SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C INFORMATION
Proxy Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
(Amendment No. 2)
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240.14a-12
SBI COMMUNICATIONS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person Filing Proxy Statement if other than the Registrant)
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INFORMATION STATEMENT
OF
SBI COMMUNICATIONS, INC.
1239 South Glendale Avenue
Glendale, CA 91205
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
This Information Statement is first being furnished on or about
January __, 2001, to the stockholders of record as of the close of
business on August 31, 2000 of the common stock of SBI
Communications, Inc.
SBI's Board of Directors has approved of, and a total of 4
stockholders owning 6,954,178 shares of the 12,324,878 shares of
common stock outstanding as of August 31, 2000 have consented in
writing to, the actions described below . Such approval and consent
constitute the approval and consent of a majority of the total number of
shares of outstanding of common stock and are sufficient under the
Delaware General Corporation Law and SBI's By-Laws to approve the
actions. Accordingly, the actions will not be submitted to the other
stockholders of SBI for a vote and this Information Statement is being
furnished to stockholders to provide them with certain information
concerning the actions in accordance with the requirements of the
Securities Exchange Act of 1934 and the regulations promulgated
thereunder, including Regulation 14C.
ACTIONS BY BOARD OF DIRECTORS AND CONSENTING STOCKHOLDERS
SBI's Board of Directors and the consenting stockholders have
approved the acquisition of Valencia Entertainment International, LLC, a
California limited liability company, who we refer hereinafter as "VEI",
and the collateral actions that must be taken in order to consummate the
acquisition. The merger is described below, and the full text of the
Agreement and Plan of Merger setting forth the terms and conditions is
attached hereto as Exhibit A.
Summary Term Sheet
* VEI will merge with and into SBI's wholly owned subsidiary, Valencia
Entertainment Acquisition Corporation, with VEI being the surviving
limited liability company and becoming a wholly owned subsidiary of
SBI.
* The following steps will occur pursuant to the merger:
1. SBI will issue 75,709,965 shares of Common Stock to the principals
of VEI;
2. All of the outstanding membership interests in VEI will be issued to
Valencia Entertainment Acquisition; and
3. All of the outstanding shares of capital stock of VAC will be
cancelled.
* SBI's shares issued to the VEI principals will represent approximately
86% of the issued and outstanding shares of capital stock of SBI.
Existing stockholders of SBI will own collectively 14% of the
outstanding shares of common stock after the merger. As a result of the
Reorganization, current SBI stockholders will incur substantial dilution
with respect to their voting interests.
* SBI will amend its certificate of incorporation to increase the number
of its authorized shares of common stock from 40,000,000 to
100,000,000. SBI will not be able to issue the shares until the number of
authorized shares of common stock is increased and an amendment to the
certificate of incorporation is properly filed with the Secretary of State of
Delaware.
* SBI will amend its certificate of incorporation to change its name to
ValCom, Inc., and SBI will primarily focus on operating the business of
VEI.
* Following the merger the Board of Directors of SBI will have 4
members consisting of 1 current director of the SBI and 3 members of
VEI management. In addition, the executive officers of SBI will consist
entirely of individuals who are current members of VEI management,
with the exception of Ronald Foster, who has resigned as President and
CEO and will assume the title and duties of Vice President of Business
Development after the merger.
* SBI will also amend its certificate of incorporation to reflect a change
in the par value of its Preferred Stock from $5.00 to $.001 per share. The
purpose of the amendment is to reduce the annual franchise tax liability
of SBI. Ronald Foster, the sole preferred stockholder, has consented to
this action.
GENERAL
This Information Statement contains forward-looking
statements which involve risks and uncertainties. SBI's actual results may
differ significantly from the results discussed in the forward-looking
statements.
VEI will pay all costs associated with the distribution of the
Information Statement, including the costs of printing and mailing. VEI
will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending this
Information Statement to the beneficial owners of SBI's common stock.
INTEREST OF CERTAIN PERSONS IN OR OPPOSITION TO MATTERS TO BE ACTED UPON.
In October 2000 Vince Vellardita, the managing member of
VEI, was appointed interim President and CEO of SBI. Upon the closing
of the merger, Mr. Vellardita will receive approximately 18,927,491
shares of common stock and will retain the permanent position of
President and CEO. In addition, Mr. Vellardita is currently the
beneficial owner of 300,000 shares of common stock (after a 2 for 1
stock split).
Ronald Foster, who was previously the President and CEO, will
receive a 5 year employment agreement commencing at the closing of
the merger to serve as SBI's Vice President of Business Development. In
addition, at the closing of the merger, the principals of VEI and Ronald
Foster will enter into a stockholders' agreement, pursuant to which the
VEI shares to be issued must be voted to elect Ronald Foster as a director
for the ensuing 5 years.
INFORMATION ON CONSENTING STOCKHOLDERS
Pursuant to SBI's Bylaws and the General Corporation Law of
the State of Delaware, a vote by the holders of at least a majority of SBI's
outstanding capital stock is required to effect the actions described in the
summary term sheet. SBI's certificate of incorporation does not
authorize cumulative voting. As of the record date, SBI had 12,324,878
voting shares of common stock issued and outstanding of which
6,162,440 shares are required to pass any stockholder resolutions. The
consenting stockholders, who consist of 4 current stockholders of SBI,
are collectively the record and beneficial owners of 6,954,178 shares
which represents 56.4% of the issued and outstanding shares of common
stock. Pursuant to Section 228(a) of the General Corporation Law of the
State of Delaware, the consenting stockholders voted in favor of the
actions described herein in a written consent, dated October 16, 2000,
attached here to as Exhibit B. The consenting stockholders' names,
affiliations with SBI and their beneficial holdings are as follows:
Name Affiliation Shares Beneficially Held Percentage
Ronald Foster Chairman, Past President and CEO,
Significant Shareholder* 4,154,178 33.7%
Larry Cahill
Significant Shareholder* 1,000,000 8.11%
Michael Graham
Significant Shareholder* 1,000,000 8.11%
Peter Papas Trust
Significant Shareholder* 800,000 6.49%
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Total 6,954,178 56.4%
_______________________
* Significant Shareholder represents more than 5% voting equity interest
The consenting stockholders are acquaintances of Ronald Foster, a
Director of SBI, and were instrumental in advising the board of directors
on potential merger acquisition candidates. No consideration was paid
for their consent.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of October 31,
2000, as to each person who is known to SBI to be the beneficial owner
of more than 5% of SBI's outstanding common stock and as to the
security and percentage ownership of each executive officer and director
of SBI and all officers and directors of SBI as a group. Except where
specifically noted, each person listed in the table has sole voting and
investment power with respect to the shares listed.
Pre-Merger
Title of
Class Name and Address Security Ownership Pecentage of Class
Of Beneficial Owners Amount and Nature
Of Beneficial Ownership
Common Ronald Foster
Chairman of the Board 4,154,178 33.7%
1239 South Glendale Avenue
Glendale, CA 91205
Common Vince Vellardita
Interim President, CEO 300,000 2.43%
26030 Avenue Hall
Studio 5
Valencia, CA 91355
Common Karien Anderson -0- .00
Director, Secretary/Treasurer
1239 South Glendale Avenue
Glendale, CA 91205
Common William Beggs
Director -0- .00
1239 South Glendale Avenue
Glendale, CA 91205
Common Claude Pichard 10,000 .08%
Director
1239 South Glendale Avenue
Glendale, CA 91205
Common Larry Cahill 1,000,000 8.11%
330 South Gate Court
Cedar Rapids, IA 52406
Common Peter Papus Trust 800,000 6.49%
432 NW 111 Avenue
Coral Springs, FA 33071
Common Michael Graham 1,000,000 8.11%
1804 Cherrywood Lane
Bluefield, WV 24701 ---------- ----------
Officers and Directors as a group
( 5 persons) 4,464,178 36.22%
No other stockholder owns more than 5% of SBI's voting securities.
After the merger referenced herein is effected, the following will
represent the security ownership of certain beneficial owners and
management:
Post-Merger
Title of Name and Address Security Ownership Percentage
Class Or Beneficial Amount and Nature Of
Of Owners Of Beneficial Ownership Class
Common Ronald Foster Chairman of the Board 4,154,178 4.72%
Vice President Business Development
Common Vince Vellardita 19,227,491 21.8%
Director, President, CEO
Common Steven A. Weber -0- -0-
Director, CFO
Common David Weiner -0- -0-
Director
Common MMSV Partners, Inc. 39,747,732 45.15%
Common FECL California, Inc. 17,034,742 19.35%
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Officers and Directors as a group ( 5 persons)
23,381,669 26.22%
SECTION 16(a) REPORTS
The requirements imposed by Section 16(a) of the Securities
Exchange Act of 1934, as amended, provide that SBI's officers and
directors, and persons who own more than 10% of SBI's Common Stock,
file initial statements of beneficial ownership (Form 3), and statements of
changes in beneficial ownership (Forms 4 or 5) with the Securities and
Exchange Commission ("SEC"). Officers, directors and greater than
10% stockholders are required by SEC regulations to furnish SBI with
copies of all such forms they file. Based solely on its review of the
copies of such forms received, SBI believes that during its fiscal year
ended December 31, 1999, the above referenced forms were filed on a
timely basis.
ATTENDANCE OF SEATED DIRECTORS AT 1999 DIRECTOR
MEETINGS
During SBI's fiscal year ended December 31, 1999, the Board
held 41 meetings. Of the current directors, all attended at least 75% of
those meetings. The Board held no separate committee meetings during
that year. Outside directors received no cash compensation for their
services; however, they were reimbursed for their expenses associated
with attendance at meetings or otherwise incurred in connection with the
discharge of their duties as directors of SBI.
RENUMERATION OF DIRECTORS AND OFFICERS
For the fiscal year ended December 31, 1999, Ronald Foster,
past President and CEO of SBI, received no compensation. No other
officer of SBI received any cash or other compensation. The directors of
SBI received no compensation for services rendered to SBI during the
fiscal year ended December 31, 1999.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN
TRANSACTIONS
Except with respect to the matters referenced above under
"Interest of Certain Persons in or Opposition to Matters to be Acted
Upon", there has been no transaction or series of transactions, or
proposed transaction during the last fiscal year to which SBI is a party in
which any director, nominee for election as a director, executive officer,
beneficial owner of 5% or more of SBI's common stock or any member
of the immediate family of any of the foregoing had or is to have a
direct or indirect material interest exceeding $60,000.
NOTICE TO STOCKHOLDERS OF ACTIONS APPROVED BY
CONSENTING STOCKHOLDERS
The following actions were taken based upon the unanimous
recommendation by SBI's Board of Directors and the written consent of
the consenting stockholders:
ACTION 1
ELECTION OF DIRECTORS
The Board of Directors unanimously nominated and the
consenting stockholders have approved and elected 4 individuals as
directors to hold office until the next annual meeting of stockholders or
until their successors are duly elected and qualified. Each of the
following individuals has consented to serve as a director of SBI and
there is no familial relationship between any nominated director and any
current director or between any of the nominated directors.
Name and Position in the Company Age Since
Ronald Foster 59 1986
Chairman of the Board
Vince Vellardita 42 2000
Interim President / CEO
David Weiner 41 --
Nominee
Stephen A. Weber 52 --
Nominee
Ronald Foster. Mr. Foster, age 59, served as SBI's Chief
Executive Officer, President and Chairman of the Board from 1986 to
October 2000. Mr. Foster has been working with SBI since its inception
in 1984. His primary responsibilities include finance, marketing and
technical review. In addition to his responsibilities with SBI, Mr. Foster
has held a number of other management positions over the years. From
1984 to 1986, he was Executive Vice President and Producer of Pioneer
Games of American Satellite Bingo, in Albany, Georgia. Mr. Foster was
also the owner and operator of Artist Management & Promotions, Inc. a
Georgia corporation, where he was responsible for coordinating
television entertainers, sports figures and other celebrities for department
store promotions. Previously, Mr. Foster served as president and director
of Ed-Phills, Inc., a Nevada corporation, and Executive Vice President
and member of the Board of Directors of Golden American Network, a
California corporation. From 1984 to 1994, he was the president and
chief executive officer of ROPA Communications, Inc., a Georgia
corporation, which owned and operated WTAU-TV-19 in Albany,
Georgia. He created and produced "Stock Outlook 87, 88, and 89," a
video presentation of public companies through Financial News Network
(FNN), a national cable network. Mr. Foster also has experience as
technical director and associate producer for numerous national live
sports broadcasts produced by ABC, CBS and WTBS. Mr. Foster is
Director/Producer/Writer of the Company Interactive Broadcast
Programs. Other than SBI, Mr. Foster does not currently serve as a
director of any reporting company.
Vincent Vellardita. Mr. Vellardita is currently the interim
President and CEO of SBI and is the CEO of VEI. Mr. Vellardita was
instrumental in having VEI acquire a 150,000 square foot production
facility in Valencia, California that houses 8 sound stages that have been
occupied for the past 4 years by the hit CBS series JAG and Fox's Power
Rangers. Mr. Vellardita began his career in 1977 as a music producer
and promoter of live shows and is credited with bringing Duran Duran
and U2 to North America for their first tours on the continent. He also
produced a benefit tour for the 1980 Presidential campaign of John
Anderson. Mr. Vellardita does not currently serve as a director of any
other reporting company.
David Weiner. Mr. Weiner received his MBA degree from
U.C.L.A. and gained a wide variety of business experiences early in his
career working in the investment banking and pension fund management
arena. He joined the consulting group of Deloitte and Touche in 1988,
where he provided general and corporate finance consulting services to a
wide variety of entertainment, telecommunications, and direct response
clients including K-tel International, Inc. Mr. Weiner joined K-tel in
1993, as Vice President of Corporate Development and was appointed
President in September of 1996. His responsibilities included directing
all United States operations of the company as well as its wholly owned
subsidiaries in the Untied Kingdom, Germany and Finland. Mr. Weiner
resigned as President of K-tel in 1998 to form W-Net, Inc., an Internet
and software development and consulting firm. Mr. Weiner does not
currently serve as a director of any other reporting company.
Stephen A Weber. Mr. Weber is the Chief Financial Officer of
VEI. Mr Weber has over 20 years of experience in Finance and
Management and is a certified public accountant. Prior to joining VEI,
Mr. Weber was the managing partner of the regional audit firm, located
in Los Angeles, California. Currently, in addition to his duties at VEI,
Mr. Weber consults for a publicly traded Internet company, Genesis
Intermedia.com, Inc., where he sits on the Board of Directors and is
Chairman of the Audit Committee.
ACTION 2
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY
The Board of Directors and the consenting stockholders
unanimously adopted and approved an amendment to the SBI's
certificate of incorporation to change the corporation's name to ValCom,
Inc., which is referred to as the "Name Amendment". The Name
Amendment will be implemented by filing a certificate of amendment to
the certificate of incorporation with the Delaware Secretary of State. The
text of the Name Amendment is attached as Exhibit C and is
incorporated herein by reference. In the judgment of the SBI Board of
Directors, the change of the corporate name is desirable in view of the
significant change in the SBI's character and strategic focus as a result of
the merger with VEI.
The Name Amendment will become effective upon the filing of
the certificate of amendment with the Secretary of State of Delaware.
Under federal securities laws, SBI cannot file the certificate of
amendment until at least 20 days after the mailing of this Information
Statement.
ACTION 3
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO CHANGE THE PAR VALUE OF PREFERRED STOCK
The Board of Directors and the consenting stockholders
unanimously adopted and approved an amendment to the SBI's
certificate of incorporation to change the par value of its preferred stock
which is referred to as the "Par Value Amendment". SBI's current capital
structure authorizes 10,000,000 million shares of preferred stock at a par
value of $5.00 per share. Delaware law computes the annual franchise
tax based either on the authorized share method or the assumed par value
capital method, but in no event is the annual franchise tax greater than
$150,000. In order to reduce and minimize the annual franchise tax, the
Board of Directors and the consenting stockholders unanimously adopted
and approved an amendment to the SBI's certificate of incorporation to
change the preferred stock par value from $5.00 to $.001 per share. The
text of the Par Value Amendment is attached hereto as Exhibit D and is
incorporated herein by reference.
The Par Value Amendment will become effective upon the
filing of the certificate of amendment with the Secretary of State of
Delaware. Under federal securities laws, SBI cannot file the certificate
of amendment until at least 20 days after the mailing of this Information
Statement.
ACTION 4
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED COMMON STOCK
The Board and the consenting stockholders unanimously
adopted and approved an amendment to SBI's certificate of incorporation
to increase the authorized common stock from 40,000,000 to
100,000,000 shares, which is referred to as the "Authorized Shares
Amendment.". The terms of the merger will make VEI a wholly owned
subsidiary of SBI and the principals of VEI will receive shares of SBI's
common stock based upon an agreed upon fair market valuation of the
net assets of VEI. According to the audited financial statements of VEI
for the year ended December 31, 1999, VEI recorded $8,424,047 in net
assets, which represents approximately 83% of the total net assets of VEI
and SBI combined. A copy of VEI's audited financial statement is
included in this Information Statement. In order to consummate the
merger, SBI will be required to issue 75,709,965 shares of common
stock to the principals of VEI. The shares of common stock do not have
any preemption rights. The text of the Authorized Share's Amendment is
attached hereto as Exhibit D.
Currently, SBI has 40,000,000 shares of common stock
authorized of which 12,324,878 shares are issued and outstanding. As a
result, SBI will not be able to consummate the merger without first
implementing the Authorized Shares Amendment.
The Authorized Shares Amendment will be implemented by
filing the certificate of amendment with the Secretary of State of
Delaware. Once SBI files the certificate of amendment, SBI will have
87,1675,122 shares of unissued shares of common stock available for
issuance. SBI will immediately issue 75,709,965 shares to the principals
of VEI and will cause the merger to be consummated. The shares will
not be registered under the Securities Act of 1933, and may not be
resold unless the shares are registered under the Securities Act or an
exemption from such registration is available.
