-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EPTD7MA2A6QkjvjPCN3Cyq1ZH+fsQVn+7UDe5orAFk4gcUiyGULJfzQlbjIJErH1 6kuC+BY11piOiS0PNjVAQA== 0001013453-01-000024.txt : 20010421 0001013453-01-000024.hdr.sgml : 20010421 ACCESSION NUMBER: 0001013453-01-000024 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010419 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SBI COMMUNICATIONS INC CENTRAL INDEX KEY: 0001013453 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 581700840 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-28416 FILM NUMBER: 1606032 BUSINESS ADDRESS: STREET 1: 26030 AVENUE HALL STUDIO 5 CITY: VALENCIA STATE: CA ZIP: 91355 BUSINESS PHONE: 8185506148 MAIL ADDRESS: STREET 1: 26030 AVENUE HALL STUDIO 5 CITY: VALENCIA STATE: CA ZIP: 91355 10KSB/A 1 0001.txt VALCOM, INC. - 10-KSB/A Securities and Exchange Commission Washington, D.C., 20549 FORM 10-KSB/A Annual Report Pursuant To Sections 13 Or 15 (D) Of The Securities Exchange Act Of 1934 For the Fiscal Year Ended December 31, 2000 Filed Pursuant To Sections 13 Or 15(D) Of The Securities Exchange Act of 1934 Securities and Exchange Commission File Number O-28416 =============================================================================== ValCom, Inc. (Name of small business issuer specified in its charter) ===============================================================================
Delaware 58-1700840 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 26030 Avenue Hall Studio 5 (661) 257-8000 Valencia, California 91355 (Issuer's telephone number) (Address of Principal Executive Offices) (Zip Code)
============================================================================== Securities registered pursuant to Section 12(b) of the Act: None Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, Par value $0.001 - Preferred Stock, Par Value $0.001 (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. YES X NO __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definite proxy or information statements incorporation by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. YES X NO __ Registrant's revenues for its most current fiscal year: $ 1,395,073.00 Aggregate market value of the voting stock held by non-affiliates as of March 30, 2001: $7,985,435.00 Number of common shares outstanding as of 12/31/2000 or latest practical date at $.001 par value: 15,970,878
Documents Incorporated By Reference: None Location of Exhibit Index: The index of exhibits is contained in part IV herein on page number 49 plus exhibits. Transitional Small Business Disclosure Format: Yes ____ No _X_ =============================================================================== Dated April 14, 2000 ________________________________________________________________________________ -1-
Table of Contents Item Page Number Number Item Caption - ------ ------ ------------ Part I - ------ Item 1. 3 Description of Business Item 2. 9 Description of Properties Item 3. 11 Legal Proceedings. Item 4. 11 Submission of Matters to a Vote of Security Holders Part II - ------- Item 5. 11 Market Price of and Dividends on the Registrant's Common Equity and other Shareholder Matters Item 6. 16 Management's Discussion and Analysis or Plan of Operation Item 7. 20/F1Financial Statements and Summary Financial Data Item 8 36 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Part III - -------- Item 9 36 Directors, Executive Officers, Promoters and Control Persons Item 10. 39 Executive Compensation Item 11. 40 Security Ownership of Certain Beneficial Owners and Management Item 12. 41 Certain Relationships and Related Transactions Part IV - ------- Item 13. 41 Exhibits, Financial Statement Schedules, and Reports on Form 8-K Signatures 43 - ----------
-2- Part I ------ Statements contained in this Annual Report on Form 10-KSB that are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act Of 1995. Such forward-looking statements are subject to risk and uncertainties, which could cause actual results to differ materially from estimated results. Certain of such risks and uncertainties are detailed in filings with the Securities and Exchange Commission and the Company's in Item 1 "BUSINESS" and Item 6 MANAGEMENT'S DISCUSSION AND DESCRIPTION OR PLAN OF OPERATION" below. Item I. Description of Business ------ ----------------------- General - ------ Item 1. Description of Business General ValCom, Inc., a publicly held Delaware corporation (the "Company"), was originally organized in the State of Utah on September 23, 1983, under the corporate name Alpine Survival Products, Inc. Its name was changed to Justin Land and Development, Inc., during October of 1984, and to Supermin, Inc., on November 20, 1985. The Company was originally formed to engage in the acquisition of any speculative investment or business opportunity without restriction as to type or classification. On September 29, 1986, Supermin, Inc., concluded a reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1954, as amended, pursuant to which it exchanged 200,000 shares of its common stock, $.001 par value (all shares numbers, unless otherwise stated, adjusted to reflect a one for 20 reverse stock split) for all of the capital stock of Satellite Bingo, Inc., a Georgia corporation organized on January 10, 1986, and the originator of the Company's current business (the "SBI Subsidiary"). In conjunction with such reorganization, the former stockholders of the SBI Subsidiary, acquired control of the Company and the Company changed its name to Satellite Bingo, Inc. On March 10, 1988, the Company changed its name to SBI Communications, Inc., and on January 28, 1993, the Company reincorporated into Delaware through a statutory merger with a wholly owned Delaware subsidiary in reliance on the exemption from registration requirements of Section 5 of the Securities Act of 1933, as amended, provided by Rule 145(a)(2) promulgated thereunder. On July 20, 2000 the Board of Directors approved a "2-1 forward stock split" with a distribution date of August 14, 2001 and a Shareholder record date of August 10, 2000. The purpose of the forward split was to strengthen the Company's flexibility and address the liquidity issue in increasing the available float in the market. -3- On August 21, 2000, a letter of intent was executed between the principals of Valencia Entertainment International, LLC (VEI) and SBI Communications, Inc. (SBI) Both parties conducted due diligence and began the formal process of drafting the merger agreement. On October 16, 2000, the majority stockholders executed