Date Filed: August 24, 1999 SEC File No.333-72097
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
POST EFFECTIVE AMENDMENT NO. 1 TO FORM SB-2
Registration Statement Under the Securities Act of 1933
AMERICAN COMMUNICATIONS ENTERPRISES, INC.
(Exact Name of Issuer as Specified in Its Charter)
Nevada 4832 74-2897368
State of Incorporation Primary Standard IndustrialI.R.S. Employer
Classification Code Number Identification Number
7103 Pine Bluffs Trail, Austin, TX 78729 (512) 249-2344
(Address and Telephone Number of Issuer's Principal Offices and Place of
Business)
Corporate Service Center, Inc.
1475 Terminal Way
Suite E
Reno, Nevada 89502
(702)329-7721
(Name, Address and Telephone Number of Agent for Service)
Approximate date of proposed sale to the public: As soon as this Registration
Statement becomes effective.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the box.|_|
CALCULATION OF REGISTRATION FEE
Title of class oAmount to be Proposed Proposed Amount of
securities to beregistered Maximum maximum Registration Fee
registered offering price paggregate offering
unit price
Common Stock 11,000,000 $0.05 $550,000 $162.25
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
a further 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 Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
AMERICAN COMMUNICATIONS ENTERPRISES, INC
Maximum of 11,000,000 shares of common stock
Price per share: $0.05.
Total proceeds if maximum sold: $550,000.
This is American Communications's initial public offering so there is no public
market for American Communications's shares. However, we hope to have prices
for our shares quoted on the bulletin board maintained by the National
Association of Securities Dealers after we complete our offering.
An investment in American Communications is risky, especially given the young
age of our company. Only people who can afford to lose the money they invest in
American Communications should invest in our shares. A full discussion of the
risks of owning our shares begins at page 2 of this Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of our shares or determined if this
prospectus is truthful of complete. Any representation to the contrary is a
criminal offense.
Price to Public Underwriting Discount Proceeds to Issuer
and Commissions or other Persons
Per Share $0.05 None $0.05
Total Maximum $550,000 None $550,000
We will probably sell the shares ourselves and do not plan to use underwriters
or pay any commissions. We will be selling our shares using our best efforts
and no one has agreed to buy any of our shares. There is no minimum amount of
shares we must sale so no money raised from the sale of our stock will go into
escrow, trust or another similar arrangement. We expect to end our offering no
later than June 30, 2000.
This prospectus is not an offer to sell our shares and it is not soliciting an
offer to buy our shares in any state where the offer or sale is not permitted.
August 24, 1999
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SUMMARY OF THE OFFERING......................................................1
RISK FACTORS.................................................................2
Development stage company..............................................2
Failure of American Communications to remain a going concern...........2
Operating losses.......................................................2
No assurances of radio station acquisitions............................2
Lack of diversification................................................2
No assurance of continued programming acceptance of radio stations
desired to be purchased..........................................3
"Best efforts" offering................................................3
Dependence on marketing and promotion..................................3
Dependence on management...............................................4
FCC regulation regarding radio broadcasting............................4
Voting control by management...........................................4
Compensation of officers...............................................4
Dilution...............................................................4
Shares Available For Resale Under Rule 144.............................5
No dividends on common stock...........................................5
Illiquidity of investment in shares....................................5
Penny stock regulation.................................................5
Location of our accountants............................................6
USE OF PROCEEDS..............................................................6
DETERMINATION OF OFFERING PRICE..............................................9
DILUTION.....................................................................9
PLAN OF DISTRIBUTION........................................................10
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS................11
SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT......................................12
DESCRIPTION OF SECURITIES...................................................13
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.......................14
DESCRIPTION OF BUSINESS.....................................................14
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION....................19
DESCRIPTION OF PROPERTY.....................................................30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................30
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS....................30
EXECUTIVE COMPENSATION......................................................32
FINANCIAL STATEMENTS........................................................32
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SUMMARY OF THE OFFERING
THE COMPANY: American Communications is a recently incorporated
Nevada corporation. We expect to develop music
programming products for use on both radio
stations and the Internet and to locate radio
stations for possible acquisition. Our goal is to
acquire, consolidate and operate small-to-medium
sized market radio stations, initially in Texas,
and then in other geographic regions of the
United States. With the proceeds of this
offering, we plan to build the studios necessary
to create this music programming and to sign
letters of intent on as many as four (4) radio
stations in Texas. We maintain our executive
offices at 7103 Pine Bluffs Trail, Austin, Texas
78729, telephone number (512) 249-2344.
SECURITIES OFFERED: Up to a maximum of 11,000,000 shares of common
stock, no par value per share. The shares are
offered at $0.05 per share for total gross
offering proceeds of $550,000.
SHARES OF COMMON 21,485,000 shares
STOCK OUTSTANDING
AS OF THE DATE OF THIS
PROSPECTUS:
SHARES OF COMMON 31,100,000 shares
STOCK OUTSTANDING
AFTER OFFERING,
ASSUMING MAXIMUM
AMOUNT SOLD:
TERMS OF THE OFFERING: There is no minimum offering.
Accordingly, as shares are sold, we will use the
money raised for our activities. The offering will
remain open until June 30, 2000, unless we decide
to cease selling efforts prior to this date.
USE OF PROCEEDS: We intend to use the net proceeds of this offering
primarily for creation of music programming
services, station acquisitions and for working
capital and general corporate purposes.
PLAN OF DISTRIBUTION: This is a best efforts
underwriting, with no commitment by anyone to
purchase any shares. The shares will be offered
and sold by our principal executive officers and
directors, although we may retain the services of
one or more NASD registered broker-dealers as
selling agent(s) to effect offers and sales on our
behalf.
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RISK FACTORS
An investment in the shares involves a high degree of risk, including a
risk of loss of an investor's entire investment in American Communications.
Prospective investors should consider carefully, in addition to the other
information contained in this prospectus, the following risk factors before
purchasing any shares.
Development stage company. American Communications was incorporated in
October 1998, and is, therefore, a development stage company with no operating
history or revenues. We need to receive substantially all of the maximum
proceeds of this offering to proceed with our business plan and will require
substantial additional capital, for which no agreements or arrangements
are currently in place, to implement our business plan. If additional capital is
not subsequently available, our planned operations could be materially adversely
affected. No assurances can be given that our business will ultimately be
successful or that we will ever be or remain profitable.
Failure of American Communications to remain a going concern. Our independent
certified public accountants have pointed out that we have an accumulated
deficit and negative working capital such that our ability to continue as a
going concern is dependent upon obtaining additional capital and financing for
our planned principal operations. We are conducting this offering to generate
the capital necessary to finance at least our initial operations. As a result,
our ability to continue as a going concern is dependent upon us receiving the
maximum proceeds of this offering and securing additional conventional
financing.
Operating losses. As with most development stage companies, we have
experienced losses since inception. As set forth in our financial statements,
our total stockholders' deficit is -$184,992 such that our company is currently
essentially insolvent. If only limited funds are raised in this offering, the
risk of our financial failure is high. We have been dependent upon loans from
members of management in the aggregate amount of $6,140, to sustain our
development activities to date. In our discretion, if we receive the maximum
proceeds sought to be raised, the entire principal amount of this loan,
including interest, may be repaid.
No assurances of radio station acquisitions. While we have targeted
approximately 4 radio stations in the state of Texas for acquisition over
approximately the next six (6) months after the effective date of this
Prospectus, no assurances are given that we will be successful in acquiring any
of such radio stations. While our management has had and continues to have
ongoing discussions with the owners of such stations who have expressed a
willingness to sell such stations to us, we do not currently have any binding
agreements or understandings concerning the acquisition of any radio stations.
Notwithstanding the foregoing, commencing June 1, 1999, we have entered into an
agreement where we will be able to manage KXYL AM and FM in Brownwood, Texas and
KSTA AM and FM in Coleman Texas for a period of up to 12 months. We do not
consider it probable that we will acquire any specific stations. The acquisition
of radio stations will require significant funding beyond the proceeds sought in
this offering, for which there are no financing arrangements currently in place.
While we believe that the radio stations we have
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currently targeted in the Texas market are not currently being targeted by radio
consolidation companies having significantly greater financial and other
resources than we do, in view of their focus on larger markets, no assurances
are given that such companies may not in fact target the specific radio stations
that we are currently targeting and acquire one or more of such stations prior
to when we have the ability to close on any of such transactions. In the event
we are unable to acquire one or more of the radio stations currently sought, we
plan to seek to acquire one or more other radio stations in small-to- medium
sized markets in other areas of the United States. Our management has not, as of
this time, expended any significant time, effort or resources in reviewing or
analyzing other potential radio station candidates for acquisition in other
parts of the United States and therefore, would have to devote significant time
and energy to do so.
Lack of diversification. If we are successful in selling the maximum
number of shares offered, we will only have enough money to obtain rights to a
handful of radio stations. As a result, we will have no real diversification of
operations, at least initially. This will mean that our fortunes will depend
significantly upon the performance of a limited number of formats; if the public
does not like our few radio stations, we will not succeed.
No assurance of continued programming acceptance of radio stations desired
to be purchased. We have conducted only limited market research concerning
consumer tastes and preferences in the markets of the radio stations we intend
to acquire and do not anticipate conducting for ourselves any significant
marketing research, studies or surveys on a going forward basis. Instead, we
have relied and will continue to rely upon the programming currently aired by
such stations due to their perceived success as evidenced by the marketing
success these stations have enjoyed, as well as industry research firms and
their published data regarding industry and market trends in those geographic
areas where we plan to operate and acquire radio stations when and where
applicable. Due to changes in consumer taste and preferences, there can be no
assurance that any programming continued by us or introduced will continue to or
otherwise achieve any significant degree of market acceptance, or that such
acceptance will be sustained for any significant period. Failure to sustain or
achieve market acceptance would have a material adverse effect on our operating
results and financial condition as our revenues from advertising will
undoubtedly will be adversely impacted.
"Best efforts" offering This offering is being conducted on a "best
efforts" basis. As such, no assurances are given as to what level of proceeds,
if any, will be obtained. In the event we fail to obtain all or substantially
all of the proceeds sought in this offering, our ability to effectuate our
business plan will be materially adversely effected, and investors may lose all
or substantially all of their investment. No assurances are given that the
subscription proceeds that may be received by us will be sufficient to sustain
our operations prior to our anticipated receipt of revenues from advertisers.
Dependence on marketing and promotion . We plan to market and promote our
stations as unique and "fun to listen to" in their respective markets with
the goal to increase station awareness and "dial position recognition" among
retailers, buyers and listeners. We expect to market and promote our stations
through our own
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sales and marketing personnel as well as through advertising in recognized trade
publications and on a proposed Internet web site. Depending upon the level and
timing of funding received in this offering, such marketing and promotional
efforts will commence by the end of third quarter, 1999. No assurances are given
that such marketing and promotional efforts will prove or continue to be
successful.
Dependence on management. Our future success is materially dependent on
the continued services of Mr. Dain Schult, our chief executive officer,
president and chairman of the board, who intends to devote full time to our
business, and of Mr. Robert Ringle, our chief marketing officer and vice
president, who also intends to devote full time to our affairs. Our success is
also dependent on our ability to attract, motivate and retain highly-qualified
employees. The loss of the services of Mr. Schult or Mr. Ringle could have a
material adverse effect upon our business and operations until a suitable
replacement may be located, of which no assurances are given. While we intend to
obtain key man life insurance on each of Mr. Schult and Mr. Ringle for
approximately $1,000,000, with American Communications to be named as
beneficiary, no assurances are given that such insurance will in fact be
obtained.
FCC regulation regarding radio broadcasting. The Federal Communications
Commission ("FCC" or "Commission") is the federal regulatory body that oversees
the operation of all radio and television stations in the United States. The
Commission is responsible for granting licenses to all stations and insuring
that its rules and regulations are complied with at each station. In both the
license renewal process and the license transfer process which takes place when
a company buys a radio station from a current owner (and license holder), the
Commission is interested in knowing the makeup of the station ownership.
Although we are not aware or any reason the FCC should fail to approve the
transfer of any radio stations to us, if the FCC failed to approve a proposed
acquisition of a radio station by us, our ability to effectively complete our
business plan will be jeopardized.
Voting control by management. Our management, inclusive of our board of
directors, owns 10,500,000 shares of American Communications' outstanding common
stock. After completion of this offering, assuming all of the shares offered
hereby are sold, our management will control approximately 33.76% of the voting
securities of American Communications if all shares offered hereby are sold,
without giving effect to (i) any stock option plan if adopted by management and
approved by a majority of the shareholders or (ii) any additional issuances of
common stock or other securities of American Communications to management and/or
others, in management's sole discretion. As a result, our management will
effectively control our affairs, including the election of all of our board of
directors, the issuance of additional shares of common stock for a stock option
plan or otherwise, the distribution and timing of dividends, if any, and all
other matters.
Compensation of officers. Because Messrs. Schult and Ringle
collectively will own at least 33.76% of our company, they will likely
continue to control our board of directors. As a result, Messrs. Schult and
Ringle will be entitled to establish the amount of their own compensation,
including the amount of any bonuses paid to them. In addition, because we do
not have any independent directors, there will be no oversight of the
reasonableness of any bonuses paid to
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Messrs. Schult or Ringle.
Dilution. American Communications is authorized to issue a substantial
number of shares of common stock in addition to the shares comprising the shares
offered hereby, as well as potentially shares of preferred stock in such series
and with such designating rights and preferences as may be determined by our
board of directors in its sole discretion. We will require significant
additional financing to fully implement our business plan, which funding could
entail the issuance of a substantial number of additional securities which could
in turn cause material dilution to investors in this offering. To that end, on
July 31, 1999, we issued an additional 9,600,000 shares of our common stock in a
private transaction to acquire the rights to market and distribute IP Gateways,
which are digital switching devices for Internet use. These 9,600,000 shares
will significantly dilute the shares purchased in this offering.
This offering itself involves immediate and substantial dilution to
investors. Any securities issuances in the future, including issuances to
management, could reduce the proportionate ownership, economic interests and
voting rights of any holders of shares of our common stock purchased in this
offering.
Shares Available For Resale Under Rule 144. All of our presently
outstanding shares of common stock held by our management, aggregating
10,500,000 shares of common stock, are "restricted securities" as defined under
Rule 144 promulgated under the Securities Act and may only be sold pursuant
thereto or otherwise pursuant to an effective registration statement or an
exemption from registration, if available. In addition, on July 31, 1999, we
issued an additional 9,600,000 shares of our common stock in a private
transaction to acquire the rights to market and distribute IP Gateways. Rule
144, as amended, generally provides that a person who has satisfied a one year
holding period for such restricted securities may sell, within any three month
period (provided we are current in our reporting obligations under the Exchange
Act) subject to certain manner of resale provisions, an amount of restricted
securities which does not exceed the greater of 1% of a company's outstanding
common stock or the average weekly trading volume in such securities during the
four calendar weeks prior to such sale. Messrs. Schult and Ringle, our principal
executive officers, own an aggregate of 10,500,000 restricted shares for which
the one year holding period expires on October 30, 1999. The shares issued on
July 31, 1999, because they have been distributed as a share dividend to various
shareholders who have held their shares for more than 2 years, are eligible
under various rulings under Rule 144 for immediate sale. A sale of shares by
such security holders, whether pursuant to Rule 144 or otherwise, may have a
depressing effect upon the price of our common stock in any market that might
develop.
No dividends on common stock. We intend for the foreseeable future to
retain earnings, if any, for the future operation and expansion of our business
and do not anticipate paying dividends on our shares of common stock for the
foreseeable future.
Illiquidity of investment in shares. There is currently no market for any
of our shares and no assurances are given that a public market for such
securities will develop or be sustained if developed. While we plan, following
the termination of this offering, to take affirmative steps to request or
encourage one or more
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broker/dealers to act as a market maker for our securities, no such efforts have
yet been undertaken and no assurances are given that any such efforts will prove
successful. As such, investors may not be able to readily dispose of any shares
purchased hereby.
Penny stock regulation. Broker- dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Commission. Penny stocks generally are equity securities with a
price of less than $5.00. The penny stock rules require a broker-dealer, prior
to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document that provides information about
penny stocks and the risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
generally require that prior to a transaction in a penny stock, the
broker-dealer make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. As our shares immediately
following this offering will likely be subject to such penny stock rules,
investors in this offering will in all likelihood find it more difficult to sell
their securities.