The remaining unissued shares of common stock will be
available for issuance from time to time as may be deemed advisable or
required for various purposes, including the issuance of shares in
connection with financing or acquisition transactions and the issuance or
reservation of common stock for employee stock options. SBI's Board
would be able to authorize the issuance of shares for these transactions
without the necessity, and related costs and delays, of either calling a
special stockholders' meeting or of waiting for the regularly scheduled
annual meeting of stockholders in order to increase the authorized
capital. If in a particular transaction shareholder approval were required
by law or any stock exchanges or markets or were otherwise deemed
advisable by the Board, then the matter would be referred to the
stockholders for their approval notwithstanding that SBI may have the
requisite number of voting shares to consummate the transaction.
The issuance of the shares will cause a dilution to the existing
SBI Stockholders. The 12,324,878 shares of common stock currently
issued and outstanding will represent approximately 14% of the
outstanding shares after the merger. The Authorized Share Amendment
is not intended to have any anti-takeover effect and is not part of any
series of anti-takeover measures contained in any debt instruments or the
certificate of incorporation or the Bylaws of SBI in effect on the date of
this Information Statement. However, SBI stockholders should note that
the availability of additional authorized and unissued shares of common
stock could make any attempt to gain control of SBI or the Board more
difficult or time consuming and that the availability of additional
authorized and unissued shares might make it more difficult to remove
management. Although the Board currently has no intention of doing so,
shares of common stock could be issued by the Board to dilute the
percentage of common stock owned by a significant shareholder and
increase the cost of, or the number of, voting shares necessary to acquire
control of the Board or to meet the voting requirements imposed by
Delaware law with respect to a merger or other business combination
involving SBI. SBI is not aware of any proposed attempt to take over the
company or of any attempt to acquire a large block of SBI's common
stock. SBI has no present intention to use the increased authorized
common stock for anti-takeover purposes.
The Authorized Shares Amendment will become effective upon
the filing of the certificate of amendment. Under federal securities laws,
SBI cannot file the certificate of amendment until at least 20 days after
the mailing of this Information Statement
BACKGROUND OF TRANSACTION
SBI's reason for the merger
---------------------------
For the past several years, SBI sought unsuccessfully to raise
capital or enter into a joint venture arrangement to fund its operations. To
fund the administrative costs of operating a public corporation, SBI
privately sold its common stock at a price of $.01 per share. The SBI
Board concluded that the dilution caused by these private offerings
coupled with SBI's lack of success in obtaining funding for its former
business warranted exploring other strategic alternatives. Because of its
public, but relatively dormant status, SBI had received numerous
inquiries regarding whether it would be interested in effecting a reverse
merger with a private operating company. The Board decided to explore
this possibility.
VEI's reason for the merger
---------------------------
VEI has been a private operating company since its inception in
1996. During its years of operations, VEI grew in size at a nominal pace.
VEI was able to finance its expansion plans based upon current
operations and through various credit facilities from financial
institutions, however VEI was limited to the scale of its acquisitions and
expansion plan. Over the past year, new opportunities were presented to
VEI including acquisition of production content, acquisition of
companies in similar industry, and expansion of its existing facilities.
However, due to its private status and limited financing, VEI was not in
the position to further explore these opportunities. The management
decided that it was in VEI's best interest to become a publicly traded
company and to leverage the advantages that comes with such as status.
In addition, management believed that for VEI to effectively compete in
the rapidly changing entertainment industry, it must have the tools and
resources that would allow it to have ready access to affordable capital.
Although the traditional initial public offering was appealing,
the cost, time, and existing market conditions outweighed the benefits.
Management of VEI explored the possibility of acquiring a public shell
for purposes of a reverse merger. VEI management believed that a
reverse merger into a public shell that is trading on a bulletin board and
reporting with the SEC will allow VEI the ability to acquire other
companies through the issuance of its trading stock and able VEI to
readily attract private and public financing in the future.
Contacts between VEI and SBI
-----------------------------
Vince Vellardita, is a current stockholder of SBI and a close
business acquaintance of Ronald Foster since 1988. During 1988 to
1990, Mr. Vellardita performed advertising and promotional consulting
services for SBI's products. In June 2000, Mr. Vellardita purchased
150,000 restricted shares of SBI's at a purchase price of $37,500 under a
private placement exempt from registration, the proceeds were used to
pay existing liabilities of SBI. During the second quarter of 2000, Mr.
Vellardita and Mr. Foster began to have informal discussions regarding
the possibility of merging SBI and VEI.
In May 2000, numerous meetings were held between Mr.
Vellardita and with members of the SBI Board to determine if, in fact,
there were synergies between the two companies. Mr. Vellardita also
had extensive discussions with the other members of VEI to consider the
terms and conditions of a possible merger. VEI considered the price, the
financial condition and compatibility of the businesses that VEI
anticipates will result from the merger. The companies consulted with
their financial and tax advisors, as well as their in-house and outside
counsel regarding the financial terms and structure of a proposed merger.
In August 2000, a meeting was held at the law firm of Pollet &
Richardson who serves as outside counsel to SBI. Present at the meeting
and representing VEI was Ms. Linda Layton, in-house counsel and Mr.
Vellardita. Representing the interest of SBI was Mr. Ron Foster and
Nimish Patel of Pollet & Richardson. The parties discussed the proposed
merger including issues related to a tax-free reorganization, issuance of
shares based upon formula of net assets, appointment of a new board,
and the confirmatory of legal and accounting due diligence.
On August 21, 2000, a letter of intent was executed between the
principals of VEI and SBI. Through the month of September, both
parties conducted due diligence and began the formal process of drafting
the merger agreement. The SBI Board was satisfied with the exchange
ratio based upon the net assets contributed by VEI and was satisfied by
VEI's current audited financial statements and the management team.
The SBI Board concluded that a merger with VEI was in the best interest
of SBI's existing stockholders and submitted the information to the
consenting stockholders for their input and recommendation. On
October 16, 2000, the consenting stockholders executed a written
shareholder resolution approving the action described in this Information
Statement. On the same day, the parties to the merger executed a
definitive Agreement and Plan of Merger . The text of the Agreement,
excluding the corresponding schedules and exhibits, is being furnished
with this Information Statement.
ABOUT SBI
Description of Business
-----------------------
SBI was originally organized in the State of Utah on September
23, 1983, under the corporate name of Alpine Survival Products, Inc. Its
name was subsequently changed to Justin Land and Development, Inc.
during October, 1984, and then to Supermin, Inc. on November 20,
1985. On September 29, 1986, Satellite Bingo, Inc. was the surviving
corporate entity in a statutory merger with Supermin, Inc., a Utah
corporation. In connection with the merger, the former shareholders of
Satellite Bingo, Inc. acquired control of the merged entity and changed
the corporate name to Satellite Bingo, Inc. Through shareholder
approval dated March 10, 1988, the name was changed to its current
name of SBI Communications, Inc. On January 1, 1993, SBI executed a
plan of merger that effectively changed the company's state of domicile
from Utah to Delaware.
For the past two years, SBI did not have significant operations
and remained in dormant status. Prior to 1998, SBI was engaged in
leasing its 80,000 square foot facility in Piedmont, Alabama to a charity
organization for purposes of conducting bingo operations. During the
fourth quarter of 1997, the charity defaulted on the lease agreement and
was unable to make its monthly payments. SBI ceased its operations of
leasing the facility in January 1998.
SBI new focus is to provide interactive satellite delivered bingo
games, game shows and other similar telecommunication gaming
products or services to television viewers throughout the United States.
SBI has also developed a system that can be integrated into all standard
communications channels including the World Wide Web for interactive
play throughout the World. In addition, SBI converted the 80,000 square
foot facility located in Piedmont Alabama as a venue for car auctions.
SBI has spent approximately $75,000 to make the conversion.
Description of Property
-----------------------
SBI is the owner of 80,000 square foot facility located in
Piedmont, Alabama. SBI acquired the facility with the furniture and
fixtures in December 1994 by issuing 1,500,000 shares of preferred stock
at $5.00 per share to the owner. After a warranty was delivered to SBI
free and clear of all encumbrances, it was discovered that the State of
Alabama had placed a tax lien in the amount of $750,000. As
consideration for the payment of the tax lien, SBI cancelled all of the
preferred stock issued to the prior owner.
SBI's corporate offices are located at 1239 South Glendale
Avenue, Glendale, California. The premises are comprised of
approximately 3,000 square feet for which SBI pays $1,000 per month.
Legal Proceedings
------------------
There are no legal proceedings instituted against SBI.
Market for Common Equity and Related Stockholder Matters
--------------------------------------------------------
SBI's common stock is traded over-the-counter and quoted on the OTC
Electronic Bulletin Board on a limited and sporadic basis under the
symbol "SBID." The reported high and low bid and asked prices for the
common stock are shown below for the period through December 31,
2000. The source for the data was obtained from the NASDAQ Trading
& Market Services Department. The prices presented are bid and ask
prices, which represent prices between broker-dealers and do not include
retail mark-ups and mark-downs or any commission to the broker-dealer.
The prices do not necessarily reflect actual transactions.
Bid Ask
Low High Low High
1998
First Quarter $.15625 $.25000 $.28125 $.50000
Second Quarter $.15625 $.31250 $.21875 $.43750
Third Quarter $.12500 $.31250 $.28125 $.43750
Fourth Quarter $.12500 $.13000 $.25000 $.31250
1999
First Quarter $.13000 $.18750 $.18750 $.31250
Second Quarter $.12500 $.15625 $.21875 $.21875
Third Quarter $.01000 $.12500 $.06000 $.21875
Fourth Quarter $.02000 $.24000 $.04000 $.30000
2000
First Quarter $.11000 $.38000 $.16000 $.50000
Second Quarter $.09380 $.31250 $.16500 $.34380
Third Quarter $.12550 $3.5300 $.19000 $3.5313
Fourth Quarter $.23000 $2.1400 $.25000 $2.1563
As of December 31, 2000 there were approximately 3,500 stockholders
of record of the common stock.
Dividends
---------
SBI has not paid any cash dividends on the common stock and
does not expect to do so in the foreseeable future. SBI anticipates that
any earnings generated from future operations will be used to finance its
operations. No restrictions exist upon our ability to pay dividends.
Changes in and disagreement with accountants on accounting and
--------------------------------------------------------------
financial disclosure
--------------------
There were no disagreements with the accountant on accounting
and financial disclosure matters
ABOUT VEI
Description of Business
-----------------------
VEI is a limited liability company organized in November 1996
under the laws of the State of California for the purpose of operating a
studio facility in Valencia, California and the development, financing
and production of entertainment content. Mr. Vellardita, is the CEO
and COO of VEI and currently is the interim President and CEO of SBI.
VEI's business includes television production for both network
and syndicate, motion pictures, sports, internet and real estate holdings,
however, revenue is primarily generated through the lease of the sound
stages. VEI, which owns 6 acres of real property and a 120,000 square
feet production facility in Valencia, California, is currently the studio set
for JAG, produced by Paramount Pictures and Power Rangers produced
by Saban productions. In addition, VEI's facilities include six sound
stages that have been operating at full capacity since 1995. VEI recently
leased an additional 3 acres and 52,000 square feet production facility
which includes two full service sound stages, for a total of eight sound
stages. VEI's past and present clients include Warner Bothers, Universal
Studios, MGM, HBO, NBC, 20th Century Fox, Disney, CBS, Sony,
Showtime, and the USA Network. In addition to leasing its sound stages,
VEI also has a small library of wholly owned television content that are
ready for worldwide distribution, and several major series in advanced
stages of development.
Market for Common Equity and Related Stockholder Matters
--------------------------------------------------------
VEI's membership interests does not have a public trading
market and none is expected in the near future. The members of VEI
consist of Vincent Vellardita, MMSV Partners, Inc., a California
corporation, and FECL California, Inc., a California corporation.
Dividends
---------
VEI has not paid any cash dividends on its membership interest
and does not expect to do so in the foreseeable future. VEI anticipates
that any earnings generated from current and future operations will be
used to finance its operations. No restrictions exist upon our ability to
pay dividends.
Changes in and disagreement with accountants on accounting and
----------------------------------------------------------------
financial disclosure
--------------------
VEI has had only one independent auditing firm, which is the
certified public accounting firm of Jay J. Shapiro, C.P.A., a professional
corporation, in Encino, California. There were no disagreements with
the accountant on accounting and financial disclosure matters.
PRO FORMA SELECTED FINANCIAL DATA (UNAUDITED)
-----------------------------------------------
In October 2000, SBI entered into an agreement to issue
75,709,965 shares of common stock to acquire 100% ownership VEI.
This transaction will be treated as a reverse acquisition merger for
accounting purposes. If the transaction had taken place as of January 1,
2000, SBI's pro forma consolidated net assets would have been
$10,221,168 and the shares outstanding 88,034,843.
The September 30, 2000 pro forma selected financial data was
derived from the unaudited consolidated financial statements of SBI and
VEI. This interim period data does not included all disclosures provided
in the annual audited financial statements or all disclosures required by
generally accepted accounting principles.
In the opinion of SBI's management, the accompanying pro
forma selected financial data contain all adjustments (which are of a
normal recurring nature) necessary for a fair presentation of the financial
statements. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reporting amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could materially
differ from those estimates. In August 2000 SBI effected a 2 for 1 split
of its Common Stock. The financial data in these statements reflects the
post-split basis.
PRO FORMA SELECTED FINANCIAL DATA
---------------------------------
PRO FORMA BALANCE SHEET
December 31, 1999
Valencia SBI
Entertainment Communications, Adustments
International, LLC Inc. Dr. (Cr.) Combined
Current Assets $ 2,713,406 $ $ 2,713,406
Property and Equipment 11,760,154 3,940,000 15,700,154
Other Assets 139,668 (20,000)(1) 119,668
----------------- ---------- ------------ ----------
$ 14,613,228 $ 3,940,000 $ (20,000) $ 18,533,228
------------------- ----------- ------------ -----------
Current
Liabilities $ 272,717 $ 2,233,317 $ 20,000 (1) $ 2,395,596
Long-Term
Liabilities 5,916,464 -0- -0- 5,916,464
Preferred stock 765,000 765,000
Common stock 4,846 (32,331)(2) 37,177
Paid in capital 3,477,604 (5,131,308)(2-3) 8,698,551
Ret. earnings
(deficit) 719,641 (2,540,767) (2,540,767)(3) 719,641
Partners equity 7,704,406 7,704,406(3) -
------------ ------------ ------------ ---------
$ 14,613,228 $ 3,940,000 $ 20,000 $ 18,533,228
------------- ------------ ------------ ---------
PRO FORMA INCOME STATEMENT
Year Ended December 31, 1999
Valencia SBI
Entertainment Communications,
International, LLC Inc. Adjustments Combined
------------------ --------------- ----------- ------------
Revenue $ 1,474,171 $ 0 $ 1,474,171
Operating Expenses 780,717 130,000 910,717
Income from
Operations 693,454 (130,000) 563,454
Interest Expense (292,588) (159,000) (451,588)
----------- ---------- ------------ -----------
Net Income (Loss)$ 400,866 $ (289,000) $ 111,866
Net Income Per Share$ (0.00) $ (0.00) $ (0.00)
--------- ----------- ------------ ------------
(1) Non-interest bearing note due on demand
(2) Issuance of 75,709,965 shares of common stock to VEI. The book
value of VEI as of 9/30/00 has been determined to be the fair market
value of the stock issued.
(3) Re-capitalization adjustment to reflect reverse merger acquisition.
PRO FORMA BALANCE SHEET
September 30, 2000
Valencia SBI
Entertainment Communications, Adjustments
International, LLC Inc. Dr. (Cr.) Combined
Current Assets $ 168,881 $ 44,541 $ 213,422
Property and
Equipment 11,747,867 4,015,000 15,762,867
Other Assets 327,729 20,500 (20,000) (1) 328,229
----------- ---------- ------------ ------------
$ 12,244,477 $ 4,080,041 $ (20,000) $ 16,304,518
------------ ----------- ------------- ------------
Current
Liabilities $ 311,355 $ 2,716,434 $ 20,000 (1) $ 3,007,789
Long-Term
Liabilities 5,878,744 5,878,744
Preferred stock 215,000 215,000
Common stock 6,181 (32,331)(2) 38,512
Paid in capital 4,175,039 (2,639,462)(2-3) 6,814,501
Ret. earnings
(deficit) 349,972 (3,032,593) (3,032,593)(3) 349,972
Partners equity 5,704,406 5,704,406 (2) -
----------- ------------ ---------------- ------------
$ 12,244,477 $ 4,080,041 $ 20,00 $16,304,518
------------- -------------- ---------------- -------------
PRO FORMA INCOME STATEMENT
Nine Months Ended September 30, 2000
Valencia SBI
Entertainment Communications,
International, LLC Inc. Adjustments Combined
Revenue $ 1,194,282 $ 0 $ 1,194,282
Operating
Expenses 1,151,45 391,826 1,543,281
Income from
Operations 42,827 (391,826) 348,999
Interest Expens (412,496) (100,000) (512,496)
----------- ------------ --------- -------------
Net Income
(Loss) $ (369,669) $ (491,896) 0 $ (861,495)
Net Income
Per Share $ (0.00) $ (0.00) $ (0.00)
-------------- ------------- ---------- --------------
(1) Non-interest bearing note due on demand
(2) Issuance of 75,709,965 shares of common stock to VEI. The book
value of VEI as of 9/30/00 has been determined to be the fair market
value of the stock issued.
(3) Re-capitalization adjustment to reflect reverse merger acquisition.
NOTE: The reverse merger method of accounting is being applied
whereby the financial statements of SBI and VEI are combined and
recapitalization takes place.