a written shareholder resolution approving the Agreement and Plan of Merger. Pursuant to the Merger Agreement the Company appointed new Board members, changed the par value of Preferred Stock, increased the authorized Common Stock and changed its name to ValCom, Inc. (ValCom) A 14C information statement was filed with Securities and Exchange Commission. The Securities and Exchange Commission approved the definitive 14C on February 13, 2001. T he Merger was finalized on March 6, 2001. Appointment of New Directors - --------------------------------------- The Board of Directors unanimously nominated and the consenting stockholders 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 ValCom 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 Vice Priesident/Director Vince Vellardita 42 2000 CEO/Chairman of the Board David Weiner 41 2001 Director Stephen A. Weber 52 2001 CFO, Director Change In 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(now Valcom) to change the par value of its preferred stock. SBI's previous capital structure authorized 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(now ValCom) certificate of incorporation to change the preferred stock par value from $5.00 to $.001 per share. Increase In Authorized Common Stock - ------------------------------------------------ The Board and the consenting stockholders unanimously adopted and approved an amendment to SBI's(now ValCom) certificate of incorporation to increase the authorized common stock from 40,000,000 to 100,000,000 shares. The terms of -4- the merger made VEI a wholly owned subsidiary of Valcom and the principals of VEI received shares of ValCom's common stock based upon an agreed upon fair market valuation of the net assets of VEI. In order to consummate the merger, SBI (now ValCom) was 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 Authorized Shares Amendment was implemented by filing the certificate of amendment with the Secretary of State of Delaware. Name Amendment - ------------------------------- 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 was implemented by filing a certificate of amendment to the certificate of incorporation with the Delaware Secretary of State. In the judgment of the SBI Board of Directors, the change of the corporate name was desirable in view of the significant change in the SBI's character and strategic focus as a result of the merger with VEI. 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. 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 had 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 come 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 would allow VEI the ability to acquire other companies through the issuance of its trading stock and enable VEI to readily attract private and public financing in the future. -5- ValCom's Corporate Structure - ---------------------------------------- ValCom, Inc. has four subsidiaries: 278 Auction Plaza, Inc. an Alabama Corporation, SBI Communications, Inc., a Nevada corporation, SBI Communications, Inc., an Alabama Corporation, and Valencia Entertainment International, a California LLC Unless the context requires otherwise, the term "Company" includes ValCom, Inc., a publicly held Delaware corporation and, its subsidiaries, predecessors and affiliates whose operations or assets have been taken over by ValCom, Inc. Business Overview - -------------------- Valencia Entertainment's business includes television production for network and syndication programming, motion pictures, sports, internet and real estate holdings, however, revenue is primarily generated through the lease of the sound stages. ValCom, 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. The Company's sound stages have been operating at full capacity since 1995. ValCom also leases an additional 3 acres and 52,000 square feet production facility that includes two full service sound stages, for a total of eight sound stages. ValCom's past and present clients include Warner Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox, Disney, CBS, Sony, Showtime, and the USA Network. In addition to leasing its sound stages, ValCom 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. Expansion Plans - --------------- The Company continuously reviews industry developments and regulations for potential expansion opportunities. As a public company, the Company benefits from operating in highly regulated markets which levels the competitive playing field. It is imperative that the Company continues to grow its operational revenues. The Company has made a significant investment in assembling its management team and operational infrastructure. This investment cost is now relatively fixed, however, and the Company has the potential to significantly leverage its profitability through incremental revenue increases. The Company will therefore continue to employ an aggressive yet methodical growth strategy. It intends to make strategic expansions in markets with: i) accommodating regulations; ii) favorable demographics; iii) successful operations management; and iv) customer acceptance and patronization. The Company intends to grow through both acquisitions and developments. It uses extensive review procedures to evaluate expansion opportunities, including market studies, legal evaluations, financial analyzes and operational reviews. The Company determines development budgets and acquisition prices based on the proposed investment's expected financial performance, competitive market position, risk profile and overall strategic fit within the Company's operational plans. Acquisition terms typically include cash payments, issuance of Company securities and seller-financed notes. Consulting and non-competition agreements may also be included. -6- The development of telecommunications, the emergence of new technology and the international nature of the Internet has created opportunities to develop new, efficient and secure ways to deliver entertainment to customers. As one of the companies that plans to employ these new technologies on the Internet, ValCom intends to capitalize on its expertise in the analyzing of consumer data and information to become a world leader of online entertainment. Joint Venture Agreement With Woody Fraser Productions - ---------------------------------------------------------------------- On March 30, 2001 a joint venture agreement was executed between ValCom and Woody Fraser Productions, in which the parties agreed that Woody Fraser and his company, Woody Fraser Productions would serve