Location of our accountants. Our accountants are located in Florida, but
our offices and books and records are located in Texas. When we need our
accountants to audit our records, we send to our accountants the necessary
materials to allow them to perform their examination of our records. Because our
company is only recently organized, with no meaningful history of operations,
this procedure has not caused problems for us in the past. However, as our
operations grow, this separation between us and our accountants may become
inefficient and potentially costly. Although we currently have no plans to
change this arrangement, if problems are presented that we feel do not justify
our continued use of our existing accountants, we may decide to change to
accountants located in the state of Texas. Changing accountants can be
expensive.
USE OF PROCEEDS
The net proceeds to our company from the sale of the Shares offered
hereby, assuming all of the Shares offered hereby are sold, of which no
assurances are given, are estimated to be $450,000, giving effect to the
estimated expenses of the Offering of approximately $50,000 and exclusive of
selling commissions, if any.
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The following table sets forth the anticipated use of the net proceeds of
this Offering in the event that all 11,000,000 Shares offered hereby are sold.
We may not be able to sell all of the Shares and thus generate $550,000. Our
receipt of no or nominal proceeds will have a material adverse effect upon our
investors and us. As of the date of this Prospectus, we have sold 1,385,000
shares and raised a total of $69,250. These funds have been use for general
working capital purposes.
The entry in the table for station purchase options are amounts that would
be paid to existing station owners giving us 180 days to arrange financing to
purchase the stations or to put into place leases on the stations that are
acceptable by the FCC. These amounts will be paid to non-affiliated
third-parties. The entry below for administrative costs includes costs expected
to be incurred for leasing office space, furniture, fixtures, equipment,
licensing agreements to use certain broadcast programing, office expenses, long
distance calls, and related expenses.
Programming Development $ 50,000
Station Purchase Options $130,000
Administrative Costs $123,360
Repay Loan Made by President
to our Company $ 6,140
Working Capital $190,500
Offering Costs $ 50,000
Total Offering Proceeds $550,000
Because we presently anticipate selling the shares strictly through the
efforts of our officers and directors, the above numbers do not include any
deductions for selling commissions. If broker/dealers are used in the sale of
the shares, up to 10% of any gross proceeds raised in this offering will
probably be payable to one or more NASD registered broker-dealers. In such
event, net proceeds to us will be decreased and the use of proceeds may be
proportionately reallocated in management's sole discretion. Concurrent with
this offering, we may seek to obtain debt financing in the form of senior bank
debt as well as subordinated seller financing from the radio station owners. In
the event of our receipt of any such debt financing, we may seek to convert a
part of such debt financing to shares of our common stock or some other class of
securities which may have a dilutive effect on investors in this offering. There
are no current agreements, arrangements or other understandings in connection
with any of the foregoing.
We may borrow relatively small amounts from various persons to pay
expenses while this offering is completed. We anticipate that the agreements by
which these funds may be borrowed may provide that the persons who loan the
money may have the right to convert the amounts due to them into our common
stock on the basis of 1 share of common stock for each $0.05
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loaned. If the lenders decide to convert their debt into common stock, we may
issue shares of the common stock offered hereby to the lenders in satisfaction
of the loan agreements on the basis of one share of common stock for each $0.05
of debt so converted. In the alternative, we may take part of the proceeds of
the offering to pay these debts.
In the event we receive the maximum proceeds of $550,000, our management
believes that the net proceeds therefrom, together with anticipated funds from
operations, will provide us with sufficient funds to meet our cash requirements
for approximately twelve (12) months following the receipt of this maximum
amount. This will provide the necessary funding for creation of the music
programming services and provide the initial capital necessary to locate
additional potential station acquisitions. In such event, our management
believes we will in all likelihood only have sufficient funds to commence
production of Internet music programming and possibly certain other Internet
products as well as to establish a FCC-acceptable lease of the initially
proposed station acquisitions. If we receive net proceeds in amounts less than
the maximum proceeds, this twelve month time frame will be diminished and our
business operations will be curtailed to an extent not presently determinable by
Management. The receipt of no or nominal proceeds will have a material adverse
effect upon our investors and us. No assurances are given that we will sell any
of the shares offered hereby, or raise any proceeds or consummate any other
financing.
Our president and vice president have never been paid any salaries from
our company despite the fact that they have employment agreements with us where
the president is supposed to be paid an annual salary of $126,000 and the vice
president is supposed to be paid an annual salary of $115,000. Notwithstanding
the fact they have not been paid, our president and vice president have agreed
to continue to work for us until this offering is either completed or abandoned.
In return for their continued assistance, our officers will be entitled to begin
to receive 1/2 of their monthly salaries only when we have received $100,000
from the sale of our shares. In addition, only when we have received $200,000
from the sale of our shares will our officers be entitled to receive their full,
contractual salaries. We believe that these levels of funding, together with
other funding that we hope to be able to get, will allow us to generate revenues
that will allow our officers' salaries to be paid out of our operating profits.
Because we have employment contracts with our officers, we have an
obligation to pay their salaries during the period they are not actually being
given cash. We have reached an agreement with our officers that amounts that are
obligated to be paid to our officers but not timely paid will be accrued and
characterized as our liability and will be paid only when and if we achieve
sufficient operating profits to pay our officers' accrued but unpaid salaries.
We will not use any of the proceeds raised by the sale of our shares to pay
these accrued but unpaid salaries. Our officers understand that if these amounts
of net operating profits are never generated, they have little chance of ever
being paid for their services to our company. In addition, none of the offering
proceeds that we may receive will be used to make loans to officers, directors
and/or affiliates.
The estimated allocation of net proceeds of this offering set forth above
is based upon our present plans and our assumptions and estimates regarding our
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intended operations, anticipated expenditures and revenues and general economic
and broadcast industry conditions. The actual allocation of net proceeds of this
offering may be shifted at the discretion of our board of directors, if our
assumptions and estimates concerning anticipated expenditures and revenues prove
to be inaccurate. The allocation may also be changed if problems, expenses and
delays frequently encountered in growing a new business within the radio
industry, implementing new business strategies, as well as changes in the
economic climate and/or our planned business operations are experienced by us.
Proceeds not immediately required for the foregoing purposes will be
invested principally in federal and/or state government securities, short-term
certificates of deposit, money market funds or other short term interest-bearing
investments as well as repay Mr. Schult for his loan of $6,140 to American
Communications.
DETERMINATION OF OFFERING PRICE
There is no established public market for the shares of common stock being
registered. As a result, the offering price and other terms and conditions
relative to the shares of common stock offered hereby have been arbitrarily
determined by us and do not necessarily bear any relationship to assets,
earnings, book value or any other objective criteria of value. In addition, no
investment banker, appraiser or other independent, third party has been
consulted concerning the offering price for the shares or the fairness of the
price used for the shares.
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DILUTION
At June 30, 1999, we had a net tangible book value of -$184,992. The
following table sets forth the dilution to persons purchasing shares in this
offering without taking into account any changes in the our net tangible book
value, except the sale of 11,000,000 shares at the offering price and receipt of
$550,000, less offering expenses. The net tangible book value per share is
determined by subtracting total liabilities from our tangible assets, divided by
the total number of shares of common stock outstanding.
June 30, 1999 11,000,000 shares sold
Public offering price per n/a $0.05
share
Net tangible book value per <0 n/a
share of
common stock before the
offering(1)
Pro forma net tangible book n/a $0.01
value per share
of common stock after the
offering
Increase to net tangible bo n/a at least $0.01
value per share
attributable to purchase of
common stock by new
investors
Dilution to new investors n\a $0.04
(1) Our net tangible book value per share is determined by dividing the number
of shares of Common Stock outstanding into our net tangible book value and
is significantly less than zero prior to this offering.
PLAN OF DISTRIBUTION
We are offering up to a maximum of 10,000,00 shares at a price of $0.05
per share to be sold by our executive officers and directors namely, Messrs.
Schult and Ringle. If the shares are sold through our executive officers and
directors, no compensation will be paid with respect to such sales. However, we
may retain a NASD registered broker-dealer to act as the selling agent in
connection with all or part of this offering and will pay a cash commission of
up to an aggregate of 10% of the proceeds of this offering. Since the offering
is conducted on a "best efforts" basis, there is no assurance that any of the
shares offered hereby will be sold.
The offering will remain open until June 30, 2000, unless we determine, in
our sole discretion, to cease selling efforts. Our officers, directors and
stockholders and
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their affiliates may purchase shares in this
offering.
There is no minimum number of shares that must be sold to complete the
offering. As a result, there will no escrow of any of the proceeds of this
offering. Accordingly, we will have use of such funds once we accept a
subscription and funds have cleared. Such funds shall be non-refundable except
as may be required by applicable law.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our directors and executive officers of are as follows:
Name Position Age
Dain L. Schult President and Chief Executive Offic 45,
Secretary, Chairman of the Board
Robert E. Ringle Vice President of Internet Operatio 55,
Director of Sales, Treasurer and
Director
Dain L. Schult - President and Chief Executive Officer: Mr. Dain Schult has
served as our President and Chief Executive Officer since our inception . Mr.
Schult is a broadcast veteran of over 30 years in the radio industry.
For the period from 1996 to the inception of American Communications, Mr.
Schult was President and Chief Executive Officer for Equicom, Inc., a group
consolidator of radio stations in Texas.
For the period from 1977 to 1996, Mr. Schult was President of
Radioactivity, Inc., a full-service radio broadcast consulting firm located in
Atlanta, Georgia serving over 150 radio stations in various parts of the U.S..
While there, Mr. Schult participated in the turnaround of several stations,
created a unique turn-key management service for new station owners, conducted
station appraisals and market analysis projects for sellers and buyers, and
developed specific music formats for on-air use by client stations.
Concurrently, Mr. Schult was Chief Operating Officer for Sunbelt Radio Group,
Inc., a radio station group created to acquire and operate radio stations in
Texas.
Prior to 1977, Mr. Schult held various program manager, operating manager,
and on-air personality positions at several radio stations in the Southeast and
Southwest.
Mr. Schult holds an A.S. degree in Commercial Music-Recording from Georgia
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State University. Mr. Schult is married to Sherry Schult, the sister of Robert
E. Ringle, one of our directors and executive officers. As a result, Mr. Schult
is Mr. Ringle's brother-in-law.
Robert E. Ringle - Vice President Internet Operations/Director of Sales: Mr.
Ringle has served as our Vice President, Director of Sales and Treasurer since
our inception. Mr. Ringle has more than 20 years experience in owning and
operating advertising agencies and marketing companies.
For the period from1997 to our inception, Mr. Ringle served as the Chief
Marketing Officer and Director of Sales for Equicom Inc., a regional radio
broadcasting network.
For the period from 1995 to 1997, Mr. Ringle served as the Chief Executive
Officer of Quadra Group, Inc., a small consulting company specializing in
marketing and management.
For the period from 1993 to 1995, Mr. Ringle served as the Marketing
Director and Sales Manager for Pell Automotive Group, a car dealership in
Tucson, Arizona.
Mr. Ringle has a B.S. degree in Marketing from Wayne State University.
As stated previously, Mr. Ringle is Mr. Schult's brother-in-law.
Directors. All of the Directors serve for one year periods. We presently
expect to conduct our first annual meeting of shareholder and directors in
October, 1999 at which time directors will again be elected. All directors serve
for a period of one year unless removed in accordance with our bylaws.
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SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of our common stock before and after giving effect to the
sale of the maximum number of shares of common stock offered. All shareholders
have sole voting and investment power over the shares beneficially owned.
Beneficial Ownership
of Common Stock
Shares Owned Percentage of Class
Before Offering After Offering
Dain L. Schult 8,400,000 80% 27.0097%
Robert E. Ringle 2,100,000 20% 6.7524%
- --------- -------
All directors and 10,500,000 100% 33.7621%
officers as a group
(2 persons)
DESCRIPTION OF SECURITIES
Common Stock
American Communications is authorized to issue 35,000,000 shares of common
stock, no par value per share, of which 10,500,000 shares were issued and
outstanding when this offering was commenced. From the effective date of this
registration statement through the date of this amended prospectus, we have sold
1,385,000 shares. In addition, in July 31, 1999, we issued 9,600,000 shares to
Tamark Communications pursuant to a license agreement. As a result of these
transactions and as of the date of this prospectus, there are 21,485,000 shares
of our common stock issued and outstanding. The outstanding shares of common
stock are fully paid and non-assessable. The holders of common stock are
entitled to one vote per share for the election of directors and with respect to
all other matters submitted to a vote of stockholders. Shares of common stock do
not have cumulative voting rights, which means that the holders of more than 50%
of such shares voting for the election of directors can elect 100% of the
directors if they choose to do so. Our common stock does not have preemptive
rates, meaning that the common shareholders' ownership interest in American
Communications would be diluted if additional shares of common stock are
subsequently issued and the existing shareholders are not granted the right, in
the discretion of the Board of Directors, to maintain their ownership interest
in our company.
Upon any liquidation, dissolution or winding-up of American
Communications, our assets, after the payment of debts and
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liabilities and any liquidation preferences of, and unpaid dividends on, any
class of preferred stock then outstanding, will be distributed pro-rata to the
holders of the common stock. The holders of the common stock do not have
preemptive or conversion rights to subscribe for any our securities and have no
right to require us to redeem or purchase their shares.
The holders of Common Stock are entitled to share equally in dividends,
if, as and when declared by our Board of Directors, out of funds legally
available therefor, subject to the priorities given to any class of preferred
stock which may be issued.
Preferred Stock
American Communications is not presently authorized to issue shares of
preferred stock However, the majority of the our shareholders may later
determine to establish preferred stock for American Communications. If done, the
preferred stock may be created and issued, in one or more series and with such
designations, rights, preference and restrictions as shall be stated and
expressed in the resolution(s) providing for the creation and issuance of such
preferred stock. If preferred stock is authorized and issued and if American
Communications is subsequently liquidated or dissolved, the preferred stock
would be entitled to our assets, to the exclusion of the common stockholders, to
the full extent of the preferred stockholders' interest in American
Communications.
Dividend Policy
To date, we have not paid any dividends. The payment of dividends, if any,
on the common stock in the future is within the sole discretion of the Board of
Directors and will depend upon our earnings, capital requirements, financial
condition, and other relevant factors. The Board of Directors does not intend to
declare any dividends on the common stock in the foreseeable future, but instead
intends to retain all earnings, if any, for use in our business operations.
Transfer Agent and Registrar
Signature Stock Transfer, Inc., in Dallas, Texas is our transfer agent for
our common stock.
DISCLOSURE OF COMMISSION
POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Article V of the our Bylaws provides that American Communications shall
indemnify its officers or directors against expenses incurred in connection with
the defense of any action in which they are made parties by reason of being our
officers or directors, except in relation to matters as to which such director
or officer shall be adjudged in such action to be liable for negligence or
misconduct in the performance of his duty. One of our officers or directors
could take the position that this duty on behalf of American Communications to
indemnify the director or officer may include the duty to indemnify the officer
or director for the violation of securities laws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to our directors, officers and
controlling persons pursuant to our Articles of Incorporation, Bylaws, Nevada
law or otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore,
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unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or payed by one
of our directors, officers or controlling persons, and 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, we will,
unless in the opinion of our counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
DESCRIPTION OF BUSINESS
General
American Communications Enterprises, Inc., a recently formed Nevada
corporation, based in Austin, Texas, was created to acquire, consolidate and
operate small-to-medium-sized market radio stations, initially in Texas and then
in other geographic regions of the United States. We hope to develop related
"state-of-the industry" Internet services to network our planned regional
clusters of radio stations in such markets. We believe that this cross-
marketing strategy will allow us to offer greater advertising capabilities to
potential advertisers, and therefore avail itself of possibly greater revenue
opportunities than available to radio stations on a "stand alone" basis or other
consolidators who do not follow such strategy.
We have identified KXYL AM and FM, Brownwood, Texas, and KSTA AM and FM,
Coleman, Texas, as ideal acquisitions within our desired market size. As a part
of our due diligence examination as to whether or not we should pursue the
acquisition of these stations, we have entered into a Time Brokerage Agreement
with the aforementioned radio stations, commencing June 1, 1999, whereby we will
manage the operations of these stations for a period of up to twelve months.
Under this cancelable agreement, we will collect all revenues from operations
and will be responsible for the payment of all expenses including certain
monthly debt obligations, which are approximately $40,000 per month. We hope to
eventually acquire up to approximately 15 stations in the Southwestern section
of the United States. Assuming the continued availability of additional
small-to-medium sized radio stations in other parts of the U.S., the
availability of financing and our ability to integrate the operations of
additional radio stations, none of which assurances may be given, we intend to
acquire, consolidate, and operate additional radio stations beginning by Third
Quarter 1999. We plan to pursue a regionally focused acquisition strategy adding
clusters of stations across the country when and wherever possible. The total
number of stations acquired will be a function of availability, our financing
capability and marketing feasibility and could result in us operating as many as
100 stations. We are currently looking for additional acquisition targets in
Texas, New Mexico, Oklahoma, Arkansas and Louisiana.
