrant and Michael L. Foudy.
10.4 Employment Agreement between Registrant and Bradford W. Baker.
10.5 Employment Agreement between Registrant and Bradley B. Niemcek.
10.6 Assignment Agreement between Registrant and Heartland Capital
Corporation.
10.61 Teen Magazine Venture Agreement between Heartland Capital
Corporation and Xpress Ventures, Inc.
S-1-3
<PAGE>
10.611 License Agreement between Xpress Ventures, Inc. and Gerald Garcia
and Bradford W. Baker.
10.62 National Sports Magazine Venture Agreement between Heartland
Capital Corporation and Xpress Ventures, Inc.
10.63 Representation Agreement between Heartland Capital Corporation
and ATB Productions, L.L.C.
10.64 Agreement between Registrant and Alvery Bartlett Fund Management
Co.
10.65 Supplemental Solicitation Materials.
24.1 Consent of Counsel.
24.2 Consent of Independent Certified Public Accountants.
A. CERTIFICATES: Inapplicable
B. RULE 415 OFFERING
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement
to: (I) include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933 (the "1933 Act"); (ii) reflect in the
Prospectus any facts or events which, together, represent a
fundamental change in the information in the Registration Statement;
and (iii) include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the 1933 Act, treat each
post-effective amendment as a new Registration Statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
C. REQUEST FOR ACCELERATION OF EFFECTIVE DATE
The Registrant may elect to request acceleration of the effective date
of the Registration Statement under Rule 461 of the 1933 Act.
D. INDEMNIFICATION
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the 1993 Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the
S-1-4
<PAGE>
question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of
such issue.
E. RULE 430A
The undersigned Registrant will:
(1) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in the form of a
Prospectus filed by the Registrant under Rule 424(b) (1) or (4) or 497(h)
under the Act as part of this Registration Statement as of the time the
Commission declared it effective.
(2) For any liability under the 1933 Act, treat each post-effective
amendment that contains a form of Prospectus as a new Registration
Statement for the securities offered in the Registration Statement, and
that the offering of the securities at that time as the initial bona fide
offering of those securities.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
Registration Statement to be signed on its behalf by the Undersigned,
thereunto duly authorized, in the City of McLean, and State of Virginia, on
the 24th day of July, 1996.
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
By: /s/ Gerald Garcia
------------------------------
Gerald Garcia, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in
his/her respective capacity as officer and/or director of the Registrant on
the date indicated.
Signatures Title Date
---------- ----- ----
/s/ Gerald Garcia President, Chief July 24, 1996
-------------------- Executive Officer
Gerald Garcia and Director
/s/Bradford W. Baker Treasurer July 24, 1996
--------------------
Bradford W. Baker
/s/Linda G. Moore Assistant Treasurer and July 24, 1996
-------------------- Chief Financial Officer
Linda G. Moore
/s/Michael L. Foudy Director July 24, 1996
--------------------
Michael L. Foudy
/s/ Ron Alexenburg Director July 24, 1996
--------------------
Ron Alexenburg
S-1-5
<PAGE>
/s/ Tim Giago Director July 24, 1996
--------------------
Tim Giago
/s/ Kirby Ralston Director July 24, 1996
--------------------
Kirby Ralston
/s/ B. Eric Sivertsen Director July 24, 1996
---------------------
B. Eric Sivertsen
S-1-6
<PAGE>
EXHIBIT 1.1
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
MANAGING PLACEMENT AGENT AGREEMENT
September , 1996
---
Gentlemen:
Heartland Communications & Management, Inc. ("HCMI") hereby confirms its
agreement with __________________________________ (the "Selling Agent") as
described as follows:
Section 1. INTRODUCTION. HCMI desires to retain the Selling Agent as its
best efforts exclusive lead placement agent in connection with the offering by
HCMI of up to 5,000,000 shares of common stock, $.001 par value per share (the
"Shares"), in connection with its proposed $25,000,000 public offering (the
"Offering"). Specifically, the Selling Agent will act as managing placement
agent on a best efforts basis for the sale of the Shares in the Offering. By
and through this Agreement, HCMI confirms the retention of the Selling Agent to
assist in such capacity during the Offering.
The Form S-1 Registration Statement is being filed with and must be
approved by the Securities and Exchange Commission (the "SEC") which
Registration Statement (and the related Prospectus) must be declared effective
by the SEC pursuant to the Securities Act of 1933 (the "Securities Act").
Copies of the Prospectus, as authorized for use and declared effective by the
SEC, will be delivered to the Selling Agent promptly after the SEC Order of
Effectiveness issues.
Unless otherwise defined herein, capitalized terms used herein shall have
the same meanings ascribed to them in the Prospectus.
Section 2. SELLING AGENT.
(a) APPOINTMENT AS SELLING AGENT. HCMI hereby appoints the Selling Agent
as its exclusive lead agent to offer and sell the Shares on a best efforts
basis pursuant to the Prospectus and any amendments or supplements thereto,
and in compliance with the terms and conditions thereof and of this
Agreement. Specifically, HCMI will offer exclusively through the Selling
Agent, acting as lead manager or co-manager on a best-efforts basis, and/or
selected dealers chosen by the Selling Agent, a minimum of four hundred
thousand (400,000) Shares and a maximum of five million (5,000,000) Shares
at five dollars ($5) per share. Subject to the $25,000,000 maximum during
the Initial and Continuous Offering Period as defined in the Prospectus (up
to 18 months from the date of the Prospectus), unless
1
<PAGE>
earlier terminated by HCMI, the Selling Agent will use its best efforts to
sell the Shares at the $5.00 per share Selling Price. All subscriptions
for Shares will be deposited with George Mason Bank and maintained in the
name of Heartland Communications & Management, Inc. -- George Mason Bank
Escrow Account (hereafter the "Escrow Account") until such subscriptions
are accepted at the end of the Initial Offering Period and during the
Continuous Offering Period. Funds in such Escrow Account will be held
during the Initial Offering Period until the minimum subscription of
$2,000,000 is accepted at which time the funds will be released to HCMI as
more fully described in the Prospectus. If the $2,000,000 minimum is
achieved during the Initial Offering Period, the Offering will continue at
the election of HCMI and with the consent of the Selling Agent for up to 18
months from the date of the Prospectus (the "Continuous Offering Period").
HCMI authorizes the Selling Agent and the Selling Agent agrees to use
its best efforts to offer and sell the Shares pursuant to the Registration
Statement and Prospectus and in compliance with the terms and conditions
thereof and of this Agreement. The Selling Agent may appoint registered
broker-dealers (the "Additional Selling Agents") to offer and sell Shares.
Commencing on the effective date (the "Effective Date") of the Registration
Statement, the Selling Agent and the Additional Selling Agents (if any)
will attempt to sell the Shares, at a price equal to $5.00 per share, for a
period (such period, including any extension thereof as hereinafter
provided, being herein called the "Initial Offering Period") of two (2)
months from the Effective Date (or for a period of up to seven (7)
additional months if extended by HCMI, unless all Shares having an
aggregate Selling Price of $25,000,000 registered with the SEC have
previously been subscribed for).
If at least 400,000 Shares have been subscribed for and accepted
during the Initial Offering Period, HCMI may, with the consent of the
Selling Agent, continue to offer Shares at the $5.00 per share Selling
Price during the balance (the "Continuous Offering Period") of this up to
eighteen (18) month Offering Period. The offering will terminate (i) if
subscriptions for at least 400,000 shares have not been received within the
Initial Offering Period as defined or (ii) at any time by written notice by
HCMI to the Selling Agent, provided the Selling Agent is compensated for
all sales accepted by HCMI.
The Selling Agent may designate as an Additional Selling Agent (i )
any person who is a member of the National Association of Securities
Dealers, Inc. (the "NASD") or (ii) any foreign person who is not a member
of the NASD and who agrees that it will make no offer or sale of Shares
within the United States, its territories or possessions or to persons who
are U.S. citizens or residents, and in making offers and sales of Shares,
will comply with the Rules of Fair Practice of the NASD including, but not
limited to Sections 8, 24, 25 and 36 of Article III to the NASD By-Laws,
provided, that any such person as a condition to selection as an Additional
Selling Agent, shall enter into a Selected Dealer Agreement substantially
in the form attached as Exhibit A.
(b) UNDERTAKINGS. The Selling Agent will use its best efforts to find
eligible persons to purchase the Shares on the terms stated herein and in
the Prospectus and any amendments or supplements thereto. It is understood
that the Selling Agent has no commitment with regard to the sale of the
Shares. The Selling Agent represents that it will comply fully with all
2
<PAGE>
applicable laws and the rules of the NASD, the SEC and of state securities
administrators of the several states and various other jurisdictions in
which it offers to sell Shares.
During this Offering Period, the Selling Agent will promptly upon
receipt deliver all cash and checks received from subscribers for Shares to
the Escrow Agent for deposit in the HCMI Escrow Account. Such cash or
checks will be accompanied by one executed copy of the Subscription
Agreement and Power of Attorney for each subscription obtained, properly
completed and executed in the form of Exhibit A to the Prospectus (the
"Subscription Documents"). Promptly after receipt of the Subscription
Documents by the Selling Agent, an interim receipt will be mailed by the
Selling Agent to each subscriber for the amount deposited. All
subscription checks received during this Offering Period will be held in
the Escrow Account until accepted at the Initial and each Subsequent
Closing.
Counsel for the Selling Agent shall make all required filings with the
National Association of Securities Dealers, Inc. (the "NASD"). All
corporate proceedings undertaken by HCMI and other legal matters which
relate to the Offering and other related transactions shall be satisfactory
in all material respects to counsel for the Placement Agent. The
Registration Statement and all amendments thereto shall be approved by
counsel to the Selling Agent prior to filing with the SEC (which approval
shall not be unreasonably withheld).
Section 3. RETENTION OF THE SELLING AGENT; COMPENSATION; SALE AND DELIVERY
OF THE SHARES. Subject to the terms and conditions herein set forth, HCMI
hereby engages the Selling Agent to (a) act as the Selling Agent in connection
with the Offering and (b) to use its best efforts to solicit subscriptions and
purchase orders for the Shares. The Selling Agent is a registered broker-dealer
and is a member of the National Association of Securities Dealers, Inc. (the
"NASD").
The obligations of the Selling Agent pursuant to this Agreement shall
continue through completion or termination of the Offering, but in no event
shall extend later than June 30, 1998. All fees due to the Selling Agent, but
unpaid, will be payable at that time.
The Selling Agent and any broker-dealer group assembled and managed by the
Selling Agent shall transmit promptly all checks directly to the Escrow Agent
after receipt by the Selling Agent or such Additional Selling Agent/broker-
dealer. If all conditions precedent to the consummation of the Offering are
satisfied, the Escrow Agent agrees to issue or have issued the Shares sold in
the Offering on the Initial Closing Date (as hereinafter defined) against
payment to HCMI; provided, however, that the Initial (any Subsequent) Closing
may not occur until the conditions specified in Section 8 hereof shall have been
complied with to the reasonable satisfaction of the Selling Agent and its
counsel. The release of Shares against payment therefor shall be made on the
date and at the place acceptable to HCMI and the Selling Agent. The date upon
which HCMI shall release and deliver the Shares sold in the Offering in
accordance with the terms hereof relating to the Initial Offering Period is
herein referred to as the "Initial Closing Date." HCMI shall release and
deliver the Shares sold relating to Continuous Offering Period is herein
referred to as a Subsequent Closing Date (typically at month-end or, if earlier,
when subscriptions for at least $250,000 are accepted).
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The Selling Agent shall receive a selling commission of 8 1/2 % of the gross
subscriptions on all Shares sold (the parties hereto acknowledging that
compensation payable to any member of the selling group shall be determined
between the Selling Agent and each Additional Selling Agent/ selected dealer
pursuant to individual Selected Dealer Agreement(s)). All out-of-pocket
expenses incurred by the Selling Agent in connection with the Offering,
including travel, communications, postage and legal fees and expenses, will be
absorbed by the Selling Agent.
In addition, HCMI will pay all costs and expenses incident to the offering,
sale and delivery of the Shares including, but not limited to, all fees and
expenses of filing with regulatory agencies and the NASD; all Blue Sky fees and
expenses; all auditing and accounting fees; and all promotion (including those
associated with "road shows" and related travel and entertainment) and printing
costs, including costs of printing the Registration Statement and the placement
agent documents, Blue Sky memoranda and as many Prospectuses as HCMI deems
reasonably necessary.
HCMI will also pay the cost and expenses of any other firm or professional
service organization it may employ in connection with the advisory services set
forth herein.
Section 4. REPRESENTATIONS AND WARRANTIES OF HCMI. HCMI represents and
warrants to the Selling Agent that:
(a) The Registration Statement must be approved and the related Prospectus
must be authorized for use and declared effective by the SEC before the Offering
may commence. On such date and at times all subsequent thereto, no order has
been issued by the SEC or any other state or federal regulatory authority
preventing or suspending the use of the Prospectus, and HCMI does not have any
knowledge that any action by or before any such government entity revoking such
approval or authorization is pending or threatened.
(b) The Prospectus and any marketing materials to be used in connection
with the Offering authorized by HCMI for use in the Offering do not and will
not, at any relevant time hereto, contain any misstatements or untrue statement
of a material factor or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that representations or warranties in this Section 4(b) shall not apply to
statements or omissions made in reliance upon and in conformity with written
information furnished to HCMI by the Selling Agent expressly regarding the
Selling Agent for use in the Prospectus.
(c) The offer and sale of the Shares will be conducted in accordance with
all applicable laws, regulations, decisions and orders, including all terms,
conditions, requirements and provisions precedent to the Offering imposed upon
HCMI by the SEC or any other regulatory authority. To the best of HCMI's
knowledge, no person has sought to obtain review of the final action of the SEC
in approving the Registration Statement or the Prospectus and all prior sales of
Shares were properly exempt from registration pursuant to Regulation D under the
Securities Act of 1933.
(d) The Registration Statement, including the Prospectus contained in the
Registration Statement (including any amendments or supplements thereto), comply
in all material respects with the applicable regulations.
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(e) HCMI is organized and validly exists as a Delaware corporation with
full power and authority to conduct its business as described in the Prospectus.
(f) HCMI has all such power, authority, authorizations, approvals and
orders necessary to enter into this Agreement, to carry out the provisions and
conditions hereof and to issue and sell the Shares to be sold as provided
herein. The execution, delivery and performance of this Agreement have been
duly and validly authorized by all necessary corporate action on the part of
HCMI. This Agreement is the valid, legal and binding agreement of HCMI
enforceable in accordance with its terms subject to bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and the exercise of judicial discretion in accordance with general principles
applicable to equitable and similar remedies (regardless of whether such
enforceability is considered in a proceeding at law or equity), and except as to
those provisions which may be limited by public policy.
(g) There is no litigation or pending governmental proceeding or, to the
knowledge of HCMI, threatened against, or involving the properties of HCMI which
individually or in the aggregate might materially and adversely affect the
Offering, the performance of this Agreement or the condition (financial or
otherwise), operations, business, assets or properties of HCMI.
(h) The consolidated financial statements which will constitute part of the
Prospectus will fairly present the financial condition, results of operations,
changes in stockholders' equity and cash flows of HCMI and its affiliates at the
dates thereof and for the respective periods covered thereby and comply as to
form in all material respects with generally accepted accounting principles.
Such financial statements will be prepared in accordance with generally accepted
accounting principles consistently applied through the periods involved,
presenting fairly in all material respects the information required to be stated
therein.
(i) Except as may otherwise be stated in the Prospectus as declared
effective: (i) there has been no material adverse change, financial or
otherwise, in the condition of HCMI or in the earnings, capital or properties of
such company whether or not arising in the ordinary course of business; (ii)
there has been no material increase in any long-term debt of HCMI, nor has HCMI
issued any securities or incurred any liability or obligation for borrowing
other than in the ordinary course of business; and (iii) there have been no
material transactions entered into by HCMI except with respect to those
transactions entered into in the ordinary course of business. The
capitalization, liabilities, assets, properties and business of HCMI will
conform in all material respects to the descriptions thereof contained in the
Prospectus.
(j) HCMI is not presently in breach of, or in default (nor has an event
occurred which with notice or lapse of time or both would constitute a default)
under any indenture, mortgage, deed of trust, note, bank loan or credit
agreement or any other instrument or agreement to which HCMI is a party or by
which any of its properties may be bound or affected, except for such breaches
or defaults as will not have a material adverse effect on the business,
operations or financial condition of HCMI.
(k) Neither the execution and delivery of this Agreement, the incurrence of
the obligations herein set forth, nor the consummation of the transactions
herein contemplated will conflict with or constitute a breach of or default
under, or result in the creation or imposition of any lien, charge or
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other encumbrance upon any of the properties or assets of HCMI pursuant to:
(i) HCMI's articles of incorporation; (ii) any contract, lease, loan agreement,
mortgage, note, indenture or other instrument to which HCMI is a party or by
which it may be bound, or to which any of the properties or assets of HCMI are
subject; or (iii) any applicable law, administrative regulation or
administrative or court decree, except for such conflicts, breaches, defaults,
liens, charges or other encumbrances which, with respect to (ii) and (iii)
above, will not have a material adverse effect on the business, operations or
financial condition of HCMI.
(l) Upon consummation of the Offering, the authorized, issued and
outstanding equity capital of HCMI will be, in all material respects, as set
forth in the Prospectus under the caption "Capitalization"; the Shares of HCMI
have been duly authorized by all necessary action of HCMI, and shall, upon
issuance thereof and payment therefor, be validly issued, fully paid and
nonassessable and shall conform to the description thereof contained in the
Prospectus and good title thereto shall be transferred by HCMI, free and clear
of all claims, encumbrances, security interests and liens whatsoever; and the
issuance of the Shares is not subject to preemptive rights.
(m) No approval or consent of any regulatory or supervisory or other public
authority is required in connection with the execution and delivery of this
Agreement or the issuance of the Shares by HCMI, except for the approval of the
SEC, issuance of the "fairness letter" from the NASD and any necessary
qualification or registration under the securities laws of the various states in
which the Shares are offered and the expiration of any statutory waiting
periods.
(n) Appropriate arrangements have been made for placing the funds received
from subscriptions for Shares in the Escrow Account at George Mason Bank until
the Initial and any Subsequent Closing Dates, with provision for refund to the
purchasers in the event that the Offering is not completed for whatever reason
or for delivery to HCMI at the Initial Closing Date.
(o) Prior to the Offering, HCMI has not: (i) other than the preferred
stock by HCC, had any material dealings within the 12 months prior to the date
hereof with any member of the NASD, or any person related to or associated with
such member, other than discussions and meetings related to the proposed
Offering and routine business activities; and (ii) engaged any intermediary
between the Selling Agent and HCMI in connection with the Offering of the Shares
and no person is being compensated in any manner for such service.
Section 5. COVENANTS OF HCMI. HCMI covenants and agrees that:
(a) HCMI shall deliver to the Selling Agent, from time to time, such number
of copies of the Prospectus as the Selling Agent may reasonably request. HCMI
authorizes the Selling Agent to use the Prospectus in connection with the sale
of the Shares.
(b) HCMI will not at any time file any amendment or supplement to the
Registration Statement, or a supplement to the Prospectus without so notifying
the Selling Agent before such filing and without first providing the Selling
Agent and its counsel adequate time to review and comment on such amendment or
supplement prior to filing.
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(c) HCMI will use its best efforts to cause any amendment or supplement to
the Registration Statement to be approved by the SEC and will promptly upon
receipt of any information concerning the events listed below notify the Selling
Agent and confirm the notice in writing: (i) when such amendment or supplement
has been approved; (ii) of the receipt of any comments from the SEC or any other
governmental entity for any amendment or supplement to the Registration
Statement or for additional information; (iii) of the issuance by the SEC, the
FDIC or any other governmental entity of any order or other action suspending
the Offering or the use of the Prospectus; or (iv) of the occurrence of any
event mentioned in paragraph (d) below.
(d) If, during the period when the Prospectus is used in connection with
the offer and sale of the Shares, any event relating to or affecting HCMI shall
occur as a result of which it is necessary, in the reasonable opinion of counsel
for the Selling Agent and in the reasonable opinion of counsel for HCMI, to
amend or supplement the Prospectus in order to make the Prospectus not false or
misleading in light of the circumstances existing at the time it is delivered to
an offeree or a purchaser of the Shares, HCMI shall, at its expense, forthwith
prepare and furnish to the Selling Agent a reasonable number of copies of
amendment(s) or supplement(s) to the Prospectus which shall amend or supplement
the Prospectus so that, as amended or supplemented, the Prospectus shall not
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
existing at the time the Prospectus is delivered to an offeree or a purchaser of
the Shares, not misleading. For the purposes of this subsection, HCMI shall
furnish such information with respect to itself as the Selling Agent from time
to time reasonably may request.
(e) HCMI will comply in all material respects with any and all terms,
conditions, requirements and provisions with respect to the Offering and the
transactions contemplated thereby imposed by the SEC. During the periods when
the Prospectus is required to be delivered, HCMI will comply, at its own
expense, with all requirements imposed by the SEC, in each case as from time to
time in force, in accordance with the provisions hereof and the Prospectus.
(f) HCMI shall take all reasonably necessary action to qualify or register
the Shares for offer and sale under the securities laws of such jurisdictions as
the Selling Agent and HCMI may mutually agree upon; provided, however, that HCMI
shall not be obligated to qualify as a foreign corporation to do business under
the laws of any such jurisdiction. In each jurisdiction where such
qualification or registration shall be affected, HCMI, unless the Selling Agent
agrees that such action is not necessary or advisable in connection with the
distribution of the Shares, shall file and make such statements or reports as
are, or reasonably may be, required by the laws of each such jurisdiction.
(g) For a period of three (3) years from the date of this Agreement, HCMI
shall furnish to the Selling Agent, as soon as available, a copy of its annual
report to shareholders and, if HCMI is registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), reports prepared pursuant to the
Exchange Act (including, but not limited to, reports on Forms 10-K, 10-Q, 8-K
and Form 8); and HCMI will furnish to the Selling Agent: (i) as soon as
available, a copy of each report or definitive proxy statement of HCMI filed
pursuant to the Exchange Act or mailed to shareholders; (ii) concurrently, a
copy of any Schedule 13D filing made with the SEC with regard to HCMI's stock;
and (iii) from time to time, such other public information concerning HCMI as
the Selling Agent may reasonably request.
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(h) HCMI intends to use the net proceeds from the sale of the Shares in
the manner set forth in the Prospectus under the caption "Application of
Proceeds."
(i) HCMI will conduct its business in compliance in all material respects
with all material applicable federal and state laws, rules, regulations,
decisions, directives and orders including all decisions, directives and orders
of the SEC.
(j) HCMI shall not deliver the Shares until it has satisfied or caused to
be satisfied in all material respects each and every condition set forth in
Section 9 hereof, unless such condition is waived in writing by the Selling
Agent.
(k) No person has acted as a finder or investment advisor in connection
with the transactions contemplated herein and will indemnify the Selling Agent
with respect to any claim for any finder's fee in connection with the Offering.
(l) No officer, director or shareholder of HCMI is a member of the NASD or
an employee or associated member of the NASD.
(m) HCMI covenants that it has not promised or represented to any person
that any part of the Shares will be directed or otherwise made available to them
in connection with the proposed public offering.
(n) HCMI covenants that it has disclosed to the Selling Agent all
potential conflicts of interest involving HCMI officers, directors, principal
shareholders and/or employees has disclosed all material conflicts of interest
in the Prospectus.
(o) All documents and other information relating to HCMI's affairs will be
made available upon request to the Selling Agent and its attorneys at the
Selling Agent's office or at the office of the Selling Agent's attorney and
copies of any such documents will be furnished upon request to the Selling Agent
or its attorneys.
(p) HCMI will provide the Selling Agent with unaudited monthly financial
data concerning HCMI from now until termination of the Offering.
(q) If required under applicable securities laws, HCMI will prepare and
file a Registration Statement with the SEC under the Securities and Exchange Act
of 1934, as amended, as soon as required. HCMI agrees that for at least five
(5) years after its common stock is registered under the Securities and Exchange
Act of 1934, HCMI will issue to its shareholders, within forty-five (45) days
after the end of HCMI's first three fiscal quarters, quarterly reports
containing unaudited financial information. HCMI and the Selling Agent shall,
upon HCMI becoming eligible and provided that at least $12,000,000 has been
achieved in the Offering, mutually agree upon on an exchange or NASDAQ listing.
HCMI will within one hundred twenty (120) days from completion of the Offering
apply for "listing" in Moody's Over-the-Counter manual and maintain such
"listing" on a current basis. HCMI shall obtain a CUSIP number for its
certificate and shall engage a transfer agent acceptable to the Selling Agent.
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(r) The properties owned or held under option by HCMI, the capital
structure of HCMI immediately preceding the Offering, the contemplated dilution
to the public investor , executive compensation and HCMI's business plan shall
be acceptable to the Selling Agent (whose concurrence shall not be unreasonably
withheld).
(s) Any employee (including officers and/or directors) incentive plan of
whatever nature, presently contemplated, shall be fully disclosed in the
Registration Statement and subject to the approval of the Selling Agent.