exclusively as a television production company for ValCom. The primary purpose of the joint venture is the development and production of various television projects. Woody Fraser has 25 years of experience as an executive producer in Hollywood. He operates his own production company, Woody Fraser Productions, which has created and produced many television shows including the "Dick Cavitt Show", "Steve Allen Show", "That's Incredible", "Mike Douglas Show", "Good Morning America", "Richard Simmons", and "The Home Show". Mr. Fraser holds a Bachelors Degree from Dartmouth College and is a member of the Director's & Writer's Guilds. Woody Fraser Productions has recently received firm commitments to produce one television series, with an initial order of 13 episodes, as well as two pilots that are expected to be picked by the buyer as television series productions. These shows are likely to generate license fees of $200,000 per episode. Pursuant to the terms of the joint venture agreement, ValCom will recoup all production costs on a short-term basis. Seventy-five percent (75%) of the net profits will be distributed to ValCom. A copy of the joint venture agreement is attached as Exhibit E. Woody Fraser's numerous contacts and affiliations with the major studios, talent agencies and Internet and marketing firms provide an invaluable resource for the Company. Management feels that Mr. Fraser's experience in production, creation and development will greatly benefit the Company in obtaining its goal of becoming a top television producer and therefore contribute to shareholder value. Acquisition of Half Day Video - ------------------------------------- On March 8, 2001 negotiations were completed and an agreement was executed for the purchase of 100% of the stock of Half Day Video,Inc. (HalfDay) by the Company. Half Day is located in Burbank, California and specializes in supporting the entertainment industry with television and film equipment rentals. Half Day's client list includes The Academy Awards, Emmy Awards, NBC, Entertainment Tonight, MTV, Oscar Awards, General Hospital and other major entertainment and production companies. Half Day has approximately $847,000 in assets with current revenues of $609,000. Half Day leases its offices and warehouse facility in Burbank and will continue to operate and service its clients using its current employees. This acquisition is expected to significantly enhance the Company's ability to service entertainment industry thereby further increasing shareholder value. The acquisition Agreement is attached as Exhibit F Competition - ------------ -7- Film Entertainment Overview - -------------------------------------- Competition in the film entertainment business is diverse and fragmented, with scores of companies operating at various levels of product budget and scope. The market is overwhelmingly dominated by the major Hollywood studios, with the top-ranked company-Disney in 1999-usually commanding 15 to 20 percent of the domestic market share in any given year. Valencia Entertainment will succeed by choosing its projects and markets carefully, and by selecting segments and geographic areas in where it can build proprietary competitive advantages. With the proper positioning and segment focus, the Company believes it can insulate itself from the brunt of competition in the entertainment content business. Since the sector's revenues from foreign markets are growing rapidly, a sound niche strategy should ensure superior profitability. Independent Production Companies - ------------------------------------------ Consolidation through acquisition has recently reduced the number of independent production companies in operation. However, barriers to entry remain relatively low, and management anticipates that the segments in which it intends to compete will remain highly competitive. The Company's Competitive Position - ---------------------------------- The Company operations are in competition with all aspects of the entertainment industry, both locally, nationally and worldwide. ValCom experiences competition from five market segments: 1) Traditional television, game shows, Reality Television Drama 2) Internet companies; On line auction companies and Web Services Providers 3) Movies for television an Theatrical Release 4) Other entertainment/media companies Other Activities - ---------------- Interactive Technology - ---------------------- The Company has experience in the interactive communications and entertainment fields which brings together elements of the "Information Superhighway." Its has created and broadcast interactive national and international television programs using state-of-the-art computer technology, proprietary software programs, satellite communications, and advanced telecommunications systems. The Company's management believes that its experience in developing and delivering interactive television program, as well as its ownership of propritary systems and software, provide and advanced in its ability to -8- launch new entertainment and information programs based on comparable resources. 1. Sources and Availability of Raw Materials and the Names of Principal - ----------------------------------------------------------------------- Suppliers --------- None of the Company's proposed activities are reliant on raw materials. Rather, they depend on the ability to exploit emerging technologies that are expected to be readily available. 2. Dependence on One or a Few Major Customers - --------------------------------------------- The Company's real estate rental, broadcast operations and contemplated future Internet Web Site operations are not expected to be reliant on any single or small group of customers. Employees - --------- As of December 31, 2000, the Company had 15 permanent employees, including three officers and four professional staff. The Company also retains the services of property managers who oversee the facility maintenance & grounds in Alabama. No employee of the Company is represented by a labor union or is subject to a collective bargaining agreement. Item 2. Description of Property - ------------------------------- Premises 278 Auction Plaza 576 Highway 278 Bypass - Piedmont, Alabama 36272 Company-owned - ------------------- The Company owns a facility in Piedmont, Alabama which it has owned since December 16, 1994. The facility is comprised of 80,000 square feet of usable space under roof, and includes merchandise and auto auction, Restaurant and other leased area. The facility has been renovated