Based on our management's prior experience in operating radio stations in
consolidated groups, we believe that these stations can be linked together for
efficient operation in a reasonable time frame. We also intend to develop a
unique entertainment web site on the Internet. By combining the small to medium
market broadcast radio stations with the Internet, we believe we can eventually
create a network presence across the country and internationally. The strategy
is a hybrid of a
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small-to-medium-market radio station consolidation and an Internet approach that
is cross-market oriented.
As an augmentation to this Internet strategy, on July 31, 1999, we entered
into a license agreement with Tamark Communications to obtain (4) four exclusive
IP Gateways. The Gateways are essentially switching devices that are a
combination of the Internet and global telephone networks to provide high speed
telecommunications routing. In return for the issuance of 9,600,000 shares of
our common stock and a 1% royalty on gross sales generated from the Gateways, we
have obtained the marketing and distribution rights for the Gateways for
specific territories. We believe that we may be able to use the Gateways in our
Internet activities and we also hope to be able to generate licensing revenue
for us through the licensing of the Gateways. However, because we have only
recently entered into this licensing agreement and have generated no revenues as
a result thereof, we are not able to predict whether we will have any decreased
costs or increased revenues through this arrangement.
Acquisition and Operating Strategy
We will pursue a regionally focused acquisition strategy. We propose to
initially purchase small-to-medium-sized radio stations in non-major
metropolitan areas in Texas and then expand to surrounding states. Our
management believes that many of the non-major metropolitan areas currently
offer many attractively priced acquisition candidates compared to the larger
cities.
Besides our regional focus, our growth strategy is planned to be founded
upon the achievement of synergies and economies of scale, including but not
limited to, the generation of incremental sales through network marketing for
greater national and regional advertising, the reduction of overhead expenses
and the realization of operational cost savings.
Assuming the completion of our initial station acquisitions and the
successful integration of such operations by Third Quarter 1999, we believe we
will be able to offer regional advertisers the ability to access a population
base of approximately 300,000 people in Central/West Texas. As we acquire more
stations, advertisers will be able to purchase the entire American
Communications group as a network with one media buy which will also include
advertising capabilities on the Internet. Under current market conditions, an
advertiser would not be able to roll out a campaign targeting non-major Texas
areas without entering into a number of separate media purchases which is both
time consuming and non-cost effective due to having to contact each station
separately instead of as a group .
Based upon, the prior personal, professional experiences of Messrs. Schult
and Ringle as well as the success of other regional consolidators, our
management believes our ability to market our entire network will result in a
consolidated advertising approach with a distinctly higher component of national
and regional advertising versus local direct retail advertising. This is
favorable because national and regional advertising often command premiums over
local ad rates by as much as 50% and 100% in smaller cities.
We plan to utilize a blend of WAN (Wide Area Network) music programming
coupled with centralized satellite voice programming from a centrally located
control location. Additionally, all of our
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stations are planned to operate with centralized accounting, billing, marketing
and promotions systems, an in-house sales group that will be utilized for group
advertising for the radio stations as well as for Internet advertising, and
specialized in-house sales training programs for all of our salespeople. Due to
such planned centralization of services, we believe that each station's general
manager will have more time to focus on sales instead of administration
responsibilities. We expect that we will also eventually utilize "super regional
managers" each of whom will serve on-site as general manager in one market but
also oversee the operation of other stations within their designated region.
Current Radio Industry Conditions
We will compete in an industry that has undergone deregulation and
innovation. Deregulation by the Federal Communications Commission ("FCC") which,
in general, has permitted the elimination of station ownership limits, has given
rise to widespread opportunities within the radio industry but competitive
pressures have also increased. Consolidation activity has swept through the
larger-market radio stations and is now working its way through the small-to-
medium-sized markets. These smaller markets provide opportunities for
consolidation without the expense of large market or major city acquisitions.
Overview of the Radio Business
Radio station revenues are derived from the sale of advertising spots or
programs to national, regional, and local advertisers of commercials.
Advertising rates charged by a station are predicated on its performance in the
ratings based on estimates of the number of persons listening to a station as
well as the number of homes in a station's service area.
The only national radio audience measuring service, Arbitron, serves the
entire country and provides even the smallest markets with annual ratings
service. Ultimately, the success of a radio station (or group of stations)
depends on its ability to develop popular programming and promotions, thus
generating higher rates and allowing the station to charge more for airing
commercials.
Historical Trends in Radio Ad Revenues
As evidenced by Interep (a group of national radio rep firms), radio
industry revenues have consistently grown faster than the Gross National Product
and have historically demonstrated an ability to be somewhat recession
resistant.
Radio advertising expenditures have declined only twice in its history-in
1961 revenues declined 1% due to a recession and in 1991, the combination of the
Persian Gulf War and economic recession led to a 3% decline in revenues. Interep
reports that over the last 40 years, radio advertiser spending has grown at a
compound annual rate of 8.3%, somewhat higher than total ad spending for other
forms of advertising (television, cable, outdoor and print) which has grown at a
7.5% annual rate.
Economic downturns can have an impact on broadcasting, as it would any
other form of advertising or business in a recession, but not to the same degree
that they affect consumer discretionary spending in general. As reported by the
Radio Advertising Bureau, many national and regional brand advertisers have
found by experience that they must maintain their broadcasting advertising
budgets during periods of recession if they do not wish to
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lose market share when the economy recovers.
The Radio Advertising Bureau reports that the main factor for radio's
growth is radio's unique ability for "narrowcasting" or reaching specific
demographic groups. By offering specialized audiences for advertisers, radio has
become more cost-effective, versus television or newspapers, which tend to sweep
a broader demographic scale.
Industry Consolidation
The radio broadcast industry is currently subject to consolidation
activity which is having a major impact on the competitive landscape. In
general, and as further discussed below, such consolidation activity has been
triggered by the Telecommunications Act of 1996. Up until the mid-1980s, there
was no public market for radio stocks. Local ownership limits by the FCC of one
AM and one FM station per market and a total limit of 14 total stations
prevented radio groups from amassing greater size to attract outside capital.
Because of these strict limits, radio station ownership was highly fragmented
and characterized by "mom and pop" operations in even the largest markets. By
1984, however, FCC ownership rules had begun to be relaxed, with major
relaxation of such rules occurring in 1992 and 1994.
The passage of the 1996 Telecommunications Act (the "Telecom Act")
eliminated the national limits on the number of radio stations that one entity
could own and eased local ownership rules so as to allow 1 operating entity to
control up to 8 stations in most medium and major markets. Much of the
consolidation activity to date has been centered on major markets, resulting in
increased competition and higher valuations in such markets.
The mid-sized markets (generally defined to mean US markets ranked #50 to
#265 based on population) have recently begun to see upward price pressure, with
10.0x to 14.0x EBITDA (Earnings before Income Taxes, Depreciation and
Amortization) multiples not uncommon (vs. 8.0x to 10.0x EBITDA multiples as
recently as 1997). The consolidation activity of large market operators such as
Chancellor/Capstar Communications (Hicks, Muse), Sunburst (Bain Capital), and
Cumulus (Wisconsin State Teachers Retirement/Quaestus Capital) all of whom have
consolidated stations across the US, have begun the process in some of the same
markets that we are exploring for acquisitions thus tending to indicate that
consolidation has begun in the smaller markets. We believe that we will only
encounter these larger mid-market consolidators at the upper end of our target
markets in rated medium sized markets but not in the smaller, non-regularly
rated markets. Few groups have ventured beyond focusing on the top 100 markets,
which has kept acquisition multiples in our targeted markets low but that could
change should other consolidators follow our small market strategy.
Competition
Competition within the radio broadcasting industry has historically been
and will continue to be very intense. Overall, the principal factor affecting
competition in this industry is the number of audience members reached with one
advertising medium. With the advent of deregulation, competition has increased
since the key to success is no longer how many listeners can an independent firm
reach in one market, but rather, how many listeners can a consolidator reach in
multiple markets. Competition with newspapers and television for advertising
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dollars is also high. However, radio's audience has held up well over time. In
the past five years listenership has actually increased as reported by the Radio
Advertising Bureau. In addition, with the bulk of radio listening taking place
outside of the home and on the road, where competition with other mediums is
limited, and the audience somewhat "captive" (unable to access television,
newspapers, or the Internet), radio appears to be well positioned for continued
growth.
Regulation
The radio broadcast industry is subject to extensive regulation at the
federal level. Any change in existing statutes and regulations, or the adoption
of new statutes and regulations, could force stations to alter their methods of
operation at substantial costs.
All firms, whether large or small, are affected by these changes. Also, as
seen in recent legislative action (the 1996 Telecom Act), changes in
regulations, especially, deregulation, can drastically shift the competitive
landscape. Going from being able to own 7 AM and 7 FM stations in 1992 to 18 and
18 to 20 and 20 to now no limits, the FCC has now allowed for a free and open
market on radio station ownership. Additionally the FCC has continued a pattern
of reducing paperwork requirements of its license holders and eliminating
outdated rules and26
regulations.
Overview of the Internet Industry
The Internet's brief and meteoritic existence provides little historic
performance data. From a few hundred thousand users seeking information,
entertainment and commerce in the early 1990's the Internet community has grown
to millions today. Only a few short years ago, Internet companies were
struggling to carve out revenue and many Internet sites offered free information
posted by various entities with links to related and unrelated sites. Now, as
reported by Advertising Age, billions of dollars in revenue are generated from
advertising, website development and retailing.
Major electronic manufacturers have products and/or are developing
integrated Internet products for next generation home systems and mobile
systems. Future delivery of the Internet is slated to arrive via increased cable
usage and/or satellite to multi-purpose home entertainment systems that will
function as Internet links, computers, radios and TV sets. Cellular phones
currently can connect to the Internet as well as automobile radios. There
appears to be little or no limit to the ways and means one can and will be able
to access the "Net".
Trends in Ad Revenues
Currently, as reported by Advertising Age, the most lucrative Internet
advertising comes from banner advertising. Banner advertisers pay for "hits" or
"impressions" based on the number of user exposures to their ads. National
brands in every industry are now using the Internet as part of an integrated
approach to marketing. Although difficult to exactly quantify, it is estimated
that national Internet ad revenues reach into the billions of dollars. According
to Advertising Age, local and regional web sites offer similar opportunities to
local and regional advertisers.
The Internet has become a global market place for commercial and consumer
goods from banking to soft goods. Entrepreneurs and national brands are also
enjoying phenomenal growth through
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"catalog", retail sales on the Internet. The Internet user can access VAR (Value
Added Retailer) and factory direct products over secure sites using most types
of credit cards and generally save time and money in the process.
Competition
Competition within the Internet community will be fierce. Internet
"audiences" will continue to be exposed to newspaper, TV, radio, direct mail,
etc. The advantages of the Internet lie in the totality of content and the
ability to deliver messages in audio and visual media twenty-four hours a day
seven days a week. Furthermore, studies by Arbitron have indicated that the
Internet is the media of choice for the 24 to 35 age group with increasing
numbers of users in the affluent 35 to 55 age group.
Regulation
The Internet is under no enforceable broadcast or entertainment content
regulation at this time. Although the U.S. Government may prevail in regulating
some functions of U.S. based web sites and portals, there is good reason to
believe it will be many years before regulation will be enforceable.
Summary of Industry Attractiveness
We believe the Internet industry will prevail as the media of choice for
the aforementioned demographics groups in the foreseeable future. The almost
unlimited opportunities for growth and expansion are the key points for
selection of the Internet as a component of our planned sales and marketing
strategy. The ability to access users across the country and even
internationally may offer the opportunity for increased revenues in national and
regional advertising.
MANAGEMENTS DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
Our success is largely dependent on our ability to sell all of the shares
offered. Although we have acquired the right to operate four radio stations, we
have no arrangements in place to actually acquire any radio stations and the
acquisition of any specific stations at this time is not probable. The two
general conditions which will effect the ability of the company to survive are
the ability to find willing sellers of existing radio stations and our ability
to operate acquired stations at a profit. If either or these conditions become
impossible, we will probably not be capable of continuing in business.
Our management has significant experience in the radio industry and has
conducted significant research as to the availability of stations and the
methods in which to achieve profitability once obtained. Our management,
therefore, plans to utilize this expertise to take such steps are necessary to
see that the conditions to our success are satisfied.
Upon receipt of the funds generated from the sale of shares, we expect to
immediately begin negotiations to acquire the radio stations that have been
identified for acquisition. Although the period between the receipt of such
funds and the date by which we may be actually able to complete the purchase of
these stations is difficult to estimate, our management thinks that this process
can be completed in no more than four months after the receipt of proceeds under
this offering. However, the specific acquisition of any station is not probable
at this time. We currently expect that when we acquire a radio station, we will
also acquire its accounts receivable such
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that immediately upon acquisition, we should be entitled to begin receiving
revenues from advertisers for the existing radio stations.
The result of the foregoing is that within four months of the completion
of the offering, we expect to be generating net income with the expectation
that, by the completion of the first twelve months of our operations, we could
have generated enough net income from operations to remain in business. Our
management believes that the foregoing plan is viable and that it will be able
to continue as a going concern; however, if we are unable to fully effectuate
our plan such that it is not accomplished, it is probable that we will not be
able to continue as a viable, going concern.
Overview of Operating Model and
Growth Strategy
The key elements of our operating model and growth strategy, which
incorporates concepts utilized by other radio broadcast consolidators as well as
in other industries, are highlighted below:
Station/Market Selection. Our initial strategy is to acquire radio assets
in small-to-middle-market areas throughout the Southwest including Texas, with
additional American Communications clusters to be formed in adjoining states
and/or in close proximity with such strategy to be financed with the proceeds of
this offering, seller debt financing, when and where applicable, and other
potential equity funding sources.
By avoiding the major metropolitan areas (i.e. Dallas, Houston, San
Antonio and Austin), we believe we may be able to acquire stations at very
attractive prices. Medium-to-major-market radio stations have been selling for
12.0x to 17.0x EBITDA. In contrast, we believe, based upon our management's
personal, professional experiences in locating and acquiring radio stations,
that we may acquire our small market radio assets at between 7.5x -10x EBITDA.
Assuming our success in our acquisition strategy, we believe we may
ourselves become an attractive acquisition candidate in the future to a larger
market consolidator.
Clustering by State/Region. In addition to focusing on smaller markets, we
plan to also pursue a regional clustering strategy. Accordingly, our first
planned acquisitions of radio stations (approximately four (4)) is only focused
in Texas. By clustering stations within a tight, regional market, we believe we
can achieve certain back office cost benefits. Our management's plan for the
Texas regional cluster evolves into a centralized hub where the major managerial
and administrative functions will be housed to where we should be able to serve
up to approximately 70 stations in local markets throughout the state.
Localization. A key element of our strategy is to be able to "sound live
sound local" in every market. We plan to present a live morning show in each
local market, the popularity of which is viewed as material to the success of a
radio station's operation as live morning shows serve to perpetuate a strong
local image in a market. The concept of "localization" is complementary to our
regional focus and extends past the morning drive period to the rest of the
broadcast day. Unlike nationally syndicated formats, we plan to make our
regional flagship announcers available for promotional campaigns or on-site
advertising engagements throughout the
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region and state. The ability to utilize well known radio personalities is a
major selling point to advertisers in smaller-market areas.
Centralized Operating Cost Savings. We plan to centralize much of our
administrative and operating functions at one of our station locations (to be
determined later) while maintaining an office in Austin to serve as corporate
headquarters and marketing center for regional and national advertising.
Programming is one of the key areas targeted for cost savings by elimination of
separate programming staffs at each station, replaced with one consolidated
network programming staff which will provide greater programming quality. Radio
voice programming is planned to be created at the flagship stations for each
format featured by the our network. By satellite transmission and use of WANs
and integrated computers, we should be able to minimize redundant equipment used
at each individual station and more efficiently utilize on-air talent by having
one centralized programming staff. In addition, accounting and bookkeeping is
also planned to be located at the flagship station site. One billing/traffic
person at the flagship headquarters can handle 4 stations at once which is a
great savings over having a billing/traffic person located at each individual
station. Other functions such as engineering, advertising, purchasing, and human
resources will also be handled from the flagship site. As new stations may be
added into the regional cluster, we believe that the achievement of economies of
scale will result in increasing levels of operating profitability.