(t) Upon the initial closing of the Offering, HCMI shall proceed to
expeditiously nominate to its Board of Directors two (2) nominees of the Selling
Agent, whose backgrounds and experience shall be reasonably satisfactory to
HCMI, to be placed upon HCMI's Board of Directors, not to exceed nine (9)
persons. HCMI shall exercise all available rights to facilitate the election of
the Selling Agent nominees. HCMI shall continue to nominate such Selling Agent
nominees until HCMI has shown operating profits on an audited basis for two (2)
consecutive years.
(u) The statements contained in the Registration Statement, as amended from
time to time, will be in form and content satisfactory to the Selling Agent and
to the Selling Agent's counsel, and will have been prepared and reported on by
independent certified public accountants satisfactory to the Selling Agent.
(v) The Registration Statement and any amendments thereto will be submitted
to the Selling Agent and to the Selling Agent's counsel as soon as possible.
(w) HCMI covenants that the content of any oral comments and copies of all
comment letters from regulatory bodies shall immediately be supplied to the
Selling Agent and its counsel.
(x) HCMI shall not obtain an effective date from the SEC or allow the
Registration Statement (or any amendment) to become effective without prior
approval of the Selling Agent.
(y) During the period of the proposed Offering and for one (1) year from
the date of the definitive Prospectus, HCMI will not sell, directly or
indirectly (such as through options), any equity or long-term debt securities
without the Selling Agent's prior written consent (which may not be unreasonably
withheld). The foregoing limitation shall not, however, preclude HCMI from
obtaining bridge financing to fund specific activities discussed in the draft
Prospectus occasioned by any delays in the SEC filing and the opportunity costs
of not proceeding in a timely enough fashion, so long as mutually agreeable to
the parties, and subject to any applicable regulatory approval.
(z) Prior to the effective date of the Registration Statement, HCMI will
cause each of its officers and directors and shareholders who own over five
percent (5%) of HCMI's Shares outstanding prior to the effective date of the
Registration Statement to enter into an undertaking to the Selling Agent
pursuant to the terms of which each such person will agree not to sell any
Shares owned directly or indirectly by him to the public for twenty-four (24)
months from the date of the definitive Prospectus without the Selling Agent's
prior written consent.
(aa) All investor leads resulting from the Offering shall be referred to
the Selling Agent.
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(bb) HCMI's officers, directors and promoters will comply with the
applicable blue sky requirements, including those pertaining to the escrow of
Shares, provided such escrow shall in no event extend beyond a period of two (2)
years.
(cc) Subscriptions in escrow will be accepted or rejected by HCMI within
48 hours of deposit into escrow.
(dd) As soon as practicable, HCMI shall make generally available to its
security holders and to the Selling Agent an earnings statement which will
comply with the provisions of Section 11(a) of the 1933 Act and Rule 158(a)
under the Act.
(ee) HCMI will furnish to the Selling Agent copies of all reports to
shareholders or filing with the SEC and NASD or stock exchanges or material
press releases.
(ff) HCMI will maintain, as necessary, a transfer agent and a registrar
function (or engage a transfer agent and registrar) for the Shares.
(gg) HCMI will not make any material amendments to any employment
agreements with its executives for a period of two years after the effective
date of the Registration Statement without the concurrence of the Selling Agent
(which shall not be unreasonably withheld).
(hh) HCMI shall, as soon as practicable, take all necessary and
appropriate actions to be included in Standard & Poor's and Moody's Investor
Services, Inc. manuals.
(ii) Until termination of the offering, HCMI shall not, without the prior
written consent of the Selling Agent, issue any press release, other than trade
releases issued in the ordinary course of HCMI's operations.
Section 6. SELLING AGENT REPRESENTATIONS AND WARRANTIES. The Selling
Agent represents and warrants to HCMI that:
(a) All references and information concerning the Selling Agent to be
included in the Prospectus and supplied by the Selling Agent will be accurate in
all material respects and, as to the Selling Agent, will not contain any
misleading or untrue statement of a material fact or omit to state a material
fact which is required to be made or is necessary to prevent the statements
therein from being misleading.
(b) The Selling Agent is a corporation duly organized and validly existing
under the laws of the state of its incorporation, is a member in good standing
of the NASD and has full power and authority to act as marketing agent in the
manner contemplated by this Agreement and as described in the Prospectus.
(c) The Selling Agent is in good standing and in compliance with all
applicable broker-dealer registration requirements, in any jurisdiction where
the parties agree the Shares will be sold by it, and any use or distribution of
the Prospectus or any other written communications prepared to accompany the
Prospectus by the Selling Agent will comply with the terms and conditions set
forth in the
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Prospectus, with the procedures set forth in this Agreement and with the
Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act, all
applicable state securities laws and the rules and regulations promulgated under
all such acts and laws; and all applicable rules and regulations of the NASD.
(d) The Selling Agent has and will maintain all required governmental and
regulatory approvals and licenses to perform its obligations under this
Agreement and to act as described in the Prospectus, and the performance of its
obligations under this Agreement and its acting as described in the Prospectus
will not violate or result in a material breach of any provisions of either of
its Articles of Incorporation or By-laws, or any agreement, order, law or
regulation binding upon it.
(e) This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Selling Agent, and is a valid and binding agreement
of the Selling Agent enforceable in accordance with its terms.
Section 7. PAYMENT OF EXPENSES. HCMI shall bear all costs and expenses
incident to the issuance, offer, sale and delivery of the Shares, including all
expenses and fees incident to the filing of the Registration Statement with the
SEC and the NASD filing, the costs and counsel fees of qualification under state
securities laws, fees and disbursements of HCMI counsel and accountants, fees
and expenses of the valuation firm for the fairness opinion, costs for preparing
and printing the Registration Statement and cost of printing as many copies of
the underwriting documents and Prospectuses and related exhibits as the Selling
Agent may deem necessary, including all amendments and supplements to the
Registration Statement. In the unlikely event that blue sky work is undertaken
by counsel to the Selling Agent, it shall be separately billed to HCMI and shall
be the financial obligation of HCMI. All other fees of Selling Agent's counsel
shall be paid directly by the Selling Agent. Other than those specifically
outlined, the Selling Agent will absorb all actual accountable out-of-pocket
expenses arising out of, in connection with, and otherwise incident to, the
Offering, including those related to any and all travel, communications, postage
and legal fees and expenses.
Section 8. CONDITIONS OF THE SELLING AGENT'S OBLIGATIONS. The
obligations of the Selling Agent as provided herein shall be subject to the
accuracy of the representations and warranties contained herein as of the date
hereof and as of the Initial and any Subsequent Closing Date, to the accuracy of
the statements of officers and directors of HCMI made pursuant to the provisions
hereof, to the performance by HCMI of its obligations hereunder and to the
following conditions:
(a) At the Initial and any subsequent Closing Date, HCMI will have
completed the conditions precedent to, and shall have conducted the Offering in
all material respects in accordance with the Registration Statement and all
applicable laws, regulations, decisions and orders, including any and all terms,
conditions, requirements and provisions precedent to the Offering imposed upon
it by the SEC.
(b) At the Initial and any subsequent Closing Date, no order or other
action suspending the approval of the Registration Statement or the consummation
of the Offering shall have been issued or proceedings therefore initiated or, to
the knowledge of any of the parties, threatened by the SEC or any state
authority.
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(c) At the Initial and any subsequent Closing Date, the Selling Agent shall
receive the favorable opinion of Bayh, Connaughton & Malone, counsel for HCMI,
dated the Initial Closing Date, addressed to the Selling Agent to the effect
that:
(i) HCMI is organized and validly existing as a Delaware corporation
with full power and authority to own its properties and conduct its
business as described in the Prospectus. HCMI's articles of incorporation
comply in all material respects with Delaware law.
(ii) HCMI has obtained all licenses, permits and other governmental
authorizations currently required for the conduct of its business, except
for those licenses, permits and authorizations which the failure to obtain
would not have a material adverse effect on the business, operations or
financial condition of HCMI.
(iii) The issuance and sale of the Shares have been duly and validly
authorized by all necessary corporate action on the part of HCMI; and the
Shares, when issued in accordance with the terms of the Prospectus and this
Agreement, will be validly issued, fully paid, nonassessable and free of
preemptive rights.
(iv) The Shares conform to the description thereof contained in the
Prospectus, and the Shares comply as to form in all material respects with
applicable legal requirements.
(v) No further approval, authorization, consent or other order of any
federal board or body besides the SEC is required in connection with the
execution and delivery of this Agreement, the issuance and sale of the
Shares and consummation of the Offering except for any necessary
qualification or registration under the securities laws of the various
states in which the Shares are to be offered.
(vi) The execution and delivery of this Agreement have been duly and
validly authorized by all necessary action on the part of HCMI; and this
Agreement is a valid and binding obligation of HCMI, enforceable in
accordance with its terms except that the enforceability of the obligations
of HCMI may be subject to bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally or the
rights of creditors of a saving bank, the accounts of which are insured by
the FDIC (including laws concerning fraudulent conveyance or fraudulent
obligations) and the exercise of judicial discretion in accordance with
general principles applicable to equitable and similar remedies (regardless
of whether such enforceability is considered in a proceeding at law or
equity) and except as to those provisions which may be limited by public
policy, including provisions relating to the right of a party to obtain
reimbursement of its attorneys' fees and litigation costs from another
party, as to which such counsel need express no opinion, and except as to
those provisions relating to indemnity or contribution for liabilities
arising under the Securities Act, as to which such counsel need express no
opinion.
(vii) There are no material, legal or governmental proceedings pending
or threatened against HCMI; such counsel does not know of any statutes or
regulations required to be described or disclosed in the Prospectus which
are not so described or disclosed; and the
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description in the Prospectus of such statutes and regulations are accurate
summaries thereof and fairly present the information required to be shown.
(viii) The statements in the Prospectus, insofar as they constitute
statements of law or legal conclusions, have been prepared or reviewed by
them and are materially correct.
(ix) Based on certificates of officers and such investigation and
verification as deemed appropriate, HCMI is presently not in breach of, or
in default (nor has an event occurred which with notice or lapse of time or
both would constitute a default) under any indenture, mortgage, deed of
trust, note, bank loan or credit agreement or any other instrument or
agreement to which HCMI is a party or by which any of its properties may be
bound or affected, except for such breaches or defaults as will not have a
material adverse effect on the business, operations or financial condition
of HCMI; and HCMI is not in violation of any term or provision of its
articles of incorporation or any judgment, government authorization,
injunction, license, permit, decree, order, statute, rule, writ or
regulation, except for such violations as will not have a material adverse
effect on the business, operations or financial condition of HCMI.
(x) Neither the execution and delivery of this Agreement nor the
incurrence of the obligations herein set forth will conflict with HCMI's
articles of incorporation; (ii) constitute a breach of or default under,
or result in the creation or imposition of any lien, charge or other
encumbrance upon any of the properties or assets of HCMI pursuant to any
contract, lease, loan agreement, mortgage, note, indenture or other
instrument known to such counsel to which HCMI is a party or by which it
may be bound, or to which any of the properties or assets of HCMI are
subject; or (iii) conflict with any applicable law, administrative
regulation or administrative or court decree, except for such conflicts,
breaches, defaults, liens, charges or other encumbrances which, with
respect to (ii) and (iii) above, will not have a material adverse effect on
the business, operations or financial condition of HCMI.
(xi) At the time that the Registration Statement became effective, the
Registration Statement (as amended or supplemented) (other than the
financial statements, notes to financial statements, financial tables or
other financial and statistical data as to which counsel need express no
opinion), complied as to form in all material respects with pertinent
regulations. Based on conferences with and certificates of officers of
HCMI, discussions with customers and vendors and other appropriate due
diligence measures, all material documents and exhibits relating to HCMI
required to be filed with the Registration Statement (as amended or
supplemented) have been so filed. The description in the Registration
Statement and the Prospectus of such documents and exhibits is accurate in
all material respects and fairly presents the information required to be
shown. Nothing has come to such counsel's attention that caused counsel to
believe that, at the date hereof, the Registration Statement or the
Prospectus contained an untrue statement of a material fact relating to
HCMI or omitted to state a material fact relating to HCMI required to be
stated therein or necessary to make the statements therein not misleading,
in light of the circumstances under which they were made.
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(d) Counsel for the Selling Agent shall have been furnished such documents
and opinions as they reasonably may require for the purpose of enabling them to
review or pass upon the matters required by the Selling Agent, and for the
purpose of evidencing the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained, including, but not
limited to, resolutions of the Board of Directors of HCMI regarding the
authorization of this Agreement and the transactions contemplated hereby.
(e) At the Initial and any subsequent Closing Date, the Selling Agent shall
receive a certificate of the President and of the chief financial or accounting
officer of HCMI, dated the Initial Closing Date, to the effect that: (i) they
have carefully examined the Prospectus and, in their opinion, at the time the
Prospectus became authorized for final use the Prospectus did not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading; (ii) since the date the Prospectus became
authorized for final use, no event has occurred which, in their opinion, should
have been set forth in an amendment or supplement to the Prospectus which has
not been so set forth, including specifically, but without limitation, any
material adverse change in the condition, financial or otherwise, or in the
earnings, capital or properties of HCMI and, the conditions set forth in this
Section 8 have been satisfied; (iii) no order has been issued by the SEC to
suspend the Offering or the authorization for final use of the Prospectus and no
action for such purposes has been instituted or, to the best of their knowledge,
threatened by such regulatory agencies; (iv) to the best of their knowledge, no
person has sought to obtain review of the final action of the SEC approving the
Registration Statement; and (v) all of the representations and warranties
contained in Section 4 of this Agreement are true and correct, with the same
force and effect as though expressly made on the Initial Closing Date.
(f) At or prior to the Initial Closing Date, the Selling Agent shall
receive: (i) a copy of the letter from the SEC declaring the Prospectus
effective; (ii) a copy of a certificate from the SEC evidencing the good
standing of HCMI; and (iii) a certified copy of HCMI's articles of
incorporation.
(g) Concurrent with SEC effectiveness, the Selling Agent shall receive a
letter from BDO Seidman,, LLP, certified public accountants, dated the date
hereof and addressed to the Selling Agent: (i) confirming that BDO Seidman is a
firm of independent public accountants within the meaning of 12 C.F.R. Section
571.2(c)(3) under the Securities Act and no information concerning its
relationship with or interests in HCMI is required to be disclosed in the
Registration Statement, and stating in effect that in its opinion the
consolidated financial statements of HCMI for the years ended December 31, 1995,
as included in the Prospectus and covered by their respective opinions included
therein, comply as to form in all material respects with generally accepted
accounting principles; (ii) stating in effect that, consistent with SAS 72 and
after reading the latest available unaudited interim consolidated financial
statements of HCMI, a reading of the minutes of the meetings of the Board of
Directors and consultations with officers of HCMI responsible for financial and
accounting matters, nothing came to its attention which caused it to believe
that: (a) the unaudited financial statements included in the Prospectus, fail to
comply as to form in any material respect with generally accepted accounting
principles; (b) such unaudited financial statements are not in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Prospectus; or (c) during the period from the date of the latest unaudited
consolidated financial statements included in the Prospectus to a specified date
not more
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than five business days prior to the date hereof, there was any material
increase in borrowing by HCMI.
(h) At the Initial Closing Date, BDO Seidman, LLP will deliver to the
Selling Agent a letter in form and substance satisfactory to counsel for the
Selling Agent dated the Initial Closing Date, confirming the statements made by
them in the letter delivered by them pursuant to the preceding subsection as of
a specified date not more than three (3) business days prior to the Initial
Closing Date.
(i) At or prior to the Initial Closing Date, counsel to the Selling Agent
shall have been furnished with such documents and opinions as they may
reasonably require for the purpose of enabling them to evidence the accuracy or
completeness of any of the representations or warranties, or the fulfillment of
any of the conditions, herein contained; and all proceedings taken by HCMI in
connection with the Offering and the sale of the Shares as herein contemplated
shall be reasonably satisfactory in form and substance to the Selling Agent and
its counsel.
(j) HCMI shall not have sustained, since the date of the latest audited
financial statements, any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in such statements, there shall not
have been any material change in the consolidated long-term debt of HCMI or any
change or any development involving a prospective material change in or
affecting the general business affairs, management, financial position,
stockholders' equity, cash flow or results of operations of HCMI, otherwise than
as set forth or contemplated in such statements, the effect of which, in any
such case described above, is in the reasonable judgment of the Selling Agent
sufficiently material and adverse as to make it impracticable or inadvisable to
proceed with the Offering or the delivery of the Shares on the terms and in the
manner contemplated in the Prospectus.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of the Selling Agent and its counsel, satisfactory to the Selling Agent
and its counsel. Any certificates signed by an officer or director of HCMI and
delivered to the Selling Agent or to counsel for the Selling Agent shall be
deemed a representation and warranty by HCMI to the Selling Agent as to the
statements made therein. If any condition to the Selling Agent's obligations
hereunder to be fulfilled prior to or at the Initial Closing Date is not so
fulfilled, the Selling Agent may terminate this Agreement or, if the Selling
Agent so elects, may waive any such conditions which have not been fulfilled or
may extend the time of their fulfillment.
Section 9. RIGHT OF FIRST REFUSAL. Subject to sale of at least four
hundred thousand (400,000) Shares in the Offering, HCMI and the Selling Agent
agree that for a period of two (2) years from the date of the definitive
Prospectus, the Selling Agent shall have a non-transferable right of first
refusal to purchase for its account or to sell for the account of HCMI any
equity or debt securities with respect to which HCMI may seek a public offering
or private offering for cash. Specifically excluded from the Selling Agent's
right of first refusal are public or private offerings of HCMI's Shares in
exchange for properties, assets or stock of other individuals or corporations.
HCMI will consult the Selling Agent with regard to any such covered offering for
cash prior to consulting any
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<PAGE>
other prospective underwriter and will offer the Selling Agent the opportunity
to purchase or sell any such securities on terms not less favorable to HCMI than
it can secure elsewhere. HCMI shall have thirty (30) days in which to exercise
its right of first refusal. However, HCMI shall not be required to consult with
the Selling Agent concerning any borrowing form banks and institutional lenders
or concerning financing any equipment leading or similar arrangements.
Section 10. INDEMNIFICATION.
(a) HCMI agrees to indemnify and hold harmless the Selling Agent and any
of its directors, officers, employees, agents (including counsel) and affiliates
who act on behalf of HCMI and in connection with the services called for under
this Agreement, from and against any and all loss, cost, damage, claim liability
or expense of any kind, including reasonable attorneys' fees and other expenses
incurred in investigating, preparing to defend and defending any claim or
claims; provided however, that any payments provided for in this Section 10
shall not be paid or payable by HCMI if the Selling Agent or any of its
directors, officers, employees, agents or affiliates are found by a court to
have been grossly negligent or to have acted in bad faith in performing the
services which are the subject of this letter agreement. This indemnity shall
be in addition to any liability HCMI may have to the Selling Agent otherwise.
If any action is brought against the Selling Agent, HCMI is obligated hereby to
indemnify, then the Selling Agent promptly shall notify HCMI in writing of such
action. HCMI agrees promptly to notify the Selling Agent of the commencement of
any litigation or proceedings against it or any of its officers or directors in
connection with the sale of the Shares or in connection with the Prospectus.
(b) The Selling Agent agrees to indemnify and hold harmless HCMI, its
directors and executive officers and each person, if any, who has control within
the meaning of Section 13 of the Act or Section 20(a) of the Exchange Act, to
the same extent as the foregoing indemnity from HCMI to the Selling Agent, but
only with respect to any untrue or alleged untrue statement of a material fact
or the omission or alleged omission of a material fact required to be stated or
necessary to make not misleading any statements contained in the Prospectus in
reliance upon, and in conformity with, written information furnished to HCMI
with respect to the Selling Agent by or on the behalf of the Selling Agent
expressly for use in the Prospectus or any materially misleading unwritten
statement made to a purchaser of the Shares by any director or officer or any
person employed by the Selling Agent. If any action is brought against HCMI or
any other person the Selling Agent is obligated hereby to indemnify, then such
person promptly shall notify the Selling Agent in writing of such action. The
Selling Agent agrees promptly to notify HCMI of the commencement of any
litigation or proceedings against the Selling Agent or any of its directors,
officers or employees in connection with the sale of the Shares or in connection
with the Prospectus.
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity may be
sought hereunder, but failure to notify an indemnifying party promptly shall not
relieve it from any liability which it may have on account of this Section 10 or
otherwise. An indemnifying party may participate at its own expense in the
defense of such action. In addition, if it so elects within a reasonable time
after receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties that
are defendants in such action,
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unless such indemnified parties reasonably object to such assumption on the
ground that there may be legal defenses available to them that are different
from or in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the indemnifying party
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action, proceeding or claim,
other than reasonable costs of investigation. In no event shall the
indemnifying parties be liable for the fees and expenses of more than one
separate firm of attorneys (and any special counsel that said firm may retain)
for each indemnified party in connection with any one action, proceeding or
claim or separate but similar or related actions, proceedings or claims in the
same jurisdiction arising out of the same general allegations or circumstances.
Section 11. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 12 above is for any reason held to be unavailable to the Selling Agent,
HCMI shall agree to contribute to the aggregate losses, liabilities, claims,
damages, and expenses of the nature contemplated by Section 12 of this Agreement
incurred by HCMI or the Selling Agent (i) in such proportion as is appropriate
to reflect the relative benefits received by HCMI and the Selling Agent from the
Offering of the Shares or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of HCMI in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations. The relative benefits received by
HCMI and the Selling Agent shall be deemed to be in the same proportions as the
total proceeds from the Offering (before deducting expenses) received by HCMI to
the total marketing and commission fees received by the Selling Agent under this
Agreement. The relative fault of HCMI and the Selling Agent shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by HCMI or by the Selling Agent and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
HCMI and the Selling Agent agree that it would not be just and equitable if
contribution pursuant to this Section 11 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 11, the Selling Agent shall not
be required to contribute any amount in excess of the amount by which fees owed
the Selling Agent pursuant to this Agreement exceeds the amount of any damages
which the Selling Agent has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation.
Section 12. SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND INDEMNITIES. The
respective indemnities of HCMI and the Selling Agent set forth in or made
pursuant to this Agreement shall remain in full force and effect, regardless of
any termination or cancellation of this Agreement or any
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<PAGE>
investigation made by or on behalf of any of the parties hereto and the
warranties of HCMI set forth in or made pursuant to this Agreement shall remain
in full force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any of the parties hereto
or any controlling person, and shall survive the termination date of this
Agreement. Any legal representative, successor or assign of the Selling Agent
or HCMI, and any such controlling person shall be entitled to the benefit of the
respective agreements, indemnities, warranties and representations.
Section 13. TERMINATION.
(a) The Selling Agent and HCMI shall each have the right to terminate this
Agreement at any time prior to the Initial Closing Date if any domestic or
international event or act or occurrence has materially disrupted, or in such
party's good faith opinion will in the immediate future materially disrupt, the
securities markets; or if trading on the New York Stock Exchange shall have been
suspended for more than 24 hours, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required, on the New York Stock Exchange, by the New York Stock Exchange or by
the order of the Securities and Exchange Commission or any other governmental
authority having jurisdiction; or if the United States shall have become engaged
or continues to be engaged in a war or major hostilities if the effect of such
war or hostilities, in such party's reasonable judgment, makes it impracticable
or inadvisable to proceed with the offering; of the Shares on the terms and in
the manner contemplated by the Prospectus; or if a banking moratorium has been
declared by a state or federal authority; or if a moratorium in foreign exchange
trading by major international banks or persons has been declared; or if HCMI
shall have sustained a material loss by fire, flood, accident, hurricane,
earthquake, threat, sabotage or other calamity or malicious act, whether or not
covered by insurance, which in such party's good faith opinion, will make it
inadvisable to proceed with the Offering, or if there shall have been such
material adverse change in the condition or prospects of HCMI or the prospective
market for the HCMI's securities as in such party's good faith opinion would
make it inadvisable to proceed with the offering, sale or delivery of the
Shares; or if in such party's good faith opinion the price for the Shares is not
reasonable or equitable under then prevailing market conditions; or if any other
party has breached in any material respect the representations, warranties or
covenants contained in the Agreement.
(b) Selling Agent reserves the right in its uncontrolled discretion (until
this Agreement has been negotiated and executed) to determine whether the
Offering can be successfully marketed through a placement agent group, and may,
without any obligation to HCMI, for any reason, including, without limiting the
generality of the foregoing, market conditions (both those relating to
securities and commodities generally and those relating to HCMI's stock) and the
reaction of prospective members of the selling group to the proposed offering,
decline to proceed further with the Offering. If Selling Agent has terminated
its services, any commitment relating to compensation (other than legal fees),
advisor agreements, warrants and other executory rights shall become null and
void.
(c) Should HCMI be unable to obtain blue sky clearance without significant
suitability restrictions in the major proposed marketing jurisdictions, or NASD
clearance or SEC effectiveness is not obtained on or before January 31, 1997,
the Selling Agent may elect to terminate the Offering.
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(d) If any party elects to terminate this Agreement as provided in this
Section 15, the other parties shall be notified promptly by the party
terminating this Agreement by telephone or telegram, confirmed by letter.
Section 14. NOTICES. All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to the Selling
Agent shall be mailed, delivered or telegraphed and confirmed to Financial West
Group (with a copy to its counsel, ________________________).