for four lane auto auctions and the company conducts merchandise and auto auctions, and operates a restaurant. The First Call System has leased part of the facility. The company has executed a offer to sell the Piedmont property for $4,500,000.00. The Company's corporate offices are located at 26030 Avenue Hall Studio #5, Valencia, California. The Company controls 12 acres of land in Valencia, California. The premises are comprised 8 production sound stages and consist of approximately 300,000 square feet for which 220,000 are owned and the balance are leased. Offices occupy 60,000 square feet. The balance of the property consists of loading docks, outdoor sets and 450 parking spaces. Patents, Trademarks, Copyrights, Licenses, Franchises, Concessions, - ----------------------------------------------------------------------------- Royalty Agreements or Labor Contracts, Including Duration - ---------------------------------------------------------- -9- The Company has no patent rights. It has the following service marks: Satellite Bingo: - --------------- International Class 41 (production and distribution of television game shows) granted Registration Number 1,473,709 on January 19, 1988 to Satellite Bingo, Inc. 20 years. "Hangin With The Boyz": - ----------------------- International Class 25 (Clothing) and 41 (Production and distribution of television game shows) application filed on March 1,2000, Serial NO. 75/932,583, "Who Can You Trust?" - -------------------- mark granted March 9,1999 for 20 years International Class 41(production and distribution of television game shows) serial NO.75/485225, "Fuhgetabowtit": - ---------------- International Class 41 (production and distribution of television game shows) Serial NO. 75/784,763 application filed on August 26, 1999. Globalot Bingo: - --------------- International Class 41 (production and distribution of television game shows) applied for on September 24, 1993, by SBI Communications, Inc. Rico Bingo: - ----------- International Class 41 (production and distribution of television game shows) applied for on September 24, 1993, by SBI Communications, Inc. C-Note: - ------- International Class 41 (production and distribution of television game shows) applied for on September 24, 1993, by SBI Communications, Inc. The Company obtained an assignment to a copyrights for "the Works," copyright registrations for Globalot Bingo and derivatives: Number PAU 855-931 (June 10, 1986); Number Pau 847-876 (March 11, 1986); Number PAU 788-031 (September 19, 1985); Number PAU 927-410 (November 4, 1986); Number PA 370-721 (February 9, 1988); Number PA 516-494 (January 17, 1991); Number PA 533-697 (January 17,1991); from Satellite Bingo, Inc., to SBI Communications, Inc., dated September 14, 1993. The Company applied for registration of copyright of "The Final Round-The Gabriel Ruelas Story" on December 2,2000. The Company obtained an assignment of copyright of "The Life",Txu 744-678 June 12, 1996. The Company obtained a copyright by assignment of "PCH" Pau 2-040-426 September 12, 1995. -10- Item 3 - Legal Proceedings - -------------------------- Involvement in Certain Legal Proceedings - ---------------------------------------- None Item 4 - Submission of Matters to a Vote of Security Holders ------------------------------------------------------------ On October 16, 2000 a 14-C was filed with the Security and Exchange Commission which a majority of the shareholders approved a plan of merger, name change, change of authorized common stock , change of par value of preferred stock and elected new directors. On February 13, 2001 the plan was approved by the Security and Exchange Commission and all shareholders were notified. This action was completed on March 6, 2001. The Company's annual shareholder meeting with voting on proxy issues is on May 29, 2001. PART II Item 5. Market Price of and Dividends on the Company's Common ------------------------------------------------------ Equity and Related Stockholder Matters -------------------------------------- Preferred Stock - --------------- All attributes of the currently unissued preferred stock will be determined by the Company's board of directors prior to issuance, as permitted by and subject to the requirements of applicable Delaware law. The currently outstanding preferred stock has a $0.001 per share par value and a $5.00 per share liquidation preference; paying no dividend but convertible into common stock upon demand at a conversion rate equal to five shares of preferred to one share of preferred stock. The preferred stock has no voting rights except as to matters specifically dealing with changes in the attributes of the preferred stock. Market for Common Equity - ------------------------ The Company's stock is traded on the NASDAQ OTC Electronic Bulletin Board under the symbol of VCMI. The Company currently has 90,139,843 shares of stock outstanding, with 5,200,000 in the public float. There are approximately 3,540 shareholders of record. For the fiscal year ended December 31st, 2000 the Company reported revenues of $1,395,073. and a net loss of $1,891,722. The Common Stock of Company has been traded over-the-counter since 1983. Its trading symbol on the OTCBB is "VCMI" and the Frankurt EXTRA under the symbol of"VAM" and security code #940589. No common equity is subject to options or warrants to purchase or securities convertible into common stock, except for the currently issued 1,543,000 shares of preferred stock which are convertible into common stock. -11- No common stock is currently being offered or proposed to be offered which offering could be reasonably expected to have a materially adverse effect on the market price of the Company's common equity; and There are approximately 2,000,000 shares of common stock which will become eligible for sale by December 31, 2001, pursuant to the provisions of Securities and Exchange Commission Rule 144. The Company has not agreed to register securities for resale under the Securities Act of 1934, as amended, for anyone. The following table sets forth in United States dollars the high and low bid quotations for such shares. Such bid quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and do not necessarily re-present actual transactions. The source of the following information is the National Association of Securities Dealers, Inc.'s NASDAQ Electronic Bulletin Board. Common Stock [CAPTION] Date Low High - ---- --- ---- 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 3,540 stockholders of record of the common stock.