Management's Discussion and Analysis of Financial Condition and
Results of Operations:
SBI
September 30, 2000 and 1999
---------------------------
SBI generated revenues of $-0- during its third fiscal quarter
ended September 30, 2000, as compared to $-0- in the comparable period
of the prior fiscal year. SBI expects to generate revenue upon the
successful operation of the SBI's web site and the broadcasting of its
interactive programming and the Auto Auction.
General and administrative costs of SBI totaled $150,000 during
the third quarter of 2000 versus $33,000 in the comparable 1999 quarter,
which represents a 433% increase. Most of the current period's costs
were comprised of the development of the SBI's web site, which are not
fixed expenses. The balance is primarily comprised of professional cost.
The nine months ended September 30, 2000 reflects $294,000 increase
over the 1999 period due to website development cost and professional
fees.
Interest and financing cost totaled $35,000 during the third
quarter of 2000 as compared to $40,000 in the comparable 1999 period,
and for the nine months ended September 30, 2000, such costs were
$100,000 versus $120,000 for 1999.
SBI did not record any tax expense during the current quarter or
comparable year-ago period due to tax loss carry forwards. SBI's tax
loss carryforward balance at the end of fiscal 1999 was in excess of $9
million.
Net loss for the nine months of 2000 was $492,826. The loss
was primarily due to the development of SBI's web site and the
renovation of the Auction Plaza in Piedmont and professional fees.
The sale of the property located in Piedmont, Alabama for net
proceeds of $3,940,000, pending as of June 30, 2000 was subsequently
cancelled. SBI has decided to develop the property as a venue for auto
auction. SBI spent $75,000 for renovation of this property for the auto
auction in September 2000.
December 31, 1999 and 1998
Total assets as of December 31, 1999 and 1998 were $3,940,000. SBI
had a working capital deficit of ($2,143,000) and ($1,854,000) as of
December 31, 1999 and 1998 respectively. SBI's excess of current
liabilities over current assets was principally due to administrative
expenses incurred during the development stage that have been funded
by the majority stockholder in the form of advances due on demand. The
Company has had some success in issuing stock for services, and
accordingly has kept the working capital deficit to a minimum during
these years.
SBI continues to operate in the development stage with no significant
cash flow being generated from operating activities in 1998 or 1999.
SBI was not able to generate any revenues from operations in 1999 or
1998. Total revenues for calendar year ended December 31, 1997 were
$544,662 earned primarily from rental fees collected from charities that
sponsor bingo games. Rental fees collected from those entities ended in
1997.
Since its inception, SBI's only significant sources of capital have been
from the sale of common stock and loans from shareholders. See a
discussion of these transactions under Related Party Transactions, and in
the Consolidated Financial Statements of the Company. SBI has also
acquired significant assets through the sale of convertible preferred
stock. SBI anticipates continued expansion of its business through
acquisitions using company stock. Other operations are anticipated for
the facility acquired in 1994 and SBI anticipates generation of revenues
from this facility sufficient to cover administrative costs still being
incurred as the SBI moves forward in its development stage.
SBI's expenses can be summarized as follows:
Fiscal Year Ended December 31, 1999 1998
Salaries and related expenses $130,000 130,000
Other general and administrative expenses 0 $ 88,069
Interest expenses and finance charges $159,000 $ 40,000
Should SBI successfully acquire production facilities and broadcast
companies under consideration, or expand operations in other areas
currently under consideration, revenues and expenses of SBI would
change significantly.
VEI
---
September 30, 2000 and 1999
As of September 30, 2000 VEI had negative working capital of
$142,000. Total assets were $12,244,477 and total liabilities were
$6,190,099. For the nine months ended September 30, 2000 VEI had
revenue of $1,194,282. All revenue earned during the period were from
studio rental.
Rental revenue increased from $910,628 to $1,194,282 for the
nine months ended September 30, 2000 versus the nine months ended
September 30, 1999, an increase of $283,654 or 31%. The increase is
due to increases in monthly rents per contract and increases in overhead
costs charged to tenants. There was no production revenue earned for the
nine month period. Production revenue was $195,000 for the same
period last year. Subsequent to September 2000 $36,000 in production
revenue has been earned. In accordance with generally accepted
accounting principles revenue has not been recognized until or unless a
distribution contract is entered into. Several contracts are in the final
stages of negotiation.
Production costs for the comparable nine month periods have
increased from $72,287 to $199,618 or $127,331 representing a 176%
increase. Marketing and development costs accounted for most of the
production costs. Management reviews production costs on a quarterly
basis and records write-offs as needed. Production costs have decreased
subsequent to September.
Interest expense was $412,496 for the nine month period
compared with $219,441 for the comparable period. The 88% increase
was due to increased mortgage interest. The mortgage on the facility
was refinanced in December 1999 with an additional borrowing of
approximately $2,700,000. The effective interest rate on the refinanced
mortgage also increased from 8.6% to 10.3%.
The $365,639 or 79% increase in administrative and general
expense is due primarily to increases in four categories; (1) increase
facility costs, largely offset by increases in costs billed to tenants
discussed in relation to rental revenue above, (2) increase in rent
expense discussed below, (3) increases in legal and accounting fees
incurred in anticipation of the merger, and (4) compensation paid to
company employees.
In July 2000 VEI leased an additional building adjacent to its
current facility for $29,000 per month. The building, which was leased
as a studio rental property, had not been fully rented as of September 30,
2000. The planned use of the building was two sound stages and office
space. One of the two stages was leased out commencing in July 2000
for $13,000 per month. The second sound stage has not been built out
and is still not rented or leased. The office space was not rented until
October 2000. Management's plan is to rent/lease the combined facility
for approximately $50,000 per month.
Trends events of uncertainties :
The Screen Actors Guild and the Screen Writers Guild may go
on strike starting May 2001. While not materially affecting the studio
operation of Valencia because of long-term contracts, the strike may
affect Valencia's plans for its own productions which could have a
material affect on Valencia's projected income for 2001 and 2002.
VEI's internal and external source of funding:
---------------------------------------------
VEI has obtained lines of credit from City National Bank for
$400,000 and projects positive cash flow from VEI's studio division.
VEI sufficient funds to operate:
--------------------------------
VEI projects to have positive cash flow, in addition as mentioned above
VEI has recently obtained sufficient line of credit to have funds to
operate.
December 31, 1999 and 1998
Working capital was $2,441,000 and ($177,000) as of December 31,
1999 and 1998 respectively. Total assets were $14,613,000 as of
December 31, 1999 an increase of $2,694,000 from December 31, 1998
total assets of $11,919,000. As of year end 1999 total liabilities
increased to $6,191,000. from 1998 year end of 3,415,000 The
significant increase in total assets, total liabilities and working capital
from 1998 to 1999 is a result of the refinancing of the Studio Facility in
December 1999. This refinancing increased the mortgage payable by
$3,087,000 and correspondingly increased Cash, Mortgage Escrow
Holdback and Prepaid Loan Fees in total by $2,710,000. Subsequent to
December 31, 1999 VEI distributed $2,000,000 to an affiliate. Such
distribution reduced the respective ownership interest.
For year ended December 31, 1999 VEI had revenue of $1,474,000,
operating expenses of $780,717 and net income of $400,866. Income
before depreciation and interest for the year was $828,830.
Production revenue increased from $105,000 in 1998 to $260,000 for the
year ended December 31, an increase of $155,000 or 148%. In
accordance with generally accepted accounting principles production
revenue has not been recognized until or unless a distribution contract is
entered into. Rental revenue for the year ended December 31, 1999 was
$1,214,171 an increase of only $47,000 from the prior year due to minor
rate changes. .In general, other income and expense accounts have not
fluctuated significantly from the year ended December 31, 1998 to 1999.
ADDITIONAL INFORMATION REGARDING THE
TRANSACTION
Contact Information:
The principal executive offices of SBI are:
1239 South Glendale Avenue
Glendale, CA 91205
Telephone: (818) 550-6181
Contact Person: Ronald Foster, Chairman of the Board
The principal executive offices of VEI are:
26030 Avenue Hall, Studio 5
Valencia, CA 91355
Telephone: (661) 257-8000
Contact Person: Vince Vellardita, CEO
Business Conducted:
-------------------
SBI intends to focus on the business of providing
telecommunications and interactive entertainment to the consumer by
broadcasting interactive game shows and creation of internet related
entertainment services. The intent of the SBI is to identify and
commercialize leading edge internet entertainment technologies. Over
the last several years, SBI did not have any material operations and
remained dormant.
VEI is a entertainment conglomerate that includes television
production, for both network and syndicate, motion pictures, sports,
internet and real estate holdings. VEI, which has 6 acres and a 120,000
square feet production facility in Valencia California, is the studio set for
JAG produced by Paramount Pictures and Power Rangers produced by
Saban Productions. In addition, VEI's facilities include six sound stages
that have been operating at full capacity since 1995. Recently, Valencia
leased an additional 3 acres and 52,000 square feet of production facility
which includes two full service sound stages, for a total of eight sound
stages. Valencia's clients include, Warner Bothers, Universal Studios,
MGM, HBO, NBC, 20th Century Fox, Disney, CBS, Sony, Showtime,
and the USA Network.
Terms of the Transaction:
----------------------------
Pursuant to the terms of the Agreement:
(1) VEI will merge with and into SBI's wholly owned
subsidiary, Valencia Acquisition, with VEI being the surviving limited
liability company and becoming wholly owned subsidiary of SBI;
(2) all of the outstanding shares of capital stock of Valencia
Acquisition will be exchanged for all of the outstanding membership
interests of VEI, with all of the outstanding Valencia Acquisition shares
being cancelled concurrent with the Merger; and
(3) SBI will issue 75,709,965 shares of its authorized but
unissued common stock to the principals of VEI.
The reason for engaging in the transaction is that the Board of
Directors of SBI believes that the business engaged in by VEI has
substantial growth potential, will compliment its existing business, and
will enhance shareholder value in the future. A majority vote of the
outstanding shares is required under SBI's Bylaws and under Delaware
law. The consenting stockholders who represent 56.4% of the issued and
outstanding shares have approved the transaction and the actions to be
undertaken.
As a result of the merger, the stockholders of SBI will suffer
substantial dilution in their interests in SBI. Following the transaction,
the current SBI stockholders will own approximately 14% of the
outstanding common stock. Consequently, not only will the SBI
stockholders' capital interest in SBI be reduced from 100% to 14%, but
their voting power will be similarly reduced. Following the merger, the
current members of VEI will own 86% of the outstanding common stock
of SBI and will be able to control SBI's affairs, including the election of
all members of the Board of Directors.
The definitive merger agreement contains standard
representations and warranties and provides for the mutual
indemnification of the parties for breaches of such representations and
warranties. The accounting treatment of this transaction will be under
the requirements of a reverse merger which results in the legal
acquirer, SBI, being the accounting acquiree under purchase accounting.
Regulatory Approvals
There are no federal or state regulatory requirements that must
be complied with in regard to this transaction.
Reports, Opinions, Appraisals:
No reports, opinions or appraisals were obtained in connection with
this transaction.
VALENCIA ENTERTAINMENT INTERNATIONAL, LLC
FINANCIAL STATEMENTS
December 31, 1999 and 1998
CONTENTS OF REPORT
-------------------------------------------------------------------------------
Page 1 Accountants' report
Page 2 Balance sheet
Page 3 Statements of operations
Page 4 Statements of cash flows
Page 5-9 Notes to financial statements
INDEPENDENT AUDITORS REPORT
To the Board of Directors
Valencia Entertainment International, LLC:
We have audited the accompanying balance sheet of Valencia
Entertainment International, LLC as of December 31, 1999, and
December 31, 1998, and the related statements of operations, partners'
capital and cash flows for each of the years then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of
December 31, 1999 and December 31, 1998, and the results of its
operations and its cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.
Jay J.
Shapiro, C.P.A.
A
professional corporation
Encino, California
October 17, 2000
VALENCIA ENTERTAINMENT INTERNATIONAL, LLC
BALANCE SHEET
December 31
1999 1998
---- ----
ASSETS
------
Cash (Note 6) 2,278,694 8,835
Accounts receivable 106,812 48,144
Mortgage escrow holdback 327,900 0
----------- -----------
Total Current Assets 2,713,406 56,979
Fixed assets - net (Notes 2 and 3) 11,760,154 11,855,999
Production costs 28,000 6,170
Prepaid loan fees 111,668 0
----------- ---------------
Total Assets $ 14,613,228 $ 11,919,148
============= ================
LIABILITIES AND EQUITY
Accounts payable $ 114,181 51,929
Loans payable 75,000 55,000
Mortgage payable - current portion (Note 3) 83,536 126,928
----------- -----------
Total Current Liabilities 272,717 233,857
Mortgage payable (Note 3) 5,916,464 3,181,670
------------ -----------
Total Liabilities 6,189,181 3,415,527
Commitments (Note 5)
Equity:
Capital (Note 2, 4 and 6) 7,704,406 8,184,843
Accumulated income 719,641 318,775
----------- ------------
8,424,047 8,503,621
----------- -------------
Total Liabilities and Equity $14,613,228 $11,919,148
============ ===============
See accompanying notes to financial statements
VALENCIA ENTERTAINMENT INTERNATIONAL, LLC
STATEMENTS OF OPERATIONS
Year ended December 31
1999 1998
Revenue:
Rental $ 1,214,171 1,166,983
Production 260,000 105,135
------------ ------------
1,474,171 1,272,118
Costs and Expenses:
Production 83,049 63,195
Selling and promotion 89,017 74,562
Depreciation 135,376 133,620
Administrative and general 473,275 490,363
---------- ------------
Total 780,717 761,740
---------- ------------
Operating income 693,454 510,378
Interest expense (292,588) (298,292)
----------- ------------
Net income $ 400,866 212,086
Proforma provision for income $ 160,346 85,000
taxes (Note 6c)
Proforma net income per share $ 0.00 0.00
(Note 6c)
VALENCIA ENTERTAINMENT INTERNATIONAL, LLC
STATEMENT OF CASH FLOWS
Year ended December 31
1999 1998
Operating Activities:
Net income $ 400,866 $ 212,086
Items Not Requiring Cash Outlays:
Depreciation and amortization 135,376 133,620
------------- -------------
536,242 345,706
Changes in:
Receivables (58,686) 6,259
Other assets (21,830) (6,170)
Accounts payable and other accrued expenses 62,272 14,000
Loans payable 20,000 (55,000)
------------- -------------
Cash Provided by Operations 537,998 304,795
Investing Activities:
Acquisition of fixed assets (39,534) (110,051)
------------ -------------
Cash Used by Investing Activities (39,534) (110,051)
Financing Activities:
Principal payments on former mortgage (152,000) (149,786)
Repayment of former mortgage (3,261,165) 0
Proceeds from mortgage refinancing 5,664,997 0
Withdrawal of capital contribution (480,440) (55,000)
------------- -------------
Cash Provided (Used) by
Financing Activities 1,771,392 (204,786)
Increase (Decrease) in Cash and
Cash Equivalents 2,269,859 (10,042)
Cash and cash equivalents,
beginning of year 8,835 18,877
------------ --------------
Cash and cash equivalents, end of year $ 2,278,694 $ 8,835
---------------- ---------------
Supplemental disclosure of cash flow information:
Interest paid $ 299,000 $ 291,000
Income taxes $ 0 $ 0
Capital contribution -
land and buildings $ 0 $8,114,000
VALENCIA ENTERTAINMENT INTERNATIONAL, LLC
STATEMENT OF PARTNERS' CAPITAL
Year ended December 31, 1999 and 1998
Partners' Accumulated
Capital Income Total
-------------------------------------------------------
Balance January 1, 1998 8,576,658 106,689$ 8,683,347
Net income for the year 212,086 212,086
Distributions (391,812) (391,812)
-------------------------------------------------------
Balance December 31, 1998 8,184,846 318,775 8,503,621
Net income for the year 400,866
Distributions (480,440) (480,440)
-------------------------------------------------------
Balance December 31, 1999 $7,704,406 $719,641 $8,424,047
=======================================================
See accompanying notes to financial statements
VALENCIA ENTERTAINMENT INTERNATIONAL, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note 1:
Summary of Significant Accounting Policies
Following is a summary of the significant accounting policies followed
in the preparation of these financial statements, which policies are in
accordance with generally accepted accounting principles:
Nature of Business
------------------
Valencia Entertainment International, LLC (the "Company") is a limited
liability corporation organized in November 1996 under the laws of the
State of California for the purpose of operating a studio facility in Valencia,
California and the development, financing and production for entertainment
content. The Company is managed pursuant to the Amended
Operating Agreement dated January 1, 1998 (the "Agreement").
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could materially differ from those estimates.
Concentration of Credit Risk
----------------------------
Financial instruments that potentially subject the Company to
concentrations of risk consist of trade receivables principally arising from
monthly leases. Management believes all receivables to be fully collectible.
Cash Equivalents
-----------------
The Company maintains cash and cash equivalents (short-term highly
liquid investments with original maturity less than three months) with various
financial institutions. From time to time, cash balances may exceed Federal
Deposit Insurance corporation insurance limits.
VALENCIA ENTERTAINMENT INTERNATIONAL. LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note 1:
Summary of Significant Accounting Policies (Continued
-----------------------------------------------------
Fair Value of Financial Instruments
-----------------------------------
The carrying value of cash, receivables and accounts payable
approximates fair value due to the short maturity of these instruments.
The carrying value of short and long-term debt approximates fair value based
on discounting the projected cash flows using market rates available for
similar instruments. None of the financial instruments are held for trading
purposes.
Depreciation
------------
For financial and tax reporting purposes, the Company follows the policy
of providing depreciation and amortization on the straight-line and
accelerated declining balance methods over the estimated useful lives of
the assets, which are as follows:
Building 39 Years
Building Improvements 39 Years
Office Furniture and Equipment 5 to 7 Years
Amortization of Prepaid Loan Costs
----------------------------------
For financial reporting purposes, costs are amortized on the straight line
method over 10 years, the life of the related loan.
