-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LglfPh3GnX27ba4F+Qfa87FskJEF0b8R71LMTZxkKmVQbStJgE7pbRlJIjs004e6 tCaKoUpojLgx8StAjck3Pg== 0001070876-99-000080.txt : 19990827 0001070876-99-000080.hdr.sgml : 19990827 ACCESSION NUMBER: 0001070876-99-000080 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19990826 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN COMMUNICATIONS ENTERPRISES INC CENTRAL INDEX KEY: 0001077183 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-72097 FILM NUMBER: 99699936 BUSINESS ADDRESS: STREET 1: 7103 PINE BLUFFS TRAIL CITY: AUSTIN STATE: TX ZIP: 78729 BUSINESS PHONE: 5122492344 MAIL ADDRESS: STREET 1: 7103 PINE BLUFFS TRAIL CITY: AUSTIN STATE: TX ZIP: 78729 POS AM 1 POST EFFECTIVE AMENDMENT NO. 1 TO FORM SB-2 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. 1 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 2 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 3 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. 1 4 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 2 5 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 3 6 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 4 7 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 5 8 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. 6 9 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 7 10 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 8 11 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. 9 12 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 10 13 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 11 14 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. 12 15 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 13 16 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, 14 17 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 15 18 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 16 19 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 17 20 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 18 21 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 19 22 "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 20 23 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 21 24 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 22 25 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 23 26 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 24 27 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 25 28 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 26 29 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 27 30 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 28 31 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 29 32 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 30 33 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: 31 34 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 32 35 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. 33 36 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. 34 37 American Communications Enterprises, Inc. (A Development Stage Enterprise) TABLE OF CONTENTS
- ------------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------
F-1 38 {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 39 American Communications Enterprises, Inc. (A Development Stage Enterprise) BALANCE SHEET AS OF DECEMBER 31, 1998 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 ==============
SEE NOTES TO FINANCIAL STATEMENTS. F-3 40 American Communications Enterprises, Inc. (A Development Stage Enterprise) STATEMENT OF OPERATIONS for the period October 29, 1998 (date of incorporation) to December 31, 1998 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 ==============
SEE NOTES TO FINANCIAL STATEMENTS. F-4 41 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
Deficit Accumulated During the Common Stock Development Shares Value Stage Total --------------- ---------- ------------ ---------- 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) =============== ============= =============== ============
SEE NOTES TO FINANCIAL STATEMENTS. F-5 42 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 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 ==============
SEE NOTES TO FINANCIAL STATEMENTS. F-6 43 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 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 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 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 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 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 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 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 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 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 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 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 (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 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 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 EX-23 2 CONSENT OF CPA EXHIBIT 5 CONSENT OF BEARD, NERTNEY, KINGERY, CROUSE & HOHL, P.A. 59 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 EX-23 3 CONSENT OF HOGE EVANS HOLMES EXHIBIT 6 CONSENT OF HOGE, EVANS, HOLMES, CARTER & LEDBETTER, PLLC 61 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 SHOLMES@LEGALTEXAS.COM 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 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 EX-10.1 4 TIME BROKERAGE AGREEMENT EXHIBIT 7 TIME BROKERAGE AGREEMENT 64 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 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], 66 $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. 67 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. 68 *** 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. 69 *** 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 70 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) 71 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. 72 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 ________________________ 73 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. 74 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. 75 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. 76 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:_____________________ 77 EX-10.2 5 LICENSE AGREEMENT EXHIBIT 8 LICENSE AGREEMENT 78 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) 79 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) 80 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) 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) 82 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) -----END PRIVACY-ENHANCED MESSAGE-----