Generating Incremental Growth in Ad Revenues. Our management believes that
we will achieve incremental revenue growth out of the planned combined American
Communications radio group compared to the sales level that such stations have
generated on a stand-alone basis. In many small markets, the general manager is
often the head salesperson, in addition to being the overseer of the day-to-day
operations, on which the majority of such person's time is frequently spent.
The size of the sales staffs at each of our stations is planned to be
adequate to handle the flow of business allowing salespeople to handle between
30-50 accounts each while the programming, traffic/billing and technical staffs
will be pared down to reflect our centralized operating structure. Importantly,
employees who face the possibility of having their job functions reduced due to
centralization will be given opportunities to move into a sales role.
Attracting National and Regional
Advertisers
As reported by the Radio Advertising Bureau, national and regional
advertising accounts for approximately 10% to 25% of the revenue mix for a
typical radio station in the market sizes that we have identified, with local
advertising representing the balance of the sales mix.
Historically, it has been difficult for national/regional advertisers to
target the small-to-middle-market areas due to the large number of separate
purchases of advertising spots that would be required. We intend to market our
entire network of stations within a region to national and regional advertisers
and thereby offer the convenience of the opportunity to reach an aggregate
substantial population in smaller cities and rural areas. In such fashion, we
believe we may attract national and regional advertising which often commands a
50% to 100% premium over local advertising
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income.
The Internet Component
We recognize the growth potential within the Internet market. While large
consolidators such as Capstar broadcasting group and Cumulus broadcasting group
dominate the major markets and continue to compete with each other for market
control in the major metropolitan areas, our cross- market approach is to look
past this hotly contended arena towards the expanding opportunities on the
Internet.
Currently, radio sites on the Internet are focused on duplicating standard
broadcast type programming and formats. We plan to create a unique entertainment
site utilizing every technological advance and revenue-generating feature
available. We plan to deliver content in both streaming audio and video and to
utilize a major portal such as Yahoo to lead users to our site. Once there, we
plan to offer a wide array of entertainment and products including
o several music formats ranging from
country to jazz.
o MTV-like videos of favorite artists.
o contests.
o gaming.
o shopping carts of VAR merchandise from CD's and concert tickets to
A/V equipment.
o our own branded merchandise.
o entertainment news.
o special programming, including
music and travel features.
o links to points of interest.
To assist in the implementation of our Internet strategy, on July 31,
1999, we entered into a license agreement with Tamark Communications whereby we
will have the exclusive license to distribute four IP Gateways. The Gateways are
essentially switching devices that are a combination of the Internet and global
telephone networks to provide high speed telecommunications routing. Pursuant to
our agreement with Tamark, we have obtained the marketing and distribution
rights for the Gateways for specific territories. We believe that we may be able
to use the Gateways in our Internet activities and we also hope to be able to
generate licensing revenue through the licensing of the Gateways. However,
because we have only recently entered into this licensing agreement and have
generated no revenues as a result thereof, we are not able to predict whether we
will have any decreased costs or increased revenues through this arrangement.
Proposed Potential Radio Station
Investments
Assuming the continued availability of the following radio stations and
our success in obtaining additional financing for such acquisitions (owner
offered of otherwise), neither of which assurances are given, we hope to acquire
the stations identified below, with such acquisitions probably to include the
assets of each station, which normally include the broadcast equipment,
broadcasting tower and antenna, transmitter, office furnishings, office
furniture, accounts receivable, station vehicles, station promotional items,
station advertising accounts, FCC Station License and real estate including
studio/office space as well as land upon which the tower and
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transmitter is located or leases for that space instead. Because we will be
making asset purchases, we do not intend to acquire any existing liabilities of
these stations. Following the assumed successful completion of this offering, we
plan to negotiate purchase option agreements with some of the station's owners
since no agreements or understandings are currently in place. We hope to acquire
each of such stations within approximately six (6) to nine (9) months from the
execution of a definitive agreement. No assurances are given:
o as to the continued availability of
such stations.
o that we and each of such station owners will agree on price and other
material terms.
o that we will be able to timely secure required financing for such
acquisitions on terms satisfactory to us.
o that we will be able to successfully operate and integrate any of such
stations' operations into our operations occurring at the time of
acquisition.
o that the FCC will approve of any
such transfers.
Because of the foregoing concerns, we cannot say at this time that the
acquisition of any specific radio station is probable, notwithstanding the
identification of the specific stations set forth below.
As a part of our due diligence examination of the stations mentioned
below, we entered into a Time Brokerage Agreement with KXYL AM and FM,
Brownwood, Texas and KSTA AM and FM, Coleman, Texas, whereby we will manage the
operations of these stations for a period of up to twelve months, beginning July
1, 1999. Under this cancelable agreement, we will collect all revenues and are
responsible for the payment of all expenses including certain monthly debt
obligations, which are approximately $40,000 per month. The following is a
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breakdown of our estimate of the costs to actually acquire these two AM and two
FM stations. All of these costs will be paid to third-parties and not to members
of our management.
Proposed purchase price to be paid existing owners of $1,600,000.00 KXYL AM and
FM, Brownwood, Texas and KSTA AM and FM, Coleman, Texas Estimated closing costs
$140,000.00 Estimated equipment costs associated with creation $76,000.00 of
satellite network Initial working capital to be used for expenses incurred
un$184,000.00 advertising revenues are generated Total Funding Requirement:
$2,000,000.00
The maximum amount to be raised in this offering is $550,000. To be able
to complete the acquisition of any radio stations, we will need to obtain
significant additional financing. Our management's plan is to obtain this
additional financing through the following potential methods:
o Traditional bank financing from commercial banks.
o Arrangements with venture capitalists who may be willing to loan amounts
to us in return for some combination of debt and equity consideration.
o The issuance by us of additional stock, either preferred or common.
Although our management has had preliminary conversations with various
lenders and other financiers, we do not have any commitments from anyone to
provide any of this additional financing. Our ability to get this additional
funding is critical to our continued existence.
Estimated Closing Costs
The table above contains an entry of $140,000.00 for estimated closing
costs. This $140,000.00 consists of the following estimated expenses that are
anticipated to be incurred in the acquisition of each radio station.
Additionally, this estimate does not include any extraordinary due-diligence in
the form of any engineering studies or protracted negotiations both of which
would increase related closing cost expenditures. Based upon our management's
personal knowledge of these stations and the communities of Brownwood and
Coleman, Texas, we do not anticipate any such extraordinary expenses with these
proposed station purchases.
Local Legal Counsel $3,500
Communication (FCC) Law Counsel $10,000
Accounting Expenses $10,000
Long Distance Phone Calls $1,000
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Overnight Delivery Services $300
Travel and Lodgi$2,500
On-site Market Research/Due-Diligence $3,500
Miscellaneous Expenses $4,200
------
Total Estimated Closing Costs per station acquired: $35,000
Acquisition and Closing Process
We plan to streamline the negotiating and closing process on the proposed
station transactions by, among other things, "standardizing" a form of purchase
option agreement and purchase agreement and related documents which will
nevertheless be subject to at least some negotiation and revision and the FCC
station license transfer process.
Subject to the availability of financing and the continued availability of
targeted stations, we hope to stage the closing of the transaction over
approximately a six (6) month period so as to provide the opportunity for a
successful integration of such radio station operations. Notwithstanding the
fact that additional time has been "built-in" to our timetable, no assurances
are given that we will successfully operate and integrate any of such
acquisitions, assuming the successful completion thereof.
Initial Acquisition Plans
Our management believes that a major consideration in accomplishing our
planned acquisitions is to do so in as timely and low profile a manner as
possible. Normally, the sale of stations in the market sizes as targeted by us
would be a significant event within their respective marketplaces.
To maintain stability and consistency of these stations under our planned
ownership, it is important that the perception, as well as the reality, at least
initially during the ownership transition period, be of little if any change to
the current operation. During the ownership transition period, we expect that
our management will spend time with each station's employees to discuss with and
assure personnel about the pending transfer, with little, if any, outside
contacts with community civic or business leaders concerning such matter.
Emphasis will be placed in staff meetings that additional stations are planned
to be added, and that there will be opportunities for employees to move into
future management openings at other Company owned stations so that they can
experience personal professional growth inside the organization.
After ownership transfer of a station is effected, we plan to implement
minor operational changes which we believe will enhance financial performance,
including the following:
o The introduction of major-market-style
promotions and contests.
o Modification of rate cards to better exploit a station's remote commercial
broadcast capabilities and increase national/regional advertising.
o Negotiating with interested third parties to lease for the station's
sub-carrier frequencies such as CUE Paging (a national paging service that
is on the lookout for additional radio stations to work with) that could use
a station's use
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the sub-carrier frequency for national paging services. Such lease will not
effect the station's main signal and may generate between approximately
$6,000 to $20,000 a year in fees.
o The leasing of portable music system
through Disc Jockeys Unlimited of
Atlanta, Georgia, a service provider who
builds portable music systems for disc
jockeys and radio stations at a cost of
$225 a month This will allow the station
to earn equipment rentals as an
additional revenue stream and the
staff's disc jockeys the opportunity to
earn extra money weekly by performing
at wedding receptions, company and
private parties, etc.
o The development of a firm (proposed to be referred to as ACENET) that will
literally represent the group for all of its national and regional
advertising and will include Internet advertising connections.
o The introduction of an internal, ongoing research system to allow the
station to track listener patterns between Arbitron ratings periods (where
applicable in markets that are rated). Such research will be conducted by
telephone utilizing existing staff personnel.
o A review and update of as appropriate with current music selections added as
necessary for the WAN music programming network element.
After Acceptance Of An Offer
Following execution of a definitive purchase agreement (subject to FCC
approval, and completion by us of satisfactory due diligence), our management,
in cooperation with the seller of a station, will submit the appropriate
transfer documents to the FCC. While the FCC has the authority, in its sole
discretion, to approve or reject a transfer request, transfer requests are, in
the normal course, generally approved within approximately three (3) to six (6)
months of submission of all required applications and related documents.
Preceding the FCC filing, a comprehensive due diligence investigation
including at least the following steps will be undertaken:
o A thorough inspection of station facilities including offices, studios and
transmitting sites.
o An independent engineering inspection of the station's facilities. Age and
condition of all equipment including transmitters and towers will be
recorded. A comprehensive program of schedule maintenance will be designed
and implemented after the closing.
o A survey will be conducted of the
market to analyze existing and potential
competition, market growth trends,
current marketing trends, past and
future programming, promotions, and
advertising plans along with listener and
advertiser perceptions of the station.
Included will be an independent ratings
survey for each market as well.
o Meetings with present management to
gain insight into the stations' current
operations. This is expected to include
written assessments of station
employees, job responsibility lists for
themselves and their staff, budget
projections, plus any other input they
can offer regarding the stations.
o A review of all station contracts with
vendors and clients. All existing station
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trade/barter agreements will be reviewed with the sellers to determine their
current status and disposition. Retention preference is expected to be given
to any trade agreements that directly benefit the stations in the form of
promotional considerations and advertising with other media.
o General staff meetings will be
conducted to help minimize anxiety
caused by the pending transfer. Each
employee will be asked to submit in
writing a description of their job
responsibilities as they perceive them
with comparisons then made by
management to the station manager's
views. We will then compare the
employee's lists against those
submitted by the managers.
o Review of staff members' levels of experience and expertise, job
responsibilities, station/market tenure and future potential.
o Review of existing standards and practices. A system-wide company operations
manual will be distributed post closing, that will set forth operating rules
and regulations, our benefits and vacation policies.
o Investigating peripheral station revenue
enhancement (i.e. renting tower space
for use by one or more
telecommunications service providers,
utilizing the air staff for remote
broadcasts or private parties using a
portable music system or other similar
methods.)
Closing and Post Closing Matters
Assuming receipt of final FCC notification of transfer approval, we will
immediately proceed to closing, and then commence implementing those operational
changes earlier discussed as deemed appropriate.
Corporate Operating Controls
Upon the completion of an acquisition, corporate operating controls are
planned to be implemented at each station. In addition, all station computer
systems are planned to be networked with headquarters in order to produce
station-level information on a real time and on request basis. We plan to
generate financial reports within 30 days of month end for review by senior and
station management. Administrative and accounting controls will be centralized
in our Austin headquarters. Corporate staff at both headquarters and each
station should be kept to a minimum.
The majority of commercials and station promotions productions are planned
to be created at the flagship stations and then "fed" to the other stations in
the group via the satellite link that will be created at the flagship stations.
Marketing, Advertising and Promotion
Our stations are planned to be marketed, advertised and promoted as the
leading "fun-to-listen-to-station" in each market, with the goal to increase
station awareness and "dial position recognition" among retailers, buyers and
listeners.
Being viewed as a truly local station is highly valued by both advertisers
and listeners in the mid-size and smaller markets in which we plan to operate.
Therefore, we plan to aggressively promote our stations in their respective
markets independently as well as cooperatively with client retailers and
companies with whom we may establish joint marketing/sales relationships through
on-air contests, local
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promotions, direct mail, website and e-mail promotion, local publications,
outdoor advertising and "word-of-mouth" advertising endorsements.
Our sales force will be trained on an ongoing basis in marketing their
respective stations. In order to attract and retain qualified personnel, we
recognize that it is imperative to structure a compensation plan for our sales
staff that is both fair and appealing. As such, compensation is expected to be
both salary and incentive based. Our management also plans to selectively use
bonus programs as a method of rewarding outstanding salespeople. The sales force
at each station will handle local advertising, with National and regional
advertising to be handled by ACENET or another rep firm.
Assuming we successfully execute our acquisition strategy of a planned
American Communications group of stations, our management believes it will be
possible to increase group revenues over the current operators' level for the
following reasons:
o Because not currently existing as a
group, none of these stations are
currently offered as a total advertising
package. Therefore, any regional
and/or national desiring to advertise in
such markets presently must effect
separate media buys with each
individual station and thus deal with
sales people in each of such markets
Under our plan, this same advertiser will
be able to contact any one of such
stations and buy advertising time from
the whole group or any of its component
parts by contacting just one marketing
consultant
o As we may add affiliate stations to our
programming network (i.e., stations that
buy our planned satellite programming
content but in which we have no
financial interest), such relationships
may also enhance our ability to sell
network advertising and increase
revenues.
o Generally speaking, the size of the sale staffs at each of our stations will
grow while the programming staffs will be down-sized to reflect our
satellite programming approach.
o Greater emphasis will be placed on the actual in-house production of
advertiser's commercials to improve the quality of the commercial for each
client.
o All of our marketing consultants will be
thoroughly trained in marketing their
respective stations without reliance on
ratings because stations which build
relationships with its clients to buy
advertising based on results and not
just ratings tend to do better than
stations which rely strictly on ratings as
their selling point.
o We expect to develop, through on-going market research, specific information
to help clients develop immediate and long- term marketing plans.
o We expect to coordinate sales literature, telemarketing programs and direct
response promotions with the goal to increase our billings.
o Our marketing strategy includes offering
multiple broadcast formats in each of
the markets we serve. We believe that
cross-selling synergies can be achieved
with this approach as all formats do not
appeal to all types of advertisers. For
example, an independent station owner
broadcasting a big-band format would
not be able to sell advertising to a
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retailer that targets the teenage demographic sector. However, by offering a
CHR (Top 40) format in many of its markets, we believes we will be able to
capture sales that the individual operator could not.
Other Revenue Opportunities
Each FM station has one sub carrier "frequency" beneath the main frequency
upon which it broadcasts which may be leased to such types of entities as CUE
Paging or Muzak franchises, local data-processing sources and pager services.
The lessee would be responsible for all costs of setting up the equipment for
use of the sub carrier as well as covering all its own expenses including
utilities and maintenance. Such leasing arrangements could potentially net our
company approximately $1,000 per month per FM station.
While certain of the stations we intend to acquire do not own the towers on
which their antennas are located, on those stations which do own their own
towers, we can offer space on a rental basis to pager services and other
telecommunications vendors. As with the sub carrier, all start-up costs,
utilities and maintenance are borne by the lessee. We estimate that tower space
leases could generate approximately $1,000 per month, per lease.
As we plan to produce specialized satellite programming for our own stations
each day, we will have the capability of selling that programming concept to
affiliate stations. In markets too small for us to consider for acquisition, we
should be able to provide more localized satellite programming than any of the
large nationally syndicated satellite services can offer because the national
syndicators are not able to localize each individual commercial break the way we
will be able to. Additionally, we will be able to offer affiliates the
opportunity to "tie into" our centralized bookkeeping system and become an
affiliate of our ACENET sales force, allowing the affiliate stations to be
marketed as a part of the overall American Communications network. These are
services for which we plan to charge additional fees.