Section 15. PARTIES. HCMI shall be entitled to act and rely on any
request, notice, consent, waiver or agreement purportedly given on behalf of the
Selling Agent when the same shall have been given by the undersigned. The
Selling Agent shall be entitled to act and rely on any request, notice, consent,
waiver or agreement purportedly given on behalf of HCMI, when the same shall
have been given by any officer. This Agreement shall inure solely to the
benefit of, and shall be binding upon, the Selling Agent and HCMI.
Section 16. CLOSINGS. The initial closing for the sale of the Shares shall
take place on a business day to be agreed upon by the parties hereto at the
offices of Bayh, Connaughton & Malone or such other location as mutually agreed
upon by the Selling Agent and HCMI (the "Initial Closing Date"). Subsequent
closings will occur during the Continuous Offering Period on the date that
$250,000 in subscriptions are accepted are at each month-end, whichever first
occurs (each constituting a "Subsequent Closing Date"). At each closing, HCMI
shall deliver to the Selling Agent in next day funds the commissions due and
owing to the Selling Agent as set forth herein and the opinions and certificates
required hereby and other documents deemed reasonably necessary by the Selling
Agent shall be executed and delivered to effect the sale of the Shares as
contemplated hereby and pursuant to the terms of the Prospectus.
Section 17. PARTIAL INVALIDITY. In the event that any term, provision or
covenant herein or the Registration Statement thereof to any circumstance or
situation shall be invalid or unenforceable, in whole or in part, the remainder
hereof and the Registration Statement of said term, provision or covenant to any
other circumstance or situation shall not be affected thereby, and each term,
provision or covenant herein shall be valid and enforceable to the full extent
permitted by law.
Section 18. CONSTRUCTION. This Agreement shall be construed in accordance
with the laws of the State of Virginia.
Section 19. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which together shall constitute but one and the same instrument.
Section 20. ENTIRE AGREEMENT. This Agreement shall constitute the entire
agreement of the parties and shall supersede any and all prior or
contemporaneous understandings or arrangements with regard to the subject matter
hereof.
If the foregoing correctly sets forth the understanding between the Selling
Agent and HCMI, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between us.
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Very truly yours,
------------------------------
Gerald Garcia
President and Chief Executive Officer
Heartland Communications & Management, Inc.
Accepted as of the date first written above
- -------------------------------------------
By:
---------------------------------------
, President
--------------------
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EXHIBIT 1.2
SELECTED DEALER AGREEMENT
September___, 1996
[Insert Name
and Address of
Additional Selling Agents]
Re: HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
Ladies and Gentlemen:
____________________ (the "Selling Agent") has agreed to serve as exclusive
lead placement agent, on a best efforts basis, in connection with the offer and
sale of the common stock (the "Shares") of Heartland Communications &
Management, Inc., a Delaware corporation ("HCMI"). Up to $25,000,000 Shares
shall be offered by the Selling Agent and a selected dealer group in this
offering (the "Offering").
The Selling Agent has entered into an Agency Agreement (the "Agreement")
and/or the Prospectus dated September___, 1996 with HCMI pursuant to which the
Selling Agent has agreed to use its best efforts to obtain subscribers for the
Shares. A copy of such Selling Agreement has been furnished to you and is
hereby incorporated by reference; you understand the terms used in this
Agreement shall have the meanings ascribed to them in the Selling Agreement
and/or the Prospectus unless the context indicates otherwise. As provided in
such Selling Agreement, HCMI has agreed that the Selling Agent may, in its
discretion, use the services of other members of the National Association of
Securities Dealers, Inc. (the "NASD") or of any foreign securities firm which is
eligible for membership in the NASD and which agrees to abide by the NASD Rules
of Fair Practice (collectively, "Additional Selling Agents"), in connection with
the offer and sale of the Shares. You are invited to become one of the
Additional Selling Agents and, by your best efforts, to obtain subscribers for
the Shares in accordance with the Selling Agreement and the following terms and
conditions.
All Shares, if any, will be offered to members of the general public,
subject to HCMI's right to reject such orders in whole or in part. The offering
to the general public may include the sale by other members of the National
Association of Securities Dealers, Inc. (the "NASD"). Such members shall be part
of a selling group managed by the Selling Agent. All purchases will be subject
to the maximum and minimum purchase limitations and other terms and conditions
described in the Prospectus.
All orders must include acceptable payment (or appropriate instructions
authorizing withdrawal of payment from one or more escrow accounts at the Escrow
Bank) and appropriate documentation including a completed Subscription Agreement
and Power of Attorney. Deposits for the purchase of Shares will earn interest
(based upon the interest rate received on the escrow account) from receipt of
the payment by the Escrow Agent (described in the Prospectus) to the date on
which such sales of the Shares are actually consummated.
<PAGE>
The Selling Agent has been advised by HCMI that the Prospectus was declared
effective by the Securities and Exchange Commission on September___, 1996 (the
"Effective Date"). The Shares will be offered and sold on the terms and subject
to the conditions set forth herein and in the Prospectus.
All Shares will be offered and sold at the same $5.00 price per share
Selling Price (as defined). Following completion of the Initial Offering Period
(as defined) and until the end of this up to eighteen (18) month Offering
Period, subscribers must subscribe for and submit payments for a specific number
of shares at the Selling Price.
You are invited to become one of the selected dealers (a "Dealer") with
respect to the sale of the Shares, and by your confirmation hereof, you agree to
act in the capacity of a selected dealer and to use your best efforts to find
purchasers for the Shares in accordance with the following terms and conditions:
1. SOLICITATION AND SOLICITATION MATERIAL; BEST EFFORTS.
a. Solicitation and other activities by Dealer hereunder shall be
undertaken only in accordance with applicable laws and regulations and the terms
hereof. Accompanying this letter is a copy of the Prospectus prepared by HCMI
for use in conjunction with the Offering and sale of the Shares. Additional
copies of the Prospectus and of all amendments and supplements thereto will be
furnished to you by the Selling Agent in reasonable quantities upon your
request. Dealer is not authorized to use any solicitation material other than
such Prospectus or such other material as may be provided by HCMI. Any such
other material that is provided by HCMI is hereinafter referred to as
"Supplemental Literature."
b. Dealer agrees to use its best efforts to procure subscribers for
Shares during a period commencing current with the Effective Date and ending at
5:00 P.M., Eastern Time, on _____________, 1996, subject to an extension up to
__________, 1998, unless earlier terminated or extended at the option of HCMI.
2. COMPENSATION.
a. As compensation for the services of Dealer in soliciting and
obtaining purchasers of the Shares, unless otherwise agreed in writing by the
Selling Agent, Dealer will receive a selling concession equal to % of the
aggregate subscription on Shares sold by Dealer. Neither the Selling Agent nor
HCMI shall be responsible for any costs or expenses incurred by Dealer in
connection with the performance of Dealer's obligations under this Agreement.
All such costs and expenses shall be borne by Dealer.
b. Dealer will not be entitled to receive compensation pursuant to
this Section 2 in any case in which it is determined by the Selling Agent that
(i) the solicitation by Dealer was made in violation of applicable law or the
terms of this Agreement; (ii) Dealer is not a member in good standing of (or an
entity not properly exempt from membership in) the National Association of
Securities Dealers, Inc. ("NASD") or a licensed broker-dealer in good standing
under applicable laws at the time compensation would otherwise be payable to
Dealer hereunder; or (iii) Dealer has not
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<PAGE>
delivered to the Selling Agent an executed original of this Agreement signed by
an authorized officer of Dealer.
c. Dealer will not be entitled to receive compensation pursuant to
this Section 2 with respect to subscriptions obtained by Dealer if such
subscriptions are not accepted by HCMI for any reason, including termination of
the Offering by HCMI prior to subscription of the maximum amount of Shares being
offered. HCMI has the right, to be exercised in its sole discretion, to reject
any subscription for any reason whatsoever.
d. In the event that the Selling Agent delivers compensation to
Dealer and it is subsequently determined by the Selling Agent that all or part
of such compensation violates Subsection (b) or (c) of this Section 2, the
Selling Agent shall notify Dealer of the amount of compensation wrongfully paid.
Dealer shall refund the amount of compensation specified in the notice within
five (5) business days of the day on which Dealer receives such notice.
3. UNAUTHORIZED INFORMATION AND REPRESENTATIONS. Neither Dealer nor any
other person is authorized by the Selling Agent or HCMI to give any information
or make any representations in connection with this Agreement or the Offering or
sale of the Shares other than the information or representations contained in
the Prospectus, as supplemented or amended, or any Supplemental Literature.
Dealer agrees not to publish, circulate or otherwise use any advertising or
solicitation material other than the Prospectus, as supplemented or amended, or
any Supplemental Literature.
4. COMPLIANCE WITH SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT
OF 1934. In making offers and sales of the Shares, Dealer agrees to comply with
any applicable requirements of the Securities Act of 1993, as amended (the "1933
Act"), and the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
the rules and regulations thereunder.
5. REPRESENTATIONS AND WARRANTIES OF DEALER. Dealer represents and
warrants to, and agrees with, the Selling Agent as follows:
a. AUTHORITY AND NON-CONTRAVENTION. Dealer has all requisite
corporate power and authority to enter into this Agreement. The execution,
delivery and performance of this Agreement will not conflict with or result in a
breach of any of the provisions of, or constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of Dealer pursuant to the terms of any agreement or
instrument to which Dealer is now a party, or by which Dealer will be bound, and
will not conflict with or result in a violation of any law, governmental or
administrative regulation or court decree applicable to Dealer or of the
provisions of Dealer's Articles of Incorporation, if any.
b. NASD MEMBERSHIP. Except as to foreign brokers properly exempt
from such requirements, Dealer is a member in good standing of the NASD, and in
making the offers and sales of the Shares, Dealer will comply with the NASD's
Interpretation with respect to Free-Riding and Withholding and with the
provisions of Sections 8, 24, 25 and 36 of Article III of the NASD Rules of Fair
Practice. Neither Dealer nor any of its directors, officers, partners,
affiliates, associates or any person who constitutes a "related person" of
Dealer (as the term "related person" is defined in the NASD Rules of Fair
Practice) (i) has participated in any private placement involving the securities
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<PAGE>
of HCMI, and/or any affiliate thereof or purchased any such securities in a
private transaction within the 18 months preceding the date hereof; (ii) has
purchased any warrants, options or other securities of HCMI and/or any affiliate
thereof within the 12 months preceding the date hereof or (iii) has had any
other dealings with HCMI or any subsidiary or controlling shareholder thereof,
other than relating to this Agreement, as to which documents or information are
required to be filed with the NASD pursuant to its Interpretation with respect
to Review of Corporate Financing.
c. LICENSED BROKER-DEALER. Dealer is registered as a broker-dealer
(or any similar term) under the 1934 Act and the securities laws of each state
in which Dealer conducts its solicitation activities (or, if a foreign broker is
properly exempt from such requirements).
d. EMPLOYEES OF DEALER. All employees of Dealer are duly licensed
under applicable law to carry out the transactions contemplated by this
Agreement.
e. ADDITIONAL INVESTMENT QUALIFICATIONS. Dealer will not offer or
sell the Shares to any pension and profit sharing plans, any individual
retirement account arrangements or any other qualified retirement plans
sponsored by HCMI and/or any other affiliate of such entities that are
ineligible to invest in the Shares because of potential prohibited transaction
issues which may arise in connection with such investment pursuant to Section
4975 of the Internal Revenue Code of 1986, as amended, and Section 406 of the
Employee Retirement Security Act of 1974, as amended.
f. OFFERS. Dealer will effect offers in compliance with applicable
law and will not make an offer without delivering a copy of the Prospectus, as
supplemented or amended, to the offeree.
g. DELIVERY OF SUBSCRIPTION AGREEMENT. Dealer will cause each
subscriber solicited by Dealer to complete, execute and deliver to the
Subscription Agreement authorized for use by HCMI, together with a check, bank
draft or money order payable, during the Initial Offering Period (as defined) to
the order of Heartland Communications & Management, Inc. -- George Mason Bank
Escrow Agent and, during the balance of this up to nine (9) month Offering
Period, to Heartland Communications & Management, Inc. Such payment shall be in
an amount equal to $5.00 per share during the Initial Offering Period and, the
Selling Price per share of the Shares purchased during the balance of the up to
nine (9) month Offering Period. Checks shall be delivered to the Escrow Agent
by 12:00 p.m. of the next business day after receipt by Dealer.
h. REPORTS. Dealer will advise the Selling Agent on a daily basis of
the amount of Shares sold by Dealer.
6. BLUE SKY MATTERS. Dealer will be informed as to the states in which
HCMI's counsel has advised the Selling Agent that the Shares has been registered
or otherwise qualified for sale or exempt under the respective states'
securities laws. The Selling Agent has not assumed and will not assume any
obligation or responsibility as to whether the Shares is so registered or
otherwise qualified or exempt or whether the Shares can be offered and sold in
any such state.
7. LIABILITY. As manager of the Offering, the Selling Agent shall have
full authority to take such action as it may deem advisable in respect to all
matters pertaining to the Offering or arising
4
<PAGE>
thereunder. The Selling Agent shall be under no liability to Dealer, except
such as may be incurred under the 1933 Act and except for lack of good faith and
for obligations expressly assumed by Selling Agent in this Agreement. No
obligation on the part of the Selling Agent shall be implied or inferred
herefrom. Nothing will constitute the Dealers as an association or separate
entity or partners with the Selling Agent, or with each other, but Dealer will
be responsible for its share of any liability or expense based on any claim to
the contrary.
8. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION. Provided that
Dealer has executed and delivered one copy of this Agreement to the Selling
Agent, this Agreement shall become effective at McLean, Virginia, concurrent
with the Offering's Effective Date. This Agreement will terminate at the
earlier of (i) the expiration of the Offering Period, (ii) the day and time
HCMI, in its sole discretion, terminates the Offering or (iii) the day and time
the Selling Agent, in its sole discretion, terminates this Agreement; provided,
however, any termination under clause (ii) or (iii) of this Section 8 must be
preceded by a written notice to Dealer that specifies the time and date of
termination and is received by Dealer at least three (3) business days before
the date of termination; provided, further, that any such termination pursuant
to this Section 8 shall not affect any previously incurred obligation hereunder
to pay compensation pursuant to this Agreement.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Section 5 hereof shall remain in full force and effect
and survive the termination of this Agreement.
10. PARTIES. This Agreement shall be binding upon, and inure solely to
the benefit of HCMI, the Selling Agent and Dealer and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares shall
be deemed a successor or assign solely by reason of such purchase.
11. PARTIAL INVALIDITY. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
13. NOTICES. Any notice from the Selling Agent to Dealer shall be deemed
to have been duly given if mailed or faxed (with original to follow) to Dealer
at the address set forth herein. Any notice from Dealer to the Selling Agent
shall be deemed to have been duly given if mailed or telegraphed to the Selling
Agent at __________________________________________________________________.
14. ATTORNEY'S FEES. In the event that any party hereto must resort to
legal action in order to enforce the provisions of this Agreement or to defend
any such suit, the prevailing party shall be
5
<PAGE>
entitled to reimbursement from the other party for all reasonable attorney's
fees and other costs incurred in commencing or defending such suit.
15. HEADINGS. The headings herein are for convenience of reference only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of______________________.
17. CONFIRMATION. Please confirm your agreement to become a soliciting
dealer under the terms and conditions set forth herein by executing and
returning the enclosed duplicate copy of this Agreement at once to the Selling
Agent at___________________________________________________.
Very truly yours,
---------------------------------
By:
-----------------------------
, President
--------------------
THIS SELECTED DEALER AGREEMENT IS
ACCEPTED AND CONFIRMED THIS
day of , 199 .
- ------- ------------ ----
DEALER/NAME:
-------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address:
----------------------------
- -------------------------------------
Telephone No. ( )
-----------------------
6
<PAGE>
EXHIBIT A
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
AGENCY AGREEMENT
[TO BE ATTACHED.]
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "HEARTLAND COMMUNICATIONS & INFORMATION, INC.", FILED IN THIS
OFFICE ON THE TWENTY-SEVENTH DAY OF MARCH, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL] /s/ Edward Freel
--------------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION: 7885133
DATE: 03-27-96
<PAGE>
CERTIFICATE OF INCORPORATION
OF
HEARTLAND COMMUNICATIONS & INFORMATION, INC.
------------------------------
FIRST. The name of this corporation shall be:
HEARTLAND COMMUNICATIONS & INFORMATION, INC.
SECOND. Its registered office in the State of Delaware is to be located
at 1013 Centre Road, in the City of Wilmington, County of New Castle and its
registered agent at such address is CORPORATION SERVICE COMPANY.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which this corporation is
authorized to issue is:
Fifteen Million (15,000,000) shares with a par value of $.001 each amounting to
Fifteen Thousand Dollars ($15,000) of which Five Million (5,000,000) shares with
a par value of $.001 each are CoCommon Stock and Ten Million (10,000,000) shares
with a par value of $.001 each are Preferred Stock.
FIFTH. The name and address of the incorporator is as follows:
Dolores E.H. Cleaver
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
SIXTH. The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
<PAGE>
SEVENTH. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Seventh
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, has executed, signed and acknowledged this certificate of incorporation
this twenty-seventh day of March, A.D., 1996.
/s/ Dolores E. H. Cleaver
-------------------------
Dolores E. H. Cleaver
Incorporator
<PAGE>
EXHIBIT 3.2
AMENDMENTS TO
CERTIFICATE OF INCORPORATION
(REFLECTING NAME CHANGE)
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "HEARTLAND COMMUNICATIONS & INFORMATION, INC.", CHANGING ITS NAME FROM
"HEARTLAND COMMUNICATIONS & INFORMATION, INC." TO " HEARTLAND COMMUNICATIONS
MANAGEMENT, INC.", FILED IN THIS OFFICE ON THE EIGHTH DAY OF APRIL, A.D. 1996,
AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/S/ Edward J. Freel
[SEAL] ---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7898473
DATE: 04-08-96
<PAGE>
CERTIFICATE OF AMENDMENT
Before Payment of Capital
OF
CERTIFICATE OF INCORPORATION
OF
HEARTLAND COMMUNICATIONS & INFORMATION, INC.
_________________________________
Pursuant to Section 241 of Title 8
the Delaware Code of 1953, as Amended
I, the undersigned, being the Sole Incorporator of the above named
corporation, a corporation organized under and by virtue of the General
Corporation Law of the State of Delaware, DO HEREBY CERTIFY:
FIRST. That at a meeting of the Sole Incorporator of said corporation,
duly held and convened, resolutions were adopted setting forth a proposed
amendment to the Certificate of Incorporation of said corporation and declaring
said amendment advisable.
RESOLVED that the Certificate of Incorporation of this Corporation be, and
it hereby is, amended by changing Article First to read as follows:
"FIRST: The name of the corporation shall be HEARTLAND COMMUNICATIONS
MANAGEMENT, INC."
SECOND. That no part of the capital of said corporation having been paid,
this certificate is filed pursuant to Section 241 of Title 8 of the Delaware
Code, as amended.
IN WITNESS WHEREOF, I have duly executed this Certificate of Amendment this
eighth day of April, A.D. 1996.
/s/ Dolores E.H. Cleaver
--------------------------------
Dolores E.H. Cleaver
Incorporator
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF CORRECTION
OF "HEARTLAND COMMUNICATIONS MANAGEMENT, INC.", CHANGING ITS NAME FROM
"HEARTLAND COMMUNICATIONS MANAGEMENT, INC." TO "HEARTLAND COMMUNICATIONS &
MANAGEMENT, INC.", FILED IN THIS OFFICE ON THE SIXTEENTH DAY OF APRIL, A.D.
1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/S/ Edward J. Freel
[SEAL] ---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7909527
DATE: 04-16-96
<PAGE>
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT
HEARTLAND COMMUNICATIONS MANAGEMENT, INC.
-----------------------------------------
Pursuant to Section 103(f) of the General
Corporation Law of the State of Delaware
I, the undersigned, incorporator of HEARTLAND COMMUNICATIONS MANAGEMENT,
INC., do hereby certify that the Certificate of Amendment filed on April 8, 1996
contained an inaccurate record.
ARTICLE FIRST provided that:
"The name of the corporation: HEARTLAND COMMUNICATIONS MANAGEMENT, INC."
ARTICLE FIRST should read as follows:
"The name of the corporation : HEARTLAND COMMUNICATIONS & MANAGEMENT,
INC."
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by Dolores E.H. Cleaver, this sixteenth day of April A.D. 1996.
/s/ Dolores E.H. Cleaver
-------------------------
Dolores E.H. Cleaver
Incorporator
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.", FILED IN THIS OFFICE ON THE
FOURTEENTH DAY OF MAY, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/S/ Edward J. Freel
[STATE SEAL] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7946213
DATE: 05-15-96
<PAGE>
CERTIFICATE OF AMENDMENT
Before Payment of Capital
OF
CERTIFICATE OF INCORPORATION
OF
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
---------------------------------------
Pursuant to Section 241 of Title 8
the Delaware Code of 1953, as Amended
I, the undersigned, being the Sole Incorporator of the above named
corporation, a corporation organized under and by virtue of the General
Corporation Law of the State of Delaware, DO HEREBY CERTIFY:
FIRST. That at a meeting of the Sole Incorporator of said corporation,
duly held and convened, resolutions were adopted setting forth a proposed
amendment to the Certificate of Incorporation of said corporation and declaring
said amendment advisable.
RESOLVED that the Certificate of Incorporation of this Corporation be,
and it hereby is, amended by changing Article Fourth to read as follows:
Sixty Million (60,000,000) shares with a par value of $.001 per share,
amounting to Sixty Thousand Dollars ($60,000.00)
SECOND. That no part of the capital of said corporation having been
paid, this certificate is filed pursuant to Section 241 of Title 8 of the
Delaware Code, as amended.
IN WITNESS WHEREOF, I have duly executed this Certificate of Amendment this
fourteenth day of May, A.D. 1996.
/s/ Dolores E.H. Cleaver
------------------------
Dolores E.H. Cleaver
Incorporator
<PAGE>
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
-----------------------------------------
PURSUANT TO SECTION 103(f) OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
I, the undersigned, of HEARTLAND COMMUNICATIONS & MANAGEMENT, INC., do
hereby certify that the Certificate of Amendment filed on May 14, 1996
contained an inaccurate record.
ARTICLE FOURTH provided that:
Sixty Million (60,000,000) shares with a par value of $.001 per share,
amounting to Sixty Thousand Dollars ($60,000.00)
ARTICLE FOURTH should read as follows:
Sixty Million (60,000,000) shares with a par value of $.001 per each,
amounting to Sixty Thousand Dollars ($60,000.00) of which Fifty Million
(50,000,000) shares with a par value of $.001 each are Common stock and Ten
Million (10,000,000) shares with a par value of $.001 each are Preferred stock.
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by this twenty-first day of May A.D. 1996.
/s/ Ryan Smith
--------------------------------
Ryan Smith, Assistant Secretary
Authorized Officer
<PAGE>
EXHIBIT 3.3
CORPORATE BY-LAWS
<PAGE>
BYLAWS
OF
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
(a Delaware corporation)
-------------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock
in the corporation shall be signed by, or in the name of, the corporation by
the Chairman or Vice-Chairman of the Board of Directors, if any, or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by
the corporation with the same effect as if he were such officer, transfer
agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever
the corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be notes
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or
uncertificated shares in place of any certificate theretofore issued by it,
alleged to have been lost, stolen, or destroyed, and the Board of Directors
may require the owner of the lost, stolen, or destroyed certificate, or his
legal representative, to give the corporation a bond sufficient to indemnify
the corporation against any claim that may be made against it on account of
the alleged loss, theft, or destruction of any such certificate or the
issuance of any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may
provide by resolution or resolutions that some or all of any or all classes
or series of the stock of the corporation shall be uncertificated shares.
Within a reasonable time after the issuance or transfer of any
<PAGE>
uncertificated shares, the corporation shall send to the registered owner
thereof any written notice prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip or warrants in registered form
(either represented by a certificate or uncertificated) or bearer form
(represented by a certificate) which shall entitle the holder to receive a
full share upon the surrender of such scrip or warrants aggregating a full
share. A certificate for a fractional share or an uncertificated fractional
share shall, but scrip or warrants shall not unless otherwise provided
therein, entitle the holder to exercise voting rights, to receive dividends
thereon, and to participate in any of the assets of the corporation in the
event of liquidation. The Board of Directors may cause scrip or warrants to
be issued subject to the conditions that they shall become void if not
exchanged for certificates representing the full shares or uncertificated full
shares before a specified date, or subject to the conditions that the shares
for which scrip or warrants are exchangeable may be sold by the corporation
and the proceeds thereof distributed to the holders of scrip or warrants, or
subject to any other conditions which the Board of Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof,
or by his attorney thereunto authorized by power of attorney duly executed
and filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock
properly endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before
the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting. In order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a
<PAGE>
meeting, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which date shall not be more than
ten days after the date upon which the resolution fixing the record date is
adopted by the Board of Directors. If no record date has been fixed by the
Board of Directors, the record date for determining the stockholders entitled
to consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is required by the General Corporation Law,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal
place of business, or an officer or agent of the corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action. In order
that the corporation may determine the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or
the stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such
rights notwithstanding that the certificate of incorporation may provide for
more than one class or series of shares of stock, one or more of which are
limited or denied such rights thereunder; provided, however, that no such right
shall vest in the event of an increase or a decrease in the authorized number
of shares of stock of any class or series which is otherwise denied voting
rights under the provisions of the certificate of incorporation, except as any
provision of law may otherwise require.