Prices quoted reflect a one share for twenty reverse split effective on February 1, 1993. Also, a two share for one forward split effective on August 14, 2000. -12- Dividend Policy --------------- The Company has never paid any dividends. it is the present intention of the Company to pay dividends as soon as possible. There can, however, be no assurance that funds for payment of dividends will ever be available, or that even if available, the Company's board of directors then serving will resolve to declare them. Market ------ The Company's securities are currently quoted on the Nation Association of Securities Dealers, Inc.'s NASDAQ Bulletin Board and on the Frankfurt XETRA:"VAM". The Company expects that its securities will be listed on the National Association of Securities Dealers, Inc.'s automated quotation system ("AMEX") or ("NASDAQ") within the next 12 months and that they will be traded under its current symbol "VCMI". Section 15(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires brokers and dealers to make risk disclosures to customers before effecting any transactions in "penny stocks". It also directs the Securities and Exchange Commission to adopt rules setting forth additional standards for disclosure of information concerning transactions in penny stocks. Penny stocks are low-priced, over-the-counter securities that are prone to manipulation because of their price and a lack of reliable market information regarding them. Under Section 3(a)(51)(A) of the Exchange Act, any equity security is considered to be a "penny stock," unless that security is: i) registered and traded on a national securities exchange meeting specified Securities and Exchange Commission criteria; ii) authorized for quotation on the National Association of Securities Dealers, Inc.'s (NASD") automated inter-dealer quotation system ("NASDAQ"); iii) issued by a registered investment company; iv) excluded, on the basis of price or the issuer's net tangible assets, from the definition of the term by Securities and exchange Commission rule; or v) excluded from the definition by the Securities and Exchange Commission. Pursuant to Section 3(a)(51)(B), securities that normally would be considered penny stocks because they are registered on an exchange or authorized for quotation on NASDAQ may be designated as penny stocks by the Securities and Exchange Commission if the securities are traded off the exchange or if transactions in the securities are effected by market makers that are not entering quotations in NASDAQ. -13- Rule 3a51-1 was adopted by the Securities and Exchange Commission for the purpose of implementing the provisions of Section 3(a)(51). Like Section 3(a)(51), it defines penny stocks by what they are not. Thus, the rule excludes from the definition of penny stock any equity security that is: (1) a "reported" security; (2) issued by an investment company registered under the 1940 Act; (3) a put or call option issued by the Options Clearing Corporation; (4) priced at five dollars or more; (5) subject to last sale reporting; or (6) whose issuer has assets above a specified amount. (Release No. 30608, Part III.A). Rule 3a51-1(a) excludes from the definition of penny stock any equity security that is a "reported security" as defined in Rule 11Aa3-1(a). A reported security is any exchange-listed or NASDAQ security for which transaction reports are required to be made on a real-time basis pursuant to an effective transaction reporting plan. Securities listed on the New York Stock Exchange (the "NYSE"), certain regional exchange-listed securities that meet NYSE or Amex criteria, and NASDAQ National Market System ("NMS") securities are not considered penny stocks. (Release No. 30608, Part III.A.1). Generally, securities listed on the American Stock Exchange (the "Amex") pursuant to the Amex's original and junior tier or its "Emerging Company Marketplace" listing criteria, are not considered penny stocks. Securities listed on the Amex pursuant to its Emerging Companies Market ("ECM") criteria, however, are considered to be "penny stock" solely for purposes of Exchange Act 15(b)(6). (Release No. 30608, Part III.A.1). Rule 3a51-1(d) excludes securities that are priced at five dollars or more. Price, in most cases, will be the price at which a security is purchased or sold in a particular transaction, excluding any broker commission, commission equivalent, mark-up, or mark-down. In the absence of a particular transaction, the five dollar price may be based on the inside bid quotation for the security as displayed on a Qualifying Electronic Quotation System (i.e., an automated inter-dealer quotation system as set forth in Exchange Act Section 17B(b)(2)). "Inside bid quotation" is the highest bid quotation for the security displayed by a market maker in the security on such a system. If there is no inside bid quotation, the average of at least three inter-dealer bid quotations displayed by three or more market makers in the security must meet the five dollar requirement. Broker-dealers may not rely on quotations if they know that the quotations have been entered for the purpose of circumventing the rule. (Release No. 30608, Part III.A.3.b). An inter-dealer quotation system is defined in Rule 15c2-7(c)(1) as any system of general circulation to brokers and dealers that regularly disseminates quotations of identified brokers or dealers. In the case of a unit composed of one or more securities, the price divided by the number of shares of the unit that are not warrants, options, or rights must be five dollars or more. Furthermore, the exercise price of any warrant, option, or right, or of the conversion price