Income Taxes
------------
The Company files it's taxes as a Partnership under the laws of the
United States and as a Limited Liability Company under the laws of the
State of California. In both cases the Partners/Owners of the company report as
individuals their share of the income of the Company and individually pay all
related income taxes.
Impairment of Long-Lived Assets
-------------------------------
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets
may not be recoverable. Determination of recoverability is based on and
estimate of undisclosed future cash flows resulting from the use of the asset
and its eventual disposition.
Measurement of an impairment loss for long-lived assets are based on
the fair value of the asset. Long-lived assets to be disposed of are reported
at the lower of carrying amount or fair value less costs to sell.
Revenue Recognition
-------------------
Revenues from the theatrical distribution of motion pictures are
recognized when motion pictures are exhibited. Revenues from video sales are
recognized on the date that video units are made widely available for sale by
retailers. Revenues from the licensing of feature films and television
programming are recorded when the material is available for telecasting by the
license and when certain other conditions are met.
Rental revenue is recognized monthly pursuant to written contracts.
VALENCIA ENTERTAINMENT INTERNATIONAL. LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note 2:
Property and Equipment
----------------------
Property and equipment at December 31, consists of the following:
1999 1998
-----------------------------
Land $6,892,292 $ 6,892,292
Building 4,028,785 4,028,785
Building Improvements 1,062,473 1,025,648
Office furniture and equipment 24,156 21,450
----------- --------------
Total 12,507,706 12,468,175
Less: Accumulated Depreciation (747,552) (612,176)
----------- -------------
Net book value $ 11,760,154 $ 11,855,999
=============== ================
Note 3
Notes Payable
-------------
Following is a summary of the Company's Notes Payable at year end.
December 31,
1999 1998
------------------------------
Promissory note payable to Great-West Life
Insurance Company due in monthly installments of
principal and interest of $33,944 at 8.625% per annum.
The note is secured by a Deed of Trust on the Valencia
studio property. The note was refinanced in
December 1999. $ 2,913,598
Promissory note payable to First Fidelity Investment
and Loan due in monthly installments of principal and
interest of $54,648 at 10.03% per annum. The rate is
variable dependent on the 6 month US T-Bill rate.
The note is secured by a Deed of Trust on the Valencia
Studio property. The Note matures December 2009 $ 6,000,000
Various other loans, short-term, 8.00%-9.00%
interest 75,000 55,000
-------------- ------------
Total 6,075,000 3,363,598
Less: Current maturities 158,536 181,928
------------- -----------
Notes Payable $ 5,916,464 $ 3,181,670
============== ==============
VALENCIA ENTERTAINMENT INTERNATIONAL LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note 3
Notes Payable (Continued)
-------------------------
Maturities on the notes are as follows:
2000 $ 158,536
2001 92,283
2002 101,946
2003 112,622
2004 124,415
And thereafter 5,485,198
----------
$6,075,000
============
The Company's average short-term weighted interest rate is 9% and 8.5%
respectively, for 1999 and 1998.
Note 4
Partners' Capital
-----------------
In January 1997 Magic Movie Studios of Valencia, LLC, a California
partnership,contributed property including land and buildings with a net
book value of $11,370,412 to the Company. The land and buildings contributed
were subject to a Deed of Trust with an unpaid balance of $3,256,566.
The capital accounts of the individual partners were credited
for $8,114,000 and the Agreement recognizes their 50% ownership of
the Company.
Note 5:
Commitments
-----------
In May 2000 the Company leased additional facilities adjacent to it's
current location. The lease has a term of five years. Initial monthly base
rent is $29,000 with annual increases until 2004 when base rent will be $34,585.
Note 6:
Subsequent Events
-----------------
a. The Company distributed $2,000,000 cash to an affiliate, Magic Movie
Studios of Valencia, LLC, on January 11, 2000. Such distribution reduces the
respective ownership interest in the Company.
b. A lease was executed on May 11, 2000 for approximately 52,000 square
feet of additional facility space.
VALENCIA ENTERTAINMENT INTERNATIONAL, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note 6:
Subsequent Events (Continued)
c. In August 2000, the Company entered into a letter of intent with SBI
Communications, Inc. a publicly-traded Delaware corporation (SBI), to be
acquired for 86% of all the outstanding stock of SBI. This transaction will be
treated for accountingpurposes as a reverse acquisition merger.
Such transaction will provide the company with 75,709,965 million
shares of SBI common stock. Pro forma computations are based on these shares
and at a 40% income tax rate.
VALENCIA ENTERTAINMENT INTERNATIONAL, LLC
UNAUDITED FINANCIAL STATEMENTS
September 30, 2000
CONTENTS OF REPORT
Page 1 Balance sheet
Page 2 Statements of operations
Page 3 Statements of cash flows
Page 4-8Notes to financial statements
VALENCIA ENTERTAINMENT INTERNATIONAL, LLC
BALANCE SHEET (UNAUDITED)
September 30, 2000
ASSETS
Cash $ 80,738
Accounts receivable 88,143
---------
Total Current Assets 168,881
----------
Fixed assets - net (Notes 2 and 3) 11,747,867
------------
Deposits 50,000
Production costs 174,436
Prepaid loan fees 103,293
-----------
327,729
Total Assets $12,244,477
-------------
LIABILITIES AND EQUITY
Accounts payable $ 178,063
Loans payable 30,000
Due to affiliates 16,175
Mortgage payable - current
portion (Note 3) 87,117
-------------
Total Current Liabilities 311,355
Mortgage payable (Note 3) 5,878,744
--------------
Total Liabilities 6,190,099
Commitments (Note 5)
Equity:
Capital (Note 2 and 4) 6,054,378
---------------
Total Liabilities and Equity $ 12,244,477
===============
VALENCIA ENTERTAINMENT INTERNATIONAL, LLC
STATEMENTS OF OPERATIONS (UNAUDITED)
Nine months ended September 30,
2000 1999
-----------------------------
Revenue:
Rental $ 1,194,282 $ 910,628
Production 0 195,000
------------ ------------
1,194,282 1,105,628
Costs and Expenses:
Production 199,618 72,287
Selling and promotion 18,306 46,763
Depreciation 102,936 101,532
Administrative and general 830,595 464,956
------------ -----------
Total 1,151,455 685,538
------------ -------------
Operating income 42,827 420,090
Interest expense (412,496) (219,441)
------------ --------------
Net income (loss) $ (369,669) $ 200,649
------------ --------------
Proforma provision for income taxes $ 0 $ 80,300
------------ --------------
Net income per share $ 0 $ 0
------------ --------------
See accompanying Notes to financial statements
VALENCIA ENTERTAINMENT INTERNATIONAL, LLC
STATEMENT OF CASH FLOWS (UNAUDITED)
Nine months ended September 30,
2000 1999
---------------------------------
Operating Activities:
Net income (loss) $ (369,669) $ 200,649
Items Not Requiring Cash Outlays:
Depreciation and amortization 111,311 101,532
--------------- ----------
(258,358 ) 302,181
--------------- -----------
Changes in:
Receivables 18,669 (44,050)
Mortgage escrow holdback 327,900 0
Production costs (146,436) 0
Deposits (50,000) 0
Accounts payable and other accrued expenses 63,882 61,970
Due to affiliates 16,175 0
Loans payable (45,000) 15,000
------------- -----------
185,190 32,920
------------ -----------
Cash Provided (Used) by Operations (73,168) 335,101
------------ -----------
Investing Activities:
Acquisition of fixed assets (90,649) (29,651)
------------ -----------
Cash Used by Investing Activities (90,649) (29,651)
------------ -----------
Financing Activities:
Principal payments on mortgage (34,139) (152,000)
Withdrawal of capital contribution (2,000,000) (140,000)
------------ ------------
Cash Used by Financing Activities (2,034,139) (292,000)
------------ -------------
Increase (Decrease) in Cash and
Cash Equivalents (2,197,956) 13,450
Cash and Cash Equivalents, beginning 2,278,694 (8,835)
----------- ----------
Cash and Cash Equivalents, ending $ 80,738 $ 4,615
----------- - ----------
Supplemental disclosure of cash flow information:
Interest paid $ 412,496 $ 224,000
----------- -----------
Income taxes $ 0 $ 0
See accompanying notes to financial statements
STATEMENT OF PARTNERS' CAPITAL (UNAUDITED)
Nine months ended September 30, 2000
Partners' Accumulated
Capital Income Total
------------ ------------- -------------
Balance January 1, 2000 $ 7,704,406 $ 719,641 $ 8,424,047
Net loss for the period (369,669) (369,669)
Distributions (2,000,000) (2,000,000)
------------- ------------- -------------
Balance September 30, 2000 $ 5,704,406 $ 349,972 $ 6,054,378
============= ============= =============
See accompanying notes to financial statements
VALENCIA ENTERTAINMENT INTERNATIONAL, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
Note 1:Summary of Significant Accounting Policies
Following is a summary of the significant accounting
policies followed in the
preparation of these financial statements, which
policies are in accordance
with generally accepted accounting principles:
Nature of Business
Valencia Entertainment International, LLC (the "Company") is a limited
liability corporation organized in November 1996 under the laws of the
State of California for the purpose of operating a studio facility in
Valencia, California and the development, financing and production of
entertainment content. The Company is managed pursuant to the
Amended Operating Agreement dated January 1, 1998 (the
"Agreement").
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could materially differ from those
estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of risk consist of trade receivables principally arising
form monthly leases. Management believes all receivables to be fully
collectible.
Cash Equivalents
The Company maintains cash and cash equivalents
(short-term highly liquid
investments with original maturity less than three
months) with various financial
institutions. From time to time, cash balances may
exceed Federal Deposit
Insurance corporation insurance limits.
VALENCIA ENTERTAINMENT INTERNATIONAL, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
Note 1:Summary of Significant Accounting Policies (Continued
Fair Value of Financial Instruments
-----------------------------------
The carrying value of cash, receivables and accounts payable approximates
fair value due to the short maturity of these instruments. The carrying value
of short and long-term debt approximates fair value based on discounting the
projected cash flows using market rates available for similar instruments.
None of the financial instruments are held for trading purposes.
Depreciation
------------
For financial and tax reporting purposes, the Company follows the policy
of providing depreciation and amortization on the straight-line and accelerated
declining balance methods over the estimated useful lives of the assets, which
are as follows:
Building 39 Years
Building Improvements 39 Years
Leasehold improvements 10 Years
Office Furniture and Equipment 5 to 7 Years
Amortization of Prepaid Loan Costs
----------------------------------
For financing reporting purposes, costs are amortized on the straight-line
method over 10 years, the life of the related loan.
Income Taxes
------------
The Company files its' taxes as a Partnership under the laws of the
United States and as a Limited Liability Company under the laws of the
State of California. In both cases the Partners/Owners of the company
report as individuals their share of the income of the Company and
individually pay all related income taxes.
Impairment of Long-Lived Assets
-------------------------------
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets
may not be recoverable. Determination of recoverability is based on and
estimate of undisclosed future cash flows resulting from the use of the
asset and its eventual disposition. Measurement of an impairment loss for
long-lived assets are based on the fair value of the asset. Long-lived
assets to be disposed of are reported at the lower of carrying amount or
fair value less costs to sell.
Revenue Recognition
-------------------
Revenues from the theatrical distribution of motion pictures are
recognized when motion pictures are exhibited. Revenues from video
sales are recognized on the date that video units are made widely
available for sale by retailers. Revenues from the licensing of feature
films and television programming are recorded when the material is
available for telecasting by the license and when certain other conditions
are met. Revenues from studio space rentals are recognized monthly by
contract.
Note 2:Property and Equipment
-----------------------------
Property and equipment at September 30, 2000, consists of the following:
Land $ 7,392,292
Building 4,028,785
Building Improvements 1,139,381
Office furniture and equipment 37,897
------------
Total 12,598,355
Less: Accumulated Depreciation (850,488)
------------
Net book value $ 11,747,867
Note 3: Notes Payable
Following is a summary of the Company's Notes Payable at September 30, 2000.
Promissory note payable to First Fidelity Investment
and Loan due in monthly installments of principal and
interest of $54,648 at 10.03% per annum. The rate is
variable dependent on the 6 month US T-Bill rate.
The note is secured by a Deed of Trust on the Valencia
Studio property. The Note matures December 2009 $5,965,861
Various other loans, short-term, 8.00%-9.00% interest 30,000
----------
Total $5,995,861
Less: Current maturities 117,117
----------
Notes Payable $5,878,744
Maturities on the notes are as follows:
2001 $ 117,117
2002 101,946
2003 112,622
2004 124,415
2005 136,800
And thereafter 5,402,961
---------
$5,995,861
----------
The Company's average short-term weighted interest
rate is 9% for the period.
Note 4 Partners' Capital
The Company distributed $2,000,000 cash to an
affiliate, Magic Movie Studios of Valencia, LLC, on January 11, 2000.
Such distribution reduces their respective ownership interest in the Company.
Note 5:Commitments
In May 2000 the Company leased additional facilities
adjacent to its current location. The lease has a term of five years.
Initial monthly base rent is $29,000 with annual increases until 2004
when base rent will be $34,585.
Note 6:Subsequent Events
In August 2000, the Company entered into a letter of
intent with SBI Communications, Inc. a publicly traded Delaware corporation
(SBI), to be acquired for 86% of all the outstanding stock of SBI. This
transaction will be treated for accounting purposes as a reverse
acquisition merger. The consummation of the merger is pending SEC approval.
If this transaction took place on January 1, 2000 no
corporate tax provision would be recognized since the Company sustained a loss.
Pro-forma net income per share would be $.00 per share.
To the Board of Directors
SBI Communications. Inc.:
We have audited the accompanying consolidated balance sheets of SBI
Communications, Inc. and subsidiaries (the "Company") as of December
31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1999. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the
Company as of December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the two years in
the period ended January 31, 1999 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 shown in the
accompanying financial statements, the Company has a $3.6 million
provision for net realizable value regarding the cost basis of building
and equipment as of January 1, 1998. As more specifically indicated in
Note 1 to the financial statements, the Company's existence is dependent
on the successful closing of this property held for sale and has no
established commercial product or marketing channels at this time to
generate future revenues. These factors raise a substantial doubt about
the ability of the Company to continue as a going concern.
Management's plans in regards to those matters are also described in
Notes 1 and 8. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/JAY J. SHAPIRO, C.P.A.
a professional corporation
Encino, California
March 27 2000, except for Note 9 as to which the date is December 21,
2000
SBI COMMUNICATIONS. INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31
-----------
1999 1998
---- ----
Cash $ 0 $ 0
Property 3,940,000 3,940,000
--------- ---------
$ 3,940,000 $3,940,000
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Mortgage note payable to trust managed by a
Shareholder $ 150,000 $ 150,000
Mortgage note payable 1050,000 1,050,000
Equipment notes payable 131,181 131,181
Accrued wages due to principal shareholder 550,000 420,000
Advances due to principal shareholder 95,136 12,698
Accrued interest payable 199,000 40,000
Accounts payable 50,000 50,000
---------- -----------
Total liabilities 2,233 ,317 1,853,879
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, par value $5.00;
10,000,000 shares authorized:
153,000 and 153,000 shares issued and
outstanding at December 31, 1999
and December 31, 1998, respectively 765,000 765,000
Common stock, par value $.001;
40,000,000 shares authorized;
4,846,939 and 5,570,439 shares issued
and outstanding at December 31, 1999 and 1998 4,846 5,570
Paid in capital 3,477,604 3,567,318
Accumulated deficit (2,540,767) (2,251,767)
----------- -----------
Total Stockholders equity 1,706,683 1,321,121
----------- -----------
$ 3,940,000 3,940,000
=========== ===========
See accompanying notes to consolidated financial statements
SBI COMMUNICATIONS. INC. AND SUBSIDIARIES
STATEMENTS OF LOSS
December 31
1999 1998
---- ----
Revenue 0 0
Provision - net realizable value (Note 8 ) - ($3,578,279)
Expenses:
Compensation 130,000 130,000
Other general and administrative 0 88,069
Interest 159,000 40,000
-------- ----------
(289,000) (258,069)
-------- -----------
Net loss ($289,000) ($3,836,348)
--------- ------------
Basic net loss per share (Note 4) ( $.05 ) ($.69)
See accompanying notes to consolidated financial statements
SBI COMMUNICATIONS. INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31
1999 1998
---- ----
Cash flows from operating activities:
Net (loss) income ($289,000) ($3,836,348)
Adjustments to reconcile net loss to cash
provided (used) by operating activities:
Provision - net realizable value 3,578,279
Change in accounts payable and accrued expenses 289,000 170,000
Cash (used) by operating activities 0 (88,069)
Cash flows from investing activities:
Affiliate receivables (7,570)
Purchase of real estate (748,622)
Cash (used) by investing activities (756,192)
Cash flows from financing activities:
Loans from shareholders/affiliates 12,698
Proceeds from new first mortgage 1,050,000
Mortgage loan repayment (239,701)
Equipment note repayments (964)
Cash flows provided by financing activities 822,033
Net increase (decrease) in cash 0 (22,228)
Cash at beginning of period 0 22,228
Cash at end of period $ 0 $ 0
Supplemental information:
Income taxes paid $ 0 $ 0
Interest paid $ 0 $ 24,311
Items not requiring use of cash:
Preferred stock converted $ 0 ($200,000)
Issuance of common stock $ 0 202,500
Preferred stock canceled $ 0 $7,500,000
See accompanying notes to consolidated financial statements
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Additional
Common Preferred Paid-in Accumulated
Capital Deficit
------------ ------------- ----------- -----------
Shares Amount Shares Amount
Balance
January 1
1998 5,345,439 $5,345 1,963,000 $8,465,000 $3,567,343 ($5,915,419)
Conversion 200,000 $ 200 (40,000) (200,000)
Acquisition
of Software 25,000 $ 25 (25)
Cancellation
of Stock
issued
(Note 3 (1,500,000) (7,500,000) 7,500,000
Net loss
for 1998 (3,836,348)
-------------------------------------------------------------
Balance
December
31, 1998 5,570,439 5,570 153,000 765,000 3,567,318 (2,251,767)
Cancellation
Common
Stock
(Note 9) (723,500) (724) (89,714)
Net loss
For 1999
(289,000)
-----------------------------------------------------------------------------
Balance
December
31, 1999 4,846,939 $4,846 153,000 $765,00 $3,477,604($2,540,767)
=============================================================================
See accompanying notes to consolidated financial statements
SBI COMMUNICATIONS. INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
Organization and Signification Accounting Policies
--------------------------------------------------
SBI Communications, Inc. (the "Company"), was originally organized in
the State of Utah on September 23, 1983, under the corporate name of
Alpine Survival Products, Inc. Its name was subsequently changed to
Supermin, Inc. on November 20, 1985. On September 29, 1986, Satellite
Bingo, Inc. became the surviving corporate entity in a statutory merger
with Supermin, Inc. In connection with the above merger, the former
shareholders of Satellite Bingo, Inc. acquired control of the merged
entity and changed the corporate name to Satellite Bingo, Inc. Through
shareholder approval dated March 10, 1988, the name was changed to its
current name of SBI Communications, Inc. On January 1, 1993, the
Company executed a plan of merger that effectively changed the
Company's state of domicile from Utah to Delaware. Although the
Company is currently a Delaware corporation, on January 31, 1998 the
stockholders and Board of Directors approved a plan to change the
Company's corporate domicile to the State of Nevada. The Company
owns approximately $25,000 for Delaware franchise taxes as of
December 31, 1997 and such amount is included in Accounts Payable.