<PAGE>
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization
of the corporation, and each successive annual meeting shall be held on a
date within thirteen months after the date of the preceding annual meeting. A
special meeting shall be held on the date and at the time fixed by the
directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from
time to time, fix. Whenever the directors shall fail to fix such place, the
meeting shall be held at the registered office of the corporation in the
State of Delaware.
- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall
be given, stating the place, date, and hour of the meeting and stating the
place within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of any annual
meeting shall state that the meeting is called for the election of directors
and for the transaction of other business which may properly come before the
meeting, and shall (if any other action could be taken at a special meeting
is to be taken at such annual meeting) state the purpose or purposes. The
notice of a special meeting shall in all instances state the purpose or
purposes for which the meeting is called. The notice of any meeting shall
also include, or be accompanied by, any additional statements, information,
or documents prescribed by the General Corporation Law. Except as otherwise
provided by the General Corporation Law, a copy of the notice of any meeting
shall be given, personally or by mail, not less than ten days nor more than
sixty days before the date of the meeting, unless the lapse of the prescribed
period of time shall have been waived, and directed to each stockholder at
his record address or at such other address which he may have furnished by
request in writing to the Secretary of the corporation. Notice by mail shall
be deemed to be given when deposited, with postage thereon prepaid, in the
United States Mail. If a meeting is adjourned to another time, not more than
thirty days hence, and/or to another place, and if an announcement of the
adjourned time and/or place is made at the meeting, it shall not be necessary
to give notice of the adjourned meeting unless the directors, after
adjournment, fix a new record date for the adjourned meeting. Notice need not
be given to any stockholder who submits a written waiver of notice signed by
him before or after the time state therein. Attendance of a stockholder at a
meeting of stockholders shall constitute a waiver of notice of such meeting,
except when the stockholder attends the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders need be specified in any written waiver of notice.
<PAGE>
- STOCKHOLDER LIST. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city or other municipality
or community where the meeting is to be held, which place shall be specified
in the notice of the meeting, or if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected
by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the corporation, or to vote
at any meeting of stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if
present and acting - the Chairman of the Board, if any, the Vice-Chairman of
the Board, if any, the President, a Vice-President, or, if none of the
foregoing is in office and present and acting, by a chairman to be chosen by
the stockholders. The Secretary of the corporation, or in his absence, an
Assistant Secretary, shall act as secretary of every meeting, but if neither
the Secretary nor an Assistant Secretary is present the Chairman of the
meeting shall appoint a secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or
dissent without a meeting. Every proxy must be signed by the stockholder or
by his attorney-in-fact. No proxy shall be voted or acted upon after three
years from its date unless such proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and,
if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A proxy may be made irrevocable regardless of
whether the interest with which it is coupled is an interest in the stock
itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before
<PAGE>
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question, or matter determined by him or them and execute a
certificate of any fact found by him or them. Except as otherwise required by
subsection (e) of Section 231 of the General Corporation Law, the provisions of
that Section shall not apply to the corporation.
- QUORUM. The holders of a majority of the outstanding shares of
stock shall constitute a quorum at a meeting of stockholders for the transaction
of any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING Each share of stock shall entitle the holder thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority
of the votes cast except where the General Corporation Law prescribes a
different percentage of votes and/or a different exercise of voting power, and
except as may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The
<PAGE>
Board of Directors shall have the authority to fix the compensation of the
members thereof. The use of the phrase "whole board" herein refers to the total
number of directors which the corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder,
a citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of 3 persons. Thereafter the number
of directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be 3 . The number
of directors may be increased or decreased by action of the stockholders or of
the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the
members thereof shall have been named in the certificate of incorporation, shall
be elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may
resign at any time upon written notice to the corporation. Thereafter,
directors who are elected at an annual meeting of stockholders, and directors
who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal. Except as the General Corporation Law may otherwise
require, in the interim between annual meetings of stockholders or of special
meetings of stockholders called for the election of directors and/or for the
removal of one or more directors and for the filling of any vacancy in that
connection, newly created directorships and any vacancies in the Board of
Directors, including unfilled vacancies resulting from the removal of directors
for cause or without cause, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum, or by the sole
remaining director.
<PAGE>
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any director or to any member of
a committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A
majority of the directors present, whether or not a quorum is present, may
adjourn a meeting to another time and place. Except as herein otherwise
provided, and except as otherwise provided by the General Corporation Law, the
vote of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board. The quorum and voting provisions herein
stated shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
<PAGE>
CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present
and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the
Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the General
Corporation Law, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a Secretary,
a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive
Vice-President, one or more other Vice-Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers with such
titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board
of Directors choosing him, no officer other than the Chairman or Vice-Chairman
of the Board, if any, need be a director. Any number of offices may be held by
the same person, as the directors may determine.
<PAGE>
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform such
duties in the management and operation of the corporation as shall be prescribed
in the resolutions of the Board of Directors designating and choosing such
officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
<PAGE>
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true, and correct copy of
the Bylaws of Heartland Communications & Management, Inc., a Delaware
corporation, as in effect on the date hereof.
Dated: April 18, 1996
/s/ Brad Baker
-------------------------------
Secretary of
Heartland Communications & Management, Inc.
(SEAL)
<PAGE>
EXHIBIT 3.4
FORM OF
STOCK CERTIFICATE
<PAGE>
SPECIMEN
INCORPORATED UNDER THE LAWS OF THE STATE OF
DELAWARE
NUMBER SHARES
COMMON
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
TOTAL AUTHORIZED ISSUE 60,000,000 SHARES
50,000,000 COMMON SHARES 10,000,000 PREFERRED SHARES
WITH A PAR VALUE OF $0.001 EACH WITH A PAR VALUE OF $0.001 EACH
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS
THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCE AND/OR RIGHTS.
This is to Certify that__________________________________________is the owner of
________________________________________________________________fully paid and
non-assessable COMMON shares of HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
transferable only on the books of the Corporation by the holder hereof in
person or by the duly authorized Attorney upon surrender of this certificate
properly endorsed.
Witness, the seal of the Corporation and the signatures of its duly
authorized officers.
Dated
[SEAL]
SECRETARY PRESIDENT
<PAGE>
[LETTERHEAD]
July 24, 1996
EXHIBIT 5.1
Heartland Communications & Management, Inc.
1320 Old Chain Bridge Road -- Suite 220
McLean, Virginia 22101
RE: REGISTRATION STATEMENT ON FORM S-1 RELATING TO THE
OFFER AND SALE OF $25,000,000 OF SHARES OF COMMON STOCK
Gentlemen:
We have acted as counsel for Heartland Communications & Management, Inc., a
Delaware corporation organized under the Delaware General Corporate Law (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended, of shares of common stock (the "Shares") in the Company,
having a maximum aggregate offering price of $25,000,000, pursuant to the
referenced Registration Statement.
You have requested our opinion regarding the legality of the Shares
registered pursuant to the Registration Statement on Form S-1. We have examined
originals or copies, certified to our satisfaction, of such records, agreements
and other instruments of the Company, certificates or public officials,
certificates of the officers or other representatives of the Company, and other
documents, as we have deemed necessary as a basis for the opinions hereinafter
set forth. As to various questions of fact material to such opinions, we have,
when relevant facts were not independently established, relied upon written
certifications of officers and references, including (but not limited to)
statements contained in the Registration Statement.
We are admitted to practice law only in the District of Columbia. Our
opinions, insofar as they address issues of Delaware law, are based solely upon
our review of (I) the records of the Company, (ii) the Delaware General
Corporate Law and (iii) a certified copy of the Company's March 27, 1996
Articles of Incorporation and April 4, 1996 amendment thereto. Subject to the
foregoing, we do not express our opinion herein concerning any law other than
the laws of the District of Columbia and the federal laws of the United States.
We have assumed the genuineness of all signatures on documents reviewed by
or presented to us, the legal capacity of natural persons, the authenticity of
all items submitted to us as originals and the conformity with originals of all
items submitted to us as copies.
<PAGE>
Heartland Communications & Management, Inc.
July 24, 1996
Page 2
Based upon the foregoing, we are of the opinion that:
1. The Company is a duly organized, validly existing corporation under
the laws of the State of Delaware.
2. The Shares of the Company to be offered pursuant to the Prospectus
forming a part of the Registration Statement are validly authorized and when (a)
the pertinent provisions of the Securities Act of 1933, as amended, and such
state securities laws and regulations as may be applicable have been complied
with and (b) such Shares have been duly delivered against payment therefor as
contemplated by the offer contained in the Prospectus, such Shares will be
validly issued, fully paid and nonassessable under the law of Delaware.
Our opinion is expressed as of the date hereof, and we do not assume any
obligations to update or supplement our opinion to reflect any fact or
circumstances which hereafter comes to our attention or any change in the law
that hereafter occurs.
We hereby consent to the reference to our firm in the "Legal
Matters"section of the Prospectus and to the inclusion of this opinion as an
Exhibit to the Registration Statement.
BAYH, CONNAUGHTON & MALONE, P.C.
By: /s/ Max Miller
-------------------------------------
Max Miller, Principal
<PAGE>
EXHIBIT 10.1
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into as of this __ day of September __,
1996 by and among HEARTLAND COMMUNICATIONS & MANAGEMENT, INC. (hereinafter
the "Depositor"), ______________________ (hereinafter the "Selling Agent"),
and GEORGE MASON BANK (hereinafter, the "Escrow Agent").
WHEREAS, Depositor intends to solicit subscriptions ("Subscriptions")
for the purchase of an aggregate of up to $25,000,000 in shares of common
stock of Depositor.
WHEREAS, under the method of subscription described in the Depositor's
Prospectus dated September ___, 1996 (the "Offering"), payment of the
subscription price must be by check, to the order of HEARTLAND
COMMUNICATIONS & MANAGEMENT, INC. ESCROW ACCOUNT, (each being a "Subscription
Payment") and the resulting proceeds from Subscriptions (the "Subscription
Proceeds") are required to be held by an independent depository in escrow;
WHEREAS, the Selling Agent has been appointed by the Depositor to
receive all Subscription Payments and deposit with the Escrow Agent all
Subscription Proceeds; and
WHEREAS, the Depositor and the Selling Agent desire the Escrow Agent
to serve as the depository for the receipt and investment of Subscription
Proceeds and the Escrow Agent is agreeable to serving as such depository;
NOW, THEREFORE, in consideration of the foregoing promises and the
covenants and agreements hereinafter set forth, it is hereby agreed as
follows:
1. ESCROW AGENT.
George Mason Bank is hereby appointed and hereby accepts the
appointment, to serve as escrow agent for the Depositor in connection with
the Offering on the terms provided herein.
2. ESTABLISHMENT OF ESCROW ACCOUNT AND INVESTMENT OF FUNDS
a. Upon execution of this Agreement, there shall be established a
separate account for the deposit of the Subscription Proceeds to be
designated as "Heartland Communications & Management Escrow Account"
(the "Escrow Account").
b. Any and all Subscription Proceeds shall be forwarded by the
Selling Agent to the Escrow Agent by noon of the business day
immediately following their receipt from subscribers and shall be
accompanied by a copy of each Subscription to which the Subscription
Proceeds relate. The Escrow Agent shall promptly deposit the Subscription
<PAGE>
Proceeds into the Escrow Account. The Subscription Proceeds shall be
held in the Escrow Account until disbursed in accordance with the
provisions of paragraph 3.
c. Any Subscription Proceeds placed or held in the Escrow Account
("Escrow Funds") shall be maintained and invested as the Depositor
shall from time to time direct by written notice to the Escrow Agent
in FDIC insured money market accounts or certificates of deposit, or
direct United States Government obligations which can be readily
liquidated on twenty-four hours notice. The Escrow Agent shall not be
required to invest Escrow Funds until three (3) business days after
receipt of any subscriber's check drawn on a local bank, or seven (7)
business days after receipt of any subscriber's check drawn on an
out-of-state bank as stipulated by Banking Regulation CC. During any
such clearing period, said deposits may remain uninvested. No investment
of funds will be made for checks received during the last three (3)
business days of the Funding Deadline (defined below).
d. The Escrow Agent shall notify the Selling Agent and the
Depositor immediately in writing if any check representing a Subscription
Payment is returned to the Escrow Agent for any reason and shall
provide a copy of such returned check to the Selling Agent and the
Depositor.
3. FUNDING DEADLINE; DISBURSEMENT OF FUNDS.
a. The Offering will terminate on _______, 1996 unless the Offering
is extended by the Depositor by written notice to the Escrow Agent to
a date no later than ___________, 1997 to coincide with the Initial
Offering Period as defined in the Prospectus (the "Funding Deadline").
b. All Escrow Funds received during the Initial Offering Period
shall be released to the Depositor only if by the Funding Deadline:
(1) Subscriptions Proceeds of at least $2,000,000 have been deposited
in the Escrow Account and cleared ("Required Funding"); and (2) the
Escrow Agent has received an affidavit from the Depositor signed by
the Depositor's Representative and by the Selling Agent's
Representative (as such signatures appear on Exhibits A and B hereto)
which certifies that the Depositor has accepted all Subscriptions
for which money has been deposited with the Escrow Agent.
c. If, at the end of the Funding Deadline, the conditions specified
in (b) above have not occurred, the Escrow Agent shall accept no further
Subscription Payments, and the Depositor and the Selling Agent shall
notify the Escrow Agent by written affidavit that the Depositor has not
received the Required Funding by the Funding Deadline. Upon receipt of
such affidavit, the Escrow Agent shall promptly remit the Subscription
Proceeds and accrued interest to the subscribers in proportion to their
respective interests according to information to be supplied by
Depositors as soon after the Funding Deadline as is reasonable in light
of the bookkeeping and other tasks such return will entail.
2
<PAGE>
d. All disbursements by the Escrow Agent hereunder may be made
by a check or draft drawn on the institution in which the Escrow Funds
are deposited and shall be mailed by first class, United States mail,
postage prepaid, to the name and address of the subscriber appearing
on each Subscription. All funds remitted to subscribers pursuant to
this Agreement shall be with interest accrued, less any deductions
hereunder. The Escrow Agent shall be entitled to charge the Depositor
the fees customarily charged by the Escrow Agent in connection with
issuing checks or drafts as necessary to return all Escrow Funds to
subscribers. The Escrow Agent may off-set against any interest due to
the Depositor hereunder any such charges and all expenses incurred by
the Escrow Agent hereunder.
e. Any and all interest earned on the investment of the Escrow
Funds, less any proper deductions for sums due from the Depositor to
the Escrow Agent, shall be credited on at least a weekly basis.
f. From time to time the Company shall deliver to the Bank a list
of subscribers that specifies the taxpayer identification numbers,
mailing addresses and respective interests of such subscribers in the
Escrow Funds, which list shall be kept current by the Company. The
Company agrees to indemnify the Bank for any and all losses (including
attorneys' fees) which the Bank might incur as a result of paying
interest with respect to the Escrow Funds to such taxpayers in
accordance with this Agreement and the information contained on such
lists.
g. In the event that the Escrow Agent has not received instructions
from the Depositor or the Selling Agent by the end of business on the
Funding Deadline, the Escrow Agent shall promptly thereafter proceed
to return the Escrow Funds to the subscribers whose names appear on the
Subscriptions with interest accrued, less deductions hereunder.
4. SUBSEQUENT CLOSINGS; DISBURSEMENT OF FUNDS.
a. Subject to the $2,000,000 minimum offering being achieved by
the Fund Deadline provided for in Section 3 of this Agreement (marking
the end of the Initial Offering Period), the Escrow Account will be
maintained with the Escrow Agent.
b. The Offering will terminate on ______, 1996 unless the Offering
is extended by the Depositor by written notice to the Escrow Agent to
a date no later than ________, 1998 -- 18 months from the date of the
Prospectus (the "Continuous Offering Period," as defined).
c. All Escrow Funds received during the Continuous Offering Period
shall be released to the Depositor (1) at a date that coincides with
(a') each month-end or (b') subscriptions for at least $250,000 are
accepted, whichever first occurs; and (2) the
3
<PAGE>
Escrow Agent has received an affidavit from the Depositor signed by
the Depositor's Representative and by the Selling Agent's Representative
(as such signatures appear on Exhibits A and B hereto) which certifies
that the Depositor has accepted all Subscriptions for which money
has been deposited with the Escrow Agent.
d. If, for each Subsequent Closing, the conditions specified in
(b) above have not occurred, the Escrow Agent shall accept no further
Subscription Payments, and the Depositor and the Selling Agent shall
notify the Escrow Agent by written affidavit that the Depositor has
not received the Required Funding by the Subsequent Closing. Upon
receipt of such affidavit, the Escrow Agent shall promptly remit the
Subscription Proceeds and accrued interest to the subscribers in
proportion to their respective interests according to information to
be supplied by Depositors as soon after the Subsequent Closing as is
reasonable in light of the bookkeeping and other tasks such return
will entail.
e. All disbursements by the Escrow Agent hereunder may be made
made by a check or draft drawn on the institution in which the Escrow
Funds are deposited and shall be mailed by first class, United States
mail, postage prepaid, to the name and address of the subscriber
appearing on each Subscription. All funds remitted to subscribers
pursuant to this Agreement shall be with interest accrued, less any
deductions hereunder. The Escrow Agent shall be entitled to charge
the Depositor the fees customarily charged by the Escrow Agent in
connection with issuing checks or drafts as necessary to return all
Escrow Funds to subscribers. The escrow Agent may off-set against any
interest due to the Depositor hereunder any such charges and all
expenses incurred by the Escrow Agent hereunder.
f. Any and all interest earned on the investment of the Escrow
Funds, less any proper deductions for sums due from the Depositor to
the Escrow Agent, shall be credited on at least a weekly basis.
g. From time to time the Company shall deliver to the Bank a list of
subscribers that specifies the taxpayer identification numbers, mailing
addresses and respective interests of such subscribers is the Escrow
Funds, which list shall be kept current by the Company. The Company
agrees to indemnify the Bank for any and all losses (including
attorneys' fees) which the Bank might incur as a result of paying
interest with respect to the Escrow Funds to such taxpayers in accordance
with this Agreement and the information contained on such lists.
h. In the event that the Escrow Agent has not received instructions
from the Depositor or the Selling Agent by the end of business at each
Subsequent Closing, the Escrow Agent shall promptly thereafter proceed
to return the Escrow Funds to the subscribers whose names appear on the
Subscriptions with interest accrued, less deductions hereunder.
4
<PAGE>
5. STANDARD OF CARE OF ESCROW AGENT.
5.1 The Escrow Agent shall be responsible only for performance of
its duties as specified in this Agreement, and no implied covenants,
duties or obligations shall bind or be enforceable against the Escrow
Agent. The Escrow Agent shall not be liable to the Depositor, the
Selling Agent, the Subscribers, or any other person or entity for any
act or failure to act other than its gross negligence or willful
misconduct.
5.2 The Escrow Agent shall not be liable for any action taken or
omitted by it, or any action suffered by it to be taken or administered
in good faith, and in the exercise of its own best judgment, and may
rely conclusively and shall be protected in acting upon any order,
notice, demand, certificate, opinion of counsel, other advice of counsel
(including counsel selected by the Escrow Agent), statement, instrument,
report or other document (not only as to its due execution and the
validity and effectiveness thereof, but also as to the truth and
acceptability of any information therein contained) which is reasonably
believed by the Escrow Agent to be genuine and to be signed by the
proper person or persons.
5.3 The Escrow Agent shall not be bound by any notice or demand,
or any waiver, modification, termination or rescission of this Agreement
or any of the terms hereof, unless executed in writing by the parties
to this Agreement and delivered to the Escrow Agent.
6. INDEMNIFICATION OF ESCROW AGENT.
The Depositor agrees to indemnify and hold the Escrow Agent harmless
against any damage, liability, cost or loss which it may incur by reason of
its appointment or performance as Escrow Agent or its identification as such
in Depositor's Disclosure Memorandum, including, without limitation,
reasonable attorney's fees, except for any damage, liability, cost or loss
resulting from the willful misconduct or gross negligence of the Escrow
Agent.
7. TERMINATION.
Escrow Agent's responsibilities hereunder shall cease upon the closing
of the Escrow Account and its disbursement of all of the Escrow Funds
pursuant to paragraph 3 of the Agreement, provided however, that this
Agreement shall terminate on the effective date of the resignation of
the Escrow Agent in accordance with paragraph 10. Notwithstanding
the foregoing, the Depositor's obligations under paragraph 4 and 5 of this
Agreement shall survive the termination of Escrow Agent's responsibilities
hereunder.
5
<PAGE>
8. NOTICES.
Any notices, requests, directions, certifications or the like given by
the Depositor, Depositor's Representative, Selling Agent's Representative,
or the Escrow Agent in connection with this Escrow Agreement shall be
delivered in person or mailed, certified mail, postage prepaid, to the
following addresses:
IF TO THE ESCROW AGENT:
George Mason Bank
1320 Old Chain Bridge Road
McLean, Virginia 22101
Attn: Glen Kinard
IF TO THE DEPOSITOR:
Heartland Communications & Management, Inc.
1320 Old Chain Bridge Road
McLean, Virginia 22101
Attn: Gerald Garcia
IF TO THE SELLING AGENT:
_____________________________
_____________________________
_____________________________
_____________________________
9. CONFLICTING DEMANDS.
In the event conflicting demands are made upon the Escrow Agent with
respect to this Agreement, the Escrow Account or any of the Escrow Funds,
the Depositor and the Selling Agent acknowledge and agree that the Escrow
Agent shall have the absolute right to elect to do either or both of the
following: (a) cease all further performance under this Agreement by the
Escrow Agent; or (b) file a suit in interpleader and obtain an order from
a court with jurisdiction over such matters which requires the parties
to interplead and litigate in such court their several claims and rights
against each other. In the event an interpleader suit is brought, the
Escrow Agent, at its election, shall be fully released and discharged
from obligations to further perform any and all duties or obligations
imposed upon it under this Agreement, the Depositor agrees to pay and
reimburse the Escrow Agent for all costs, expenses and reasonable attorney's
fees expended or incurred by it in the defense or prosecution of such
interpleader suit in such amounts as shall be fixed and deemed reasonable
by the court.
6
<PAGE>
10. RELATIONSHIPS AMONG PARTIES.
The Parties hereto expressly recognize that this Agreement does not
create any legal relationship whatsoever among the parties hereto other than
as expressly set forth herein. The parties agree that the Subscription
Proceeds deposited with the Escrow Agent shall be deemed held in trust
by the Escrow Agent for the benefit of the Depositor and the Subscribers
and shall not be commingled with any other funds of the Depositor, the
Selling Agent or any of their affiliates, in the possession or custody
of the Escrow Agent, or under its control.
11. RESIGNATION OF ESCROW AGENT.
The Escrow Agent may at any time resign and be discharged of the
escrow hereby created by giving written notice to the Depositor and the
Selling Agent, specifying the date upon which it desires that such
resignation shall take effect. Such resignation shall take effect on the
date specified in such notice, which date shall be the earlier of: (i) five
(5) days after giving such notice; or (ii) the date upon which the
successor to the Escrow Agent (the "Successor Escrow Agent") shall have been
chosen by the Depositor and the Selling Agent and shall have accepted its
appointment as such. Upon such acceptance, the Escrow Funds may be
transferred to an escrow account, if necessary or desirable, established
by the Successor Escrow Agent pursuant to the provisions of this Agreement.
The Successor Escrow Agent shall administer the Escrow Fund and assume all
other duties of the Escrow Agent as set forth in this Agreement. If no
Successor Escrow Agent shall have been appointed as of the effective date
of the resignation of the Escrow Agent as set forth above, the Escrow
Agent may petition a court of competent jurisdiction for the appointment
of a Successor Escrow Agent.
12. AMENDMENTS AND MODIFICATIONS.
This Agreement shall not be amended, modified or supplemented except
by a writing executed among the parties hereto.
13. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one
and the same instrument.
14. GOVERNING LAW.
This Agreement shall be governed by and construed under the applicable
laws of the Commonwealth of Virginia, without giving effect to any choice of
laws or rules which may otherwise be applicable.
7
<PAGE>
15. APPLICABILITY OF RULE 15c2-4.
Notwithstanding anything herein to the contrary, all of the obligations
and duties of the parties hereto shall be subject to and consistent with
Rule 15c2-4 under the Securities and Exchange Act of 1934.
8
<PAGE>
16. FEES AND EXPENSES OF ESCROW AGENT.
Escrow Agent shall be as determined in accordance with the fee schedule
attached as Exhibit C. All fees and expenses referred to in this paragraph
shall be paid by the Depositor.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date and year above specified.