of any convertible security, included in the unit must meet the five dollar requirement. For example: a unit composed of five shares of common stock and five warrants would satisfy the requirements of the rule only if the unit price was twenty-five dollars or more, and the warrant exercise price was five dollars or more. Once the components of the unit begin trading separately on the secondary market, they must each be separately priced at five dollars or more. (Release No. 30608, footnote 66). Securities that are registered, or approved for registration upon notice of issuance, on a national securities exchange are also excluded from the definition of penny stock (Rule 3a51-1(e)). The exchange must make transaction reports available pursuant to Rule 11Aa3-1 for the exclusion to work. The exclusion is further conditioned on the current price and volume information with respect to transactions in that security being reported on a current and continuing basis and made available to vendors of market information. In addition, the exclusion is limited to exchange-listed securities that actually are purchased or sold through the facilities of the exchange, or as part of a distribution. Exchange-listed securities satisfying Rule 3a51-1(e), but which are not otherwise excluded under Rule 3a51-1(a)-(d), continue to be deemed penny stocks for purposes of Exchange Action Section 15(b)(6). -14- Exchanges that qualified for this exclusion as of April, 1992 were the NYSE, Amex, Boston Stock Exchange, Cincinnati Stock Exchange, Midwest Stock Exchange, Pacific Stock exchange, Philadelphia Stock Exchange, and the Chicago Board of Options. (Release No. 30608, footnote 37). Securities that are registered, or approved for registration upon notice of issuance, on NASDAQ are excluded from the definition of penny stock (Rule 3a51-1(f)). Similar to the exchange-registered exclusion of Rule 3a51-1(e), the NASDAQ exclusion is conditioned on the current price and volume information with respect to transactions in that security being reported on a current and continuing basis and made available to vendors of market information pursuant to the rules of NASD. NASDAQ securities satisfying Rule 3a51-1(e), but which are not otherwise excluded under Rule 3a51-1(a)-(d), continue to be deemed penny stocks for purposes of Exchange Act Section 15(b)(6). An exclusion is available for the securities of issuers that meet certain financial standards. This exclusion pertains to: (1) issuers that have been in continuous operation for at least three years having net tangible assets in excess of $2 million (Rule 3a51-1(g)(1); ii) issuers that have been in continuous operation for less than three years having net tangible assets in excess of $5 million (Rule3a51-1(g)(1); iii) issuers that have an average revenue of at least $6 million for the last three years (Rule 3a51-1(g)(2)). To satisfy this requirement, an issuer must have had total revenues of $18 million by the end of a three-year period. (Release No. 30608, Part III.A.4). The Company believes that its securities qualify under this exemption. For domestic issuers, net tangible assets or revenues must be demonstrated by financial statements that are dated no less than fifteen months prior to the date of the related transaction. The statements must have been audited and reported on by an independent accountant in accordance with Regulation S-X. For foreign private issuers, net tangible assets or revenues must be demonstrated by financial statements that are dated no less than fifteen months prior to the date of the related transaction. The statements must be filed with the Securities and Exchange Commission pursuant to Rule 12g3-2(b). If the issuer has not been required to furnish financial statements during the previous fifteen months, the statements may be prepared and audited in compliance with generally accepted accounting principles of the country of incorporation. Whether the issuer is domestic or foreign, in all cases a broker or dealer must review the financial statements and have a reasonable basis for believing that they were accurate as of the date they were made (Rule 3a51-1(g) (3). In most cases a broker-dealer need not inquire about or independently verify information contained in the statements. (Release No. 30608, Part III.A.4). Brokers and dealers must keep copies of the domestic or foreign issuer's financial statements for at least three years following the date of the related transaction (Rule 3a51-1(g)(4). Security Holders - ---------------- As of December 31, 2000, the latest practicable date for which information -15- is available, the Company's management was of the opinion that the Company had approximately 3,540 common stock holders. Dividends - --------- There have been no cash dividends declared or paid since the inception of the Company and no dividends are contemplated to be paid in the foreseeable future. Description of Securities - ------------------------- General ------- The Company is authorized to issue 110,000,000 shares of capital stock, 100,000,000 shares of which are designated as common stock, $0.001 par value per share, and the balance as preferred stock, $0.001 par value per share. As of December 31, 2000, 15,970,878 shares of Common Stock were outstanding (excluding the 2,500,000 shares held but not yet allocated by the Company's Employees' Trust) and held of record by approximately 3,540 persons. In addition, 1,543,000 shares of preferred stock were outstanding, and held by approximately five persons. Corporate Stock Transfer, 3200 Cherry Creek Drive, South; Suite 430, Denver Colorado 80209, acts as transfer agent and registrar for