The Company has developed a system that can be integrated into all
standard communications channels including the World Wide Web for
interactive bingo play. Currently, the Company is developing its
website. The Alabama bingo hall lease was allowed to not be renewed in
early 1998. The Company is establishing a website allowing individuals
to become members in a shopping club with membership fees of $19.95
per month. The shopping club will provide a variety of products,
services, bingo game sweepstakes related events and items, travel and
consumer goods; No charge is made to participate in the bingo games.
The website will be hosted by the Company's subsidiary,
FrontierPalace.Com. and fulfillment will be provided by unrelated
company.The Company will generate additional revenues by
offering web page/site design/development, advertising, fulfillment and
its web services to others.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and four wholly-owned subsidiaries of which only SBI
Communications, Inc. - Alabama has activity during the two-year period
ended 12/31/99.
Estimates and Assumptions
-------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reporting amount of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The 1998 financial statements reflect $3.6 million change in
the reporting amount of building and equipment.
SBI COMMUNICATIONS. INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 (Cont'd)
Property and Equipment
----------------------
Property and equipment were stated at cost. In March 2000, the
Company sold all its property and equipment for net cash sales price of
$3,940,000 due at closing. The gross sales price of $6,000,000 was
reduced by $860,000 in closing costs, $635,000 in fix-up expenses, and
the assignment of no value to $565,000 in downpayment received in
Buyer's non-trading common stock. The Company also cancelled the
1,500,000 shares of preferred stock(valued at $7.5 million) issued to
former owner of this property due to non-performance relative to
reimbursement of Company for payment of $750,000 in delinquent
Alabama property taxes.
Income Taxes
------------
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, which requires the use of the
asset and liability method and recognizes deferred income taxes for the
consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities.
Statements of Cash Flows
------------------------
For the purposes of the statements of cash flows, the Company considers
cash and highly liquid investments purchased with a remaining maturity
of three months or less at the date of purchase to be cash equivalents.
Related Party Transactions
--------------------------
From time to time, the Company's principal shareholder advances money
to the Company for operations. All amounts owed to the shareholder
($12,968) are non-interest bearing advances. In addition to advances, the
Company accrued salaries payable to the Company's principal
shareholder totaling $130,000 for the years ended December 1999 and
1998, respectively. All amounts owed to the shareholder are payable on
demand. In October, 1995, the Company borrowed $250,000 from a trust
managed by a shareholder, in the form of a mortgage note. The note was
payable in full on October 15, 1996, with interest payable quarterly at
prime plus 3%, secured by a second mortgage on The Piedmont
Property. Fifty thousand dollars of this note was repaid in 1996 when
due, and an additional $50,000 was repaid during 1997. The note has
been extended on a quarter to quarter basis, with $150,000 remaining
outstanding at December 31, 1998 and 1999.
Impairment of Long-Lived Assets
-------------------------------
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets
may not be recoverable. Determination of recoverability is based on an
estimate of undisclosed future cash flows resulting from the use of the
asset and its eventual disposition. Measurement of an impairment loss
for long-lived assets are based on the fair value of the asset. Long-lived
assets to be disposed of are reported at the lower of carrying amount of
fair value less costs to sell. The December 31, 1999 and 1998 basis of
the Property reflects this accounting policy.
SBI COMMUNICATIONS. INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2
Piedmont Property Taxes
-----------------------
On April 28, 1995 the State of Alabama placed a tax lien on the previous
owner of the Piedmont Property, Cranberry-Magnetite/Broadway Gas
Corporation(the "Seller") for admission taxes, in the amount of $750,000
plus 12% interest. The Company received a warranty deed from
Cranberry Magnetite. After a legal action by Cranberry Magnetite with
the State of Alabama failed in 1998 the Company paid this tax liability
on behalf of Cranberry Magnetite/Broadway Gas Corporation. The
Company attempted to recover these funds.
NOTE 3
Stockholders' Equity
---------------------
In January 1998 the Company issued 25,000 shares of its common stock
to cover the cost of PandaAmerica software programming. Such cost was
recognized at $.10 per share, its fair market value ($2,500) and expensed
in 1998. The Company also converted 40,000 shares of preferred shares
to 200,000 shares of the Company common stock. Such preferred stock
pays no dividends, has a liquidation value of $5.00 per share, and is
convertible at 5 shares common stock for 1 share of preferred. The
company also cancelled 1,500,000 shares of preferred stock due to
failure of Seller to meet its obligation owed to the Company.
NOTE 4
Net Loss Per Share
------------------
The Company's net loss per share was calculated using 4,970,439 and
6,182,000 weighted average shares outstanding for 1999 and 1998,
respectively. Although convertible preferred stock is a common stock
equivalent, with a conversion rate of approximately 10 shares of
common stock (based upon an approximate market price for common
stock of $0.50) for each share of preferred stock, preferred stock
conversion has not been included in the calculation of earnings per share
in that to do so would be antidilutive.
SBI COMMUNICATIONS. INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5
Mortgage Note Payable
---------------------
The Company borrowed $1,050,000 to pay the State of Alabama, on
behalf of Cranberry-Magnetite, the previous owner tax liability of
$748,422 and to pay old mortgage loan with a balance of $239,701 plus
accrued interest.
NOTE 6
Income Taxes
------------
Deferred income tax assets and liabilities are summarized as follows at
December 31,1999:
Deferred tax assets attributable to
operating loss carry forwards $3,500,000
Valuation allowance due to uncertainty
surrounding realization of operating
loss carry forwards ($ 3,500,000)
------------
Total deferred taxes $ 0
============
The Company has available at December 31, 1999, unused operating loss
carry forwards, which may be applied against future taxable income, that
expire as follows:
Amount of Unused Expiration During
Operating Loss Year Ended
Carry Forwards December 31
--------------- ----------------
$ 200,000 2001
$ 550,000 2002
$ 1,200,000 2003
$ 300,000 2004
$ 490,000 2007
$ 340,000 2008
$ 320,000 2009
$ 650,000 2010
$ 1,050,000 2011
$ 700,000 2012
$ 3,836,000 2013
$ 289,000 2014
-------------
$ 9,925,000
-------------
SBI COMMUNICATIONS. INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7
Commitments. Risks and Contingencies
-------------------------------------
The Company has developed bingo productions to be broadcast via
satellite in English and Spanish to the television market and the Internet,
into homes of viewers throughout the World. Should local, state, or
federal laws change regarding bingo sweepstakes, such changes could
have a material impact on the ability of the Company to generate future
revenues. The Company is the owner of record on the Piedmont Property
and is therefore, responsible for all amounts attributable or assessed by
state tax authorities. Management believes that $100,000 paid at closing
will satisfy all obligations.
The Company has a history or issuing common stock tor services
difficult to value or yet to be provided. Approximately 3,000,000 (or
57%) of the common stock outstanding at December 31, 1998, is
restricted in some fashion as a result of the above transactions.
Furthermore, the Company has in prior years canceled common stock
certificates due to non-performance of the third parties involved in
certain of the above transactions. Although no party to such transactions
has yet instigated litigation involving the Company for cancellation or
restriction of related shares, due to the volume of such transactions,
litigation relating to such activity remains a possibility. Management
believes all actions it has taken to cancel or restrict common stock are
with merit, and does not anticipate any material loss being incurred by
the Company relating to future resolution of these matters.
The Company has an employment agreement with Mr. Ron Foster,
shareholder and president, which expires on December 31, 2001. Under
the agreement, Mr. Foster is entitled to $130,000 in minimum annual
salary, cash bonuses of the lesser of 10% of revenues or 5% of pre-tax
profits, and stock bonuses equivalent to 10% of pre-tax profits before
depreciation.
NOTE 8
Property and equipment
----------------------
Property and equipment consisted of the following at December 31,
1999 1998
Land $4,500,000 $4,500,000
Building 2,500,000 2,500,000
Reserve for impairment (3,060,000) (3,060,000)
------------- ------------
$3,940,000 $3,940,000
NOTE 9
Subsequent Events
-----------------
a)The Company intended to sell its building in Alabama before
March 2000. The net sales price was $6,000,000 with a 20% cash down payment
and real estate contract for $4.8 million at 9.00% interest payable monthly with
balloon payment of $4,695,000 in five years. The note will be acquired
at closing for $4.1 million in cash. The financial statements reflect at
$3.6 million provision for net realizable value of the Piedmont Property
as of 12/31/99 and 12/31/98 and no depreciation has been recognized.
Negotiations continued and the closing never took place. Upon merger
discussions with Valencia Entertainment International, LLC in
September 2000, the building was planned to be used for new purposes.
A 1997 appraisal indicates a $7.1 million valuation for the Alabama
building.
SBI COMMUNICATIONS. INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 (Cont'd)
Subsequent Events (cont'd)
--------------------------
b)The Company intended on using the proceeds of Piedmont
property sales to settle the two outstanding mortgage obligations and the
equipment notes payable. However, since the sale did not close, the
Company anticipates to refinance the property.
c)The Company cancelled 1,500,000 shares of preferred stock
issued to the former owner of the Piedmont property in March 2000 and
released such party from its obligation to repay the Company $750,000
paid for past property taxes (See Note 2).
d)In January 2000, the Company intends to receive all 2,500
shares issued by a new company, FrontierPlace.Com, a Nevada corporation. This
wholly-owned subsidiary will operate proprietary software and
copyrighted bingo programs over the Internet. This company will also
provide a television network with programs promoting the Internet bingo
and shopping website and will be characterized as a broadcast Internet
service company.
e)In February 2000, they issued 200,000 shares of restricted stock
for the origination of a $150,000 loan from two parties (the "Holder")
which will bear interest at 10.00% per annum. Principal and interest
payable on 2/7/01 or demand of the Holder and loan is secured by all
Company assets. Note is repayable at the option of the Holder in cash or
upon exercise of stock options granted in February 2000 for 300,000
shares at $.50 per share.
f)On January 12, 2000, the Company issued 100,000 shares
of restricted common stock to an individual in consideration of a $5,000
cash payment and financial marketing services valued at $7,500 ($.12
per share).
g)Before March 30, 2000, the Company canceled 723,500 shares
of common stock held by various individuals for non-performance of
services. This cancellation has been retroactively reflected as of
December 31, 1999.
h)On October 2000 the Company split its common stock on a 2 for 1
basis.
i)In November 2000 the Company agreed to merge with Valencia
Entertainment International, LLC (VEI) in a reverse acquisition
transaction whereby 75,709,965 million new shares will be issued to VEI
for its net assets which approximate $6 million.
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
We have reviewed the accompanying consolidated balance sheet,
statement of operations, stockholders' equity, and cash flows of SBI
Communications, Inc., and subsidiaries as of September 30, 2000, and
for the three-months and nine-months period then ended. These financial
statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope than
an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such as opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be
conformity with generally accepted accounting principles.
/s/ Jay J. Shapiro, CPA P.C.
JAY J. SHAPIRO, C.P.A.
A professional corporation
December 21, 2000
Encino, California
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited) (Audited)
Sept. 30, Dec. 31,
2000 1999
---- ----
ASSETS
Current assets:
Cash $ 22,541 $ -0-
Inventory 20,500
-------- --------
44,541 -0-
Property and equipment, at real
sale value: $4,015,000 $ 3,940,000
Other assets:
Fixed Assets: 20,500 -0-
------------ ------------
$4,080,041 $ 3,940,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to trust managed by a
shareholder $ 150,000 $ 150,000
Mortgage note payable 1,050,000 1,050,000
Equipment note payable current portion 131,181 131,181
Accrued salaries due to principal
shareholder (Note 2) 550,000 550,000
Advances due to principal shareholder 460,253 95,136
Accrued interest payable 299,000 199,000
Accounts Payable 76,000 58,000
---------- ----------
Total liabilities 2,716,434 2,233,317
Stockholders' equity:
Preferred stock, par value $5.00;
10,000,000 shares authorized;
43,000 and 153,000 shares issued and
outstanding at September 30, 2000 215,000 765,000
Common stock, par value $.001; 40,000,000
shares authorized; 12,323,878 and 9,693,878
shares issued and outstanding September 30, and
December 31, 1999 6,181 4,846
Paid in capital 4,175,039 3,477,604
Accumulated deficit (3,032,593) (2,540,767)
------------ -------------
1,363,607 1,706,683
$ 4,080,041 $ 3,940,000
============= ==============
See accompanying notes to consolidated financial statements.
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
Nine Months Ended Sept. 30, Three Months Ended Sept. 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Revenues $ -0- $ -0- $ -0- -0-
Expenses:
General
and
administrative 289,335 98,000 112,188 33,500
Website Development 102,491 -0- 38,000 -0-
Interest and
finance expenses 100,000 120,000 35,000 40,000
---------- -------- --------- --------
491,826 218,000 185,188 73,000
============ ======== ========= ========
Net loss ($ 491,826) ($ 218,000) ($185,188) ($73,000)
=========== ========= ========= ========
Net loss per share $ (0.04) $ (0.02) $ (0.01) $ (0.00)
=========== ======== ========= =========
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Additional
Common Preferred Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
Balance
December 31,
1999 9,693,878 $4,846 153,000 $765,000 $3,477,604 ($2,540,767)
Net loss for
9 months
ended
Sept. 30, 2000:
(405,576)
Shares Issued
for services: 950,000 475 85,775 (86,250)
shares Issued
for asset: 180,000 90 17,410
Shares Issued
for cash: 400,000 200 44,800 45,000
--------- -------- -------- --------- ----------- ------------
conversion
of prefered
stock 1,100,000 550 (110,000)(550,000) 549,450
--------- -------- -------- --------- ---------- ---------
12,323,878 $ 6,181 43,000 $215,000 $4,175,039 ($3,032,593)
See accompanying notes to consolidated financial statements
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
2000 1999
----- ------
Cash flows from operating activities:
Net (loss) ($ 491,826) ($218,000)
Adjustments to reconcile net loss to cash
provided (used) by operating activities:
Stock issued for services: 141,565 -0-
Increase in accounts payable: 120,000 218,000
Inventory 20,500
--------- -----------
Cash (used) by operating activities: (201,761) -0-
Cash flows from investing activities:
Renovation Costs (75,000) -0-
Purchase of fixed assets: (20,000) -0-
--------- ---------
Cash flow (used) by finanicing activities (95,000) -0-
Loans from shareholders/affiliates: 282,302 -0-
Sale of common stock 45,000 -0-
---------- ---------
Cash flows provided by
financing activities: 327,302 -0-
Net increase in cash 22,541 -0-
Cash at beginning of period: -0- -0-
--------- ---------
Cash at end of period: $ 22,541 $ -0-
============= ==========
Supplemental information:
Income taxes paid: $ -0- $ -
Interest paid $ -0- $ 24,311
============= ==========
Items not requiring use of cash:
Conversion of preferred stock $ 550,000 -0-
============ ==========
See accompanying notes to consolidated financial statements.
SBI COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
Note 1 - Selected disclosures
------------------------------
The accompanying unaudited consolidated financial statements,
which are for interim periods, do not included all disclosures provided in
the annual consolidated audited financial statements. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated audited financial statements and the footnotes thereto
contained in the Form 10-KSB for the year ended December 31, 1999 of
SBI Communications, Inc. (the "Company"), as filed with the Securities
and Exchange Commission. The September 30, 2000 financial
statement was derived from the unaudited consolidated financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (which are of a
normal recurring nature) necessary for a fair presentation of the financial
statements. The results of operations and cash flow for the three and
nine months ended September 30, 2000 and 1999 are not necessarily
indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reporting amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. In August 2000 the Company split its common stock 2
for 1. All financial data in these statements reflects the post-split basis.
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets
may not be recoverable. Determination of recoverability is based on and
estimate of undisclosed future cash flows resulting from the use of the
asset and its eventual disposition. Measurement of an impairment loss for
long-lived assets are based on the fair value of the asset. Long-lived
assets to be disposed of are reported at the lower of carrying amount or
fair value less costs to sell. Such policy has been applied to property
prior to September 30, 2000.
Note 2 - Related party transactions
-----------------------------------
The Company accrued salaries payable to the Company's
principal shareholder totaling $97,500 for the nine months ended
September 30, 1999 and no accrued salaries for 2000, respectively. All
amounts owed to the shareholder are payable on demand.