We plan to market not only our own stations but also affiliates with which
we may enter into joint marketing relationships. Such joint marketing plan, if
successful, is expected to provide us the size and marketing strength necessary
to eventually operate our own in-house rep "firm" eliminating the need to
outsource such business, and the 15%+ commissions that go with it, to some other
rep firm.
Programming
Strong, consistent programming is important for our success. Regardless of
the format offered, we plan to take a relatively conservative approach to our
programming by at least initially operating each acquired station with the
format it is currently using since all acquisition targets are planned to be
generating positive cash flow.
Music for each format will be stored on hard drives inside computers located
in the control rooms of each individual station. This music will be format
specific to that particular station.
Each station will feature a live morning show. Depending on the needs of the
market, this may be a one or two person show. In most markets, there will be a
local newscaster for presenting local news, events, etc. These local air talents
will also be responsible for local commercial
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production and public appearances.
Each station's music programming computer will be wired to American
Communications' Satellite Network, which literally serves as a pipeline for
sending specific programming and disc jockey patter to each individual station
in the group. All music and programming logs will be sent directly to each
station's programming computer from the flagship uplink site. When the live
morning show is finished, the disc jockey merely has to flip a switch and the
on-site music computer takes over the programming for unattended walk-away
capabilities.
The planned uplink site will provide the voice tracks to go with the music
being played by the local music computers at each station. Instead of having a
disc jockey actually sit in a control room for a full 4 or 6 hour airshift, the
satellite disc jockey can pre-record a full 4 hour show in less than 30 minutes
and send it on its way to the respective station receiving it. The on-site music
computer will insert the actual recorded breaks by the disc jockey at the
appropriate times.
The capability exists of breaking into regular programming with any urgent
weather forecast or breaking news story. The technology is now here to allow for
a pre-recorded show to sound perfectly live even down to actual time checks.
Because of this system, we are planning for one "super staff" of announcers
to be located at our uplink center capable of handling a variety of formats.
Such staff of approximately 12 full-time announcers will be capable of producing
formats ranging from country, adult contemporary, classic rock, contemporary hit
radio and oldies. Depending on the mix of stations available for acquisition, a
specific Hispanic (Tejano) format may also be available. These announcers will
also be capable of producing all network commercials as well as local
commercials for specific stations. We believe this system will afford us the
widest possible format range and allow us to seek out a number of available
properties in our proposed markets.
Broadcast Equipment.
We plan to utilize the acquired stations' existing transmitters, audio chain
equipment, and tower space wherever possible or feasible, based on our initial
due-diligence. We will upgrade particular station equipment on an as-needed
basis. All other equipment required to network each station into headquarters
will either be purchased or leased.
To establish the in-house satellite network, we intend to install our
satellite uplink/downlink systems at our planned flagship stations. We will then
install satellite downlink systems at our other stations.
To establish the satellite network connection, the following expenses will
be incurred:
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Equipment necessary to create uplink portion of satellite $67,335.00
network
Equipment necessary to enable control center to receive signal $2,870.00
Installation charges $4,800.00
Preparation for FCC License Application $800.00
Project Total: $75,805.00
The above amounts are based upon an estimate received by us for the creation
of a satellite uplink center. These amounts would be paid to a company
experienced in the installation of satellite uplink centers. None of these
amounts would be paid to our officers or directors.
DESCRIPTION OF PROPERTY
Our company is newly organized and has only conducted organizational
activities. As a result, we have acquired no property.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Since the inception of our company, our President, Mr. Schult has loaned
American Communications approximately $6,140 pursuant to an oral agreement. This
agreement generally provides for the repayment of the loan with interest at 10%
per annum within twelve(12) months from the time of the loan to American
Communications. In the event we receive the maximum proceeds, we may, in our
discretion, repay the entire amount of such loan.
MARKET FOR COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
Our company is newly organized and this is our initial public offering so
there is currently no public trading market for our common stock. We hope to
have our common stock prices listed on the bulletin board maintained by the
National Association of Securities Dealers. To be eligible to have American
Communications' common stock quoted on the bulletin board, we will be required
to file with the Securities and Exchange Commission periodic reports required by
the Securities and Exchange Act of 1934 and thus be a "reporting" company, a
step we will attempt to accomplish after the effective date of this registration
statement.
None of our common stock is subject to outstanding options or rights to
purchase nor do we have any securities that are convertible into our common
stock. We have not agreed to register any our stock for anyone nor do we
presently have in effect employee stock options or benefit plans that would
involve the issuing of additional shares of our common stock.
Dain Schult, our President, and Bob Ringle, our Vice President, collectively
own 10,500,000 shares of our common stock. Messrs Schult and Ringle's common
stock is "founder stock" and was issued to Messrs Schult and Ringle without
registration under the Securities Act. Because the stock owned by Messrs Schult
and Ringle is not registered, it is "restricted stock" within the meaning of
Rule 144 under the Securities
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Act and may only be sold in accordance with the various rules and regulations of
Rule 144. Specifically, after Mr. Schult and Ringle have held their common stock
for a period of at least one year, Messrs Schult and Ringle could begin to sell
part of their common stock. Generally speaking, the amount of stock that each of
Messrs Schult and Ringle could sell could not exceed one percent (1%) of our
outstanding common stock during any ninety (90) day period. If the maximum
number of shares are sold under this offering, the total number of shares of
common stock outstanding after the offering will be 31,100,000 shares. As a
result, each of Messrs Schult and Ringle could sell up to 311,000 shares during
any ninety (90) day period. Although neither of Messrs Schult or Ringle have any
present intention to sell any of their shares, the sale of the large block of
our common stock could depress the per share price of our common stock.
Rule 144 is conditioned upon our making public certain information
concerning American Communications. Although we do not currently make
information publically available that would allow us or Messrs Schult or Ringle
to use Rule 144, we anticipate making such information available so that Messrs
Schult and Ringle could sell the amount set forth in Rule 144.
Dividends
We have never paid dividends and do not expect to declare any in the
foreseeable future. Instead, we expect to retain all earnings for our growth.
Although we have no specific limitations on our ability to pay dividends, the
corporate law of Nevada, the State under which we are organized, limits our
ability to pay dividends to those instances in which we have earnings and
profits. If we are unable to achieve earnings and profits in a sufficient amount
to satisfy the statutory requirements of Nevada, no dividends will be made, even
if the our Board of Directors wanted to pay dividends. Investors should not
purchase shares in this offering if their intent is to receive dividends.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation of our two employees.
Because American Communications was only incorporated in October, 1998, the
amounts set forth below are the only amounts that have ever been proposed to be
paid to our officers.
Name Position Annual Salary
- ---- -------- -------------
Dain L. Schult Chief Executive Officer, $126,000
President, Chairman of the
Board and Secretary
Robert E. Ringle Vice President of Internet $115,000
Operations Director of Sales,
Treasurer and Director
Mr. Schult is currently employed by American Communications at an annual
salary of $126,000 per annum pursuant to a three (3) year written employment
agreement dated as of October 29, 1998. Mr. Schult's employment agreement
generally provides for a monthly vehicle allowance of $500, for reimbursement of
business related expenses, and for bonuses as may be determined in management's
sole discretion.
Mr. Ringle is currently employed by American Communications at an annual
salary of $115,000 per annum pursuant to a three (3) year written employment
agreement dated as of October 29, 1998. Mr. Ringle's employment agreement
generally provides for a monthly vehicle allowance of $500, for reimbursement of
business related expenses, and for bonuses as may be determined in management's
sole discretion.
We do not presently have a stock option plan but intend to develop an
incentive- based stock option plan for our officers and directors in the future
and may reserve up to approximately ten (10%) percent of our outstanding shares
of Common Stock for such purpose.
FINANCIAL STATEMENTS
The following are our financial statements, with independent auditor's
report, for the period ending December 31, 1998 and our unaudited financial
statements for the three month and six month periods ending June 30, 1999.
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American Communications Enterprises, Inc.
(A Development Stage Enterprise)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Independent Auditors' Report F-2
Financial Statements as of and for the period October 29, 1998 (date of
incorporation) to December 31, 1998:
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Deficit F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-1
38
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{Letterhead of BEARD NERTNEY KINGERY CROUSE & HOHL P.A.}
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of American Communications Enterprises, Inc:
We have audited the accompanying balance sheet of American Communications
Enterprises, Inc. (the "Company"), a development stage enterprise, as of
December 31, 1998, and the related statements of operations, stockholders'
deficit and cash flows for the period October 29, 1998 (date of incorporation)
to December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 the disclosures in the financial statements. An audit also
includes assessing the accounting principles used and the significant estimates
made by management, as well as 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 the Company as of December 31,
1998, and the results of its operations and its cash flows for the period
October 29, 1998, (date of incorporation) to December 31, 1998 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company is experiencing difficulty in generating
sufficient cash flow to meet its financing needs. This factor, along with its
negative working capital and deficit positions, raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to this
matter are also described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
BEARD NERTNEY KINGERY CROUSE & HOHL P.A.
January 25, 1999
F-2
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American Communications Enterprises, Inc.
(A Development Stage Enterprise)
BALANCE SHEET AS OF DECEMBER 31, 1998
<TABLE>
<S> <C>
TOTAL ASSETS $ 0
==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued payroll $ 64,590
Advances from shareholder 6,140
-----------
Total liabilities 70,730
-----------
STOCKHOLDERS' DEFICIT:
Common stock - no par value: 30,000,000 shares
authorized; 10,500,000 shares issued and outstanding 100
Deficit accumulated during the development stage (70,830)
--------------
Total stockholders' deficit (70,730)
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 0
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-3
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American Communications Enterprises, Inc.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
for the period October 29, 1998 (date of incorporation)
to December 31, 1998
<TABLE>
<S> <C>
EXPENSES:
Salary $ 60,000
Payroll taxes 4,590
Office expense 2,451
Travel and lodging 2,062
Organization costs 606
Meals & entertainment 716
Telephone & internet 405
-----------
NET LOSS $ 70,830
==============
NET LOSS PER SHARE $ 0.01
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-4
41
<PAGE>
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' DEFICIT
for the period October 29, 1998 (date of incorporation)
to December 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Development
Shares Value Stage Total
--------------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Balances, October 29, 1998
(date of incorporation) 0 $ 0 $ 0 $ 0
Proceeds from the issuance
of common stock 10,500,000 100 100
Net loss for the period,
October 29, 1998
(date of incorporation)
to December 31, 1998 (70,830) (70,830)
--------------- ------------- --------------- ------------
Balances December 31, 1998 10,500,000 $ 100 $ (70,830) $ (70,730)
=============== ============= =============== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-5
42
<PAGE>
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
for the period October 29, 1998 (date of incorporation)
to December 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (70,830)
Adjustments to reconcile net loss to net cash
used in operating activities - increase in accrued
payroll 64,590
--------------
NET CASH USED IN OPERATING ACTIVITIES (6,240)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from shareholder 6,140
Proceeds from the issuance of common stock 100
--------------
CASH PROVIDED BY FINANCING ACTIVITIES 6,240
--------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 0
-------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 0
==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 0
==============
Taxes paid $ 0
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-6
43
<PAGE>
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE A - FORMATION AND OPERATIONS OF THE COMPANY
American Communications Enterprises, Inc. (the "Company") was incorporated under
the laws of the state of Nevada on October 29, 1998. The Company is considered
to be in the development stage, as defined in Financial Accounting Standards
Board Statement No. 7. The Company intends to purchase and operate radio
stations throughout the United States. The planned principal operations of the
Company have not commenced, therefore accounting policies and procedures have
not yet been established.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has an accumulated
deficit and negative working capital position of $70,730 as of December 31,
1998, and accordingly its ability to continue as a going concern is dependent on
obtaining capital and financing for its planned principal operations. The
Company plans to secure financing for its acquisition strategy through the sale
of its common stock (see Note D) and issuance of debt. However, there is no
assurance that they will be successful in their efforts to raise capital. These
factors among others may indicate that the Company will be unable to continue as
a going concern for a reasonable period of time. The financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE C - RELATED PARTY TRANSACTION
The Company's president, who is also a shareholder, has advanced $6,140 to the
Company. As of December 31, 1998 the Company had not repaid any of the advances,
which are unsecured, non-interest bearing and due on demand.
NOTE D - PROPOSED COMMON STOCK OFFERING
During the first quarter of 1999, the Company intends to file a registration
statement for the sale of up to 10,000,000 shares of the Company's common stock
at $0.05 per share. The existing shareholders do not intend to offer any shares
for sale. The offering is on a best efforts, no minimum basis, and any proceeds
will be used to finance the Company's acquisition strategy as well as provide
working capital. The Company has identified KXYL AM and FM, Brownwood, Texas,
and KSTA AM and FM, Coleman, Texas, as ideal acquisitions within its desired
market size. However, management believes that such acquisitions are not
currently probable.
- -------------------------------------------------------------------
F-7
44
<PAGE>
AMERICAN COMMUNICATIONS ENTERPRISES, INC.
INDEX FINCIAL STATEMENTS
Financial Statements (unaudited)
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. F-9
Statements of Operations for the three and six months ended June
30, 1999 ............................................ F-10
Statement of Stockholders' Deficit for the three and six months
ended June 30, 1999................................ F-11
Statements of Cash Flows for the three and six months ended June
30, 1999 ........................................... F-12
Notes to Financial Statements ........................... F-13
F-8
45
<PAGE>
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
BALANCE SHEETS AS OF
- -----------------------------------------------------------------------------
June 30, December 31,
1999 1998
ASSETS (Unaudited) (Audited)
------------ ------------
Cash $ 10,616 $ 0
------------ ------------
TOTAL ASSETS $ 10,616 $ 0
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued payroll $ 148,583 $ 64,590
Accrued expenses 40,885 0
Advances from shareholder 6,140 6,140
------------ ------------
Total liabilities 195,608 70,730
------------ ------------
STOCKHOLDERS' DEFICIT:
Common stock - no par value: 30,000,000
shares authorized; 11,750,000 and
10,500,000 shares issued and outstanding 62,600 100
Deficit accumulated during the development
stage (247,592) (70,830)
------------ ------------
Total stockholders' deficit (184,992) (70,830)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 10,616 $ 0
============ ============
- -----------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
46 F-9
<PAGE>
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
(Unaudited)
- --------------------------------------------------------------------------------
Three-Months Six-Months
Ended Ended
June 30, June 30,
1999 1999
----------- ------------
REVENUES $ 49,217 $ 49,217
EXPENSES:
Broadcast operations 43,480 43,480
Payroll & related taxes 64,590 129,180
Professional fees 12,667 43,212
Office & admin. expense 4,079 6,232
Travel and lodging 2,115 3,115
Organization costs 0 760
----------- ------------
126,931 225,979
----------- ------------
NET LOSS $ 77,714 $ 176,762
=========== ============
NET LOSS PER SHARE $ 0.01 $ 0.02
=========== ============
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
F-10
47
<PAGE>
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' DEFICIT
For the Six Months Ended June 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
Deficit
Accumulated
During
the
Common Stock Development
Shares Value Stage Total
--------- -------- ----------- -----------
Balances, December 31, 1998 10,500,000 $ 100 $ (70,830) $ (70,730)
Proceeds from the issuance
of common stock 1,250,000 62,500 62,500
Net loss for the six months
Ended June 30, 1999 (176,762) (176,762)
--------- --------- ------------- -------------
Balances June 30, 1999 10,500,000 $ 100 $ (247,592) $ (184,992)
========= ========= ============= =============
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
F-11
48
<PAGE>
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
(Unaudited)
- ----------------------------------------------------------------------
Three-Months Six-Months
Ended Ended
June 30, June 30,
1999 1999
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (77,714) $ (176,762)
Adjustments to reconcile net loss to net cash
used in operating activities
Increase in accrued payroll 39,486 83,993
Increase in accrued expenses 10,340 40,885
------------ -------------
NET CASH USED IN OPERATING ACTIVITIES (27,888) (51,884)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term borrowings 0 50,000
Proceeds from the issuance of common stock 12,500 12,500
------------ -------------
CASH PROVIDED BY FINANCING ACTIVITIES 12,500 62,500
------------ -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (15,388) 10,616
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 26,004 0
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,616 $ 10,616
============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 0 $ 0
============ =============
Taxes paid $ 0 $ 0
============ =============
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
49 F-12
<PAGE>
American Communications Enterprises, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- ------------------------------------------------------------------------------
NOTE A - FORMATION AND OPERATIONS OF THE COMPANY
American Communications Enterprises, Inc. (the "Company") was incorporated under
the laws of the state of Nevada on October 29, 1998. The Company is considered
to be in the development stage, as defined in Financial Accounting Standards
Board Statement No. 7. The Company intends to purchase and operate radio
stations throughout the United States. The planned principal operations of the
Company have not commenced, therefore accounting policies and procedures have
not yet been established.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principals for interim
financial information and the instructions to Form 10-QSB and Rule 10-1 of
Regulation S-X of the Securities and Exchange Commission (the "SEC").