the Company's common and preferred stock. Item 6. Management's Discussion and Analysis of Financial Condition ----------------------------------------------------------- and Results of Operations and Plan of Operation. -------------------------------------------- Introduction - ------------ Plan of Operation: ValCom, Inc. operations at present are comprised of four divisions; 1) Studio Rental, 2) Piedmont Alabama Facility - Auto Auction, 3) Studio Equipment Rental, and 4) Film Production. Studio Rental - -------------- The Company owns 6 improved acres with 7 sound stages and one additional leased stage in Valencia California doing business as Valencia Entertainment International. Seven of the eights stages are leased under long term contracts to two major production companies. Rental income for the seven stages should remain constant at approximately $1,200,000 annually with only small cost of living increases. Rental income for the eighth stage should increase from the current $24,000 per month to approximately $75,000 per month in September 2001. Piedmont Alabama Facility - ------------------------- 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 because the purchaser was unable to obtain financing under favorable terms. The Company decided to develop the property as a venue for auto and antique -16- and collectible merchandise auction. $75,000 was spent for renovation of this property during the past year. Since the implementation of the auction business plan, this segment has not generated any significant revenues. During 2001 the Company continued, on a limited basis, the auction operation and held concerts and other entertainment events. Currently, management is in the process of seeking refinancing of the existing property in the amount of $2,500,000. The funds will be used for the payment of the existing mortgage loan which is in default and for operating capital. The Company has also executed an irrevocable offer to sell the property for $4,500,000 expiring July 2001. Studio Equipment Rental - ----------------------- In March 2001 the Company acquired for stock Half Day Video, Inc. a company which rents cameras and other production equipment to various production companies on a short term basis. With 5 year equipment financing the Company intends to purchase additional equipment costing approximately $350,000. A 100% return on this investment is expected to take less than 6 months. Following is unaudited summary financial information for Half Day as of March 2001 and for the 12 months then ended. [CAPTION] Current Assets $205,000 Total Assets 847,000 Current Liabilities 40,800 Total Liabilities 87,000 Stockholder's Equity $760,000 - -------------------------------- Total Revenue $609,000 - -------------------------------- Net Loss $ (91,000)
Film Production - --------------- Currently the Company is attempting to obtain production commitments on two series. Assuming firm commitments are obtained, production would commence in the first quarter of 2002. In March 2001 the Company entered into a joint venture with Woody Fraser Productions to produce various television productions. Under the terms of the agreement the Company will receive, after certain cost reimbursements, 75% of the net profits of the venture. In March 2001 the venture signed contracts to produce a series of 13 episodes and a pilot episode for a cable TV station. Revenue to be earned under these contracts during 2001 will be $2,800,000. ValCom's percentage of the net income from these productions is estimated at $400,000. Follow-on contracts and additional productions are under consideration. -17- Results of Operation -------------------- December 31, 2000 and 1999 Comparison As of December 31, 2000 the Company had working capital of $1,001,592. As of the prior year-end working capital was $207,372. The change was due primarily to the cash distribution of $2,000,000 to the partners of Valencia Entertainment International, LLC in January 2000 prior the merger and the increase in accruals offset by reclassification of the Alabama property as a current asset "Property Held for Sale". Total assets were $16,008,528 at December 31, 2000 versus $18,553,228 at December 31, 1999 and additionally total liabilities were $8,987,769 and $8,422,498 respectively. The changes in total assets and liabilities are substantially accounted for by above described changes in current assets and liabilities. For year ended December 31, 2000 the Company had revenue of $1,395,073, operating expenses of $2,400,717 and a net loss of ($1,891,722). The loss before depreciation and interest for the year was ($733,930). Revenue decreased $79,098 from the previous year or 5.3%. This decrease was a result of a reduction of $222,500 in production revenue partially offset by contractual increases in studio rental income. Although marketing efforts continued during the year for three film production properties, the Company was unable to negotiate any significant sales distribution contracts. Several contracts are in negotiation. No revenue was generated from the on-site merchandise and auto auction at the Piedmont facility. The auction website in development for years was not launched until March 2001. Production costs for the year ended December 31, 2000 compared with the prior year have increased from $83,049 to $273,217 or a 229% increase. Marketing costs accounted for most of the production costs in 2000. Management reviews capitalized production costs on a quarterly basis and records write-offs as needed. Certain productions in the development stage were abandoned during the year. Management determined that these would not be successful. Costs for these projects were appropriately expense. Selling and promotion costs increased 17% from 1999 to 2000. These costs generally were incurred to promote ValCom's common stock valuation Depreciation expense increased to $271,714 for 2000 from $83,049 for 1999. This increase is almost entirely due to the depreciation on the Piedmont facility after it was placed in service in 2000. For the year ended December 31, 2000 administrative and general costs expenses increased by $1,148,335 or 190.4% from 1999 amounts. Significant increases were in the following subcategories. [CAPTION] 2000 1999 ------ ------ Legal and accounting $180,985 $ 33,780 Management consulting 264,250 -0- Other costs 942,092 530,700 Property taxes 170,633 35,779 Rent 193,650 3,016 ------------------------------ Total $1,751,610 $603,275 ==============================