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
By:
---------------------------------------
Gerald Garcia, President
GEORGE MASON BANK
By:
---------------------------------------
Authorized Officer
-------------------------------------------
By:
---------------------------------------
___________________, President
9
<PAGE>
EXHIBIT "A" TO ESCROW AGREEMENT
Signature of Authorized Representative of
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
-------------------------------------
Gerald Garcia
<PAGE>
EXHIBIT "B" TO ESCROW AGREEMENT
Signature of Authorized Representative of
-------------------------------------
-------------------------------------
---------------------
<PAGE>
EXHIBIT C
TO ESCROW AGREEMENT
FEE SCHEDULE -- BUSINESS ACCOUNTS
[GRAPHIC] DEPOSIT ACCOUNTS
BUSINESS CHECKING*
Minimum deposit to open ......................$100
Monthly Maintenance Fee for daily
account balance under $2,000..............$10.00
BUSINESS INTEREST CHECKING*
Minimum deposit to open.......................$100
Monthly Maintenance Fee......................$9.50
MASON MONEY MARKET ACCOUNT*
Minimum deposit to open ....................$1,000
Monthly Maintenance Fee for daily
account balance under $2,000.............. $9.50
Charge for third-party payments in
excess of legal maximum......... per item $9.50
BUSINESS SAVINGS ACCOUNTS*
Limit one account per Social Security/Tax ID number.
Minimum deposit to open ......................$100
Monthly Maintenance Fee for daily
account balance under $200.................$2.00
Teller window withdrawal charge
in excess of six per quarter (per item) .....$0.95
DORMANT CHECKING AND SAVINGS ACCOUNTS
Subject to regular monthly account charges.
SPECIAL STATEMENT .............................$4.75
Individual item
within statement .................$0.50 per item+
(plus research costs)
+ Customers whose checks are not returned with
statement are allowed 2 items per month at no charge.
* Charge for account closure
within 90 days of opening...................$17.50
Does not apply to account consolidations.
OVERDRAFT -- INSUFFICIENT FUNDS
Per item charge ............................$25.00
RETURNED CHECK -- INSUFFICIENT FUNDS
Per item charge ............................$25.00
TELEPHONE TRANSFERS
Transfers in amounts under $500 .............$4.75
STOP PAYMENT, REGULAR CHECK ..................$25.00
ATTACHMENTS, TAX LIENS,
GARNISHMENTS .................................$75.00
CASHIER'S CHECK -- Customers ..................$5.95
-- Non-Customers .............$12.95
MONEY ORDER ...................................$5.95
CERTIFIED CHECK ..............................$14.95
CHARGED BACK ITEM .............................$4.75
[GRAPHIC] OTHER SERVICES
RESEARCH OR RECONCILEMENT
Per half hour ..............................$11.50
Minimum charge .............................$11.50
COLLECTION ITEMS
Bond Coupon, per envelope charge ......... ..$7.50
SIGHT DRAFTS ........................per item $10.00
SECURITIES PURCHASED OR SOLD .................$60.00
TRAVELER'S CHEQUES (PER $100) .................$1.50
TRAVELER'S CHEQUES FOR TWO (PER $100) .........$1.75
FEE SCHEDULE CONTINUES ON BACK PANEL
<PAGE>
COINS, PER ROLL ...............................$0.07
CURRENCY, PER STRAP ...........................$0.35
NIGHT DEPOSIT BAG PURCHASE, PER BAG ..........$12.00
WIRE TRANSFERS
Outgoing Domestic, per wire charge .........$15.00
Outgoing Foreign, per wire charge ..........$30.00
(plus any additional correspondent bank charges)
Incoming, Non-Customers ....................$25.00
SMART MONEY TALKS
(24-HOUR ACCOUNT INFORMATION)
Last five debits ........................No Charge
Last five credits .......................No Charge
Balance inquiry .........................No Charge
Specific check ..........................No Charge
Transfers .........Not available for business accounts
[GRAPHIC] SAFE DEPOSIT BOX SERVICES
SAFE DEPOSIT BOX SIZE* ANNUAL RENT
2" x 5" x 24" $25.00
3" x 5" x 24" $32.50
5" x 5" x 24" $47.50
3" x 10" x 24" $54.50
5" x 10" x 24" $77.50
10" x 10" x 24" $127.50
* All sizes not available at all branches.
GEORGE MASON BANK RESERVES THE RIGHT TO AMEND THE TERMS AND CONDITIONS CONTAINED
HEREIN.
EACH DEPOSITOR IS INSURED UP TO $100,000 BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION.
- --------------------------------------------------------------------------------
FEE SCHEDULE
BUSINESS ACCOUNTS
EFFECTIVE MARCH 1, 1996
[LOGO]
- --------------------------------------------------------------------------------
[LOGO]
Member FDIC 9603
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made effective as of May 1,
1996, by and between Heartland Communications & Management, Inc., (the
"Employer"), and Gerald Garcia, (the "Employee").
A. Employer is engaged in the business of promoting talk radio
programming, selling program time, providing consulting and financial
services to the communications industry, providing information and
management services and investing in communications and management based
companies, including those engaged in producing print product such as
newspapers, magazines, etc. and those that distribute print product via the
Internet.
B. Employer desires to have the services of the Employee.
C. Employee is willing to be employed by Employer.
Therefore, the parties agree as follows:
1. EMPLOYMENT. Employer shall employ Employee as President & Chief
Executive Officer and to perform those duties prescribed by the Employer's
Articles of Incorporation and Bylaws and as otherwise directed by the Board of
Directors from time to time. Employee accepts and agrees to such employment,
subject to the general supervision, advice and direction of Employer's Board of
Directors. Employee shall also perform (i) such other duties as are customarily
performed by an employee in a similar position, and (ii) such other and
unrelated services and duties as may be assigned to Employee from time to time
by Employer's Board of Directors.
2. BEST EFFORTS OF EMPLOYEE. Employee agrees to perform faithfully,
industriously, and to the best of Employee's ability, experience, and talents,
all of the duties that may be required by the express and implicit terms of this
Agreement, to the reasonable satisfaction of Employer. Such duties shall be
provided at such place(s) as the needs, business, or opportunities of the
Employer may require from time to time.
3. COMPENSATION OF EMPLOYEE. As compensation for the services provided by
Employee under this Agreement, Employer will pay Employee.
A. Base salary - a base annual salary of $130,000.00 payable in
accordance with Employer's regular payroll procedures. Upon termination of
this Agreement by Employee or by the Employer for cause, payments under
this paragraph shall cease; provided, however, that the Employee shall be
entitled to payments for periods or partial periods that occurred prior to
the date of termination and for which the Employee has not yet been paid.
Upon termination of this Agreement by Employer without cause prior to the
end of its Term as stated in paragraph 9 below, Employee shall be paid at
the rate of his base salary at the date of termination for the period after
the termination through the end of the Term of this
<PAGE>
Agreement. Such payments shall be paid as and when salary payments would
have been paid to Employee had Employee not been terminated.
B. Bonus Compensation - Employer shall establish an annual bonus pool.
The bonus pool shall be subject to the Board of Directors determination, on
an annual basis, of Company criteria (the "Company Criteria") for
establishment of such bonus pool, which shall be based on profitability and
other factors as determined by the Board. Those persons eligible to
participate in this bonus pool shall be designated by the Employer's Board
of Directors. Employee shall be entitled to participate in this bonus
pool. The portion of the bonus pool to be allocated to each eligible
participant shall be at the sole discretion of the Board of Directors. The
Board of Directors shall establish at the beginning of each year,
individual objective goals required for each eligible participant to earn a
minimum stated percentage of the bonus pool if the Company Criteria are
first met. If an employee does not meet the goals established for him or
her, the Board, in its sole discretion may allocate none, all or a portion
of the minimum stated percentage to such Employee. If all of the bonus
pool is not allocated because certain Employees failed to meet their goals
and were not allocated all of their minimum stated percentage, the Board in
its sole discretion may allocate all, part or none of the excess bonus pool
funds to other eligible participants.
C. Stock Options - Employee shall be eligible to receive options to buy
up to 25,000 shares of Employer's common voting stock for $.10 per share.
The grant of such options and the terms and conditions, other than price,
thereof shall be at the sole discretion of the Employer's Board of
Directors.
Accrued vacation will be paid in accordance with state law and the Employer's
customary procedures.
4. REIMBURSEMENT FOR EXPENSES IN ACCORDANCE WITH EMPLOYER POLICY. The
Employer will reimburse Employee for "out-of-pocket" expenses in accordance with
Employer policies in effect from time to time.
5. CONFIDENTIALITY. Employee recognizes that Employer has and will have
information regarding products, prices, future plans, business affairs,
processes, trade secrets, technical matters, customer lists, product design,
copyrights and other vital and proprietary information (collectively,
"Information") which are valuable, special and unique assets of Employer.
Employee agrees that the Employee will not at any time or in any manner, either
directly or indirectly, divulge, disclose, or communicate in any manner any
Information to any third party, except in the ordinary performance of his
duties, without the prior written consent of the Employer. Employee will
protect the Information and treat it as strictly confidential. A violation by
Employee of this paragraph shall be a material violation of this Agreement and
will justify legal and/or equitable relief in addition to being grounds for
dismissal for cause.
6. UNAUTHORIZED DISCLOSURE OF INFORMATION. If it appears that Employee
has disclosed (or has threatened to disclose) Information in violation of this
Agreement,
2
<PAGE>
Employer shall be entitled to an injunction to restrain Employee from
disclosing, in whole or in part, such Information, or from providing any
services to any party to whom such Information has been disclosed or may be
disclosed. Employer shall not be prohibited by this provision from pursuing
other remedies, including a claim for losses and damages.
7. CONFIDENTIALITY AFTER TERMINATION OF EMPLOYMENT. The confidentiality
provisions of this Agreement shall remain in full force and effect for one (1)
year after the termination of Employee's employment.
8. NON-COMPETE AGREEMENT. Recognizing that the various items of
Information are special and unique assets of the Company, Employee agrees and
covenants that for a period of one (1) year following the end of the Term of
this Agreement, whether such termination is voluntary or involuntary, Employee
will not directly or indirectly engage in any business competitive with
Employer. This covenant shall apply to all geographical areas in which the
Employer conducts business or from which the Employer otherwise derives revenues
and to Internet delivery of said products and services. Directly or indirectly
engaging in any competitive business includes, but is not limited to, (i)
engaging in a business as owner, partner, or agent, (ii) becoming an employee of
any third party that is engaged in such business, (iii) becoming interested
directly or indirectly in any such business, or (iv) soliciting any customer of
Employer for the benefit of a third party that is engaged in such business.
Employee agrees that this non-compete provision will not adversely affect the
Employee's livelihood. Notwithstanding any of the foregoing provisions of this
paragraph 8, this paragraph 8 shall apply only to products, services and
business lines engaged in by the Employer on the date of Employee's termination.
9. TERM/TERMINATION.
9.1 Employee's employment under this Agreement shall be for three (3)
years, beginning on May 1, 1996.
9.2 If Employee is in violation of this Agreement, Employer may
terminate employment without notice and for cause and with compensation to
Employee only to the date of such termination as provided in paragraph 3 above.
The compensation paid under this Agreement shall be the Employee's exclusive
remedy.
9.3 If this Agreement is terminated by Employer without cause prior
to the end of its Term, Employee shall be paid (i) at the rate of his base
salary as provided in paragraph 3 above at the date of termination for the
period after the termination date through the end of the Term of this
Agreement and (ii) any bonus payment that would have been due Employee for the
year in which Employee was terminated based on the objective criteria
established by the Board of Directors. Such payments shall be paid as and when
salary and bonus payments would have been paid to Employee had Employee not been
terminated.
3
<PAGE>
10. NOTICES. All notices required or permitted under this Agreement shall
be in writing and shall be deemed delivered when delivered in person or
deposited in the United States mail, postage paid, addressed as follows:
Employer:
Heartland Communications & Management, Inc.
1320 Old Chain Bridge Road, Suite 220
McLean, Virginia 22101
Gerald Garcia
c/o Heartland Communications & Management, Inc.
1320 Old Chain Bridge Road, Suite 220
McLean, Virginia 22101
Such addresses may be changed from time to time by either party by providing
written notice in the manner set forth above.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties and there are no other promises or conditions in any other agreement
whether oral or written. This Agreement supersedes any prior written or oral
agreement between the parties.
12. AMENDMENT. This agreement may be modified or amended, if the
amendment is made in writing and is signed by both parties.
13. SEVERABILITY. If any provisions of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this
Agreement is invalid or unenforceable, but that by limiting such provision it
would become valid or enforceable, then such provision shall be deemed to be
written, construed, and enforced as so limited.
14. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce
any provision of this Agreement shall not be construed as a waiver or limitation
of that party's right to subsequently enforce and compel strict compliance with
every provision of this Agreement.
15. APPLICABLE LAW. This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
4
<PAGE>
16. ARBITRATION. All disputes under this Agreement that cannot be
resolved by the parties shall be submitted to arbitration under the rules and
regulations of the American Arbitration Association with the arbitration to be
held in Washington, D.C. Either party may invoke this paragraph after providing
30 days' written notice to the other party. All costs of arbitration shall be
divided equally between the parties. Any award may be enforced by a court of
law.
Employer:
Heartland Communications & Management, Inc.
1320 Old Chain Bridge Road, Suite 220
McLean, Virginia 22101
By: /s/Michael Foudy
-----------------------
Title: Exec. VP.
-----------------------
AGREED TO AND ACCEPTED
Employee:
/s/Gerald Garcia
- ------------------------------
Gerald Garcia
5
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made effective as of May
1, 1996, by and between Heartland Communications & Management, Inc., (the
"Employer"), and Michael L. Foudy, (the "Employee").
A. Employer is engaged in the business of promoting talk radio
programming, selling program time, providing consulting and financial
services to the communications industry, providing information and
management services and investing in communications and management based
companies, including those engaged in producing print product such as
newspapers, magazines, etc. and those that distribute print product via the
Internet.
B. Employer desires to have the services of the Employee.
C. Employee is willing to be employed by Employer.
Therefore, the parties agree as follows:
1. EMPLOYMENT. Employer shall employ Employee as Executive Vice
President and to perform those duties prescribed by the Employer's Articles of
Incorporation and Bylaws and as otherwise directed by the Board of Directors
from time to time. Employee accepts and agrees to such employment, subject to
the general supervision, advice and direction of Employer's Board of Directors.
Employee shall also perform (i) such other duties as are customarily performed
by an employee in a similar position, and (ii) such other and unrelated services
and duties as may be assigned to Employee from time to time by Employer's Board
of Directors.
2. BEST EFFORTS OF EMPLOYEE. Employee agrees to perform faithfully,
industriously, and to the best of Employee's ability, experience, and talents,
all of the duties that may be required by the express and implicit terms of this
Agreement, to the reasonable satisfaction of Employer. Such duties shall be
provided at such place(s) as the needs, business, or opportunities of the
Employer may require from time to time. It is understood that Employee will
devote up to 50% of his time to the business of ATB Productions, L.L.C. ("ATB")
and/or Heartland Capital Corporation ("HCC") subject to the ongoing approval and
direction of the Board of Directors. Employee will not be due any additional
compensation for such services to HCC/ATB and Employer may be reimbursed or
otherwise compensated by HCC/ATB for such services.
3. COMPENSATION OF EMPLOYEE. As compensation for the services provided
by Employee under this Agreement, Employer will pay Employee.
A. Base Salary - a base annual salary of $120,000.00 payable in
accordance with Employer's regular payroll procedures. Upon termination of
this Agreement by Employee or by the Employer for cause, payments under
this paragraph shall cease; provided, however, that the Employee shall be
entitled to payments for periods or partial periods that occurred prior to
the date of termination and for which the Employee has not yet been paid.
Upon
<PAGE>
termination of this Agreement by Employer without cause prior to the end of its
Term as stated in paragraph 9 below, Employee shall be paid at the rate of his
base salary at the date of termination for the period after the termination
through the end of the Term of this Agreement. Such payments shall be paid as
and when salary payments would have been paid to Employee had Employee not been
terminated.
B. Bonus Compensation - Employer shall establish an annual bonus pool.
The bonus pool shall be subject to the Board of Directors determination, on
an annual basis, of Company criteria (the "Company Criteria") for
establishment of such bonus pool, which shall be based on profitability and
other factors as determined by the Board. Those persons eligible to
participate in this bonus pool shall be designated by the Employer's Board
of Directors. Employee shall be entitled to participate in this bonus
pool. The portion of the bonus pool to be allocated to each eligible
participant shall be at the sole discretion of the Board of Directors. The
Board of Directors shall establish at the beginning of each year,
individual objective goals required for each eligible participant to earn a
minimum stated percentage of the bonus pool if the Company Criteria are
first met. If an employee does not meet the goals established for him or
her, the Board, in its sole discretion may allocate none, all or a portion
of the minimum stated percentage to such Employee. If all of the bonus
pool is not allocated because certain Employees failed to meet their goals
and were not allocated all of their minimum stated percentage, the Board in
its sole discretion may allocate all, part or none of the excess bonus pool
funds to other eligible participants.
C. Stock Options - Employee shall be eligible to receive options to buy
up to 25,000 shares of Employer's common voting stock for $.10 per share.
The grant of such options and the terms and conditions, other than price,
thereof shall be at the sole discretion of the Employer's Board of
Directors.
Accrued vacation will be paid in accordance with state law and the Employer's
customary procedures.
4. REIMBURSEMENT FOR EXPENSES IN ACCORDANCE WITH EMPLOYER POLICY. The
Employer will reimburse Employee for "out-of-pocket" expenses in accordance
with Employer policies in effect from time to time.
5. CONFIDENTIALITY. Employee recognizes that Employer has and will have
information regarding products, prices, future plans, business affairs,
processes, trade secrets, technical matters, customer lists, product design,
copyrights and other vital and proprietary information (collectively,
"Information") which are valuable, special and unique assets of Employer.
Employee agrees that the Employee will not at any time or in any manner, either
directly or indirectly, divulge, disclose, or communicate in any manner any
Information to any third party, except in the ordinary performance of his
duties, without the prior written consent of the Employer. Employee will
protect the Information and treat it as strictly confidential. A violation by
Employee of this paragraph shall be a material violation of this Agreement and
will justify legal and/or equitable relief in addition to being grounds for
dismissal for cause.
2
<PAGE>
6. UNAUTHORIZED DISCLOSURE OF INFORMATION. If it appears that Employee
has disclosed (or has threatened to disclose) Information in violation of this
Agreement, Employer shall be entitled to an injunction to restrain Employee from
disclosing, in whole or in part, such Information, or from providing any
services to any party to whom such Information has been disclosed or may be
disclosed. Employer shall not be prohibited by this provision from pursuing
other remedies, including a claim for losses and damages.
7. CONFIDENTIALITY AFTER TERMINATION OF EMPLOYMENT. The confidentiality
provisions of this Agreement shall remain in full force and effect for one (1)
year after the termination of Employee's employment.
8. NON-COMPETE AGREEMENT. Recognizing that the various items of
Information are special and unique assets of the Company, Employee agrees and
covenants that for a period of one (1) year following the end of the Term of
this Agreement, whether such termination is voluntary or involuntary, Employee
will not directly or indirectly engage in any business competitive with
Employer. This covenant shall apply to all geographical areas in which the
Employer conducts business or from which the Employer otherwise derives revenues
and to Internet delivery of said products and services. Directly or indirectly
engaging in any competitive business includes, but is not limited to, (i)
engaging in a business as owner, partner, or agent, (ii) becoming an employee of
any third party that is engaged in such business, (iii) becoming interested
directly or indirectly in any such business, or (iv) soliciting any customer of
Employer for the benefit of a third party that is engaged in such business.
Employee agrees that this non-compete provision will not adversely affect the
Employee's livelihood. Notwithstanding any of the foregoing provisions of this
paragraph 8, this paragraph 8 shall apply only to products, services and
business lines engaged in by the Employer on the date of Employee's termination.
9. TERM/TERMINATION.
9.1. Employee's employment under this Agreement shall be for three
(3) years, beginning on May 1, 1996.
9.2. If Employee is in violation of this Agreement, Employer may
terminate employment without notice and for cause and with compensation to
Employee only to the date of such termination as provided in paragraph 3 above.
The compensation paid under this Agreement shall be the Employee's exclusive
remedy.
9.3. If this Agreement is terminated by Employer without cause prior
to the end of its Term, Employee shall be paid (i) at the rate of his base
salary as provided in paragraph 3 above at the date of termination for the
period after the termination date through the end of the Term of this Agreement
and (ii) any bonus payment that would have been due Employee for the year in
which Employee was terminated based on the objective criteria established by the
Board of Directors. Such payments shall be paid as and when salary and bonus
payments would have been paid to Employee had Employee not been terminated.
3
<PAGE>
10. NOTICES. All notices required or permitted under this Agreement shall
be in writing and shall be deemed delivered when delivered in person or
deposited in the United States mail, postage paid, addressed as follows:
Employer:
Heartland Communications & Management, Inc.
1320 Old Chain Bridge Road, Suite 220
McLean, Virginia 22101
Employee:
Michael L. Foudy
c/o ATB Productions, L.L.C.
1320 Old Chain Bridge Road, Suite 220
McLean, Virginia 22101
Such addresses may be changed from time to time by either party by providing
written notice in the manner set forth above.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties and there are no other promises or conditions in any other agreement
whether oral or written. This Agreement supersedes any prior written or oral
agreements between the parties.
12. AMENDMENT. This Agreement may be modified or amended, if the
amendment is made in writing and is signed by both parties.
13. SEVERABILITY. If any provisions of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this
Agreement is invalid or unenforceable, but that by limiting such provision it
would become valid or enforceable, then such provision shall be deemed to be
written, construed, and enforced as so limited.
14. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce
any provision of this Agreement shall not be construed as a waiver or limitation
of that party's right to subsequently enforce and compel strict compliance with
every provision of this Agreement.
15. APPLICABLE LAW. This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
4
<PAGE>
16. ARBITRATION. All disputes under this Agreement that cannot be
resolved by the parties shall be submitted to arbitration under the rules and
regulations of the American Arbitration Association with the arbitration to be
held in Washington, D.C. Either party may invoke this paragraph after providing
30 days' written notice to the other party. All costs of arbitration shall be
divided equally between the parties. Any award may be enforced by a court of
law.
Employer:
Heartland Communications & Management, Inc.
1320 Old Chain Bridge Road, Suite 220
McLean, Virginia 22101
By: /s/ Gerald Garcia
------------------
Title: President
AGREED TO AND ACCEPTED
Employee:
/s/ Michael Foudy
- -----------------------
Michael L. Foudy
5
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made effective as of May
1, 1996, by and between Heartland Communications & Management, Inc., (the
"Employer"), and Bradford W. Baker, (the "Employee").
A. Employer is engaged in the business of promoting talk radio
programming, selling program time, providing consulting and financial
services to the communications industry, providing information and
management services and investing in communications and management based
companies, including those engaged in producing print product such as
newspapers, magazines, etc. and those that distribute print product via
the Internet.
B. Employer desires to have the services of the Employee.
C. Employee is willing to be employed by Employer.
Therefore, the parties agree as follows:
1. EMPLOYMENT. Employer shall employ Employee as Secretary and
Treasurer to perform those duties prescribed by the Employer's Articles of
Incorporation and Bylaws and as otherwise directed by the Board of Directors
from time to time. Employee accepts and agrees to such employment, subject
to the general supervision, advice and direction of Employer's Board of
Directors. Employee shall also perform such other duties as are customarily
performed by an employee in a similar position.
2. BEST EFFORTS OF EMPLOYEE. Employee agrees to perform faithfully,
industriously, and to the best of Employee's ability, experience, and
talents, all of the duties that may be required by the express and implicit
terms of this Agreement, to the reasonable satisfaction of Employer. Such
duties shall be provided at such place(s) as the needs, business, or
opportunities of the Employer may require from time to time. It is understood
that Employee will devote most of his time to the business of Creative
Network, Inc. and/or Xpress Ventures, Inc.
3. COMPENSATION OF EMPLOYEE. As compensation for the services provided
by Employee under this Agreement. Employee will receive no base salary, but
will be eligible to participate in a bonus pool to be established by the
Employer and will be eligible for stock options as follows:
A. Base Salary - None.
B. Bonus Compensation - Employer shall establish an annual bonus pool.
The bonus pool shall be subject to the Board of Directors determination,
on an annual basis, of Company criteria (the "Company Criteria") for
establishment of such bonus pool, which shall be based on profitability
and other factors as determined by the Board. Those persons eligible to
participate in this bonus pool shall be designated by the Employer's Board
of
<PAGE>
Directors. Employee shall be entitled to participate in this bonus pool.
The portion of the bonus pool to be allocated to each eligible participant
shall be at the sole discretion of the Board of Directors. The Board of
Directors shall establish at the beginning of each year, individual
objective goals required for each eligible participant to earn a minimum
stated percentage of the bonus pool if the Company Criteria are first met.
If an employee does not meet the goals established for him or her, the
Board, in its sole discretion may allocate none, all or a portion of the
minimum stated percentage to such Employee. If all of the bonus pool is not
allocated because certain Employees failed to meet their goals and were not
allocated all of their minimum stated percentage, the Board in its sole
discretion may allocate all, part or none of the excess bonus pool funds to
other eligible participants.
C. Stock Options - Employee shall be eligible to receive options to buy up
to 25,000 shares of Employer's common voting stock for $.10 per share. The
grant of such options and the terms and conditions, other than price,
thereof shall be at the sole discretion of the Employer's Board of
Directors.
Accrued vacation will be paid in accordance with state law and the Employer's
customary procedures.
4. REIMBURSEMENT FOR EXPENSES IN ACCORDANCE WITH EMPLOYER POLICY. The
Employer will reimburse Employee for "out-of-pocket" expenses in accordance
with Employer policies in effect from time to time.