Accordingly, these financial statements do not include all of the footnotes
required by generally accepted accounting principals. In the opinion of
management, all adjustments (consisting of normal and recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three and six months and ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999. The accompanying financial statements and the notes should be read in
conjunction with the Company's audited financial statements as of December 31,
1998 contained in its Amendment No. 2 Registration Statement on Form SB-2.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has an accumulated
deficit and negative working capital position of $247,592 as of June 30, 1999,
and accordingly its ability to continue as a going concern is dependent on
obtaining capital and financing for its planned principal operations. The
Company plans to secure financing for its acquisition strategy through the sale
of its common stock (see Note D) and issuance of debt. However, there is no
F-13
50
<PAGE>
assurance that they will be successful in their efforts to raise capital. These
factors among others may indicate that the Company will be unable to continue as
a going concern for a reasonable period of time.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
NOTE C - RELATED PARTY TRANSACTION
The Company's president, who is also a shareholder, has advanced $6,140 to the
Company. As of June 30, 1999 the Company had not repaid any of the advances,
which are unsecured, non-interest bearing and due on demand.
NOTE D - COMMON STOCK OFFERING
During April 1999, the Company began offering subscriptions for the sale of up
11,000,000 shares of the Company's common stock at $0.05 per share. The existing
shareholders do not intend to offer any shares for sale. The offering is on a
best efforts, no minimum basis, and any proceeds will be used to finance the
Company's acquisition strategy as well as provide working capital. As of June
30, 1999, $62,500 was generated through the sale of 1,250,000 shares.
NOTE E - COMMITTMENTS
The Company has identified KXYL AM and FM, Brownwood, Texas, and KSTA AM and FM,
Coleman, Texas, as ideal acquisitions within its desired market size. As a part
of its due diligence, the Company has entered into a Time Brokerage Agreement
with the aforementioned radio stations, commencing June 1, 1999, whereby the
Company will manage the operations for a period of up to twelve months. Under
this cancelable agreement, the Company will collect all revenues and is
responsible for the payment of all expenses including certain monthly debt
obligations, which are approximately $40,000 per month.
NOTE F - SUBSEQUENT EVENTS
On July 31, 1999, the Company entered into a license agreement with Tamark
Communications to obtain (4) four exclusive IP Gateways. The Gateways are a
combination of the internet and the global telephone networks to provide high
speed telecommunications routing. In consideration of 9,600,000 shares of its
unregistered common stock and a 1% royalty on gross sales generated from the
Gateways, the Company has obtained the marketing and distribution rights for the
Gateways for specific territories.
- ------------------------------------------------------------------------------
F-14
51
<PAGE>
SIGNATURES
In accordance with 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 of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Austin,
State of Texas on August 24, 1999.
(Registrant) American Communications Enterprises, Inc.
By (Signature and Title)/s/ Dain L. Schult___________________________________
Dain L. Schult, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
(Signature) /s/ Dain L. Schult______________________________
Dain L. Schult
(Title) President, Chief Executive Officer, Secretary, Chairman of the
Board of Directors
(Date) August 24, 1999
(Signature) /s/ Robert E. Ringle_______________________________
Robert E. Ringle
(Title) Vice President, Treasurer and Director
(Date) August 24, 1999
52
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND
OFFICERS
Article V of the Bylaws of American Communications provides that American
Communications shall indemnify its officer or directors against expenses
incurred in connection with the defense of any action in which they are made
parties by reason of being officers or directors of American Communications,
except in relation to matters as to which such director or officer shall be
adjudged in such action to be liable for negligence or misconduct in the
performance of his duty. An officer or director of American Communications could
take the position that this duty on behalf of American Communications to
indemnify the director or officer may include the duty to indemnify the officer
or director for the violation of securities laws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of American Communications pursuant to American Communications's
Articles of Incorporation, Bylaws, Nevada law or otherwise, American
Communications has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by American
Communications of expenses incurred or payed by a director, officer or
controlling person of American Communications and 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, American
Communications will, unless in the opinion of its counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
1
53
<PAGE>
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimate by American
Communications of the expenses of the offering:
Type of Expense Amount
Accounting Fees $ 2,000.00
Filing Fees $ 1,500.00
Attorneys Fees $ 35,000.00
Transfer Agent Fees $ 3,500.00
Printing Costs $ 3,000.00
Standard & Poor Listing $ 5,000.00
-----------
TOTAL $ 50,000.00
RECENT SALES OF UNREGISTERED
SECURITIES
On or about October29, 1998, American Communications was incorporated
under the laws of the State of Nevada. Effective as of October 29, 1998,
American Communications issued a total of 10,500,000 shares of its stock to the
two founders of American Communications, Dain L. Schult and Robert E. Ringle.
The federal exemption American Communications relied upon in issuing the
securities was Section 4(2) of the Securities Act. The Section 4(2) exemption
was available to American Communications because American Communications did not
solicit any investment in American Communications and instead simply issued
shares to Messrs Schult and Ringle who are related to each other. In addition,
given Messrs Schult and Ringle's involvement in the establishment of American
Communications, Messrs Schult and Ringle each had access to such information as
he deemed necessary to fully evaluate an investment in American Communications.
In addition, the issuance of the shares of stock to Messrs Schult and Ringle was
exempt under the laws of the State of Texas, the State in which both persons
resided at the time of the commencement of American Communications, pursuant to
Section 5 I. (a) of the Texas Securities Act. Section 5 I. (a) of the Texas
Securities Act provides that the provisions of the Texas Securities Act shall
not apply to the sale of any security by the issuer thereof so long as the total
number of security holders of the issuer thereof does not exceed thirty-five
(35) persons after taking such sale into account; and such sale is made without
any public solicitation or advertisements.
The actual consideration paid for the shares issued to Messrs Schult and
Ringle was $100 in cash. Because of the extremely limited nature of the
transaction
2
54
<PAGE>
by which the shares were issued to Messrs Schult and Ringle, no underwriters
were used.
On July 31, 1999, American Communications issued 9,600,000 shares of its
stock to Tamark Communications pursuant to a License Agreement whereby American
Communications obtained the exclusive rights to market IP Gateways. The federal
exemption American Communications relied upon in issuing the securities was
Section 4(2) of the Securities Act. In addition, Tamark is a Canadian company.
The Section 4(2) exemption was available to American Communications because
American Communications did not solicit any investment in American
Communications and instead simply issued shares to Tamark as a result of the
licensing arrangement. Tamark was provided access to such information as it
deemed necessary to fully evaluate an investment in American Communications. In
addition, the issuance of the shares of stock to Messrs Schult and Ringle was
exempt under the laws of the State of Texas pursuant to Section 5 I. (a) of the
Texas Securities Act. Section 5 I. (a) of the Texas Securities Act provides that
the provisions of the Texas Securities Act shall not apply to the sale of any
security by the issuer thereof so long as the total number of security holders
of the issuer thereof does not exceed thirty-five (35) persons after taking such
sale into account; and such sale is made without any public solicitation or
advertisements.
EXHIBITS
Attached to this registration are the exhibits required by Item 601 of
Regulation S-B.
UNDERTAKINGS
American Communications does not presently anticipate using an underwriter
in conducting this offering; if American Communications changes its plan and
utilizes an underwriter, American Communications will provide to the
underwriter, at the closing specified in any underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of American Communications pursuant to American Communications's
Articles of Incorporation, Bylaws, Nevada law or otherwise, American
Communications has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by American
Communications of expenses incurred or payed by a director, officer or
controlling person of American Communications and 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, American
Communications will, unless in the opinion of its counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
American Communications will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
3
55
<PAGE>
(i) Include any prospectus required by section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and notwithstanding the forgoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospects
filed with the Commission pursuant to Rule 424(b) (ss.230.424(b) of this
chapter) if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities 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.
4
56
<PAGE>
Date Filed: August 24, 1999 SEC File No.333-72097
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
REGISTRATION STATEMENT
ON FORM SB-2
UNDER
THE SECURITIES ACT OF 1933
AMERICAN COMMUNICATION ENTERPRISES, INC.
(Consecutively numbered pages___ through____of this Registration Statement)
57
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. SEC REFERENCE TITLE OF DOCUMENT LOCATION
NUMBER
1 3 Charter and Bylaws Original Filing
2 5 Consent of Hoge, Evans, Holmes, Original Filing
Carter & Ledbetter, PLLC (See
Exhibit 6)
3 10 Employment Contract of Dain L. Original Filing
Schult
4 10 Employment Contract of Robert E.Original Filing
Ringle
5 23 Consent of Beard, Nertney, This Filing
Kingery, Crouse & Hohl, P.A. Page
6 23 Consent of Hoge, Evans, Holmes, This Filing
Carter & Ledbetter, PLLC Page
7 10 Time Brokerage Agreement This Filing
Page
8 10 License Agreement This Filing
Page
-------
58
<PAGE>
EXHIBIT 5
CONSENT OF BEARD, NERTNEY, KINGERY, CROUSE & HOHL, P.A.
59
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated January 25, 1999
relating to the financial statements of American Communications Enterprises,
Inc., which appear in such Prospectus.
Tampa Bay, Florida
August 24, 1999
BEARD NERTNEY KINGERY CROUSE & HOHL P.A.
60
<PAGE>
EXHIBIT 6
CONSENT OF HOGE, EVANS, HOLMES,
CARTER & LEDBETTER, PLLC
61
<PAGE>
HOGE, EVANS, HOLMES, CARTER & LEDBETTER, PLLC
ATTORNEYS AND COUNSELORS
HAMPTON COURT
SUITE 600
4311 OAKLAWN
DALLAS, TEXAS 75219
------------------
Steven B. Holmes
Licensed In TELEPHONE (214) 765-6000
Texas and Oklahoma TELECOPIER (214) 765-6020
E-MAIL [email protected]
August 24, 999
Board of Directors
American Communications Enterprises, Inc.
7103 Pine Bluffs Trail
Austin, Texas 78729
Re: American Communications Enterprises, Inc.
Registration Statement on Form SB-2
Gentlemen:
We have been retained by American Communications Enterprises, Inc. (the
"Company") in connection with the Registration Statement (the "Registration
Statement") on Form SB-2, to be filed by the Company with the Securities and
Exchange Commission relating to the offering of securities of the Company. You
have requested that we render our opinion as to whether or not the securities
proposed to be issued on terms set forth in the Registration Statement will be
validly issued, fully paid, and nonassessable.
In connection with the request, we have examined the following:
1. Articles of Incorporation of the Company;
2. Bylaws of the Company;
3. The Registration Statement; and
4. Unanimous consent resolutions of the Company's Board of Directors.
We have examined such other corporate records and documents and have made
such other examinations as we have deemed relevant.
62
<PAGE>
HOGE, EVANS, HOLMES, CARTER & LEDBETTER,--------------------------------------
Board of Directors
August 24, 1999
Page 2
Based on the above examination, we are of the opinion that the securities
of the Company to be issued pursuant to the Registration Statement are validly
authorized and, when issued in accordance with the terms set forth in the
Registration Statement, will be validly issued, and fully paid, and
non-assessable under the corporate laws of the State of Nevada.
We consent to our name being used in the Registration Statement as having
rendered the foregoing opinion and as having represented the Company in
connection with the Registration Statement.
Sincerely,
HOGE, EVANS, HOLMES,
CARTER & LEDBETTER PLLC
Steven B. Holmes
SBH
EXHIBIT 7
TIME BROKERAGE AGREEMENT
64
<PAGE>
Time Brokerage Agreement Between Watts Communications, Inc.,
and American Communications Enterprises, Inc.
TIME BROKERAGE AGREEMENT
Watts Communications, Inc., a Texas corporation, with its principal offices
located at 600 Fisk Avenue, Brownwood, Texas 76801, referred to as LICENSEE, and
American Communications Enterprises, Inc., a Nevada corporation, with its
principal offices located at 7103 Pine Bluffs Trail, Austin, Texas 78729,
referred to as BROKER, agree:
*** TERM ***
Unless earlier terminated, this agreement shall be for a term of twelve months,
beginning on June 1, 1999.
Upon the approval of the Federal Communications Commission (FCC) to any transfer
or assignment of the operating authorities of the STATIONS, except to an entity
controlled by LICENSEE, this agreement shall terminate.
Licensee herein grants to Broker an irrevocable option to purchase the STATIONS
pursuant to the terms and conditions of a definitive Asset Purchase Agreement to
be negotiated and executed following the exercise of such option. Attached as an
exhibit of this agreement is a copy of the Letter of Intent that Licensee and
Broker have executed as a prelude to the negotiation and execution of that
definitive Asset Purchase Agreement as Exhibit "C".
*** FACILITIES ***
LICENSEE is the owner and permitee of stations KXYL AM/FM, Brownwood, Texas and
KSTA AM/FM, Coleman, Texas, and warrants that it is duly licensed and authorized
to broadcast the stations referred to above. All of the licenses and permits
required are in full force and effect. There is no pending or threatened action
by the FCC or other authorities to revoke, cancel, suspend, modify or limit the
licenses or permits or the stations. LICENSEE has no reason to believe that any
such license or permit may be restricted or modified so that the present
operation of the facility shall be limited.
The LICENSEE shall maintain the facility at its sole expense, and shall insure
that the facilities during the term of this agreement shall be operated in
accordance with first class broadcast practice, and shall be operated
consistently with the maximum authorized facilities by the FCC.
Pursuant to this agreement, BROKER purchases from LICENSEE air time as is
described herein.
LICENSEE shall make the stations' facilities available to BROKER for the
broadcast of programs either from the studios of the broker or from the
STATIONS.
65
<PAGE>
During the term of this agreement, BROKER shall have the right to utilize the
studios and premises of the LICENSEE, provided that BROKER shall return such
equipment to the LICENSEE in the same condition as received, ordinary wear and
tear excepted. BROKER shall be responsible for any damage to the equipment due
to any negligence by the BROKER or BROKER's employees.
*** TIME PURCHASED ***
BROKER herewith purchases the time from Monday, 12:01am to Saturday, 11:59pm,
and from Sunday at 6:00am to 11:59 PM.
Upon request by the LICENSEE, BROKER shall cede up to 4 additional hours per
week on Saturday or Sunday to the LICENSEE. In the event of such request, the
fee for the time purchased shall be reduced proportionately.
During each broadcast hour, BROKER shall provide sufficient time, not to exceed
15 seconds per hour, to permit a legal station identification to be inserted by
LICENSEE into the programming of the STATIONS, which time shall be as close to
the beginning of each hour as is possible. Upon request of the LICENSEE, BROKER
shall insert such station identifications in programming produced by it.
BROKER shall, upon the request and direction of the LICENSEE, broadcast a
message of up to 30 seconds duration in each hour indicating that the
programming has been purchased by the BROKER.
*** PAYMENT ***
BROKER shall pay LICENSEE for the broadcast of the programs provided for herein
the sum of $4000.00 (four thousand & no/100 dollars) or, at BROKER's sole
discretion, the equivalent of that fee in the form of up to 400 (four hundred)
30-second commercials to run during BROKER's scheduled programming time at BTA
(Best Times Available).
In the event that BROKER fails to pay or provide said commercials in the
aforementioned monthly amount, as agreed, the STATIONS shall be entitled to
cancel this agreement on 5 days notice.
In addition to the foregoing, BROKER shall reimburse LICENSEE for all costs
actually incurred by LICENSEE in the ordinary course of STATIONS business
including:
Studio Rent (Main Brownwood studios/offices of $1,300 per month) Managerial
Employee of LICENSEE (Not to exceed $1,000 per month - base salary) Second
Employee of LICENSEE (Not to exceed $432.50 per month) Utilities (Electric,
Telephone-Long Distance - only for operation of STATIONS) Insurance (Existing
station liability policies) Existing Monthly Note Payments ($2,150 [Van Horn],
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$2,395 [CTC], $1,000 [Texas Bank-Coleman], and the prorated share of the
existing personal loan of LICENSEE on a Dodge pickup truck and a RV that is used
in station promotions with BROKER paying only the part attributable to the RV.)