Note 3 - Net loss per share
---------------------------
The Company's net loss per share was calculated using
13,770,878 weighted average shares outstanding for ended September
30, 2000 and 11,140,878 for September 30, 1999 on a post split basis.
Although convertible preferred stock is a common stock equivalent, with
a conversion rate of each specific series of preferred share to common,
preferred stock conversion has not been included in the calculation of
earnings per share in that to do so would be antidilutive.
Note 4 - Mortgage
------------------
The company borrowed $1,050,000 to pay State of Alabama, on
behalf of Cranberry-Magnetite/Broadway Gas Company, the previous
owner tax liability. The Company is delinquent on the repayment of this
obligation.
Note 5 - Property and equipment
--------------------------------
Property and equipment consists of the following at September
30, 2000
Land $ 4,500,000
Building 2,575,000
Reserve for impairment (3,060,000)
------------
$ 4,015,000
NOTE 6 - Subsequent Events
--------------------------
In October 2000, the Company entered into an agreement to
issue 75,710,000 shares of common stock to acquire 100% ownership
Valencia Entertainment International LLC ("Valencia"). This transaction
will be treated as a reverse acquisition merger for accounting purposes.
If the transaction would have taken place as of January 1, 2000, the
Company's proforma consolidated net assets would be $10,221,168 the
shares outstanding 88,034,843 net loss for nine months ended September
30, 2000 of $861,495, and net loss per share of $0.00.
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER
by and between SBI Communications, Inc., a Delaware corporation and Valencia
Entertainment Acquisition Corporation, a Delaware corporation on the one hand
and
Valencia Entertainment International, LLC, a California limited liability
company
and
Valencia Members on the other hand
Dated as of October 16, 2000
TABLE OF CONTENTS
PAGE
AGREEMENT AND PLAN OF MERGER
RECITALS
AGREEMENT
1. THE MERGER
1.1 Surviving Corporation; Effective Time
1.2 Articles of Incorporation and Bylaws
1.3 Directors...
1.4 Conversion of Shares
1.5 Fractional Shares
1.6 Stock Certificates
1.7 Closing
2. REPRESENTATIONS AND WARRANTIES OF VALENCIA AND
THE VALENCIA MEMBERS
2.1 Organization
2.2 Capitalization of Valencia
2.3 Subsidiaries and Investments
2.4 Financial Statements
2.5 Liabilities
2.6 Absence of Material Changes
2.7 Litigation
2.8 Title to Assets
2.9 Contracts and Undertakings
2.10 Transactions with Affiliates, Managers and Members
2.11 No Conflict
2.12 Authority
2.13 Compliance with Law
2.14 Securities Laws
2.15 Tax Matters
2.16 Salaries
2.17 Accrued Compensation
2.18 Employee Benefit Plans
2.19 Insurance
2.20 No Broker
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SUB
3.1 Organization
3.2 Capitalization of the Company
3.3 Subsidiaries and Investments
3.4 Liabilities
3.5 Litigation
3.6 Title to Assets
3.7 Contracts and Undertakings
3.8 Transactions with Affiliates, Directors and Stockholders
3.9 No Conflict
3.10 Authority
3.11 Compliance with Law
3.12 Tax Matters
3.13 Salaries
3.14 Accrued Compensation
3.15 Employee Benefit Plans
3.16 No Broker
4. COVENANTS AND AGREEMENTS OF THE PARTIES EFFECTIVE PRIOR TO CLOSING
4.1 Corporate Examinations and Investigations
4.2 Cooperation; Consents
4.3 Conduct of Business
4.4 Litigation
4.5 Notice of Default
5. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
6. CONDITIONS TO CLOSING
6.1 Conditions to Obligation of Valencia and Valencia Members
(a) Representations and Warranties of Company to be True
(b) No Legal Proceedings
(c) Statutory Requirements
(d) Stockholders Agreement
(e) Officer's Certificate
(f) Legal Fees
(g) Certificate of Amendment Filed
6.2 Conditions to Obligations of Company.
(a) Representations and Warranties of Valencia and the
Valencia Members to be True
(b) No Legal Proceedings
(c) Statutory Requirements
(d) Employment Agreement
(e) Certain Releases
(f) Stockholders Agreement
(g) Certain Other Conditions
(h) Members' Certificate
(i) Manager's Certificate
(j) Accounting and Auditing Fees
(k) Certificate of Amendment Filed
7. INDEMNIFICATION
7.1 Indemnification by the Valencia Members
7.2 Indemnification by the Company
7.3 Computation of Losses
7.4 Notice to Indemnifying Party
7.5 Defense by Indemnifying Party
8. MISCELLANEOUS
8.1 Further Assurances
8.2 Expenses of Sale
8.3 Use and Confidentiality
8.4 Notices
8.5 Parties in Interest
8.6 Entire Agreement, Amendments
8.7 Headings, Etc.
8.8 Pronouns
8.9 Counterparts
8.10 Governing Law
8.11 Attorneys' Fees
SCHEDULES
Schedule 1.5 Conversion of Shares
Schedule 2.5 Liabilities
Schedule 2.7 Litigation
Schedule 2.8 Title to Assets
Schedule 2.9 Contracts and Undertakings
Schedule 2.10 Transactions with Affiliates, Managers and
Members
Schedule 2.11 No Conflict
Schedule 2.13 Compliance with Law
Schedule 2.14 Legend
Schedule 2.16 Salaries
Schedule 2.17 Accrued Compensation
Schedule 2.18 Employee Benefit Plans
Schedule 3.3 Subsidiaries and Investments
Schedule 3.4 Liabilities
Schedule 3.6 Litigation
Schedule 3.7 Title to Assets
Schedule 3.8 Contracts and Undertakings
Schedule 3.9 Transactions with Affiliates, Directors and
Stockholders
Schedule 3.14 Salaries
Schedule 3.15 Accrued Compensation
Schedule 3.16 Employee Benefit Plans
EXHIBITS
Exhibit A California Certificate of Merger
Exhibit B Certificate of Amendment
Exhibit C Delaware Certificate of Merger
Exhibit D Articles of Organization
Exhibit E Operating Agreement
Exhibit F Stockholders Agreement
Exhibit G Employment Agreement
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is
dated as of October 16 2000, by and between SBI Communications, Inc.,
a Delaware corporation (the "Company"), and Valencia Entertainment
Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of the Company ("Sub"), on the one hand; and Valencia
Entertainment International, LLC, a California limited liability company
("Valencia"), and each of the members of Valencia set forth on the
signature page hereto (collectively, the "Valencia Members"), on the
other hand.
RECITALS
A.The Company, Sub and Valencia have each determined to
engage in the transactions contemplated hereby (collectively, the
"Transaction") pursuant to which Sub will merge with and into Valencia,
with Valencia being the surviving limited liability company (the
"Merger"), and the outstanding membership interests of Valencia shall be
converted into shares of the Company's common stock in the manner
herein described;
B.The respective Boards of Directors or members, as the case may
be, of the Company, Sub and Valencia have each approved the Merger,
the Transaction, this Agreement, and the California Certificate of Merger
and the Delaware Certificate of Merger, both referred to in Section 1.1(b)
hereof, and the Valencia Members and the Company, as the sole
stockholder of Sub, have each approved the Merger, the Transaction, this
Agreement, and the California Certificate of Merger and the Delaware
Certificate of Merger, both referred to in Section 1.1(b) hereof, and the
parties intend that this Agreement constitutes a plan of reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"), and the regulations promulgated
thereunder; and
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and in reliance upon the representations and
warranties hereinafter set forth, the parties hereto hereby agree as
follows:
1.THE MERGER
1.1SURVIVING ENTITY; EFFECTIVE TIME.
(a)At the Closing (as hereinafter defined), subject to the terms and
conditions of this Agreement, Sub shall be merged with and into
Valencia in accordance with Sections 1113 and 17551 of the California
Corporations Code (the "CCC"), whereupon the separate existence of
Sub shall cease, and Valencia shall be the surviving limited liability
company. It is intended by the parties hereto that the Transaction shall
constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code and the parties hereto hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
(b)Simultaneously with the Closing, Valencia and Sub shall file a
Limited Liability Company Certificate of Merger (the "California
Certificate of Merger"), in the form attached hereto as Exhibit A, in the
office of the Secretary of State of the State of California in accordance
with the CCC. The Merger shall become effective at such time as the
California Certificate of Merger is duly filed in California (the date of
such filing being hereinafter referred to as the "Effective Date" and the
time of such filing being hereinafter referred to as the "Effective Time");
provided, however, that the California Certificate of Merger shall not be
filed until the Company has filed a Certificate of Amendment to the
Certificate of Incorporation of the Company (the "Certificate of
Amendment"), substantially in the form of Exhibit __ hereto, with the
Delaware Secretary of State. On the Effective Date a certificate of
merger (the "Delaware Certificate of Merger"), in the form attached
hereto as Exhibit B, shall be filed with the Secretary of State of the State
of Delaware in accordance with the Delaware General Corporation Law.
From and after the Effective Time, Valencia shall possess all the rights,
privileges, powers and franchises and be subject to all of the restrictions,
disabilities and duties of both Valencia and Sub, as provided under the
CCC.
1.2ARTICLES OF ORGANIZATION AND OPERATING
AGREEMENT. The Articles of Organization and Operating Agreement
of Valencia shall be amended and restated effective as of the Effective
Time in the forms attached hereto as Exhibits ___ and ___, respectively.
1.3DIRECTORS. From and after the Effective Time, until
successors are duly elected and qualified in accordance with applicable
law, the directors of the Company shall be the same directors of the
Company who are in office immediately preceding the Effective Time.
1.4OFFICERS. From and after the Effective Time, until
successors are duly appointed and qualified in accordance with
applicable law, the officers of the Company immediately after the
Effective Time shall be the officers of Valencia.
1.5CONVERSION OF SHARES. As of the Effective Time, by
virtue of the Merger, automatically and without any action on the part of
any holder thereof:
(a)Each share of common stock, par value $0.01 per share, of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into a 0.1% fully paid and nonassessable membership interest
of Valencia ("Valencia Membership Interest") and the Company shall be
admitted as the sole member of Valencia.
(b)Each Class A Valencia Membership Interest outstanding
immediately prior to the Effective Time shall be converted into shares of
the Company's common stock, par value $0.001 per share ("Company
Shares"), at the rate of 378,549.82 Company Shares for each one percent
(1%) Class A Valencia Membership Interest. Each Class B Valencia
Membership Interest outstanding immediately prior to the Effective Time
shall be converted into Company Shares, at the rate of 378,549.82
Company Shares for each one percent (1%) Class B Valencia
Membership Interest. Each Valencia Member shall be entitled to receive
the number of Company Shares set forth on Schedule 1.5 attached
hereto, and, collectively, the Valencia Members shall be entitled to
receive an aggregate of 75,709,965 Company Shares.
1.6FRACTIONAL SHARES. Fractional shares of the Company
shall not be issued in connection with the Company Shares, but any
fractional shares shall be rounded to the nearest whole share. No cash
shall be issued in lieu of any fractional shares.
1.7STOCK CERTIFICATES.
(a)At the Effective Time, the Valencia Members shall each be
entitled to receive one or more certificates representing the number of
shares of Company Shares to which each such Valencia Member is
entitled pursuant to the provisions of Section 1.5(b) hereof.
(b)Each Valencia Membership Interest converted into
Company Shares shall, by virtue of the Merger and without any action on
the part of the holder thereof, cease to be outstanding, be cancelled and
retired and cease to exist. As of the Effective Time, by virtue of the
Transaction, each Valencia Member shall thereafter cease to possess any
rights with respect to each such Valencia Membership Interest, except
the right to receive the number of Company Shares as provided by
Section 1.5(b) hereof.
(c)All Company Shares delivered to the Valencia
Members in respect of the Valencia Membership Interests in accordance
with the terms of this Agreement shall be deemed to have been delivered
in full satisfaction of all rights pertaining to such Valencia Membership
Interests.
1.8CLOSING. Subject to the satisfaction of the conditions
precedent specified in Section 6 hereof, the closing of the Transaction
shall take place at 11:00 a.m. (Los Angeles time) at the offices of Pollet
& Richardson, a Law corporation, 10900 Wilshire Blvd., Los Angeles,
CA 90024, on or before ________, 2000 or on such other date as may be
mutually agreed upon by the parties (the "Closing").
2.REPRESENTATIONS AND WARRANTIES OF VALENCIA
AND THE VALENCIA MEMBERS
Valencia and the Valencia Members hereby represent and warrant to the
Company as follows:
2.1ORGANIZATION.
(a)Valencia is a limited liability company, duly organized, validly
existing, and in good standing under the laws of the State of California.
Valencia has the power and authority to carry on its business as presently
conducted; and Valencia is qualified to do business in all jurisdictions
where the failure to be so qualified would have a material adverse effect
on its business.
(b)The copies of the charter documents of Valencia, including but
not limited to the Articles of Organization and the Amended and
Restated Operating Agreement of Valencia, heretofore furnished to the
Company, are complete and correct copies thereof as amended and in
effect immediately prior to the Effective Time.
2.2CAPITALIZATION OF VALENCIA.
(a)The capital structure of Valencia consists of Class A
and Class B Membership Interests, and one hundred percent (100%) of
such Class A and B Membership Interests are presently, and will be
immediately prior to the Closing, issued and outstanding. All of the
issued and outstanding Valencia Membership Interests are duly
authorized, validly issued, fully paid and nonassessable and are free from
any liens, claims, charges, security interests or other encumbrances. The
Valencia Members are the sole beneficial and record owners of the
Valencia Membership Interests, and such Valencia Members have as of
the date hereof, and will have as of the Effective Time, the unqualified
right to transfer and dispose of such Valencia Membership Interests.
(b)There are no outstanding options, warrants or rights of any kind
to acquire any membership interests, economic interests or other
securities of Valencia, whether direct or indirect, derivative or otherwise.
2.3SUBSIDIARIES AND INVESTMENTS. Except as set forth in
Schedule 2.3 attached hereto, Valencia does not own any capital stock or
have any interest of any kind whatsoever in any corporation, partnership,
or other form of business organization.
2.4FINANCIAL STATEMENTS. The reviewed balance sheets of
Valencia as of September 30, 2000 and reviewed statements of
operations and cash flows for the 9 months ended September30, 2000,
the audited balance sheets of Valencia as of December 31, 1999 and
audited statements of operations and cash flows for the 12 months ended
December 31, 1999, and the audited balance sheets as of December 31,
1998 and audited statements of operations and cash flows for the 12
months ended December 31, 1998 (collectively, the "Valencia Financial
Statements") (a) are complete and correct in all material respects, (b)
were prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods indicated, and (c)
fairly and accurately present the financial condition and results of
operations of Valencia as of the relevant dates thereof and for the periods
covered thereby.
2.5LIABILITIES. All of the liabilities of any nature whatsoever,
contingent or otherwise, of Valencia as of the date hereof are accurately
described in detail and quantified (both individually and in the
aggregate) in Schedule 2.5 attached hereto.
2.6ABSENCE OF MATERIAL CHANGES. Since December 31,
1999, there has not been:
(a)any material adverse change in the condition (financial or
otherwise) of the properties, assets, liabilities or business of Valencia,
except changes in the ordinary course of business which, individually
and in the aggregate, have not had a material adverse effect on the
business, operations, affairs or financial condition of Valencia or its
properties or assets.
(b)any redemption, purchase or other acquisition of any
membership or economic interest of Valencia or the granting, issuance or
execution of any rights, warrants, options or commitments by Valencia
relating to any membership or economic interest of Valencia.
2.7LITIGATION. Except as set forth on Schedule 2.7 attached
hereto, there is no claim, proceeding, litigation or investigation, whether
civil or criminal in nature, pending or threatened against Valencia or any
of its affiliates in any court or by or before any governmental body or
agency, including without limitation any claim, proceeding or litigation
for the purpose of challenging, enjoining or preventing the execution,
delivery or consummation of the Transaction and this Agreement.
Valencia is not subject to any order, judgment, decree, stipulation or
consent or any agreement with any governmental body or agency that
affects its business or operations.
2.8TITLE TO ASSETS. Except as set forth on Schedule 2.8
attached hereto, Valencia has good and marketable title to all of the
assets and properties now carried on its books including those reflected
in the most recent balance sheet contained in the Valencia Financial
Statements, free and clear of all liens, claims, charges, security interests
or other encumbrances, except as described in the Valencia Financial
Statements or arising thereafter in the ordinary course of business (none
of which will be material).
2.9CONTRACTS AND UNDERTAKINGS. Except as set forth on
Schedule 2.9 attached hereto, Valencia has no contracts, agreements,
leases, licenses, arrangements, commitments or other undertakings
(collectively the "Valencia Contracts") to which it is a party or to which
it or its property is subject. Except as set forth on such Schedule 2.9
attached hereto, Valencia is not in material default under any of the
Valencia Contracts and no other party to any Valencia Contract is in
default thereunder nor does there exist any condition or event which,
after notice or lapse of time or both, would constitute a default by any
party to any such Valencia Contract.
2.10TRANSACTIONS WITH AFFILIATES, MANGAGERS AND
MEMBERS. Except as set forth on Schedule 2.10 attached hereto, there
are no contracts, agreements, arrangements or other transactions between
Valencia and any officer, manager or member of Valencia, or any
corporation or other entity owned or controlled, directly or indirectly, by
any such officer, manager or member, a member of any such officer,
manager or member's family, or any affiliate of any such officer,
manager or member.
2.11NO CONFLICT. Except as set forth on Schedule 2.11 attached
hereto, the execution and delivery of this Agreement and the
consummation of the Transaction will not conflict with or result in a
breach of any term or provision of, or constitute a default under, the
charter documents of Valencia or any agreement, contract or instrument
to which Valencia or any of the Valencia Members is a party or by which
any of them or any of their respective assets are bound.