5. CONFIDENTIALITY. Employee recognizes that Employer has and will
have information regarding products, prices, future plans, business affairs,
processes, trade secrets, technical matters, customer lists, product design,
copyrights and other vital and proprietary information (collectively,
"Information") which are valuable, special and unique assets of Employer.
Employee agrees that the Employee will not at any time or in any manner,
either directly or indirectly, divulge, disclose, or communicate in any
manner any Information to any third party, except in the ordinary performance
of his duties, without the prior written consent of the Employer. Employee
will protect the Information and treat it as strictly confidential. A
violation by Employee of this paragraph shall be a material violation of this
Agreement and will justify legal and/or equitable relief in addition to being
grounds for dismissal for cause.
6. UNAUTHORIZED DISCLOSURE OF INFORMATION. If it appears that
Employee has disclosed (or has threatened to disclose) Information in
violation of this Agreement, Employer shall be entitled to an injunction to
restrain Employee from disclosing, in whole or in part, such Information, or
from providing any services to any party to whom such Information has been
disclosed or may be disclosed. Employer shall not be prohibited by this
provision from pursuing other remedies, including a claim for losses and
damages.
7. CONFIDENTIALITY AFTER TERMINATION OF EMPLOYMENT. The
confidentiality provisions of this Agreement shall remain in full force and
effect for one (1) year after the termination of Employee's employment.
2
<PAGE>
8. NON-COMPETE AGREEMENT. Recognizing that the various items of
Information are special and unique assets of the Company, Employee agrees and
covenants that for a period of one (1) year following the end of the Term of
this Agreement, whether such termination is voluntary or involuntary,
Employee will not directly or indirectly engage in any business competitive
with Employer. This covenant shall apply to all geographical areas in which
the Employer conducts business or from which the Employer otherwise derives
revenues and to Internet delivery of said products and services. Directly or
indirectly engaging in any competitive business includes, but is not limited
to, (i) engaging in a business as owner, partner, or agent, (ii) becoming an
employee of any third party that is engaged in such business, (iii) becoming
interested directly or indirectly in any such business, or (iv) soliciting
any customer of Employer for the benefit of a third party that is engaged in
such business. Employee agrees that this non-compete provision will not
adversely affect the Employee's livelihood. Notwithstanding any of the
foregoing provisions of this paragraph 8, this paragraph 8 shall apply only
to products, services and business lines engaged in by the Employer on the
date of Employee's termination.
9. TERM/TERMINATION.
9.1. Employee's employment under this Agreement shall be for three
(3) years, beginning on May 1, 1996.
9.2. If Employee is in violation of this Agreement, Employer may
terminate employment without notice and for cause and with compensation to
Employee only to the date of such termination as provided in paragraph 3
above. The compensation paid under this Agreement shall be the Employee's
exclusive remedy.
9.3. If this Agreement is terminated by Employer without cause prior
to the end of its Term, Employee shall be paid (i) at the rate of his base
salary as provided in paragraph 3 above at the date of termination for the
period after the termination date through the end of the Term of this
Agreement and (ii) any bonus payment that would have been due Employee for
the year in which Employee was terminated based on the objective criteria
established by the Board of Directors. Such payments shall be paid as and
when salary and bonus payments would have been paid to Employee had Employee
not been terminated.
10. NOTICES. All notices required or permitted under this Agreement
shall be in writing and shall be deemed delivered when delivered in person or
deposited in the United States mail, postage paid, addressed as follows:
Employer:
Heartland Communications & Management, Inc.
1320 Old Chain Bridge Road, Suite 220
McLean, Virginia 22101
3
<PAGE>
Employee:
Bradford W. Baker, President
The Creative Network
516 Union Avenue
Knoxville, Tennessee 37902
Such addresses may be changed from time to time by either party by providing
written notice in the manner set forth above.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties and there are no other promises or conditions in any other
agreement whether oral or written. This Agreement supersedes any prior
written or oral agreements between the parties.
12. AMENDMENT. This Agreement may be modified or amended, if the
amendment is made in writing and is signed by both parties.
13. SEVERABILITY. If any provisions of this Agreement shall be held to
be invalid or unenforceable for any reason, the remaining provisions shall
continue to be valid and enforceable. If a court finds that any provision of
this Agreement is invalid or unenforceable, but that by limiting such
provision it would become valid or enforceable, then such provision shall be
deemed to be written, construed, and enforced as so limited.
14. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce
any provision of this Agreement shall not be construed as a waiver or
limitation of that party's right to subsequently enforce and compel strict
compliance with every provision of this Agreement.
15. APPLICABLE LAW. This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
16. ARBITRATION. All disputes under this Agreement that cannot be
resolved by the parties shall be submitted to arbitration under the rules and
regulations of the American Arbitration Association with the arbitration to
be held in Washington, D.C. Either party may invoke this paragraph after
providing 30 days' written notice to the other party. All costs of
arbitration shall be divided equally between the parties. Any award may be
enforced by a court of law.
4
<PAGE>
Employer:
Heartland Communications & Management, Inc.
1320 Old Chain Bridge Road, Suite 220
McLean, Virginia 22101
By: /s/ Gerald Garcia
------------------------------------
Title: President
---------------------------------
AGREED TO AND ACCEPTED
Employee:
/s/ Bradford W. Baker
- ---------------------------------------
Bradford W. Baker
5
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made effective as of May
1, 1996, by and between Heartland Communications & Management, Inc., (the
"Employer"), and Bradley B. Niemcek, (the "Employee").
A. Employer is engaged in the business of promoting talk radio
programming, selling program time, providing consulting and financial
services to the communications industry, providing information and
management services and investing in communications and management based
companies, including those engaged in producing print product such as
newspapers, magazines, etc. and those that distribute print product via
the Internet.
B. Employer desires to have the services of the Employee.
C. Employee is willing to be employed by Employer.
Therefore, the parties agree as follows:
1. EMPLOYMENT. Employer shall employ Employee as Vice
President/Operations and to perform those duties prescribed by the Employer
from time to time. Employee accepts and agrees to such employment.
Employee shall also perform (i) such other duties as are customarily
performed by an employee in a similar position, and (ii) such other and
unrelated services and duties as may be assigned to Employee from time to
time by Employer's Board of Directors.
2. BEST EFFORTS OF EMPLOYEE. Employee agrees to perform faithfully,
industriously, and to the best of Employee's ability, experience, and
talents, all of the duties that may be required by the express and implicit
terms of this Agreement, to the reasonable satisfaction of Employer. Such
duties shall be provided at such place(s) as the needs, business, or
opportunities of the Employer may require from time to time. It is understood
that Employee will devote up to 50% of his time to the business of ATB
Productions, L.L.C. ("ATB") subject to the ongoing approval and direction of
the Board of Directors. Employee will not be due any additional compensation
for such services to ATB and Employer may be reimbursed or otherwise
compensated by ATB for such services.
3. COMPENSATION OF EMPLOYEE. As compensation for the services provided
by Employee under this Agreement, Employer will pay Employee.
A. Base Salary - a base annual salary of $60,000.00 payable in
accordance with Employer's regular payroll procedures. Upon termination of
this Agreement by Employee or by the Employer for cause, payments under this
paragraph shall cease; provided, however, that the Employee shall be
entitled to payments for periods or partial periods that occurred prior to
the date of termination and for which the Employee has not yet been paid.
Upon termination of this Agreement by Employer without cause prior to the
end of its Term as stated in paragraph 9 below, Employee shall be paid at
the rate of his base salary at the date
<PAGE>
of termination for the period after the termination through the end of the
Term of this Agreement. Such payments shall be paid as and when salary
payments would have been paid to Employee had Employee not been terminated.
B. Bonus Compensation - Employer shall establish an annual bonus pool. The
bonus pool shall be subject to the Board of Directors determination, on an
annual basis, of Company criteria (the "Company Criteria") for establishment
of such bonus pool, which shall be based on profitability and other factors
as determined by the Board. Those persons eligible to participate in this
bonus pool shall be designated by the Employer's Board of Directors.
Employee shall be entitled to participate in this bonus pool. The portion
of the bonus pool to be allocated to each eligible participant shall be at
the sole discretion of the Board of Directors. The Board of Directors shall
establish at the beginning of each year, individual objective goals required
for each eligible participant to earn a minimum stated percentage of the
bonus pool if the Company Criteria are first met. If an employee does not
meet the goals established for him or her, the Board, in its sole discretion
may allocate none, all or a portion of the minimum stated percentage to such
Employee. If all of the bonus pool is not allocated because certain
Employees failed to meet their goals and were not allocated all of their
minimum stated percentage, the Board in its sole discretion may allocate
all, part or none of the excess bonus pool funds to other eligible
participants.
C. Stock Options - Employee shall be eligible to receive options to buy
up to 25,000 shares of Employer's common voting stock for $.10 per share.
The grant of such options and the terms and conditions, other than price,
thereof shall be at the sole discretion of the Employer's Board of
Directors.
D. If Employee is employed by the Employer three years from the date
hereof, the Company will issue 75,000 shares of Employer's voting common
stock to Employee.
Accrued vacation will be paid in accordance with state law and the Employer's
customary procedures.
4. REIMBURSEMENT FOR EXPENSES IN ACCORDANCE WITH EMPLOYER POLICY. The
Employer will reimburse Employee for "out-of-pocket" expenses in accordance
with Employer policies in effect from time to time.
5. CONFIDENTIALITY. Employee recognizes that Employer has and will
have information regarding products, prices, future plans, business affairs,
processes, trade secrets, technical matters, customer lists, product design,
copyrights and other vital and proprietary information (collectively,
"Information") which are valuable, special and unique assets of Employer.
Employee agrees that the Employee will not at any time or in any manner,
either directly or indirectly, divulge, disclose, or communicate in any
manner any Information to any third party, except in the ordinary performance
of his duties, without the prior written consent of the Employer. Employee
will protect the Information and treat it as strictly confidential. A
violation by Employee
2
<PAGE>
of this paragraph shall be a material violation of this Agreement and will
justify legal and/or equitable relief in addition to being grounds for
dismissal for cause.
6. UNAUTHORIZED DISCLOSURE OF INFORMATION. If it appears that
Employee has disclosed (or has threatened to disclose) Information in
violation of this Agreement, Employer shall be entitled to an injunction to
restrain Employee from disclosing, in whole or in part, such Information, or
from providing any services to any party to whom such Information has been
disclosed or may be disclosed. Employer shall not be prohibited by this
provision from pursuing other remedies, including a claim for losses and
damages.
7. CONFIDENTIALITY AFTER TERMINATION OF EMPLOYMENT. The
confidentiality provisions of this Agreement shall remain in full force and
effect for one (1) year after the termination of Employee's employment.
8. NON-COMPETE AGREEMENT. Recognizing that the various items of
Information are special and unique assets of the Company, Employee agrees and
covenants that for a period of one (1) year following the end of the Term of
this Agreement, whether such termination is voluntary or involuntary,
Employee will not directly or indirectly engage in any business competitive
with Employer. This covenant shall apply to all geographical areas in which
the Employer conducts business or from which the Employer otherwise derives
revenues and to Internet delivery of said products and services. Directly or
indirectly engaging in any competitive business includes, but is not limited
to, (i) engaging in a business as owner, partner, or agent, (ii) becoming an
employee of any third party that is engaged in such business, (iii) becoming
interested directly or indirectly in any such business, or (iv) soliciting
any customer of Employer for the benefit of a third party that is engaged in
such business. Employee agrees that this non-compete provision will not
adversely affect the Employee's livelihood. Notwithstanding any of the
foregoing provisions of this paragraph 8, this paragraph 8 shall apply only
to products, services and business lines engaged in by the Employer on the
date of Employee's termination.
9. TERM/TERMINATION.
9.1. Employee's employment under this Agreement shall be for three
(3) years, beginning on May 1, 1996.
9.2. If Employee is in violation of this Agreement, Employer may
terminate employment without notice and for cause and with compensation to
Employee only to the date of such termination as provided in paragraph 3
above. The compensation paid under this Agreement shall be the Employee's
exclusive remedy.
9.3. If this Agreement is terminated by Employer without cause prior
to the end of its Term, Employee shall be paid (i) at the rate of his base
salary as provided in paragraph 3 above at the date of termination for the
period after the termination date through the end of the Term of this
Agreement and (ii) any bonus payment that would have been due Employee for
the year in which Employee was terminated based on the objective criteria
established by the Board of Directors.
3
<PAGE>
Such payments shall be paid as and when salary and bonus payments would have
been paid to Employee had Employee not been terminated.
10. NOTICES. All notices required or permitted under this Agreement
shall be in writing and shall be deemed delivered when delivered in person or
deposited in the United States mail, postage paid, addressed as follows:
Employer:
Heartland Communications & Management, Inc.
1320 Old Chain Bridge Road, Suite 220
McLean, Virginia 22101
Employee:
Bradley B. Niemcek
c/o Heartland Communications & Management, Inc.
1320 Old Chain Bridge Road, Suite 220
McLean, Virginia 22101
Such addresses may be changed from time to time by either party by providing
written notice in the manner set forth above.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties and there are no other promises or conditions in any other
agreement whether oral or written. This Agreement supersedes any prior
written or oral agreements between the parties.
12. AMENDMENT. This Agreement may be modified or amended, if the
amendment is made in writing and is signed by both parties.
13. SEVERABILITY. If any provisions of this Agreement shall be held to
be invalid or unenforceable for any reason, the remaining provisions shall
continue to be valid and enforceable. If a court finds that any provision of
this Agreement is invalid or unenforceable, but that by limiting such
provision it would become valid or enforceable, then such provision shall be
deemed to be written, construed, and enforced as so limited.
14. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce
any provision of this Agreement shall not be construed as a waiver or
limitation of that party's right to subsequently enforce and compel strict
compliance with every provision of this Agreement.
15. APPLICABLE LAW. This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
4
<PAGE>
16. ARBITRATION. All disputes under this Agreement that cannot be
resolved by the parties shall be submitted to arbitration under the rules and
regulations of the American Arbitration Association with the arbitration to
be held in Washington, D.C. Either party may invoke this paragraph after
providing 30 days' written notice to the other party. All costs of
arbitration shall be divided equally between the parties. Any award may be
enforced by a court of law.
Employer:
Heartland Communications & Management, Inc.
1320 Old Chain Bridge Road, Suite 220
McLean, Virginia 22101
By: /s/ Gerald Garcia
-----------------------------------------
Title: President
-----------------------------------------
AGREED TO AND ACCEPTED
Employee:
/s/ Bradley B. Niemcek
- ------------------------------------------------
Bradley B. Niemcek
5
<PAGE>
EXHIBIT 10.6
ASSIGNMENT AGREEMENT
For good and valuable consideration, the undersigned hereby
unconditionally and irrevocably assigns and transfers over to HEARTLAND
COMMUNICATIONS & MANAGEMENT, INC. and its successors and assigns all rights,
title, and interest in and to the contracts, intellectual property (including
tradenames, trademarks, service marks and goodwill, if any) and other
property listed on Schedule A attached hereto and made a part hereof.
The undersigned Assignor warrants that the said contracts listed on
Schedule A are in full force and effect in the form and terms annexed and
that the contracts are fully assignable or that Assignor has received any
necessary permission for such assignment.
The Assignee assumes and agrees to perform all the remaining and
executory obligations of the Assignor under the assigned contracts and to
indemnify and hold Assignor harmless from any claim or demand resulting from
nonperformance thereon by the Assignee. The Assignee acknowledges and agrees
that the performance obligations associated with the assigned contracts are
substantial and that Assignee could incur material losses if it fails or does
not efficiently perform such obligations.
The Assignee assumes no liabilities of the undersigned unless listed on a
Schedule B which shall be attached hereto and made a part hereof, if
applicable.
The Assignee is entitled to all monies and other benefits accrued or
remaining to be paid under the assigned contracts, which rights are also
assigned hereunder. Assignor warrants that it has full rights and full
authority to make this assignment and transfer. The undersigned also warrants
that the rights and benefits assigned hereunder are free and clear of any
liens, encumbrances, adverse claims, or interest. In addition, the Assignor
also warrants that it has no knowledge of any disputes or defenses thereon.
This assignment shall be binding upon and inure to the benefit of the
parties, their successors, assigns, and personal representatives.
Signed under seal this 17th day of May 1996.
Assignor: HEARTLAND CAPITAL CORPORATION
BY /s/ Michael Foudy
-------------------------------------
TITLE E. V. Pres.
----------------------------------
Assignee: HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
BY /s/ Gerald Garcia
-------------------------------------
TITLE President
----------------------------------
<PAGE>
ASSIGNMENT AGREEMENT
SCHEDULE A
1. Teen Magazine Venture Agreement dated as of April 1, 1996
2. National Sports Magazine Venture Agreement dated as of April 1, 1996
3. Representation Agreement dated as of January 1, 1995
<PAGE>
EXHIBIT 10.61
TEEN MAGAZINE
VENTURE AGREEMENT
This Agreement is made effective as of April 1, 1996 between Xpress
Ventures, Inc. ("XVI") and Heartland Capital Corporation ("HCC").
The parties agree as follows:
1. ENTITY FORMATION; BUSINESS TO BE CONDUCTED. XVI and HCC will jointly
form a limited liability company (the "Company") to further develop, market,
distribute and otherwise operate a business to market and distribute worldwide a
newspaper supplement specialty teen magazine to be named by the Company. The
Company name shall be chosen by mutual agreement of the parties.
2. CONTRIBUTION OF THE PARTIES.
A. XVI shall contribute to the Company its License Agreement dated
as of January 1, 1996 in connection with the teen magazine supplement
sometimes referred to as Xpress.
B. HCC shall commit to contribute $2,300,000 cash, contingent on
raising $5,000,000 in a public offering of HCC common stock.
3. PROFIT SHARING INTEREST; CAPITAL INTEREST. XVI and HCC shall share
equally (50/50) in all items of income, expense, gain, loss and capital of the
new entity.
4. OPERATING AGREEMENT. The parties agree to negotiate and execute a
written operating agreement. Such operating agreement shall contain the below
listed terms and conditions as well as others that the parties mutually agree to
include.
A. COMPANY MANAGEMENT. The Company shall be managed by its members.
However, the members shall have the authority, by majority vote thereof
subject to provisions of the Company Operating Agreement, to elect or
appoint managers or officers to conduct the day-to-day business of the
Company.
B. CHIEF EXECUTIVE OFFICER. XVI shall have the right to name the
Company's chief executive officer who shall be its President. Said
President shall have such power and authority as is normal for a President
of a corporation formed under Virginia law, including the right to hire and
fire operating personnel and operations support staff, all subject to the
approval of the chief financial officer, which approval may not be
unreasonably withheld. For purposes of the preceding sentence and
subparagraph C of this paragraph 4, any non-approval for any reason other
than a sound financial reason will be deemed unreasonable.
<PAGE>
C. FINANCIAL OFFICERS; OUTSIDE ACCOUNTANTS/AUDITORS. HCC shall
have the right to name the Company's chief financial officer or employee,
who shall have the right to hire and fire financial and administrative
personnel subject to the approval of the President (which approval may not
be unreasonably withheld); HCC shall also have the right to name the
Company's outside independent accountant/auditors subject to the reasonable
approval of XVI.
D. UNANIMOUS CONSENT OF MANAGING MEMBERS. The following actions
shall require the unanimous consent of the Managing Members:
1. Sale of tangible or intangible Company assets outside the
ordinary course of business.
2. The borrowing of money over and above a revolving credit
line that shall be established by mutual agreement of the Managing
Members.
3. Entering into contracts with parties related to the members
or their employees, officers or directors.
4. Changing the compensation of the chief executive officer,
executive vice president or chief financial officer.
5. Entering into contracts to acquire furniture, fixtures,
equipment, goods or services lasting more than one year or with a
dollar value in excess of $50,000.
6. Entering into any lease or rental agreement for more than
eighteen months.
7. Modification of the Operating Agreement.
E. ARBITRATION. All disputes under this Operating Agreement that
cannot be resolved by the parties shall be submitted to arbitration under
the rules and regulations of the American Arbitration Association with the
arbitration to be held in Washington, D.C. Either party may invoke this
paragraph after providing 30 days' written notice to the other party. All
costs of arbitration shall be divided equally between the parties. Any
award may be enforced by a court of law.
F. RESTRICTIONS ON TRANSFER BY MEMBERS. Except as specifically
authorized in this Operating Agreement or as approved in writing by all the
Members, none of the Members shall or may sell, exchange, deliver or
assign, dispose of, bequeath or give, pledge, mortgage, hypothecate or
otherwise encumber, transfer or permit to be transferred, whether
voluntarily, involuntarily or by operation of law (including, without
limitation, under the laws of bankruptcy, insolvency, creditors' rights,
intestacy, descent and distribution and
2
<PAGE>
succession), all or any of the Member Interests now owned or hereafter
acquired by such Member.
G. RIGHTS OF FIRST REFUSAL:
1. RECEIPT OF BONA FIDE OFFER. In the event that a Member
shall receive a legally enforceable offer in writing containing
appropriate terms and conditions (a "Bona Fide Offer") to purchase all
(but not less than all) of such Member's Member Interests and in the
further event that such Member shall desire to accept such Bona Fide
Offer, such Member (hereinafter in this paragraph G.1. referred to as
the "Offering Member") shall promptly send notice to the Company and
to all Members except the Offering Member (such Members shall be, for
the purposes of this paragraph G.1., the "Other Members), offering to
sell the Offering Member's Member Interests to the Company and to the
Other Members at the same price and upon the same terms and conditions
as are contained in the Bona Fide Offer. The Company and the Other
Members shall then have such rights and privileges, for the prescribed
time periods, as are set forth in paragraph G.2. hereof. Without
limitation of the provisions in paragraph G.1. hereof, no Member shall
or may sell, transfer, encumber or otherwise dispose of his Member
Interests except pursuant to a Bona Fide Offer (subject to the
provisions of this paragraph G.) unless otherwise specifically
authorized by this Operating Agreement.
2. PROCEDURE.
2.1. Whenever, under paragraph G.1. hereof, a Bona Fide
Offer to purchase Member Interests has been received and notice
of the Bona Fide Offer has been sent by the Offering Member, the
following procedure shall be complied with: For a period of 30
days from its receipt of such notice, the Company shall have the
right to elect to purchase all or any part of the Member
Interests so offered; provided, however, that an election by the
Company to purchase less than all of the Member Interests so
offered shall be ineffective unless the Other Members shall
purchase the balance of the Member Interests so offered. If the
Company shall not elect to purchase all of the Member Interests
so offered within such 30 day period (for any reason other than
the Offering Member's default hereunder), then the Other Members
shall each have the right, at each Other Member's sole option,
for a period of 30 days after the expiration of such 30 day
period, to elect to purchase all (but not less than all) of the
Member Interests offered as aforesaid to the Company and not
elected to be purchased by the Company, on a pro rata basis
(i.e., in proportion to their respective Member Interests
ownership) or in such other manner as they shall agree upon.
2.2. If the Company and/or any of the Other Members, as the
case may be, elect to exercise any option as set forth in
paragraph G.2.1. above,
3
<PAGE>
the electing party or parties shall provide notice of such
election(s) to the Offering Member within their respective
election period(s). For purposes of this paragraph G.2.2., the
purchaser(s) of Member Interests whether it be the Company and/or
any of the Other Members, may sometimes hereinafter be referred
to individually or collectively, as the case may be, as the
"Interest Purchaser(s)." If the Company and any of the Other
Members together constitute the Interest Purchaser(s), then they
shall act in tandem (but not as guarantors of each other) to
fulfill the obligations of the Interest Purchaser hereinafter set
forth. Settlement shall be held on the purchase of the Offering
Member's Member Interests under this paragraph G. at the
principal office of the Company or its current legal counsel at
such time and date as shall be specified in the notice sent by
the Interest Purchaser of the exercise of its (and/or his) option
pursuant to this paragraph G.2. (which date shall not be earlier
than 30 days, nor more than 120 days, after the Company's receipt
of the Offering Member's notice describing the Bona Fide Offer).
At settlement on the purchase of the Offering Member's Member
Interest under this paragraph G., the Offering Member shall
resign as a Managing Member and/or officer of the Company (if
applicable) and shall deliver to the Interest Purchaser(s) all of
the Certificates of Member Interest owned by him to the current
legal counsel for the Company. The Interest Purchaser(s) shall
deliver to the Offering Member the consideration stated in its
(and/or his) notice electing to exercise the option(s) set forth
hereinabove.
2.3. If the Company and the Other Members shall not,
individually or together, purchase (for reasons other than the
Offering Members's default hereunder), within the prescribed time
periods, all of the Member Interests covered by the Bona Fide
Offer, then the Offering Member shall have the right to accept
the Bona Fide Offer in whole (but not in part) and to sell such
Member Interests, subject to all of the provisions and
restrictions of this Operating Agreement, but only in strict
accordance with all of the provisions of the Bona Fide Offer and
only if the sale is fully consummated within 180 days after the
Company's receipt of the Offering Member's notice pursuant to
paragraph G.1. hereof. In the event that such sale is not fully
consummated within 180 days after the Company's receipt of the
Offering Member's notice pursuant to paragraph F hereof, the
provisions of this paragraph G. must again be complied with by
the Offering Member before the Offering Member may sell or
otherwise dispose of his Member Interests pursuant to this
paragraph G.