BROKER shall reimburse LICENSEE for the foregoing expenses within ten (10) days
of the date on which LICENSEE provides BROKER with documentation evidencing the
expense or such other period of time as the parties may agree.
Notwithstanding the foregoing, it is expressly understood and agreed that BROKER
shall have no obligation to pay or reimburse LICENSEE for any obligation,
commitment or liability of the STATIONS, LICENSEE, management of LICENSEE or any
agent of LICENSEE incurred prior to June 1, 1999 for which the STATIONS for
which the STATIONS or LICENSEE has not been invoiced prior to June 1, 1999.
*** TERMINATION BY STATIONS ***
In the event of any material breach of this agreement by BROKER other than
payment, LICENSEE may terminate this agreement on 5 working days notice.
Provided, however, that if the breach is curable and LICENSEE shall have cured
the breach prior to the terminations effect, the breach shall be deemed to be
waived. However, LICENSEE may terminate this agreement on 2 working days notice
if the LICENSEE has previously breached the same covenant or duty.
*** SALES OF ADVERTISING BY THE BROKER ***
Subject to the terms and conditions of this agreement, the BROKER may sell
commercial or program time upon the STATIONS during the term of the agreement.
BROKER shall insert in all contracts, purchase orders and confirmations of sales
of commercials or programs a legend, in a form acceptable to the STATIONS, that
the time is being purchased from the BROKER, and that the agreement is not
directly with the LICENSEE of the STATIONS, and that the broadcasts are
contingent upon the continuation of this brokerage agreement.
*** RIGHT TO REJECT PROGRAMMING; RIGHT TO SUBSTITUTE MATERIAL JUDGED TO BE OF
GREATER PUBLIC IMPORTANCE ***
The LICENSEE shall have the right at any time to reject any program provided by
the BROKER if in the sole discretion of the LICENSEE, the programming is not
suitable for any reason or if in the judgment of the LICENSEE, which shall be
final, any program or portion thereof is in violation of any law or regulation.
In addition, the LICENSEE shall have the right to interrupt BROKER's programming
to broadcast any program, which the LICENSEE deems to be of greater public
importance.
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In the event of any interruption in programming due to the exercise of this
right, the LICENSEE shall refund or credit a proportionate portion of the fees
paid by BROKER. Included, as Exhibit "A" is a copy of LICENSEE's Broadcast
Station Programming Policy Statement that BROKER agrees to uphold.
*** LOGS ***
LICENSEE shall be solely responsible for the preparation of program logs, issues
list, the public file, and any other reports and logs which are required by FCC
regulations or other applicable laws and regulations. Upon the request of the
LICENSEE, BROKER shall provide to LICENSEE information concerning programs
broadcast by the BROKER, which are responsive to the public needs and interests
of the community.
BROKER shall provide any information reasonably requested by the LICENSEE in
order to enable the LICENSEE to prepare, file or maintain the records or reports
required by the FCC or other competent authorities.
*** PERFORMING RIGHTS ***
BROKER shall be solely responsible for the payment of ASCAP, BMI, SEASAC, or
other performing rights or copyright permissions related to the programming
provided by BROKER. BROKER will upon request of STATIONS provide proof of
obtaining such licenses and permissions.
*** MAIL ***
BROKER shall promptly provide any mail to LICENSEE which constitutes comments or
other materials related to the stations' programming.
*** POLITICAL ADVERTISING ***
BROKER shall cooperate with LICENSEE in complying with rules of the FCC
regarding political advertising. BROKER shall provide correct information
concerning its rates to LICENSEE to assist LICENSEE in compliance with political
advertising regulations.
In the event that the LICENSEE requires inventory in order to comply with FCC or
other regulations, LICENSEE shall inform BROKER of such requirements as early as
is possible. BROKER shall upon request of the LICENSEE, release inventory as is
required to fulfill such obligations. The decision of LICENSEE as to the
necessity of release of time shall be final. Any sums collected from such
released inventory shall be paid over to BROKER upon collection.
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*** COMPLIANCE WITH SECTIONS 508 and 317 OF THE COMMUNICATIONS ACT ***
BROKER shall not accept any compensation, gift or gratuity unless the provider
or payer of such compensation, gift or gratuity is identified on the air as is
required by the regulations of the FCC and other applicable regulations.
Upon request of the LICENSEE, BROKER shall provide its affidavit of compliance,
and, upon the direction of the LICENSEE the BROKER shall obtain affidavits as to
such compliance for its employees and agents. Attached is this Agreement as
Exhibit "B" is a copy of the proposed Anti-Payola/Plugola Affidavit that will be
used by Broker.
*** INDEMNIFICATION ***
BROKER will indemnify and hold LICENSEE harmless against all claims or liability
for libel, slander, defamation, or other claims related to or arising out of the
broadcasts of the BROKER. This duty shall survive any termination of this
agreement.
*** INTERRUPTION OF NORMAL OPERATIONS ***
In the event that the STATIONS suffers any degradation to their transmission
facilities, LICENSEE shall immediately inform BROKER of this fact and shall, in
good faith and within the normal industry standard and practices, restore the
maximum authorized facilities with all possible expedition. LICENSEE shall be
entitled to a proportional credit for any time in which the STATIONS are off the
air.
In the event that the facilities will require more than 48 continuous hours to
repair if the repairs are done in accordance with usual standards of diligence
and dispatch, BROKER shall have the option to terminate this agreement, or, to
accept liquidated damages.
The parties recognize that the losses in the event of a cessation of
broadcasting for long term repairs which may be incurred by the BROKER are
difficult to set exactly since under this agreement the BROKER contemplates
sales of time in each hour at varying rates, and therefore, as liquidated
damages and not as a penalty, shall allow a credit to the LICENSEE in the sum of
twice the proportional refund of the broadcast time lost.
BROKER shall permit the STATIONS to conduct routine maintenance or repairs
during the experimental period of Midnight to 6am as is required by the STATIONS
without a proportional refund, provided that advance notice is given and that
such routine maintenance does not require more than 2 such time periods per
month.
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*** RESPONSIBILITY FOR EXPENSES AND AUTHORITY TO
BIND THE PARTIES ***
The BROKER shall be solely responsible for the payment of all of the salaries,
taxes, insurance and other costs related to the production of their program.
BROKER shall have no authority to bind the STATIONS. This agreement is solely
for a purchase and sale of broadcast time, and no joint venture, partnership or
relationship of other than vendor and purchaser is created herein. The STATIONS
shall be solely responsible for the payment of its employees, including all
employees who are necessary for the broadcast of STATIONS' signal and its
general manager.
LICENSEE shall be responsible for the operating expenses of the LICENSEE,
including payment of utilities, taxes, FCC filings and maintenance of the
transmission facilities.
BROKER shall not be responsible for any of LICENSEE's agreements or contracts
unless other noted in writing in an agreement signed by both LICENSEE and
BROKER.
*** RIGHT OF USE OF PROGRAMS ***
The BROKER shall have the sole right of use of the programs, which it produces,
including the right to rebroadcast the same, provided that the BROKER shall
eliminate any reference to the STATIONS.
*** FUTURE ADVERSE REGULATIONS, DECISIONS OR LAWS ***
This agreement is contingent upon the continuation of regulation of time
brokerage agreements in their present form (47 CFR 73.4267; see also 82 FCC 2d
107).
In the event of an adverse change in the laws or regulations related to
broadcasting or time brokerage occur, which in the opinion of legal counsel for
the LICENSEE, makes the present agreement illegal or untenable of performance,
the parties shall in good faith renegotiate the agreement to bring the same into
compliance with the altered regulations before their effective date. In the
event that the parties do not agree, this agreement may be canceled by either
party on 30 days notice without further liability.
In the event that any court or administrative body conduct an adjudicative
process in regard to the continuation of the LICENESEE's license to operate the
STATIONS, or, issues a challenge or complaint concerning this agreement, or
orders the termination of this agreement, or a material and adverse change to
this agreement, the BROKER and LICENSEE shall each at their own expense defend
this agreement. The parties shall cooperate and diligently defend this
agreement. In the event of an adverse ruling, either party may terminate this
agreement, without further liability.
After an adverse ruling, BROKER shall have the option, at its sole expense, to
seek further appellate review of the rulings. However, unless a stay is granted
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by competent authority, LICENSEE may terminate this agreement upon such ruling
without further liability.
*** SPECIFIC PERFORMANCE ***
The parties agree that damages are not a sufficient remedy for any losses
suffered by the BROKER in the event of a material breach by the STATIONS. BROKER
shall have the right to obtain a decree of specific performance of this
agreement.
*** RIGHT TO ASSIGN ***
The rights herein may not be assigned by BROKER, nor may BROKER sub-broker the
time herein, without the prior written consent of LICENSEE, with the exception
of weekend programming (defined as Friday afternoons at 5PM through 6AM Monday
mornings) on KXYL AM. BROKER shall have the right to sub-broker that allotted
time.
*** TITLE ***
LICENSEE shall maintain good and marketable title to the assets and properties
necessary to the operation of the STATIONS. LICENSEE may not pledge or encumber
the same during the term of this agreement, unless such pledge or lien is
subordinate to the rights contained in this agreement. This provision shall not
apply to liens or pledges in effect as of the date of the execution of this
agreement.
*** ENTIRE AGREEMENT ***
This is the entire agreement between the parties, with any exhibits attached,
and this agreement may not altered except in writing by both parties. This
agreement will be construed and executed under the laws of the State of Texas.
___/s/ Phil Watts______________________________ Date:__5-17-99___________
Phil Watts, President, Watts Communications, Inc. (LICENSEE)
___/s/ Dain L. Schult___________________ Date:_______5-17-99____________
Dain L. Schult, President, American Communications Enterprises, Inc. (BROKER)
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EXHIBIT A
BROADCAST STATION PROGRAMMING POLICY STATEMENT
Broker agrees to cooperate with Licensee in the broadcasting of programs of the
highest possible standard of excellence, and for this purpose to observe the
following regulations in the preparation, writing and broadcasting of its
programs.
1. NO PLUGOLA OR PAYOLA. Except for commercial material aired in compliance
with 47 CF.R ss. 73.1212, Broker shall not receive any consideration in
money, goods, services, or otherwise, directly or in directly (including
receipt by relatives of Broker, its partners, agents, or employees) from
any person or company for the presentation of any programming over the
Stations, without reporting the same to Licensee's General Manager.
The commercial mention of any business activity or '@p I ug" for any
commercial, professional, or other related endeavor, except where
contained in an actua I commercial message or program of a sponsor, is
prohibited.
II. NO LOTTERIES. Announcements giving any information about lotteries or
games, to the extent, that such announcements are prohibited by federal or
state law or regulation, are prohibited.
III. ELECTION PROCEDURES. At least fifteen (I 5) days before the start of any
primary or general election campaign, Broker will clear with Licensee's
General Manager the rates that Broker will charge for advertising time
to be sold on the Stations to legally-qualified candidates for
election to public office and/or to their supporters, in order to make
certain that the rates charged are in conformance with applicable law and
station policy.
IV. REOUIRED ANNOUNCEMENTS. Brokershallbroadcast(i.)anannouncementinaform
satisfactory to Licensee at the beginning and at the end of each day's
transmissions by the Stations and at the beginning of each hour during
the Stations' operations, to identify the Stations, and (ii) any
other announcements that may be required by law, regulation, or
Licensee policy.
V. NO ILLEGAL ANNOUNCEMENTS. No announcements or promotion prohibited by
federal or state law or regulation shall be made over the Station. Any
game, contest or promotion relating to or to be presented over the
Stations must be fully stated and explained in advance to Licensee who
reserves the right in its sole discretion to reject any game, contest, or
promotion.
VI. LICENSE DISCRETION PAPAMOUNT. In accordance with Licensee's
responsibility under the Act and the rules and regulations of the FCC,
Licensee reserves the right to reject or to terminate any advertising
proposed to be presented or being presented over the Stations which is in
conflict with Station policy or which in Licensee's or its General
Manager's sole judgment would not serve the public interest.
Licensee may waive any of the foregoing regulations in specific instances,
if, in its opinion, the Stations will remain in compliance with all
applicable laws, rules, regulations, and policies and if broadcasting
in the public interest will be served. In any case where questions of
policy or iiiterpretati-on arise', Broker should submit such questions
to Licensee for decision before making any comniliments In connection
therewith.
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EXHIBIT B
FORM OF PAYOLA AFFIDAVIT
ANTI-PAYOLA/PLUGOLA AFFIDAVIT
________________________ , being first duty swom, deposes and says as follows:
1. He/she is_____________________
(Title)
2. He/she has acted in the above capacity since__________________________.
3. No matter has been broadcast by Station _____ for which service, money, or
other valuable consideration has been directly or indirectly paid or
promised to, or charged, or accepted by him/her from any person, which
matter at the time so broadcast has not been announced or otherwise
indicated as having been paid for or fumished by such person.
4. So far as ______________________ is aware, no matter has been broadcast by
Station ______ for which service, money or other valuable consideration
has been directly or indirectly paid, or promised to, or charged or
accepted by Station ____ or by an independent contractor engaged by
Station ______ in furnishing programs from any person, which matter at the
time so broadcast has not been announced or otherwise indicated as having
been paid for or furnished by such person.
_________________________
Afflant
Subscribed and sworn to me this______day of _____, 1999
____________________________
Notary Public
My Commission expires ________________________
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EXHIBIT C
AMERCIAN COMMUNICATIONS ENTERPRISES, INC.
Page 1 of 1
April 16, 1999
Mr. Phil Watts, President
Watts Communications, Inc.
#1 Texas Avenue
Brownwood, Texas 76804
Re: Acquisition of KXYL AM/FM, Brownwood, Texas and KSTA AM/FM, Coleman,
Texas
Dear Mr. Watts:
The purpose of this letter is to express our mutual intent with respect to
the acquisition by American Communications Enterprises, Inc., a Nevada
corporation, ("Buyer"), of substantially all of the assets of Watts
Communications, Inc, a Texas corporation ("Seller"), which will include radio
stations KXYL AM and FM in Brownwood, Texas and KSTA AM and FM, Coleman, Texas
(the "Stations"). In addition to the Stations, the assets to be purchased would
include the names under which the Stations have operated, both tangible and
intangible assets, two (2) station office/studio buildings (one located in
Brownwood and one located in Coleman) and the real estate upon which they are
located, broadcasting equipment, broadcasting towers and transmitters, any and
all applicable STL equipment and STL licenses, station vehicles, station
trailers, station cookers, office equipment and furnishings, accounts
receivable, goodwill and all other assets, including all necessary licenses and
permits issued by the Federal Communications Commission ("FCC") associated with
ownership or operation of the Stations, except cash and cash equivalents
(collectively, the "Assets"). Although the form of the transaction may be
changed to accommodate the needs of the parties, it is proposed that the
transaction would be effected in the manner and on the terms generally outlined
in this letter.
1 Agreement and Purchase Price. Seller, its shareholder(s)and
Buyer promptly will endeavor to negotiate and execute a definitive
purchase agreement (the "Agreement") pursuant to which Seller
will sell the Assets to Buyer. The consideration to be received
by Seller would be as follows:
$1,050,000 would be paid in immediately available funds on the date
upon which the transaction contemplated by the Agreement are
consummated (the "Closing Date" and such consummation the
"Closing"),
$250,000 would be paid in immediately available funds on the date
upon which the transaction contemplated by the Agreement are
consummated in consideration for Seller's and its shareholders'
covenants not to compete with Buyer,
$325,000 would be paid pursuant to a subordinated convertible
promissory note (the "Convertible Note") issued by the Buyer, and
Buyer's assumption of certain assumed liabilities of Seller as
outlined in Section 2 below.
The Convertible Note shall (i) bear 8% interest, shall be due and
payable quarterly after the Closing, until converted, and (ii)
provide for conversion by Seller (at its sole discretion) into
shares of Buyer's common stock at the market value of that stock as
of the date of conversion of this note after the Closing. The
Convertible Note, while in existence, shall be fully subordinated to
any and all of Buyer's senior debt.
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The aggregate amount of purchase price payable by Buyer to Seller on
the Closing Date will be adjusted down on a dollar for dollar basis
for the aggregate amount as of the Closing Date of:
(i) earnest money previously paid by Buyer,
(ii) the aggregate amount as of the Closing Date of any liabilities with
respect to the Stations and the business of the Seller, except to
the extent included in an assumed liabilities schedule agreed to by
Buyer,
(iii) liabilities underlying Licenses (as defined below) against or
otherwise affecting the Assets and,
(iv) any amounts expended or incurred by Buyer, in excess of amounts
agreed to pursuant to this letter for filing fees associated with
the assignments of FCC Authorizations.