2.12AUTHORITY. Valencia and each of the Valencia Members has
full power and authority to enter into this Agreement and to carry out the
Transaction. The execution and delivery of this Agreement and the
consummation of the Transaction have been duly authorized and
approved by all of the Members and the Manager(s) of Valencia and no
other corporate or other proceedings on the part of Valencia or the
Valencia Members are necessary to authorize this Agreement and the
Transaction.
2.13COMPLIANCE WITH LAW. Except as set forth on Schedule
2.13 attached hereto, Valencia has in all material respects complied with
and it is now in all material respects in compliance with, all federal, state
and local laws applicable to it. The Valencia Membership Interests were
issued in compliance with all state and federal securities laws.
2.14SECURITIES LAWS. The Valencia Members acknowledge that
the Company Shares are not being registered under the Securities Act of
1933, as amended (the "Securities Act"), on the ground that the offer and
sale of the Company Shares are exempt from the registration provisions
of Section 5 of the Securities Act pursuant to Section 4(2) thereof, as
transactions by an issuer not involving any public offering, and/or may
be deemed not to involve an offer or sale within the meaning of Section
5 of the Securities Act pursuant to Regulation D promulgated thereunder,
and that the Company Shares may not be resold in any transaction
subject to Section 5 of the Securities Act unless registered or an
exemption from registration is available for such sale, and that the
certificates representing the Company Shares will bear a legend to that
effect, substantially in the form set forth on Schedule 2.14 attached
hereto. Each of the Valencia Members is acquiring the Company Shares
for investment purposes only and not with a view to distribution or resale
thereof.
2.15TAX MATTERS.
(i) Each of Valencia and the Valencia Members has filed or caused to be
filed with the appropriate Federal, state, county, local and foreign
governmental agencies or instrumentalities all tax returns and tax reports
required to be filed, and all taxes, assessments, fees and other
governmental charges in respect of Valencia have been fully paid when
due (subject to any extensions filed).
(ii) There is not pending nor, to the best knowledge of each of
Valencia and the Valencia Members, is there any threatened Federal,
state or local tax audit of the Valencia or any Valencia Member in
respect of Valencia. There is no agreement with any Federal, state or
local taxing authority by the Valencia or any Valencia Member that may
affect the subsequent tax liabilities of Valencia.
(iii) Without limiting the foregoing: (a) the Valencia Financial
Statements include adequate provisions for all taxes, assessments, fees,
penalties and governmental charges which have been or in the future
may be assessed against Valencia or any Valencia Member in respect of
Valencia with respect to the period ended September 30, 2000 and all
periods prior thereto; and (b) neither Valencia nor any Valencia Member
is, on the date hereof, liable for taxes, assessments, fees or governmental
charges in respect of Valencia.
2.16SALARIES. Schedule 2.16 attached hereto sets forth a true and
complete list, as of the date of this Agreement, of all of the persons who
are employed by Valencia, together with their compensation (including
bonuses) for the calendar year ended December 31, 1999, and the rate of
compensation (including bonus arrangements) currently being paid to
each such employee.
2.17ACCRUED COMPENSATION. Valencia does not have any
outstanding liability for payment of wages, vacation pay (whether
accrued or otherwise), salaries, bonuses, pensions or contributions under
any labor or employment contract, whether oral or written, or by reason
of any past practices with respect to such employees based upon or
accruing with respect to services of present or former employees of the
Company or Sub, except as disclosed in Schedule 2.17 attached hereto.
2.18EMPLOYEE BENEFIT PLANS. Valencia does not have any
pension plan, profit sharing plan or employee's savings plan, and is not
otherwise subject to any applicable provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA") except as set forth
on Schedule 2.18 attached hereto.
2.19INSURANCE. Schedule 2.19 contains a description of each
insurance policy maintained by Valencia (or which names Valencia as an
additional insured) with respect to its properties, assets and business, or
with respect to the life of the Manager or any officer of Valencia, and
each such policy is presently in full force and effect. The Company is
not in default with respect to any insurance policy maintained by it, and,
to the Company's Knowledge, there is no default with respect to any
insurance policy that names the Company as an additional insured.
2.20NO BROKER. All negotiations relative to this Agreement and
the Transaction have been carried on directly by Valencia and the
Valencia Members with the Company without the intervention of any
person on behalf of Valencia or any Valencia Member in such manner as
to give rise to any valid claim against any of the parties hereto for a
brokerage commission, finder's fee or other like payment.
3.REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND SUB
Each of the Company and Sub hereby represents and warrants,
individually as to itself, to the Valencia Members as follows:
3.1ORGANIZATION
(a)Except as set forth on Schedule 3.1 attached hereto,
each of the Company and Sub is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware,
has the corporate power and authority to carry on its business as
presently conducted, and is qualified to do business in all jurisdictions
where the failure to be so qualified would have a material adverse effect
on the business of the Company or Sub, as the case may be.
(b)The copies of the Certificate of Incorporation of the
Company and Sub, and the Bylaws of the Company and Sub heretofore
furnished to Valencia are complete and correct copies of the Certificate
of Incorporation and the Bylaws, as amended, of the Company and Sub
as in effect on the date hereof.
3.2CAPITALIZATION OF THE COMPANY. Upon filing the
Certificate of Amendment, the authorized capital stock of the Company
will consist of One Hundred Million (100,000,000) shares of common
stock, par value $0.001 per share, of which Twelve Million Three
Hundred Twenty-Four Thousand Eight Hundred Seventy-Eight
(12,324,878) shares are issued and outstanding as of the date of the date
hereof; and Ten Million (10,000,000) shares of Preferred Stock, par
value, upon filing the Certificate of Amendment, $.001 per share, of
which Sixty-Three Thousand (63,000) shares are issued and outstanding
as of the date hereof. All of the issued and outstanding shares are duly
authorized, validly issued, fully paid and non-assessable, and, at the
Closing, the Company Shares will be duly authorized, validly issued,
fully paid and non-assessable. Except for such outstanding shares, there
are no outstanding shares of capital stock or other securities or other
equity interests of the Company or options, warrants or rights of any kind
to acquire such stock or other securities of the Company.
3.3SUBSIDIARIES AND INVESTMENTS. Except as set forth on
Schedule 3.3 attached hereto, the Company does not own directly or
indirectly, any capital stock or have any interest in any corporation,
partnership or other form of business organization.
3.4LIABILITIES. Except as set forth on Schedule 3.4 attached
hereto or otherwise contemplated in this Agreement, the liabilities of the
Company will not exceed __ as of the Closing. As used herein, liabilities
shall mean liabilities of any nature whatsoever, contingent or otherwise.
3.5LITIGATION. Except as set forth on Schedule 3.5 attached
hereto, there is no litigation, proceeding or investigation pending or, to
the knowledge of the Company or Sub, as the case may be, threatened
against the Company or Sub, as the case may be, affecting any of its
properties or assets that might result, either in any case or in the
aggregate, in any material adverse change in the business, operations,
affairs or financial condition of the Company or Sub, as the case may be,
or their respective properties or assets, or that might call into question the
validity of this Agreement, or any action taken or to be taken pursuant
hereto.
3.6TITLE TO ASSETS. Except as set forth on Schedule 3.6
attached hereto, each of the Company and Sub has good and marketable
title to all of its assets and properties now carried on its books including
those reflected in the balance sheet contained in the Company Financial
Statements, free and clear of all liens, claims, charges, security interests
or other encumbrances, except as described in the Company Financial
Statements or arising thereafter in the ordinary course of business (none
of which will be material).
3.7CONTRACTS AND UNDERTAKINGS. Except as set forth on
Schedule 3.7 attached hereto, the Company or Sub, as the case may be,
has no contracts, agreements, leases, licenses, arrangements,
commitments or other undertakings (collectively, the "Company
Contracts") to which the Company or Sub, as the case may be, is a party
or to which it or its property is subject. Except as set forth on Schedule
3.7 attached hereto, the Company or Sub, as the case may be, is not in
material default, or alleged to be in material default, under any Company
Contract and, to the knowledge of the Company or Sub, as the case may
be, no other party to any Company Contract to which the Company or
Sub, as the case may be, is a party is in default thereunder nor, to the
knowledge of the Company or Sub, as the case may be, does there exist
any condition or event which, after notice or lapse of time or both, would
constitute a default by any party to any such Company Contracts.
3.8TRANSACTIONS WITH AFFILIATES, DIRECTORS AND
STOCKHOLDERS. Except as set forth on Schedule 3.8 attached hereto,
there are no contracts, agreements, arrangements or other transactions
between the Company or Sub, as the case may be, and any officer,
director, or 5% stockholder, a member of any such officer, director or
5% stockholder's family, or any affiliate of any such officer, director or
5% stockholder.
3.9NO CONFLICT. The execution and delivery of this Agreement
and the consummation of the Transaction will not conflict with or result
in a breach of any term or provision of, or constitute a default under, the
Certificate of Incorporation or Bylaws of the Company or Sub, as the
case may be, or any agreement, contract or instrument to which the
Company or Sub, as the case may be, is a party or by which it or any of
their respective assets are bound.
3.10AUTHORITY. Each of the Company and Sub has full power
and authority to enter into this Agreement and to carry out the
Transaction. The execution and delivery of this Agreement, the
consummation of the Transactions and the issuance of the Company
Shares in accordance with the terms hereof, have been duly authorized
and approved by the Board of Directors of the Company and Sub and no
other corporate proceedings on the part of the Company or Sub are
necessary to authorize this Agreement, the Transaction and the issuance
of the Company Shares in accordance with the terms hereof.
3.11COMPLIANCE WITH LAW. To the knowledge of Company
or Sub, as the case may be, each of the Company and Sub has in all
material respects complied with and it is now in all material respects in
compliance with, all Federal, State and local laws applicable to the
Company or Sub, as the case may be. Except for the issuance of the
Company Shares to the Valencia Members hereunder, all outstanding
securities have been issued in full compliance in all material respects
with all state and federal securities laws. The securities filings of the
Company contain no material misstatement or fail to state a material fact
necessary to make the statements made, in light of the circumstances
under which they were made, not misleading.
3.12TAX MATTERS.
(i) Except as to taxes contested in good faith, each of the Company and
Sub has filed or caused to be filed with the appropriate Federal, state,
county, local and foreign governmental agencies or instrumentalities all
tax returns and tax reports required to be filed, and all taxes, assessments,
fees and other governmental charges have been fully paid when due
(subject to any extensions filed).
(ii) There is not pending nor, to the best knowledge of each of
the Company and Sub, is there any threatened Federal, state or local tax
audit of the Company or Sub. There is no agreement with any Federal,
state or local taxing authority by the Company or Sub that may affect the
subsequent tax liabilities of Valencia.
(iii) Without limiting the foregoing: (a) the Company Financial
Statements include adequate provisions for all taxes, assessments, fees,
penalties and governmental charges which have been or in the future
may be assessed against the Company or Sub with respect to the period
then ended and all periods prior thereto; and (b) neither the Company nor
Sub is, on the date hereof, liable for taxes, assessments, fees or
governmental charges.
3.13SALARIES. Schedule 3.13 attached hereto sets forth a true and
complete list, as of the date of this Agreement, of all of the persons who
are employed by the Company and Sub, together with their
compensation (including bonuses) for the calendar year ended December
31, 1999, and the rate of compensation (including bonus arrangements)
currently being paid to each such employee.
3.14ACCRUED COMPENSATION. The Company and Sub do not
have any outstanding liability for payment of wages, vacation pay
(whether accrued or otherwise), salaries, bonuses, pensions or
contributions under any labor or employment contract, whether oral or
written, or by reason of any past practices with respect to such
employees based upon or accruing with respect to services of present or
former employees of the Company or Sub, except as disclosed in
Schedule 3.14 attached hereto.
3.15EMPLOYEE BENEFIT PLANS. The Company and Sub do not
have any pension plan, profit sharing plan or employee's savings plan,
and neither is otherwise subject to any applicable provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") except as
set forth on Schedule 3.15 attached hereto.
3.16NO BROKER. All negotiations relative to this Agreement and
the Transaction have been carried on directly by the Company and Sub
with Valencia and the Valencia Members without the intervention of any
person on behalf of the Company or Sub in such manner as to give rise to
any valid claim against any of the parties hereto for a brokerage
commission, finder's fee or other like payment.
4.COVENANTS AND AGREEMENTS OF THE PARTIES
EFFECTIVE PRIOR TO CLOSING
4.1CORPORATE EXAMINATIONS AND INVESTIGATIONS.
Prior to the Closing, each party shall be entitled, through its employees
and representatives, to make such investigations and examinations of the
books, records and financial condition of the Company, Sub and
Valencia as each party may request. In order that each party may have
the full opportunity to do so, the Company, Sub, each of the Valencia
Members and Valencia shall furnish each party and its representatives
during such period with all such information concerning the affairs of the
Company, Sub or Valencia as each party or its representatives may
reasonably request and cause the Company, Sub or Valencia and their
respective officers, managers, employees, consultants, agents,
accountants and attorneys to cooperate fully with each party's
representatives in connection with such review and examination and to
make full disclosure of all information and documents requested by each
party and/or its representatives. Any such investigations and
examinations shall be conducted at reasonable times and under
reasonable circumstances, it being agreed that any examination of
original documents will be at each party's premises, with copies thereof
to be provided to each party and/or its representatives upon request.
4.2COOPERATION; CONSENTS. Prior to the Closing, each
party shall cooperate with the other parties to the end that the parties
shall (i) in a timely manner make all necessary filings with, and conduct
negotiations with, all authorities and other persons the consent or
approval of which, or the license or permit from which is required for the
consummation of the Transaction and (ii) provide to each other party
such information as the other party may reasonably request in order to
enable it to prepare such filings and to conduct such negotiations.
4.3CONDUCT OF BUSINESS. Subject to the provisions hereof,
from the date hereof through the Closing, each party hereto shall (i)
conduct its business in the ordinary course and in such a manner so that
the representations and warranties contained herein shall continue to be
true and correct in all material respects as of the Closing as if made at
and as of the Closing and (ii) not enter into any material transactions or
incur any material liability not required or specifically contemplated
hereby, without first obtaining the written consent of the Company and
Sub on the one hand and Valencia on the other hand. Without the prior
written consent of the Company, Sub and Valencia, except as required or
specifically contemplated hereby, each party shall not undertake or fail to
undertake any action if such action or failure would render any of said
warranties and representations untrue in any material respect as of the
Closing.
4.4LITIGATION. From the date hereof through the Closing, each
party hereto shall promptly notify the representative of the other parties
(Valencia shall represent itself and the Valencia Members and the
Company shall represent itself and Sub) of any lawsuits, claims,
proceedings or investigations which after the date hereof are threatened
or commenced against such party or any of its affiliates or any officer,
director, employee, consultant, agent or shareholder thereof, in their
capacities as such, which, if decided adversely, could reasonably be
expected to have a material adverse effect upon the condition (financial
or otherwise), assets, liabilities, business, operations or prospects of such
party or any of its subsidiaries.
4.5NOTICE OF DEFAULT. From the date hereof through the
Closing, each party hereto shall give to the representative of the other
parties (Valencia shall represent itself and the Valencia Members and the
Company shall represent itself and Sub) prompt written notice of the
occurrence or existence of any event, condition or circumstance
occurring which would constitute a violation or breach of this Agreement
by such party or which would render inaccurate in any material respect
any of such party's representations or warranties herein.
5.SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS.
All representations, warranties and covenants of the parties hereto
contained herein shall survive the consummation of the Transaction and
remain in full force and effect until the expiration of the applicable
statute of limitations except (a) Sections 2.4 and 3.4 hereof which shall
not survive the Closing and (b) Section 2.5 hereof which shall remain in
full force and effect for a period of one year from the Closing.
6.CONDITIONS TO CLOSING
6.1CONDITIONS TO OBLIGATION OF VALENCIA AND
VALENCIA MEMBERS. The obligations of Valencia and the Valencia
Members under this Agreement shall be subject to each of the following
conditions:
(a)REPRESENTATIONS AND WARRANTIES OF
COMPANY TO BE TRUE. The representations and warranties of the
Company and Sub, as the case may be, herein contained shall be true in
all material respects at the Closing with the same effect as though made
at such time, except to the extent they expressly relate to an earlier date.
The Company and Sub, as the case may be, shall have performed in all
material respects all obligations and complied in all material respects, to
their respective actual knowledge, with all covenants and conditions
required by this Agreement to be performed or complied with by it at or
prior to the Closing.
(b)NO LEGAL PROCEEDINGS. No injunction or
restraining order shall be in effect prohibiting this Agreement, and no
action or proceeding shall have been instituted and, at what would
otherwise have been the Closing, remain pending before the court to
restrain or prohibit the Transaction.
(c)STATUTORY REQUIREMENTS. All statutory
requirements for the valid consummation by the Company or Sub, as the
case may be, of the Transaction shall have been fulfilled. All
authorizations, consents and approvals of all governments and other
persons required to be obtained by Company and Sub in order to permit
consummation by the Company or Sub, as the case may be, of the
Transaction shall have been obtained except as to any authorization,
consents and approvals that may be required for the issuance of the
Company Shares to the Valencia Members hereunder.
(d)STOCKHOLDERS AGREEMENT. The Company and the
Valencia Members shall have entered into a stockholders agreement
substantially in form of Exhibit F attached hereto (the "Stockholders
Agreement").
(e)OFFICER'S CERTIFICATE. The Company shall have
delivered to Valencia and the Valencia Members, an officer's certificate
to Valencia and the Valencia Members, in form and substance
reasonably satisfactory to Valencia and the Valencia Members, as to the
satisfaction of the foregoing conditions.
(f)CERTIFICATE OF AMENDMENT FILED. The Company
shall have filed the Certificate of Amendment with the Delaware
Secretary of State.