4
<PAGE>
H. DEADLOCK RESOLUTION:
1. PUSH-SHOVE; SALE OR PURCHASE.
1.1. In the event of a Deadlock (as defined below) in the
management of the Company between groups of Members owning an
equal number of Member Interests, the Members shall exercise
their best efforts to resolve such deadlock through negotiation.
For the purposes of this paragraph H., "Deadlock" shall mean
that, following a good faith effort at mediation, the Managing
Members or officers are still deadlocked in the management of the
Company affairs, the Members are still unable to break the
deadlock, and irreparable injury to the Company is threatened or
being suffered, or the business and affairs of the Company can no
longer be conducted to the advantage of the Members generally,
because of the deadlock. In the event of Deadlock, either group
(in either case, the "Initiating Group") may give notice to the
other group (the "Offeree Group") that the Initiating Group,
jointly and severally, desires either (i) to purchase all (but
not less than all) of the Member Interests held by the Offeree
Group or (ii) to sell all (but not less than all) of the
Initiating Group's Member Interests to the Offeree Group. Such
notice shall designate a price per Member Interests and such
other reasonable terms and conditions pursuant to which the
Initiating Group is willing either to purchase or sell the Member
Interests as aforesaid. Simultaneously with the sending of such
notice, the Initiating Group shall deposit in escrow by cashier's
or certified check with the independent or certified public
accountant then servicing the Company (such person hereinafter
referred to as "Escrow Agent"), who shall act as a bona fide
Escrow Agent, an amount equal to five percent of the total price
offered for all of the Member Interests held by the Offeree
Group.
1.2. Within 90 days after receipt of the notice from the
Initiating Group pursuant to paragraph G1.1., the Offeree Group
shall elect either (i) to sell all (but not less than all) of the
Offeree Group's Member Interests to the Initiating Group at the
previously designated price per share and terms and conditions,
or (ii) at the Offeree Group's sole option, to purchase all (but
not less than all) of the Member Interests of the Initiating
Group at the designated price per share and terms and conditions.
Such election shall be made by notice to the Initiating Group and
to the Escrow Agent. In the event that the Offeree Group elects
to purchase all (but not less than all) of the Member Interests
of the Initiating Group, then simultaneously with the sending of
such notice, the Offeree Group shall deposit in escrow with the
Escrow Agent an amount equal to five percent of the total price
for all of the Member Interests of the Initiating Group.
5
<PAGE>
1.3. In the event that the Offeree Group shall elect, under
or pursuant to paragraph H.1.1., to purchase all (but not less
than all) of the Member Interests of the Initiating Group, the
Escrow Agent shall promptly return to the Initiating Group the
deposit placed by the Initiating Group in escrow. The failure or
refusal by the Offeree Group to elect either alternative afforded
the Offeree Group under and pursuant to this paragraph H.1.1.,
and/or the failure or refusal by the Offeree Group to comply
fully, within the prescribed time periods, with all provisions of
this paragraph H.1.1., shall be conclusively deemed for purposes
of this paragraph H.1.1. to constitute its electing, jointly and
severally, to sell all (but not less than all) of the Offeree
Group's Member Interests to the Initiating Group at the
previously designated price per Member Interests and terms and
conditions.
2. SETTLEMENT. Subject to the provisions of paragraph H.3.,
settlement on the purchase of all (but not less than all) of either
the Initiating Group or the Offeree Group (as the case may be) under
this Article 6 shall be held at the principal office of the Company
within 60 days after the expiration of the 90 day period set forth in
paragraph H.1.2. hereof or within 60 days after the Offeree Group's
election, by the notice specified in H.1.2. hereof, whichever occurs
sooner, upon the following terms and conditions: the entire purchase
price for the Member Interests being conveyed (less the amount
previously placed in escrow, which amount shall be released by the
Escrow Agent at settlement to the group whose Member Interests is
being so conveyed) shall be paid in cash or by cashier's or certified
check at settlement. Upon settlement, any officer or Managing Member
whose Member Interests is being so conveyed shall resign as officer of
Managing Member of the Company (if applicable) and shall have no
further interest or claim to or against the Company or its assets or
property, tangible or intangible, liquid or illiquid. Upon the
consummation of such settlement, the individuals or entities whose
Member Interests is being purchased shall cease to own or hold any
Member Interests, shall no longer be Members, and shall be entitled
only to the purchase price described in this paragraph H. in respect
of the transferred
3. GUARANTEED OBLIGATIONS. Notwithstanding the foregoing
provisions of this paragraph H., if the Company, at the time the
"push-shove" procedure herein is invoked, has outstanding obligations
that are personally guaranteed by a Member that is part of a group
that is otherwise obligated to sell its Member Interests pursuant to
this paragraph H., such group shall not be required to consummate such
sale unless and until all members included in such selling group are
released from their respective personal guaranties on such guaranteed
debt by the creditor thereof, or in lieu thereof, such indemnification
of the selling group by the purchasing group is provided as shall be
consented to by the selling group, which consent shall not be
unreasonably withheld.
6
<PAGE>
5. ARBITRATION. All disputes under this Agreement that cannot be
resolved by the parties shall be submitted to arbitration under the rules and
regulations of the American Arbitration Association with the arbitration to be
held in Washington, D.C. Either party may invoke this paragraph after providing
30 days' written notice to the other party. All costs of arbitration shall be
divided equally between the parties. Any award may be enforced by a court of
law.
6. DEFAULTS. If XVI fails to abide by the obligations of this
Agreement, HCC shall have the option to cancel this Agreement by providing 45
days' written notice to XVI. XVI shall have the option of preventing the
termination of this Agreement by taking corrective action that cures the
default, if such corrective action is taken prior to the end of the time period
stated in the previous sentence, and if there are no other defaults during such
time period.
7. TRANSFER OF RIGHTS. This Agreement shall be binding on any
successors of the parties. Neither party shall have the right to assign its
interests in this Agreement to any other party, unless the prior written consent
of the other party is obtained.
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties and there are no other promises or conditions in any other agreement
whether oral or written. This Agreement supersedes any prior written or oral
agreements between the parties.
9. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this
Agreement is invalid or unenforceable, but that by limiting such provision it
would become valid or enforceable, then such provision shall be deemed to be
written, construed, and enforced as so limited.
10. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce
any provision of this Agreement shall not be construed as a waiver or limitation
of that party's right to subsequently enforce and compel strict compliance with
every provision of this Agreement
11. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Virginia.
7
<PAGE>
HEARTLAND CAPITAL CORPORATION, INC.
By: /s/ Michael Foudy
------------------------------------------
Title: Exec. VP.
------------------------------------------
XPRESS VENTURES, INC.
By: /s/ Brad Baker
------------------------------------------
Title: President
------------------------------------------
8
<PAGE>
EXHIBIT 10.611
LICENSE AGREEMENT
This License Agreement (this "Agreement") is made effective as of January
1, 1996 between Gerald Garcia and Bradford W. Baker, as joint owners of the
Intellectual Property (defined below), and Xpress Ventures, Inc. ("XVI"), a
corporation incorporated under the laws of the State of Tennessee.
In this Agreement, the party who is granting the right to use the licensed
property will be referred to as "Licensor", and the party who is receiving the
right to use the licensed property will be referred to as "XVI".
The parties agree as follows:
1. GRANT OF LICENSE. Licensor owns certain intellectual property
rights in connection with the development of the specialty newspaper supplement
to be marketed to teenagers and marketed under the business name Xpress
Ventures, including, but not limited to, all copyrights, trademarks, tradenames,
business marks, business and marketing concepts and procedures and any other
intellectual property or proprietary information in connection therewith,
including goodwill, now existing or obtained or developed in connection
therewith in the future. ("Intellectual Property"). In accordance with this
Agreement, Licensor grants XVI an exclusive license to use, sell or
otherwise exploit the Intellectual Property. This grant of license only
applies worldwide and to distribution via the Internet.
2. PAYMENT OF ROYALTY. XVI will pay to Licensor a royalty which shall
be calculated as follows: 5% of the gross cash receipts received by XVI. The
royalty shall be paid quarterly on the 15th day of the month following the end
of any calendar quarter for which a royalty payment is due. With each royalty
payment, XVI will submit to Licensor a written report that sets forth the
calculation of the amount of the royalty payment.
3. DEFAULTS. If XVI fails to abide by the obligations of this
Agreement, including the obligation to make a royalty payment when due,
Licensor shall have the option to cancel this Agreement by providing 45 days'
written notice to XVI. XVI shall have the option of preventing the termination
of this Agreement by taking corrective action that cures the default, if such
corrective action is taken prior to the end of the time period stated in the
previous sentence, and if there are no other defaults during such time period.
4. ARBITRATION. All disputes under this Agreement that cannot be
resolved by the parties shall be submitted to arbitration under the rules and
regulations of the American Arbitration Association. Either party may invoke
this paragraph after providing 45 days' written notice to the other party. All
costs of arbitration shall be divided equally between the parties. Any award
may be enforced by a court of law.
5. WARRANTIES. Neither party makes any warranties with respect to the
use, sale or other transfer of the Intellectual Property by the other party or
by any third party. In no event
<PAGE>
will Licensor be liable for direct, indirect, special, incidental, or
consequential damages, that are in any way related to the Intellectual
Property.
6. TRANSFER OF RIGHTS. This Agreement shall be binding on any
successors of the parties. Neither party shall have the right to assign its
interests in this Agreement to any other party, unless the prior written consent
of the other party is obtained.
7. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties and there are no other promises or conditions in any other agreement
whether oral or written. This Agreement supersedes any prior written or oral
agreements between the parties.
8. AMENDMENT. This Agreement may be modified or amended, if the
amendment is made in writing and is signed by both parties.
9. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this
Agreement is invalid or unenforceable, but that by limiting such provision it
would become valid or enforceable, then such provision shall be deemed to be
written, construed, and enforced as so limited.
10. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce
any provision of this Agreement shall not be construed as a waiver or limitation
of that party's right to subsequently enforce and compel strict compliance with
every provision of this Agreement.
12. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee.
Licensor:
Gerald Garcia and Bradford W. Baker, Jointly
/s/ Brad Baker
- ----------------------------------------------------
Brad Baker
/s/ Gerald Garcia
- ----------------------------------------------------
Gerald Garcia
<PAGE>
Licensee:
Xpress Ventures, Inc.
By: /s/ Brad Baker
-----------------------------------
Title: President
-----------------------------------
<PAGE>
EXHIBIT 10.62
NATIONAL SPORTS MAGAZINE
VENTURE AGREEMENT
This Agreement is made effective as of April 1, 1996 between Xpress
Ventures, Inc. ("XVI") and Heartland Capital Corporation ("HCC").
The parties agree as follows:
1. ENTITY FORMATION; BUSINESS TO BE CONDUCTED. XVI and HCC will jointly
form a limited liability company (the "Company") to further develop, market,
distribute and otherwise operate a business to market and distribute worldwide a
newspaper supplement specialty national sports magazine to be named by the
Company. The Company name shall be chosen by mutual agreement of the parties.
2. CONTRIBUTION OF THE PARTIES.
A. XVI shall contribute to the Company its License Agreement dated
as of January 1, 1996 in connection with the teen magazine supplement
sometimes referred to as Xpress.
B. HCC commits to contribute $4,737,500 cash, contingent on raising
$12,500,000 in a public offering of HCC common stock. HCC commits to
contribute up to an additional $6,862,500 if it raises $25,000,000 in a
public offering of HCC common stock.
3. PROFIT SHARING INTEREST; CAPITAL INTEREST. XVI and HCC shall share
equally (50/50) in all items of income, expense, gain, loss and capital of the
new entity.
4. OPERATING AGREEMENT. The parties agree to negotiate and execute a
written operating agreement similar in form to Exhibit A attached. Such
operating agreement shall contain the following terms and conditions.
A. COMPANY MANAGEMENT. The Company shall be managed by its members.
However, the members shall have the authority, by majority vote thereof, to
elect or appoint managers or officers to conduct the day-to-day business of
the Company.
B. CHIEF EXECUTIVE OFFICER. XVI shall have the right to name the
Company's chief executive officer who shall be its President. Said
President shall have such power and authority as is normal for a President
of a corporation formed under Virginia law, including the right to hire and
fire operating personnel and operations support staff, all subject to the
approval of the chief financial officer, which approval may not be
unreasonably withheld. For purposes of the preceding sentence and
subparagraph C of this paragraph 4, any non-approval for any reason other
than a sound financial reason will be deemed unreasonable.
<PAGE>
C. FINANCIAL OFFICERS; OUTSIDE ACCOUNTANTS/AUDITORS. HCC shall
have the right to name the Company's chief financial officer or employee,
who shall have the right to hire and fire financial and administrative
personnel subject to the approval of the President, which approval may not
be unreasonably withheld; HCC shall also have the right to name the
Company's outside independent accountant/auditors subject to the reasonable
approval of XVI.
D. UNANIMOUS CONSENT OF MANAGING MEMBERS. The following actions
shall require the unanimous consent of the Managing Members:
1. Sale of tangible or intangible Company assets outside the
ordinary course of business.
2. The borrowing of money over and above a revolving credit
line that shall be established by mutual agreement of the Managing
Members.
3. Entering into contracts with parties related to the members
or their employees, officers or directors.
4. Changing the compensation of the chief executive officer,
executive vice president or chief financial officer.
5. Entering into contracts to acquire furniture, fixtures,
equipment, goods or services lasting more than one year or with a
dollar value in excess of $50,000.
6. Entering into any lease or rental agreement for more than
eighteen months.
7. Modification of the Operating Agreement.
E. ARBITRATION. All disputes under this Operating Agreement that
cannot be resolved by the parties shall be submitted to arbitration under
the rules and regulations of the American Arbitration Association with the
arbitration to be held in Washington, D.C. Either party may invoke this
paragraph after providing 30 days' written notice to the other party. All
costs of arbitration shall be divided equally between the parties. Any
award may be enforced by a court of law.
F. RESTRICTIONS ON TRANSFER BY MEMBERS. Except as specifically
authorized in this Operating Agreement or as approved in writing by all the
Members, none of the Members shall or may sell, exchange, deliver or
assign, dispose of, bequeath or give, pledge, mortgage, hypothecate or
otherwise encumber, transfer or permit to be transferred, whether
voluntarily, involuntarily or by operation of law (including, without
limitation, under the laws of bankruptcy, insolvency, creditors' rights,
intestacy, descent and distribution and
2
<PAGE>
succession), all or any of the Member Interests now owned or hereafter
acquired by such Member.
G. RIGHTS OF FIRST REFUSAL:
1. RECEIPT OF BONA FIDE OFFER. In the event that a Member
shall receive a legally enforceable offer in writing containing
appropriate terms and conditions (a "Bona Fide Offer") to purchase all
(but not less than all) of such Member's Member Interests and in the
further event that such Member shall desire to accept such Bona Fide
Offer, such Member (hereinafter in this paragraph G.1. referred to as
the "Offering Member") shall promptly send notice to the Company and
to all Members except the Offering Member (such Members shall be, for
the purposes of this paragraph G.1., the "Other Members), offering to
sell the Offering Member's Member Interests to the Company and to the
Other Members at the same price and upon the same terms and conditions
as are contained in the Bona Fide Offer. The Company and the Other
Members shall then have such rights and privileges, for the prescribed
time periods, as are set forth in paragraph G.2. hereof. Without
limitation of the provisions in paragraph G.1. hereof, no Member shall
or may sell, transfer, encumber or otherwise dispose of his Member
Interests except pursuant to a Bona Fide Offer (subject to the
provisions of this paragraph G.) unless otherwise specifically
authorized by this Operating Agreement.
2. PROCEDURE.
2.1. Whenever, under paragraph G.1. hereof, a Bona Fide
Offer to purchase Member Interests has been received and notice
of the Bona Fide Offer has been sent by the Offering Member, the
following procedure shall be complied with: For a period of 30
days from its receipt of such notice, the Company shall have the
right to elect to purchase all or any part of the Member
Interests so offered; provided, however, that an election by the
Company to purchase less than all of the Member Interests so
offered shall be ineffective unless the Other Members shall
purchase the balance of the Member Interests so offered. If the
Company shall not elect to purchase all of the Member Interests
so offered within such 30 day period (for any reason other than
the Offering Member's default hereunder), then the Other Members
shall each have the right, at each Other Member's sole option,
for a period of 30 days after the expiration of such 30 day
period, to elect to purchase all (but not less than all) of the
Member Interests offered as aforesaid to the Company and not
elected to be purchased by the Company, on a pro rata basis
(i.e., in proportion to their respective Member Interests
ownership) or in such other manner as they shall agree upon.
2.2. If the Company and/or any of the Other Members, as the
case may be, elect to exercise any option as set forth in
paragraph G.2.1. above,
3
<PAGE>
the electing party or parties shall provide notice of such
election(s) to the Offering Member within their respective
election period(s). For purposes of this paragraph G.2.2., the
purchaser(s) of Member Interests whether it be the Company and/or
any of the Other Members, may sometimes hereinafter be referred
to individually or collectively, as the case may be, as the
"Interest Purchaser(s)." If the Company and any of the Other
Members together constitute the Interest Purchaser(s), then they
shall act in tandem (but not as guarantors of each other) to
fulfill the obligations of the Interest Purchaser hereinafter set
forth. Settlement shall be held on the purchase of the Offering
Member's Member Interests under this paragraph G. at the
principal office of the Company or its current legal counsel at
such time and date as shall be specified in the notice sent by
the Interest Purchaser of the exercise of its (and/or his) option
pursuant to this paragraph G.2. (which date shall not be earlier
than 30 days, nor more than 120 days, after the Company's receipt
of the Offering Member's notice describing the Bona Fide Offer).
At settlement on the purchase of the Offering Member's Member
Interest under this paragraph G., the Offering Member shall
resign as a Managing Member and/or officer of the Company (if
applicable) and shall deliver to the Interest Purchaser(s) all of
the Certificates of Member Interest owned by him to the current
legal counsel for the Company. The Interest Purchaser(s) shall
deliver to the Offering Member the consideration stated in its
(and/or his) notice electing to exercise the option(s) set forth
hereinabove.
2.3. If the Company and the Other Members shall not,
individually or together, purchase (for reasons other than the
Offering Members's default hereunder), within the prescribed time
periods, all of the Member Interests covered by the Bona Fide
Offer, then the Offering Member shall have the right to accept
the Bona Fide Offer in whole (but not in part) and to sell such
Member Interests, subject to all of the provisions and
restrictions of this Operating Agreement, but only in strict
accordance with all of the provisions of the Bona Fide Offer and
only if the sale is fully consummated within 180 days after the
Company's receipt of the Offering Member's notice pursuant to
paragraph G. hereof. In the event that such sale is not fully
consummated within 180 days after the Company's receipt of the
Offering Member's notice pursuant to paragraph F hereof, the
provisions of this paragraph G.1. must again be complied with by
the Offering Member before the Offering Member may sell or
otherwise dispose of his Member Interests pursuant to this
paragraph G.
4
<PAGE>
H. DEADLOCK RESOLUTION:
1. PUSH-SHOVE; SALE OR PURCHASE.
1.1. In the event of a Deadlock (as defined below) in the
management of the Company between groups of Members owning an
equal number of Member Interests, the Members shall exercise
their best efforts to resolve such deadlock through negotiation.
For the purposes of this paragraph H., "Deadlock" shall mean
that, following a good faith effort at mediation, the Managing
Members or officers are still deadlocked in the management of the
Company affairs, the Members are still unable to break the
deadlock, and irreparable injury to the Company is threatened or
being suffered, or the business and affairs of the Company can no
longer be conducted to the advantage of the Members generally,
because of the deadlock. In the event of Deadlock, either group
(in either case, the "Initiating Group") may give notice to the
other group (the "Offeree Group") that the Initiating Group,
jointly and severally, desires either (i) to purchase all (but
not less than all) of the Member Interests held by the Offeree
Group or (ii) to sell all (but not less than all) of the
Initiating Group's Member Interests to the Offeree Group. Such
notice shall designate a price per Member Interests and such
other reasonable terms and conditions pursuant to which the
Initiating Group is willing either to purchase or sell the Member
Interests as aforesaid. Simultaneously with the sending of such
notice, the Initiating Group shall deposit in escrow by cashier's
or certified check with the independent or certified public
accountant then servicing the Company (such person hereinafter
referred to as "Escrow Agent"), who shall act as a bona fide
Escrow Agent, an amount equal to five percent of the total price
offered for all of the Member Interests held by the Offeree
Group.
1.2. Within 90 days after receipt of the notice from the
Initiating Group pursuant to paragraph G1.1., the Offeree Group
shall elect either (i) to sell all (but not less than all) of the
Offeree Group's Member Interests to the Initiating Group at the
previously designated price per share and terms and conditions,
or (ii) at the Offeree Group's sole option, to purchase all (but
not less than all) of the Member Interests of the Initiating
Group at the designated price per share and terms and conditions.
Such election shall be made by notice to the Initiating Group and
to the Escrow Agent. In the event that the Offeree Group elects
to purchase all (but not less than all) of the Member Interests
of the Initiating Group, then simultaneously with the sending of
such notice, the Offeree Group shall deposit in escrow with the
Escrow Agent an amount equal to five percent of the total price
for all of the Member Interests of the Initiating Group.
5
<PAGE>
1.3. In the event that the Offeree Group shall elect, under
or pursuant to paragraph H.1.1., to purchase all (but not less
than all) of the Member Interests of the Initiating Group, the
Escrow Agent shall promptly return to the Initiating Group the
deposit placed by the Initiating Group in escrow. The failure or
refusal by the Offeree Group to elect either alternative afforded
the Offeree Group under and pursuant to this paragraph H.1.1.,
and/or the failure or refusal by the Offeree Group to comply
fully, within the prescribed time periods, with all provisions of
this paragraph H.1.1., shall be conclusively deemed for purposes
of this paragraph H.1.1. to constitute its electing, jointly and
severally, to sell all (but not less than all) of the Offeree
Group's Member Interests to the Initiating Group at the
previously designated price per Member Interests and terms and
conditions.
2. SETTLEMENT. Subject to the provisions of paragraph H.3.,
settlement on the purchase of all (but not less than all) of either
the Initiating Group or the Offeree Group (as the case may be) under
this Article 6 shall be held at the principal office of the Company
within 60 days after the expiration of the 90 day period set forth in
paragraph H.1.2. hereof or within 60 days after the Offeree Group's
election, by the notice specified in H.1.2. hereof, whichever occurs
sooner, upon the following terms and conditions: the entire purchase
price for the Member Interests being conveyed (less the amount
previously placed in escrow, which amount shall be released by the
Escrow Agent at settlement to the group whose Member Interests is
being so conveyed) shall be paid in cash or by cashier's or certified
check at settlement. Upon settlement, any officer or Managing Member
whose Member Interests is being so conveyed shall resign as officer of
Managing Member of the Company (if applicable) and shall have no
further interest or claim to or against the Company or its assets or
property, tangible or intangible, liquid or illiquid. Upon the
consummation of such settlement, the individuals or entities whose
Member Interests is being purchased shall cease to own or hold any
Member Interests, shall no longer be Members, and shall be entitled
only to the purchase price described in this paragraph H. in respect
of the transferred
3. GUARANTEED OBLIGATIONS. Notwithstanding the foregoing
provisions of this paragraph H., if the Company, at the time the
"push-shove" procedure herein is invoked, has outstanding obligations
that are personally guaranteed by a Member that is part of a group
that is otherwise obligated to sell its Member Interests pursuant to
this paragraph H., such group shall not be required to consummate such
sale unless and until all members included in such selling group are
released from their respective personal guaranties on such guaranteed
debt by the creditor thereof, or in lieu thereof, such indemnification
of the selling group by the purchasing group is provided as shall be
consented to by the selling group, which consent shall not be
unreasonably withheld.
6
<PAGE>
5. ARBITRATION. All disputes under this Agreement that cannot be
resolved by the parties shall be submitted to arbitration under the rules and
regulations of the American Arbitration Association with the arbitration to be
held in Washington, D.C. Either party may invoke this paragraph after providing
30 days' written notice to the other party. All costs of arbitration shall be
divided equally between the parties. Any award may be enforced by a court of
law.
6. DEFAULTS. If XVI fails to abide by the obligations of this
Agreement, HCC shall have the option to cancel this Agreement by providing 45
days' written notice to XVI. XVI shall have the option of preventing the
termination of this Agreement by taking corrective action that cures the
default, if such corrective action is taken prior to the end of the time period
stated in the previous sentence, and if there are no other defaults during such
time period.
7. TRANSFER OF RIGHTS. This Agreement shall be binding on any
successors of the parties. Neither party shall have the right to assign its
interests in this Agreement to any other party, unless the prior written consent
of the other party is obtained.
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties and there are no other promises or conditions in any other agreement
whether oral or written. This Agreement supersedes any prior written or oral
agreements between the parties.
9. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this
Agreement is invalid or unenforceable, but that by limiting such provision it
would become valid or enforceable, then such provision shall be deemed to be
written, construed, and enforced as so limited.
10. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce
any provision of this Agreement shall not be construed as a waiver or limitation
of that party's right to subsequently enforce and compel strict compliance with
every provision of this Agreement
11. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Virginia.
7
<PAGE>
HEARTLAND CAPITAL CORPORATION, INC.