2 Title to Assets. The Agreement will provide that Seller must deliver
to Buyer good and marketable title to the Assets free and clear of
all liens, security interests, mortgages, encumbrances, judgments
and other adverse claims (collectively, "Liens"). Buyer will assume
no liabilities except for liabilities specified as assumed
liabilities in the Agreement.
3 Non-Competition. The Agreement will contain covenants pursuant to
which Seller, its shareholders and affiliates agree not to use or
disclose confidential or proprietary information relating to Buyer,
or the Assets and businesses conducted therewith not to interfere
with the business relationships of the Stations and Buyer, including
those with employees, suppliers and customers and not to compete
with the Stations or Buyer in the radio broadcasting business within
the total signal range of the Stations for three years after the
Closing Date.
4 Representations and Warranties. The Agreement will contain the terms
and conditions described in this letter and those that would be
customary for a transaction of the type contemplated. The Agreement
will provide for written disclosure of comprehensive information
concerning Seller, the Assets and any related liabilities,
including, but not limited to, disclosure regarding the conditions
of the Assets, contingent liabilities, litigation, employee
disputes, and status of all licenses and financial statements.
5 Indemnification. Seller and its shareholders shall indemnify and
hold harmless Buyer and its agents, employees, officers, directors
and shareholders (the "Indemnities") from all claims, damages,
liabilities, expenses and judgments suffered by, recovered from or
asserted against the Indemnitees which arise from any breach by
Seller of any representation, warranty, covenant or agreement set
forth in the Agreement. The Agreement shall provide for the offset
against the amounts due to the Seller and/or such shareholders, for
any amounts for which the Indemnitees are entitled to be indemnified
pursuant to the indemnification provisions of the Agreement.
6 Conditions to Closing. Buyer's obligation to close the transactions
will be conditioned upon obtaining financing by for the acquisition
of the Assets by Buyer on terms reasonably satisfactory to Buyer,
the obtaining of any governmental, regulatory or other consents or
approvals necessary or appropriate to be obtained before the Closing
Date, complete release of any and all Liens against the Assets the
continued accuracy and truth of the representations and warranties
of the Seller and its shareholders on the Closing Date and the
tender to Buyer of good and marketable title to the Assets free and
clear of all Liens.
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7 Access. Buyer and its officers, attorneys, accountants and
authorized representatives are hereby granted the right during
normal business hours, to inspect the assets, properties, books and
records of Seller relating to the Assets, and to consult with the
officers, directors, employees, suppliers, customers, creditors,
agents, accountants and attorneys of Seller concerning the Assets
and ownership and operation thereof, as long as such access is not
unreasonably disruptive to its operations. Such inspections may
reasonably include, for example, environmental and other physical
inspections of the Assets review of the books, records of account,
tax records, and stock or other ownership books and records of
Seller relating to the Assets and a review of records of corporate
proceedings, contracts, trademarks, FCC filings, correspondence and
other records containing FCC authorizations to own and operate the
Stations and other business activities and matters in which Buyer
may have an interest in light of the transactions contemplated by
this letter.
Buyer agrees to maintain all information it learns from such
inspections in confidence and will not disclose such information
except to its officers, directors, employees, attorneys,
accountants, creditors, lenders or prospective lenders and their
attorneys, and other authorized representatives unless such
information is or becomes public knowledge through no fault of
Buyer.
8 Standstill. Seller and Buyer will cease as of the date of execution
of this Letter Agreement through July 12, 1999 (the "Standstill
Period"), any negotiations for the sale of Seller, its capital stock
or any material portion of its assets, including, without
limitation, the Stations. Neither Seller, Buyer nor their respective
agents shall during the Standstill Period in any way contact,
negotiate or contract with any other corporation, entity or other
form of business, or any individual concerning any purchase or sale
of capital stock, merger, reorganization, sale of material assets or
any other form of disposition or change in status quo of the
ownership of the Seller, the Stations or any material portion of the
assets of the Seller.
The purchase price payable by Buyer to Seller on the Closing Date
shall be reduced by the amount of Earnest Money paid by Buyer to
Seller upon execution of an Asset Purchase Agreement. Further, if
Buyer has tendered to Seller the Earnest Money and the Closing has
not occurred before October 12, 1999, then either (i) Seller shall
promptly refund the Earnest Money to Buyer if all of the conditions
set forth in Section 6 above have not occurred and Seller is unable
to demonstrate on October 12, 1999 that it is ready, willing and
able to cause the occurrence of such conditions on October 12, 1999.
9 Press Release. Except as mutually agreed in writing, neither any of
Buyer, Seller nor any of their respective affiliates or agents shall
issue any press release or public announcement of the execution of
this letter or the Agreement, or the transactions contemplated
hereby or thereby.
10 Termination Expenses. While it is understood that this letter does
not (except as specifically provided in Section 8) constitute a
binding agreement between the parties hereto, it does set forth the
understanding in principle and present intention of the parties
hereto to enter into the Agreement providing for the above
understandings upon terms and conditions mutually acceptable to all
parties. Termination of negotiations by Seller on the one hand, or
by Buyer on the other, prior to execution of the Agreement shall be
without liability to the other party, except as may arise under
Sections 8 or 9 above, this Section 10 or Section 11 below. Buyer
and Seller will equally bear the expense associated with the fee for
filing the FCC Assignment Application covering the transactions
contemplated hereby. Except as otherwise provided in this Section10,
any and all attorneys' fees, brokerage commissions or any other
expenses incurred by any party in connection with this letter, the
Agreement or the transactions contemplated hereby or thereby shall
be borne by the party incurring such fees or other expenses.
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Seller shall bear the costs of obtaining environmental inspections
and remediation in respect of such real property. Any amounts
expended by Buyer, which are payable by Seller pursuant to this
letter or the Agreement, to cover such costs shall be deducted from
the cash consideration otherwise payable by Buyer to Seller on the
Closing Date. This letter shall be governed by the internal laws,
and not the laws of conflict, of the State of Texas.
11 Brokers. To the extent that Buyer or Seller or any of their
respective directors, officers, or agents have employed any broker,
agent or finder or incurred any liability for any brokerage fees,
agent's fees, commissions or finder's fees in connection with this
letter, the Agreement or the consummation of the proposed
transaction, such party shall be solely liable for any of such fees.
If the foregoing constitutes a basis upon which we may proceed with
actions intended to result in the execution of the Agreement, please cause this
letter to be executed by Seller and all of its shareholders, and return it to
the undersigned at your earliest convenience. This offer will expire unless
accepted by Seller in the foregoing manner before 5:00 p.m., Austin, Texas time,
on April 23, 1999.
Very truly yours,
American Communications Enterprises, Inc.
/s/ Dain L. Schult
By: Dain L. Schult, President
AGREED TO AND ACCEPTED BY:
Watts Communications, Inc.
By: /s/ Phil Watts
Printed Name and Title:__Phil Watts_________________
Date Signed:____4/16/99________________
All Shareholders of Watts Communications:
Name:___Phil Watts___________________________
Date Signed:______4/16/99_______________
Name:______________________________
Date Signed:_____________________
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EXHIBIT 8
LICENSE AGREEMENT
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LICENSE AGREEMENT
THIS AGREEMENT made as of the 31st Day of July, 1999 BETWEEN:
493525 B.C., LTD. dba Tamark Communications,
(a British Columbia corporation)
#1212 345 Quebec Street
Victoria, British Columbia Canada V8V IW4
(hereinafter referred to as "Licensor")
OF THE FIRST PART
AND:
AMERICAN COMMUNICATIONS ENTERPRISES, INC.,
(a Nevada corporation)
c/o HOGE, EVANS HOLMES, CARTER & LEDBETTER, PLLC, Attorneys 4311 Oak Lawn
Avenue, Suite 600 Dallas, Texas 75219 (hereinafter referred to as "Licensee")
OF THE SECOND PART
WHEREAS:
1. The Licensor is the exclusive worldwide rights holder of proprietry
technology designed to be a viable alternative to standard communication routing
or "gateways" to communication. This technology may have line extensions and
improvements from time to time as needed to operate the system(s). This
technology is currently known as "Tamark Communications" in North America and
elsewhere. There is currently no trademark registration nor patent for this
proprietary technology. This technology, including variations, improvements and
product line extensions are hereinafter referred to as the "Gateways".
2. The Licensor's Gateways, with all improvements thereto made by the
Licensor from time to time during the term of this agreement, shall be
considered as the "Gateways". The Gateway technology is currently distributed
under the tradenarne"Tamark Communications" and other such suitable tradenames.
The technology is proprietary and is distinguished by certain technological
criteria.
3. The Licensor is the holder to the worldwide marketing and distribution
license to the Gateways along with the various promotional literature
and Gateways information suitable for use in the world market.
4. The Licensee is desirous of obtaining four exclusive Gateways in the North
American market. The Licensee may sub-license these. four Gateways within
the various territories to suitable sub-licensees. The licensee will have
the exclusive rights to market and distribute the four Gateways within the
selected territories.
(1)
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The sub-licensees will have the assigned rights to market and distribute
the Gdteway within a specific territory. The Licensor reserves the right to
approve the various tradenames, logos, etc, as may be deemed appropriate. The
Licensor hereby warrants that the Licensor has not registered any tradenames for
the Licensee, although the Licensee has the right to use the tradename "AmComm
Gateways", in the specific teritories.
5. The Licensor is hereby granting four Gateways to the Licensee by virtue of
the terms and conditions more particularly herein described. , NOW THEREFORE
THIS AGREEMENT WITNESSED that in consideration of the mutual covenants and
premises contained herein, and other good and valuable consideration (the
receipt, adequacy and sufficiency of which are hereby acknowledged), the
parties hereto agree as follows:
TERMS AND CONDITIONS:
1. The Licensor warrants that it is the possessor and exclusive holder of the
technology, and all of the improvements thereof, and its worldwide marketing and
distribution rights. The Licensor is rightfully and absolutely possessed of and
entitled to the worldwide marketing and distribution rights of the Gateways, and
further warrants that such exclusive rights or any portion thereof are fully
assignable and the Licensor has the right to grant or assign the License as set
forth herein. 2. The Licensor hereby grants and assigns to the Licensee, the
marketing and distribution rights for four (4) Gateways for specific
territories, in consideration for 9,600,000 common non-assessable shares of
stock of the Licensee's share capital issued to the Licensor or designees. The
Licensee agrees to pay to the Licensor a continuing 1% royalty, which is based
on gross sales, exclusive of any local, state or federal taxes, or sales
commissions or promotional costs generated from the use of Gateways. 3. 4. The
Licensor does hereby warrant and agrees that: a) the Licensee and Sub-Licensees
may market and distribute the four Gateways
within a specific territory, or in the case of a Sub-Licensee within the
Territory, in finished (saleable) form, and may distribute within the four
specific territories.
b) the Licensee and Sub-Licensees (if any) shall be appraised of all
improvements and amendments to the Gateways line.
c) the Licensee and Sub-Licensees must conduct ethical business practice with
respect to advertising, credit arrangements, sub-distributor agreements,
sales contracts, and in all other phases of marketing and distributing the
Gateways in the normal course of business.
The License Agreement hereby granted shall continue in existence until
terminated,
(2)
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PROVIDED that this Agreement may not be terminated except as follows-
a) Upon mutual written consent of the parties hereto
b) At the option of the Licensor if the Licensee defaults or fails to
perform any of the Licensee's obligations under this Agreement and/or
fails to cure any such default or take all reasonable steps to do so
within sixty (60) days after written notice thereof has been given by
the Licensor to the Licensee.
c) At the option of the Licensor:
i) If the Licensee becomes insolvent.
ii) If a receiver is appointed to take possession of the Licensee's
business or property or any part thereof.
iii) If the Licensee shall make a general assignment for the
benefit of creditors, d) At the option of the Licensee if the
Licensor defaults or fails to perform any of their assigned
obligations under this Agreement and shall fail to cure any
such default or take all reasonable steps to do so within sixty (60) days
after written notice thereof has been given to the Licensor by the Licensee.
At all times, the Licensor must be able to produce the Gateways and deliver
to the Licensee's marketplace.
5. Should the Licensee not be able to obtain Gateways from the Licensor within a
reasonable period of time, the Licensee may choose to make arrangements with a
contract technology manufacturer to continue with the flow of Gateways
distribution. If the Licensor fails to provide the Gateways to the Licensee and
their customers within 45 days of a valid purchase order, the Licensee may then
call upon the Licensor to disclose the technology and manufacturing techniques
to provide the protection to keep the Licensee's clients by having the ability
to deliver the Gateways. Should the Licensor be able to resume manufacturing on
a viable basis, the Licensee must return to the Licensor for Gateway supply. 6.
The Licensor and Licensee provides and warrants that all Gateways delivered to
the marketplace shall be free from defects in quality, workmanship and/or
materials and as delivered and manufactured by the Licensor. In the event that
any Gateway is found defective in quality, workmanship and/or materials, the
responsible party shall have sixty days to correct the defective Gateway. 7.
This Agreement provides that upon receipt of a valid purchase order from a
distributor or direct customer, the Licensee shall proceed with all due
diligence and shall use its best efforts to order the Gateway from the Licensor
and distribute the Gateways. 8. This Agreement provides that the rights and
privileges granted to the Licensee, under the terms & conditions of this
Agreement, shall apply to any improved version of the Gateways and that the
Licensor shall be expedient in the notification of any and all such improvements
of the Gateways to the Licensee. Further, the Licensee shall be entitled to
market any and all improvements and any additional Gateways developed by the
Licensor under the same terms and conditions as described herein for original
Gateways.
81 (3)
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9. The parties hereto agree to use their best efforts to carry out the
provisions of this License Agreement, but in the event of accidents, fires,
delays in manufacturing, delays of carriers and government actions, acts of God,
state of war, or any other cause beyond the control of either party, neither
party shall be required to perform, nor shall the delay, non performance or
other default resulting from or contributed to by any of the above reasons give
either party the right to terminate this Agreement. The parties hereto agree
that time for performance be extended to allow for the delay resulting from
circumstances and events.
10. The Licensor and Licensee agree that they will, at
their sole expense, either directly or by their agents, take whatever steps
necessary to protect the proprietary technology of the Gateways and the created
tradename "AmComm Gateways", or any subsequent tradenames of the Gateways used
by the Licensee with the consent of the Licensor.
11. This Agreement provides that the Licensor and Licensee will take all
reasonable steps to preserve and protect the technology to the best of their
ability and to protect all trade secrets and proprietary information contained
herein and agrees that the quality and standards of the Gateways shall be
maintained in accordance with the highest specifications.
12. The Licensee hereby accepts the rights to mass market the Gateways and t
use its best efforts and to take all reasonable actions to promote custome
interest and effect the sale of the Gateways.
13. The Licensee's plan of marketing the Gateways shall be conducive to high
advertising and distributing standards.
14. The Licensee shall have the right to appoint and sub-license distributors
and/or sales agents within the Territory to market the Gateways. Said
distributors and/or sales agents will be appointed at the sole discretion of
the Licensee and such agents and/or distributors shall be responsible
only to the Licensee. The Lisensee is responsible to the Licensor.
15. The Licensee herein undertakes that all advertising material conform to
local and federal statutory advertising regulations and to operate within and
conform to Territorial laws.
16. This Agreement provides that the Licensor will provide the Licensee with
any and all literature which it may, from time to time, have in its
possession with respect to the promotion and use of the Gateways.
17. The Licensee shall be responsible for arranging, at the Licensee's
discretion and cost, all of the advertising and other promotional endeavors
within the Territory and shall be solely responsible for same.
(4)
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18. In the event that either party hereto shall deem the other party to be in
default of this Agreement, the one party shall give to the other party written
notice of such default and the other party shall have sixty days from the date
of such notice to remedy such default, or to institute a bona fide proceeding to
remedy such default.
19. This Agreement contains the entire agreement between the parties and no
representations, inducements or agreements, oral and/or otherwise, not
embodied herein, shall have any force or effect.
20. Should any legal dispute arise on the TERMS AND CONDITIONS of this
Agreement, the parties hereto agree to the venue of the State of Nevada, and
its applicable laws for any and all disputes.
THE FOLLOWING DO HEREBY AFFIX THEIR SEALS AND SIGNATURES:
/s/ Patrick Cornish___________________________________
493525 B. C. LTD. dba Tamark Communications
by Patrick Cornish, President
LICENSOR
/s/ Robert E. Ringle_________________________________
AMERICAN COMMUNICATIONS ENTERPRISES, INC.
by, Robert E. Ringle, Vice-President, Director
LICENSEE
83 (5)
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