6.2CONDITIONS TO OBLIGATIONS OF COMPANY. The
obligation of the Company and Sub under this Agreement shall be
subject to the following conditions:
(a)REPRESENTATIONS AND WARRANTIES OF
VALENCIA AND THE VALENCIA MEMBERS TO BE TRUE. The
representations and warranties of Valencia and the Valencia Members
herein contained shall be true in all material respects as of the Closing
and shall have the same effect as though made at such time, except to the
extent they expressly relate to an earlier date. Valencia and the Valencia
Members shall have performed in all material respects all obligations and
complied in all material respects, with all covenants and conditions
required by this Agreement to be performed or complied with by them
prior to the Closing.
(b)NO LEGAL PROCEEDINGS. No injunction or restraining
order shall be in effect, and no action or proceeding shall have been
instituted and, at what would otherwise have been the Closing, remain
pending before the court to restrain or prohibit the Transaction.
(c)STATUTORY REQUIREMENTS. All statutory
requirements for the valid consummation by Valencia and the Valencia
Members of the Transaction shall have been fulfilled. All authorizations,
consents and approvals of all governments and other persons required to
be obtained by Valencia and the Valencia Members in order to permit
consummation by Valencia and the Valencia Members of the
Transaction shall have been obtained.
(d)EMPLOYMENT AGREEMENT. The Company shall
have entered into an employment agreement with Ronald Foster
substantially in the form of Exhibit G attached hereto.
(e)CERTAIN RELEASES. Each Valencia Member shall have
delivered to the Company and Valencia, an acknowledgment and release,
in form and substance reasonably satisfactory to the Company,
acknowledging that Valencia has no liabilities, debts or obligations of
any nature whatsoever to such Valencia Member, and fully and forever
releasing the Company and Valencia in respect thereof.
(f)STOCKHOLDERS AGREEMENT. The Company and the
Valencia Members shall have entered into a stockholders agreement
substantially in form of Exhibit F attached hereto.
(g)CERTAIN OTHER CONDITIONS. The conditions
contemplated by Sections 6.1(c), 6.1(d) and 6.1(f) hereof shall have been
satisfied.
(h)MEMBERS' CERTIFICATE. The Valencia Members shall
have delivered to the Company a certificate as to good title to the
Valencia Membership Interests owned by them and as to their waiver of
appraisal rights available under the CCC in respect of the Merger.
(i)MANAGER'S CERTIFICATE. Valencia shall have delivered
to the Company a manager's certificate in form and substance reasonably
satisfactory to the Company, as to the satisfaction of the foregoing
conditions.
(j)ACCOUNTING AND AUDITING FEES. Subject to
the billing statements having been submitted to Valencia for advance
review, Jay J. Shapiro, APC, shall have confirmed in writing that all
sums payable for services rendered through the Closing Date, to the
extent billed, have been paid in full.
(k)CERTIFICATE OF AMENDMENT FILED.
The Company shall have filed the Certificate of Amendment with the
Delaware Secretary of State.
7.INDEMNIFICATION.
7.1INDEMNIFICATION BY THE VALENCIA MEMBERS.
Provided the Company's claim therefor is instituted by written notice
within the time period specified in Section 5 hereof, except that notice
shall be deemed to have been given for the disputes referred to in
Schedule 2.5 attached hereto, the Valencia Members shall, jointly and
severally, indemnify, defend and hold harmless and in all respects make
whole the Company, its officers, directors, employees and agents and
each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, from
and against any and all claims, demands, liabilities, damages, judgments
and payments, including reasonable attorneys' fees ("Losses"), which
may be incurred or suffered by the Company or to which it may be
subject, which may arise out of or result from (i) any breach of or exist in
violation of any representation, warranty, covenant or agreement of
Valencia and the Valencia Members contained in this Agreement, or (ii)
the disputes referred to in Schedule 2.5 attached hereto.
7.2INDEMNIFICATION BY THE COMPANY. Provided the
claim therefor is instituted by written notice within the time period
specified in Section 5 hereof, the Company shall indemnify, defend and
hold harmless and in all respect make whole the Valencia Members from
and against any Losses which may be incurred or suffered by any such
party or to which any such party may be subject, which may arise out of
or result from any breach of or exist in violation of any representation,
warranty, covenant or agreement of the Company or Sub, as the case
may be, contained in this Agreement.
7.3COMPUTATION OF LOSSES. For purposes of calculating
any Losses suffered by an indemnified party pursuant to Sections 7.1 or
7.2 hereof, the amount of the Losses suffered by the indemnified party
shall be the net amount of damage so suffered after giving effect to any
insurance proceeds recovered with respect to such matter.
7.4NOTICE TO INDEMNIFYING PARTY. If any party (the
"Indemnified Party") receives notice of any claim or other
commencement of any action or proceeding with respect to which any
other party (or parties) (the "Indemnifying Party") is obligated to provide
indemnification pursuant to Sections 7.1 or 7.2 hereof, the Indemnified
Party shall promptly give the Indemnifying Party written notice thereof
which notice shall specify, if known, the amount or an estimate of the
amount of the Losses arising therefrom. Such notice shall be a condition
precedent to any liability of the Indemnifying Party for indemnification
hereunder. The Indemnified Party shall not settle or compromise any
claim by a third party for which it is entitled to indemnification
hereunder, without the prior written consent of the Indemnifying Party
(which shall not be unreasonably withheld or delayed) unless suit shall
have been instituted against it and the Indemnifying Party shall not have
taken control of such suit after notification thereof as provided in Section
7.5 hereof.
7.5DEFENSE BY INDEMNIFYING PARTY. In connection with
any claim giving rise to indemnity hereunder resulting from or arising
out of any claim or legal proceeding by a person who is not a party to
this Agreement, the Indemnifying Party at its sole cost and expense shall
assume the defense of any such claim or legal proceeding using counsel
of its choice (subject to the approval of the Indemnified Party, which
approval may not be unreasonably withheld or delayed). The
Indemnified Party shall be entitled to participate in the defense of any
such action, with its counsel and at its own expense; provided, however,
that if the Indemnified Party, in its sole reasonable discretion, determines
that there exists a conflict of interest between the Indemnifying Party (or
any constituent party thereof) and the Indemnified Party or that the
Indemnifying Party does not have sufficient financial resources to fully
defend the proceeding or to pay the claim or judgment, the Indemnified
Party (or any constituent party thereof) shall have the right to engage
separate counsel, the reasonable costs and expenses of which shall be
paid by the Indemnifying Party, but in no event shall the Indemnifying
Party be liable for the costs and expenses of more than one such separate
counsel. If the Indemnifying Party does not assume the defense of any
such claim or litigation resulting therefrom, the Indemnified Party may
defend against such claim or litigation, after giving notice of the same to
the Indemnifying Party, on such terms as the Indemnified Party may
deem appropriate, and the Indemnifying Party shall be entitled to
participate in (but not control) the defense of such action, with its
counsel and at its own expense.
8.MISCELLANEOUS
8.1FURTHER ASSURANCES. From time to time, at another
party's request and without further consideration, each of the parties will
execute and deliver to the requesting party such documents and take such
action as such other party may reasonably request in order to
consummate more effectively the Transaction.
8.2EXPENSES OF SALE. Except as otherwise provided herein,
whether or not the Transaction is consummated, each party shall bear its
direct and indirect expenses incurred in connection with the negotiation
and preparation of this Agreement and the consummation and
performance of the Transaction. Without limitation, such expenses shall
include the fees and expenses of all attorneys, brokers, investment
bankers, accountants, agents and finders and other professionals incurred
in connection herewith, acting on behalf of such party. The parties shall
indemnify each other against any claims, costs, losses, expenses or
liabilities arising from any claim of commissions, broker's fees, finder's
fees or other compensation in connection with the Transaction which
may be asserted by any person based on any agreement or arrangement
for payment by the other party.
8.3USE AND CONFIDENTIALITY. All of the information,
records, books, and data to which the parties are given access as set forth
herein shall be used by the parties solely for the purpose of confirming
the representations and warranties set forth herein. Subject to any
obligation to comply with (i) any law (ii) any rule or regulation of any
authority or securities exchange or (iii) any subpoena or other legal
process to make information available to the persons entitled thereto,
whether or not the Transaction shall be concluded, all information
obtained by any party about the other, and all of the terms and conditions
of this Agreement, shall be kept in confidence by each party, and each
party shall cause its stockholders, directors, trustees, officers, employees,
agents and attorneys to hold such information confidential. Such
confidentiality shall be maintained to the same degree as such party
maintains its own confidential information and shall be maintained until
such time, if any, as any such data or information either is, or becomes,
published or a matter of public knowledge; provided, however, that the
foregoing shall not apply to any information obtained by either party
through its own independent investigations of the other party or received
by such party from a third party not under any obligation to keep such
information confidential nor to any information obtained by such party
which is generally known to others engaged in the trade or business; and
provided, further, that, from and after the Closing, such party shall be
under no obligation to maintain confidential any such information
concerning the other party. If this Agreement shall be terminated for any
reason, each party shall return or cause to be returned to the other all
written data, information, files, records and copies of documents,
worksheets and other materials obtained by such party in connection with
the Transaction.
8.4NOTICES. All notices, requests and other communications
hereunder shall be in writing and shall be delivered by courier or other
means of personal service (including by means of a nationally
recognized courier service or professional messenger service), or sent by
telex or telecopy or mailed first class, postage prepaid, by certified mail,
return receipt requested, or by Federal Express or other reputable
overnight delivery service, in all cases, addressed:
TO VALENCIA OR VALENCIA MEMBERS:
26030 Avenue Hall
Studio 5
Valencia CA 91355
Tel: 661-257-8000
Fax: 661-257-1780
Attention: Vince Vellardita
TO THE COMPANY:
SBI Communications, Inc.
1239 South Glendale Avenue
Glendale, CA 91205
Tel: 818-550-6181
Fax: 818-550-6111
Attention: Ronald Foster
WITH A COPY TO:
Pollet & Richardson
10900 Wilshire Boulevard
Los Angeles, California 90024
Tel: 310-208-1182
Fax: 310-208-1154
Attention: Nimish Patel, Esq.
All notices, requests and other communications shall be deemed given on
the date of actual receipt or delivery as evidenced by written receipt,
acknowledgment or other evidence of actual receipt or delivery to the
address. In case of service by telecopy, a copy of such notice shall be
personally delivered or sent by registered or certified mail, in the manner
set forth above, within three (3) business days thereafter. Either party
hereto may from time to time by notice in writing served as set forth
above designate a different address or a different or additional person to
which all such notices or communications thereafter are to be given.
8.5PARTIES IN INTEREST. Except as otherwise expressly
provided herein, all the terms and provisions of this Agreement shall be
binding upon, shall inure to the benefit of and shall be enforceable by the
respective heirs, beneficiaries, personal and legal representatives,
successors and assigns of the parties hereto; provided, however, that no
assignment or transfer by any party of this Agreement or its rights or
obligations hereunder shall occur without the prior written consent of the
other parties hereto.
8.6ENTIRE AGREEMENT, AMENDMENTS. This Agreement,
including the Schedules, Exhibits and other documents and writings
referred to herein or delivered pursuant hereto, which form a part hereof,
contains the entire understanding of the parties with respect to this
subject matter. There are no restrictions, agreements, promises,
warranties, covenants or undertakings other than those expressly set forth
herein or therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter.
This Agreement may be amended only by a written instrument duly
executed by the parties or their respective permitted successors or
assigns.
8.7HEADINGS, ETC. The section and paragraph headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretations of this Agreement.
8.8PRONOUNS. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural,
as the identity of the person, persons, entity or entities may require.
8.9COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
8.10GOVERNING LAW. This Agreement shall be governed by the
laws of the State of California.
8.11ATTORNEYS' FEES. If any legal action or other proceeding is
brought for the enforcement of this Agreement or because of any dispute,
breach, default or claim hereunder, the successful or prevailing party
shall be entitled to recover reasonable attorneys' fees and other costs it
incurred in that action or proceeding, in addition to any other relief to
which it may be entitled.
EXHIBIT B
WRITTEN CONSENT OF THE MAJORITY STOCKHOLDERS OF SBI COMMUNICATIONS, INC.
IN LIEU OF MEETING
The undersigned, being the holders of at least a majority of the
outstanding capital stock of SBI Communications, Inc., a Delaware
corporation (the "Corporation"), acting pursuant to authority granted by
the Bylaws of the Corporation and Section 228(a) of the General
Corporation Law of the State of Delaware, do hereby adopt the following
resolutions by written consent as of October 16, 2000:
AMENDMENTS TO CERTIFICATE OF INCORPORATION
WHEREAS, it is proposed by the Corporation's Board of Directors that
the Corporation enter into an Agreement and Plan of Merger (the
"Merger Agreement"), by and between the Corporation and Valencia
Entertainment Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of the Corporation ("VAC"), on the one hand,
and Valencia Entertainment International, LLC, a California limited
liability company ("Valencia"), and its members, on the other hand,
whereby VAC would be merged with and into Valencia, with Valencia
being the surviving limited liability company (the "Merger");
WHEREAS, it is deemed to be in the best interests of the Corporation
and its stockholders that VAC be merged with and into Valencia, with
Valencia as the surviving limited liability company;
WHEREAS, pursuant to the Merger, it is proposed that the name of the
Corporation be changed to ValCom, Inc;
WHEREAS, in order effectuate the terms of the Merger, it is deemed to
be in the best interests of the Corporation and its stockholders to amend
the Corporation's Certificate of Incorporation to increase the
Corporation's aggregate number of authorized shares of common stock;
WHEREAS, it is deemed to be in the best interests of the Corporation
and its stockholders to decrease the par value of the Corporation's
Preferred Stock, from $5.00 to $0.001 per share;
NOW, THEREFORE, BE IT RESOLVED, that, effective upon the filing
with the Delaware Secretary of State of a Certificate of Amendment to
the Certificate of Incorporation of the Corporation (the "Certificate of
Amendment"), the article numbered FIRST of the Corporation's
Certificate of Incorporation be, and hereby is, amended in its entirety to
read as follows:
"The name of the Corporation (hereinafter called the "Corporation") is
ValCom, Inc."
RESOLVED FURTHER, that, effective upon the filing of the Certificate
of Amendment with the Delaware Secretary of State, the article
numbered FOURTH of the Corporation's Certificate of Incorporation be,
and hereby is, amended in its entirety to read as follows:
"The total number of shares of stock which the Corporation shall have
authority to issue is 110,000,000 shares, of which 10,000,000 shares
shall be Preferred Stock of the par value of $0.001 each (hereinafter
called "Preferred Stock") and 100,000,000 shares shall be Common
Stock of the par value of $0.001 each (hereinafter called "Common
Stock")."
RESOLVED FURTHER, that any officer of the Corporation, acting
alone, be and hereby is authorized, empowered and directed, for and on
behalf of the Corporation, to file the Certificate of Amendment with the
Delaware Secretary of State in order to effectuate the foregoing
resolutions;
RESOLVED FURTHER, that any officer of the Corporation, acting
alone, be and hereby is authorized, empowered and directed, for and on
behalf of the Corporation, to execute and deliver any and all certificates,
instruments and other documents, and to take such further actions as any
such officer deems necessary or appropriate to effectuate the purposes of
the foregoing resolutions.
ELECTION OF DIRECTORS
WHEREAS, it is deemed to be in the best interests of the Corporation
and its stockholders that, effective upon the consummation of the
Merger, the Corporation elect four (4) directors to serve as the
Corporation's Board of Directors for the ensuing year until their
successors are duly elected or qualified;
NOW, THEREFORE, BE IT RESOLVED, that, effective upon the
consummation of the Merger, the following individuals be, and hereby
are, duly appointed and qualified to serve as the members of the
Corporation's Board of Directors until their successors are duly elected or
qualified:
Ronald Foster
Vincent Vellardita
David Weiner
Stephen A. Webber
RESOLVED FURTHER, that any officer of the Corporation, acting
alone, be and hereby is authorized, empowered and directed, for and on
behalf of the Corporation, to execute and deliver any and all certificates,
instruments and other documents, and to take such further actions as any
such officer deems necessary or appropriate to effectuate the purposes of
the foregoing resolutions.
REVIEW OF BUSINESS
WHEREAS, the undersigned stockholders have reviewed all actions
taken by the officers and directors of the Corporation since the last
annual meeting of the stockholders of the Corporation;
NOW, THEREFORE, BE IT RESOLVED, that any action or actions
heretofore taken by any officer or director of the Corporation for and on
behalf of the Corporation since the last annual meeting of stockholders
be, and hereby are, ratified and approved as the actions of the
Corporation.
This Written Consent shall be added to the records of the
Corporation and made a part thereof, and the resolutions set forth above
shall have the same force and effect as if adopted at a meeting duly
noticed and held.
This Written Consent may be executed in counterparts with the effect as
if all parties hereto had executed the same document. All counterparts
shall be construed together and shall constitute a single Written Consent.
Shareholder SignatureShares Beneficially Owned
/s/ Ronald Foster 4,154,178
/s/ Larry Cahill 1,000,000
/s/ Michael Graham 1,000,000
/s/ Peter Pappas 800,000
as trustee for the Peter Pappas Trust
EXHIBIT C
THE NAMED AMENDMENT
RESOLVED, that the First Article of the Certificate of
Incorporation of the Corporation be amended to read in its entirety as
follows:
FIRST:The name of the Corporation (hereinafter called the
"Corporation") is:
ValCom, Inc.
* * * *
EXHIBIT D
THE PAR VALUE AND AUTHORIZED SHARE AMENDMENT
RESOLVED FURTHER, that the fourth Article of the
Certificate of Incorporation of the Corporation be amended to read in its
entirety as follows:
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 110,000,000 shares, of which
10,000,000 shares shall be Preferred Stock of the par value of $.001 each
(hereinafter called "Preferred Stock") and 100,000,000 shares shall be
Common stock of the par value of $.001 each (hereinafter called the
"Common Stock").