By: /s/ Michael Foudy
--------------------------------------------
Title: Exec. VP.
--------------------------------------------
XPRESS VENTURES, INC.
By: /s/ Brad Baker
--------------------------------------------
Title: President
--------------------------------------------
8
<PAGE>
EXHIBIT 10.63
REPRESENTATION AGREEMENT
This Agreement is made effective as of January 1, 1995 and retroactively
amends and supersedes a January 10, 1995 letter, by and between Heartland
Capital Corporation ("HCC") of 1320 Old Chain Bridge Road, Suite 220,
McLean, Virginia 22101, and ATB Productions, L.L.C. ("ATB"), a Virginia
limited liability company.
WHEREAS, ATB is the owner, producer and distributor of a daily radio
program titled America The Beautiful (the "Program");
WHEREAS, HCC as part of its business provides business development
services and its Heartland Radio Network division is engaged in the
production, promotion, distribution and marketing of radio and television
programs; and
WHEREAS, ATB desires HCC to provide its services as described below to
ATB.
Therefore, the parties agree as follows:
1. This Agreement retroactively amends and restates that letter
agreement between ATB and HCC dated January 10, 1995 and supersedes any other
agreements or understandings between the parties or their successors whether
written or oral.
2. DESCRIPTION OF SERVICES.
a. Present the Program to prospective sponsors on an exclusive
worldwide basis;
b. Negotiate sponsorship agreements between sponsors and the
Heartland Radio Network for sponsorships of the Program;
c. Be responsible for collecting monies (derived from sponsorship
agreements or any other agreements which generate income from the
Program, including but not limited to, ancillary products, promotions,
endorsements, speaking engagements, merchandise, etc.) due from sponsors
in a timely fashion and providing for simultaneous distribution of any
funds due to Michael L. Foudy and/or ATB;
d. Assist in negotiation of clearance arrangements; and
e. Market, promote and sell the Program ancillary products,
merchandise, etc., Michael L. Foudy and the Program to sponsors.
<PAGE>
3. FEES.
a. AMOUNT. As compensation for its services, HCC shall be paid a
fee equal to 40% of ATB's gross advertising cash receipts plus 5% of
ATB's non-advertising gross cash receipts.
b. PAYMENT. Fees shall be paid quarterly on or before the 15th day
of the month following any calendar quarter for which a fee payment is due.
c. ACCOUNTING. ATB shall maintain records in sufficient detail for
purposes of determining the amount of the fee. ATB shall provide to HCC
a written accounting that sets forth the manner in which the fee payment
was calculated.
d. RIGHT TO INSPECT. HCC or HCC's agent, shall have the right to
inspect ATB's records for the limited purpose of verifying the calculation
of the fee payments, subject to such restrictions as ATB may reasonably
impose to protect the confidentiality of the records. Such inspections
shall be made during reasonable business hours as may be set by ATB.
e. EXTENSION OF FEES. In the event of termination for whatever
reason, the fees due under this Agreement for "sponsorship agreements"
existing at the time of termination shall remain due and payable to the
respective parties notwithstanding such termination for so long as the
sponsors shall continue to support the Program or any other successor
radio program featuring Michael L. Foudy though such successor program
may be different from the Program in content, format or length. This
provision shall apply for two years from the date of termination or until
the expiration of this Agreement whichever period is longer.
4. RIGHT OF FIRST REFUSAL. For as long as this Agreement is in
force, HCC, and its successors in interest shall have the right of first
refusal for the provision of the above stated and similar services to Michael
L. Foudy and ATB for other programs, characters and/or products which may be
developed by either of them from time to time. In the event of first refusal
is exercised by HCC or its successors in interest, the provision of services,
scope of services, compensation and other terms of this Agreement shall apply
except that a separate agreement between the parties shall be executed with
respect to such new program, character or product in question.
5. TERM/TERMINATION. This Agreement shall terminate automatically on
January 1, 1999 unless otherwise extended by mutual agreement of the parties.
After June 30, 1996, this Agreement may be terminated by either
party for any reason, upon ninety days written notice, so long as agreements
for sponsorship of the Program are less than $500,000 on an annualized basis.
In the event agreements for annual sponsorship exceed this amount the
Agreement may be terminated only for cause. Cause shall be defined as a
material breach of the terms and conditions of this Agreement.
2
<PAGE>
6. ATB'S OBLIGATIONS.
a. Provide five programs of America The Beautiful per week (52
weeks per year) beginning February 27, 1995 which are not in violation of
FCC guidelines;
b. Distribute programs by appropriate means to radio stations
anywhere in the world which air the program;
c. Bear primary responsibility for negotiating clearance
arrangements with radio stations and for making any payments in
connection with said clearance agreements as may be necessary to assure
sufficient clearance to fulfill sponsorship obligations;
d. Assist in the promotion of the program;
e. Prepare and produce promotional materials for the program as
mutually agreed; and
f. Make personal appearances on at least twenty days per year to
build audience for the program, assist sponsors in promoting their
association with the program and to generally promote the program America
The Beautiful.
7. RELATIONSHIP OF PARTIES. It is understood by the parties that HCC
is an independent contractor with respect to ATB, and not a partner of ATB.
8. ASSIGNMENT. HCC's obligations under this Agreement may be assigned
or transferred to any other firm or corporation affiliated with HCC without
the prior written consent of ATB.
9. SERVICES TO THIRD PARTIES. The parties recognize that HCC may
provide its services to third parties. However, HCC is bound by the
confidentiality provisions of this Agreement, and HCC may not use the
Information, directly or indirectly, for the benefit of third parties.
10. NOTICES. All notices required or permitted under this Agreement
shall be in writing and shall be deemed delivered when delivered in person or
deposited in the United States mail, postage prepaid, addressed as follows:
IF for HCC:
Heartland Capital Corporation
1320 Old Chain Bridge Road
Suite 220
McLean, Virginia 22101
3
<PAGE>
IF for ATB:
ATB Productions, L.L.C. 1320 Old Chain Bridge Road Suite 220 McLean,
Virginia 22101
Such address may be changed from time to time by either party by providing
written notice to the other in the manner set forth above.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties and there are no other promises or conditions in any other
agreement whether oral or written. This Agreement supersedes any prior
written or oral agreements between the parties.
12. AMENDMENT. This Agreement may be modified or amended if the
amendment is made in writing and is signed by both parties.
13. SEVERABILITY. If any provision of this Agreement shall be held to
be invalid or unenforceable for any reason, the remaining provisions shall
continue to be valid and enforceable. If a court finds that any provision of
this Agreement is invalid or unenforceable, but that by limiting such
provision it would become valid and enforceable, then such provision shall be
deemed to be written, construed, and enforced as so limited.
14. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to
enforce any provision of this Agreement shall not be construed as a waiver or
limitation of that party's right to subsequently enforce and compel strict
compliance with every provision of this Agreement.
15. APPLICABLE LAW. This Agreement shall be governed by the laws of
the State of Virginia.
HEARTLAND CAPITAL CORPORATION
By: /s/ Gerald Garcia
------------------------------------------
Title: President
---------------------------------------
ATB PRODUCTIONS, L.L.C.
By: /s/ Michael Foudy
------------------------------------------
Title: Managing Member
---------------------------------------
4
<PAGE>
EXHIBIT 10.64
ALVERY BARTLETT FUND MANAGEMENT CO.
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT, dated as of May 17, 1996, is made and entered
into by and between Alvery Bartlett Fund Management Co. ("ABFM") and Heartland
Communications & Management, Inc. ("HCMI").
HCMI and ABFM hereby agree as follows:
1. INVESTMENT.
A. ABFM UNITS
(i) HCMI agrees to acquire 7.5 Units of ABFM for a cash consideration
of Three-Hundred Eighty Thousand U.S. Dollars ($380,000.00). The $380,000
consideration shall be used for general corporate purposes including the
formation of a "hedge fund."
(ii) Each full Unit of ABFM shall consist of : (i) 140 shares of ABFM
nonvoting Class A, Series I Common Stock, par value $.01 and (ii) 20 shares
of ABFM nonvoting Class A 12% Cumulative Preferred Stock, par value $.01
(collectively "a Unit"). After acquisition of the 7.5 Units (the "Units"),
HCMI will hold 1050 shares of the nonvoting common stock and 150 shares of
the preferred stock in ABFM. At such time and after ABFM exercises its
call option with respect to the ABFM nonvoting common and preferred stock,
HCMI will own approximately 6.5% of the issued and outstanding stock in
ABFM.
(iii) The obligation to acquire the Units is contingent on HCMI
raising five million dollars ($5,000,000) in an initial public offering of
its voting common stock.
(iv) As long as HCMI acquires the Units and holds at least 300 shares
of the nonvoting common stock in ABFM, HCMI shall have the right to
nominate either Gerald Garcia or Michael Foudy to the ABFM Board of
Directors. Alvery Bartlett together with other shareholders of ABFM
holding a sufficient number of shares of ABFM stock necessary to elect such
nominee to ABFM's Board shall execute an agreement to vote their shares to
elect HCMI's nominee to ABFM's Board. In the event HCMI's nominee of right
(named above) shall be unable or declines to serve on ABFM's Board, subject
to the approval of Alvery Bartlett or the affirmative disapproval of ABFM
shareholders holding 33% or more of ABFM's issued and outstanding voting
common stock, HCMI may substitute a member of its Board of Directors for
its nominee of right (named above). Alvery Bartlett may withhold said
approval for any or no reason and the shareholders constituting holders of
33% of the issued and outstanding voting common stock need have no reason
for disapproval. At such time as ABFM is financially able
<PAGE>
to and in fact acquires director and officer liability insurance, ABFM
shall indemnify HCMI's Board representative for his or her acts or
omissions as an ABFM Board member to the full extent of the state
corporation law applicable to ABFM; provided however, said indemnity shall
not exceed the amount and type of the directors and officers insurance
coverage available to ABFM and other ABFM Board members.
B. FUND VENTURE
(i) Subject to and conditioned on HCMI raising twelve million five
hundred thousand dollars ($12,500,000) from an initial public offering of
its voting common stock, HCMI agrees to provide one million one hundred
thousand dollars ($1,100,000) to ABFM to complete the cost and expense of
forming, marketing, distributing and managing an "inflation index fund" to
be formed by ABFM. ABFM shall provide investment advisory services to the
"inflation index fund" for which ABFM will receive management and incentive
fees. In exchange for said $1.1 million, ABFM agrees that HCMI shall be
entitled to and shall receive 50% of all management, incentive or other
allowable fees (the "Gross Fees") due ABFM from the "inflation index fund"
under any contract or agreement between ABFM and the "inflation index fund"
for management of or advisory services to such fund. ABFM and HCMI agree
to share equally those costs and expenses listed on Schedule A attached
hereto (the "Schedule A Expenses") in connection with the "inflation index
fund."
(ii) ABFM shall pay HCMI its 50% share of the Gross Fees due from the
"inflation index fund," net of HCMI's 50% share of Schedule A Expenses, on
or before the forty fifth (45th) day following the day on which payment of
any Gross Fees is due to be paid to ABFM by the "inflation index fund."
(iii) ABFM agrees that in the event ABFM starts a fund other than
the "inflation index fund" (the "other fund") after the "hedge fund" is
started, HCMI shall have the option, but not the obligation, to substitute
the "inflation index fund" with that "other fund" and HCMI shall be paid
50% of all fees ABFM receives for services rendered to the "other fund,"
less costs and expenses specifically identified as connected to the "other
fund" and otherwise agreed to by the parties. Provided, however, that if
the funding requirements for the "other fund" exceed $1.1 million, then
HCMI's share of the ABFM fees (and costs and expenses) shall be equal to
50% multiplied by the ratio of $1.1 million over the total actual funding
obtained to start said other fund. HCMI shall have the right to contribute
the difference between its $1.1 million funding obligation and the actual
funding need for the "other fund," in which case HCMI shall be due the 50%
of fees (and obligated to pay 50% of costs and expenses) specified above.
2
<PAGE>
(iv) Accounting; Right To Inspect
a. ACCOUNTING. ABFM shall maintain records, which are audited
at least annually by a certified public accountant, in sufficient detail
for purposes of determining the amount of the fee due HCMI. ABFM shall
provide to HCMI a written accounting that sets forth the manner in which
the fee was calculated with each fee payment and a year end summary
statement, which shall be audited by a certified public accountant.
b. RIGHT TO INSPECT. HCMI, or HCMI's agent, shall have the
right to inspect ABFM's records for the limited purpose of verifying the
calculation of the fee, subject to such restrictions as ABFM may
reasonably impose to protect the confidentiality of the records. Such
inspections shall be made during reasonable business hours as may be set by
ABFM.
2. TERM. This Agreement shall be effective until May 31, 1997.
Notwithstanding the immediately foregoing sentence, after May 31, 1997 this
Agreement and HCMI's right to exercise its rights under paragraph 1 above shall
continue until thirty days after ABFM gives HCMI notice that it has received a
bona fide offer from a third party for any of the investment opportunities
specified in paragraph 1 above and HCMI shall have thirty days from said notice
to exercise its investment option and make its required cash investment.
3. NOTICES. Notices required or permitted to be given hereunder shall be
in writing and shall be deemed to be given when personally delivered (including
delivery by an express or overnight delivery service), when received by
facsimile transmission or when sent by registered mail, return receipt
requested, addressed, if to ABFM, at the address appearing on the signature page
hereof, and if to the HCMI: Heartland Communications & Management, Inc.1320 Old
Chain Bridge Road, Suite 220, McLean, Virginia 22101 or to such other address as
may be furnished from time to time by notice given in accordance with this
Section.
4. WAIVER. Failure of either party to exercise any right or remedy under
this Agreement, or delay by a party in exercising same, will not operate as a
waiver thereof. No waiver by a party will be effective unless and until it is
in writing and signed by the party affected.
5. GOVERNING LAW; SEVERABILITY. This Agreement shall be enforced,
governed and construed in accordance with the laws of the State of Missouri
without regard to its conflict of laws principles or rules. In the event that
any term or provision of this Agreement is invalid or enforceable under any
applicable statute or rule of law, then such term or provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any term or provision
hereof which may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other term or provision hereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth below.
HEARTLAND COMMUNICATIONS &
MANAGEMENT, INC.
By: /s/ Gerald Garcia
---------------------
ALVERY BARTLETT FUND
MANAGEMENT CO.
8182 Maryland Avenue -- Suite 103
St. Louis, Missouri 63105
By: /s/Alvery Bartlett
---------------------
Alvery Bartlett
4
<PAGE>
Alvery Bartlett Fund Management Company
Investment agreement dated as of May 17, 1996
SCHEDULE A OF EXPENSES
----------------------
All direct or third party costs including but not limited to:
Distribution/Broker-dealer expenses
Shareholder servicing expenses
Transfer agency/custodian expenses
Sub-advisory expenses
Expense CAP overage expenses
Possible carried interest of Mutual Benefit Life for All City Trust
Plus all indirect or reasonably allocable operational or apportionable costs
including but not limited to:
Employee compensation and benefits
Rent, equipment, furniture, leases
Travel
Phone
Legal and accounting
General Administration
The basis for allocation should be subject to the mutual agreement of the
parties. If the parties cannot agree to the allocation, a mutually agreeable CPA
firm should be hired to resolve the allocation issue.
ALVERY BARTLETT FUND HEARTLAND COMMUNICATIONS &
MANAGEMENT CO. Management, Inc.
8182 Maryland Avenue, Suite 103
St. Louis, Missouri 63105
By: /s/Alvery Bartlett By:/s/ Gerald Garcia
--------------------- ----------------------
Alvery Bartlett
Date:
---------------------
<PAGE>
EXHIBIT 10.65
-------------------------------------------
[LOGO]
-------------------------------------------
TARGET MARKETING CONCEPTS ON THE LEADING EDGE
HCMI, a communications and management company, will identify and develop
profitable "niche" or "target market" products for the rapidly changing media
and financial services industries. Principal among these ideas are
advertising-supported, high quality talk radio programming for
budget-conscious station operators; demographically targeted
editorial/advertising supplements for newspaper publishers; and novel
financial products intended to respond to specific market needs. The Company
believes these target marketing concepts position HCMI on the leading edge for
the 21st century.
TALK RADIO
Radio, with $11.5 billion in advertising in 1995, is undergoing dramatic
change.
AM stations have suffered in recent years as young audiences migrated to
the superior fidelity offered on FM. Talk Radio has been the only programming
format on AM stations to consistently perform profitably.
[PHOTO]
RADIO HOST MIKE FOUDY
HCMI's ATB Productions, L.L.C. will develop, produce, and market, via
syndication, programming designed to meet the expanding and varied needs of
local AM broadcasters for thoughtful, bias-free news and information content.
NEWSPAPER SUPPLEMENTS
Today, lucrative demographic market segments are often difficult and
expensive for advertisers to reach effectively.
[PHOTO]
A MAGAZINE FOR TEENS
The American teens market is one such attractive segment. Teens spend
$60 billion a year and influence more than $160 billion in purchases,
according to ADWeek's Guide to Media, 1995, and a 1992 study by Find/SVP.
Advertisers prize, but have limited ability to impact, this market cost
effectively. HCMI is developing a magazine for teens which will
cost-effectively bring teen-oriented information and name brand advertising
to young people across America.
FINANCIAL PRODUCTS
Using the same niche or target marketing approach, HCMI will assist
Alvery Bartlett Fund Management Co. in developing a series of specialized
financial products designed to broaden market penetration.
Currently under development is the All Seasons Opportunity Fund, a
private investment company.
[PHOTO]
ALVARY BARTLETT
Other funds to be developed are the All City Trust family of equity
mutual funds, focused on metropolitan areas; and an inflation index fund.
- --------------------------------------------------------------------------------
INNOVATION // CREATIVITY // EXPERIENCE HCMI
- --------------------------------------------------------------------------------
<PAGE>
A MAGAZINE FOR TEENS --
AN INNOVATIVE, UNIQUE CONCEPT TO REACH THE CRITICAL TEEN MARKET
[PHOTO]
SAMPLE COVER FROM SUCCESSFUL MARKET TEST.
There are nearly 40 million teens in America. While electronic means,
such as MTV, reach many teens, there has never been one national print
publication to effectively reach this large and lucrative audience.
[PHOTO]
WEEKLY EDITIONS WILL BE ELECTRONICALLY TRANSMITTED TO
LOCAL NEWSPAPERS FOR DISTRIBUTION.
HCMI's magazine for teens will be an up-tempo publication with sports,
fashions, entertainment and other features geared to today's teen lifestyle
and interests.
The teen magazine will be a potentially wider reaching and more
interactive medium than any existing high school student-oriented publication
or TV/cable programming. It will offer advertising coupons empowering teens
to save on their favorite brands.
National advertisers to be targeted are companies such as Coca Cola,
Blockbuster, Taco Bell, Pepsi, Levi's. McDonald's and others which recognize
the value of establishing early customer loyalty.
[PHOTO]
GERALD GARCIA, HCMI'S PRESIDENT, IMPLEMENTED THE FIRST
SUCCESSFUL TEST OF THE TEEN MAGAZINE CONCEPT.
Distributed by existing newspapers and organizations, HCMI believes this
approach will enable the magazine to estalish readership quickly.
While the publication will be created at HCMI's national headquarters
and feature national advertising, subscribing newspapers can add local
editorial content and advertising, making it an even more financially
lucrative product.
HCMI believes its design, content and national brand coupons will make
its teen magazine a publication that America's youth will look forward to
receiving every week.
<PAGE>
TALK RADIO!
INFORMATIVE. ENLIGHTENING. ENTERTAINING.
[LOGO]
Nationally syndicated talk show programs are among the most listened to
programs in America, especially in medium and small markets.
ATB Productions, L.L.C. (ATB) currently produces six shows, with one
other program under development. Heartland Radio Network (HRN) is marketing
these shows to more than 140 radio stations across the country and to
potential advertisers. By July, 1997, HRN intends to market more than 75
hours of weekday/weekend programming per week.
HRN has entered into agreements with several widely listened to
nationally syndicated talk shows and a talk radio network to market their
availabilities.
By combining buys in several program areas, HRN intends to create
marketing opportunities for national advertisers with minimum
audience-coverage requirements and to make other talk shows more financially
viable by delivering advertising, building audience size and generating
audience visibility. HRN also will place appropriate advertising in targeted
local talk shows in major markets to assure appropriate coverage.
[PHOTO]
AMERICA THE BEAUTIFUL HOST MIKE FOUDY ON THE AIR WITH PRODUCER
BRAD NIEMCEK AND GUEST DURGA POKHREL.
[PHOTO]
MIKE FOUDY
AMERICA THE BEAUTIFUL HOST.
- --------------------------------------------------------------------------------
SHOWS ON THE AIR:
AMERICA THE BEAUTIFUL -- MIKE FOUDY, HOST. Talks about people and ideas that
make America great and offers free market solutions to problems that threaten
that greatness. ATB is carried to 24% of the nation in 35 cities across the
country to an audience that is predominantly male, 35+, upscale,
suburban/rural and politically independent.
[PHOTO]
RODHAM RADIO -- HUGH RODHAM, HOST. Brings a progressive view of the American
political system as well as entertainment news, sports and media commentary
to 29 markets in the U.S.A. and an audience that is equally male and female,
30+ and economically upscale.
[PHOTO]
THE DOUG CASEY SHOW -- DOUG CASEY, HOST. Addresses national, international,
political and financial issues from a free market perspective in 45 markets
across the nation.
[PHOTO]
SYNERGY -- ROBBIE PATTERSON, HOST. Features authors and innovators who help
listeners in 70 markets and over the Internet learn more about themselves,
their health, balance and fulfillment.
[PHOTO]
THE TRAVEL SHOW -- LARRY GELWIX & DANNY KRAMER, HOSTS. Provides
consummer-oriented information on recommended destinations, informative
interviews with travel experts and listener call-in and participation in more
than 50 markets.
[PHOTO]
THE END OF THE LINE -- JEFF RENSE, HOST. Explores breaking stories not fully
reported on the national news and interviews guest in politics, health and
alternative/environmental medicine, on 88 affiliates.
[PHOTO]
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
[PHOTO]
SAMPLE OF AN ALL CITY FUND CURRENTLY UNDER DEVELOPMENT.
ALVERY BARTLETT
FUND MANAGEMENT CO.
The Alvery Bartlett Fund Management Co. (ABFM), a Delaware corporation,
is owned by Mr. Bartlett, who has 27 years of experience in the securities
industry, and 11 other investors. ABFM will operate as an investment and
commodity trading adviser for:
The ALL SEASONS OPPORTUNITY FUND, a private investment company;
An ALL CITY TRUST FAMILY OF EQUITY MUTUAL FUNDS, creating funds in
separate cities and investing 65% of each fund's assets in companies
headquartered or with strong representation in that city; and
An INFLATION INDEX FUND, investing across the commodities spectrum and
seeking sustainable profit, which for any given period of time, exceeds the
national rate of inflation.
- --------------------------------------------------------------------------------
OTHER CONCEPTS
- - ACQUISITIONS
HCMI has devised a growth strategy that blends development of already
existing operations and/or operational plans with carefuly selected media
industry acquistions. The combination of internal growth and strategic
acquisitions can result in a collection of operations with individual profit
potential but a portfolio of media opportunities whose synergy is of special
appeal to advertisers. Acquisition candidates may include radio programs,
program networks or their production and satellite transmission
infrastructures. They may also include targeted newspapers.
- - MANAGEMENT
The Company believes its Management and Marketing Services will be an
expanding component in the future. As the Company grows its marketing of
radio programs and print products, personnel hired because those venues (or
brought into the Company through acquisitions) will complement its existing
personnel and give the Company added strength in its talent pool. That talent
can then provide synergistic and targeted opportunities to the Company's core
businesses and the cross-marketing concepts across local media.
- --------------------------------------------------------------------------------
HCMI SPECIALITY COMMUNICATIONS FOR THE 21ST CENTURY
For information on investing in HCMI and a copy of our prospectus,
please fill in this card and mail to: Financial West Group, 600 Hampshire
Road, Suite 200, West Lake Village, CA 91361
NAME
----------------------------------------------------------------------------
ADDRESS
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CITY, STATE, ZIP
----------------------------------------------------------------
PHONE--WORK HOME
-------------------------------- -------------------------------
INTERNET/E-MAIL ADDRESS FAX
------------------------------------ ----------------
<PAGE>
EXHIBIT 24.1
CONSENT OF COUNSEL
We hereby consent to the reference to us in the prospectus constituting
part of this Registration Statement for Heartland Communications & Management,
Inc. under the caption "Legal Matters."
/s/ Bayh, Connaughton & Malone, P.C.
BAYH, CONNAUGHTON & MALONE, P.C.
Washington, D.C.
July 24, 1996
<PAGE>
EXHIBIT 24.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Heartland Communications & Management, Inc.,
Heartland Capital Corporation and
ATB Productions, L.L.C.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our reports dated May 18, 1996 (except as
to certain information in Note 4 of Heartland Communications & Management, Inc.
as to which the date is July 19, 1996), on our audits of the financial
statements of Heartland Communications & Management, Inc., Heartland Capital
Corporation and ATB Productions, L.L.C., respectively. Each of our reports
contains an explanatory paragraph regarding the Companies' ability to continue
as going concerns.
We also consent to the reference to our firm under the caption "Experts" in
the Prospectus.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Washington, D.C.
July 24, 1996