-18- Following are reasons for the increase in subcategories of administrative and general expenses for the year ended December 31, 2000 compared with the year ended December 31, 1999. The $147,205 increase in legal and accounting was due to performance of audits and preparation of agreements and other legal matters related to the merger. The $264,500 increase in management consulting was due costs incurred for reorganization and planning re the newly merged company. The $411,392 increase in other costs consist of numerous relatively small changes in a variety of categories. The $134,854 increase in taxes and licenses was due to increased property assessment on the Valencia property and prior year under accrual of taxes due. The $ 190,634 increase in rent was due to the lease in 2000 of additional studio space adjacent to the Valencia property. Interest expense was $751,078 for the year ended December 31, 2000 compared with $451,588 for the prior year. The 66.3% increase was due to increased mortgage interest on the Valencia property. The mortgage on this 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%. ValCom did not record any tax expense for either 2000 or 1999 due to taxable loss or tax loss carry forwards. The Company's tax loss carryforwards available balance at the end of fiscal 2000 was in excess of $11 million. 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 ValCom because of its long-term rental contracts, the strike may affect the Company's plans for its own productions which could have a material affect on income for 2001 and 2002. Capital Resources - ----------------- Internal and external source of funding: - ---------------------------------------- The Company has obtained lines of credit from City National Bank for $400,000 and projects positive cash flow from its studio division. ValCom may issued stock for services as a means of maintaining working capital. ValCom has sufficient funds to operate for the next 12 months through its use of the credit facility, common stock issues and projected positive cash flow from its operation of business. The Company is in the process of refinancing the Piedmont property for $2,500,000. The Company has also executed an irrevocable offer to sell the property and equipment for $4,500,000. The following table sets forth the relative relationship to total revenue of the revenue categories in the Company's statement of income and percentage changes (rounded to the nearest whole dollar). -19- Amount of Total Revenue
Fiscal Year Ended December 31, 2000 1999 ---- ---- Revenues: Lease and rental fees $ 1,395,073 -0- Other Income -0- -0- --------- -------- Total Revenue $ 1,395,073 $ -0- ========= ========
In general, the Company experienced insignificant change in revenues in 2000 as it attempted to expand and develop its operations. Total revenues were $1,395,073 for 2000. The Company owned studios facilities, were leased to major production companies. There were no revenues related to the Piedmont facility operations in 1999. Should the Company successfully acquire additional production facilities and broadcast companies under consideration, or expand operations in areas previously discussed as currently under consideration, revenues and expenses of the Company would change significantly. Management is not able to predict the impact of such changes on revenues or expenses at this time. Statement Re Computation of Earnings Per Share - ---------------------------------------------- See Notes To Consolidated Financial Statements included elsewhere in this filing for a description of the Company's calculation of earnings per share. -19- Item 7. Financial Statement and Summary Financial Data - ------ ----------------------------------------------- Financial Statements -------------------- The audited consolidated balance sheet of the Company for its years ended December 31, 2000 and audited 1999 and the related consolidated statements of operations, stockholder's equity and cash flows are submitted herewith. CONTENTS OF REPORT - ------------------------------------------------------------------------------- Consolidated Independent Auditor's Report F-1 Consolidated Balance Sheet F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Cash Flow F-4 Consolidated statements of Stockholders Equity F-6 Notes to Consolidated Financial Statements F-7/F-16 To the Board of Directors ValCom, Inc.: We have audited the accompanying consolidated balance sheets of ValCom, Inc. and subsidiaries (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity restated and cash flows for each of the years ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the years then ended in conformity with generally accepted accounting principles. /s/JAY J. SHAPIRO, C.P.A. a professional corporation Encino, California April 4, 2001 F-1 VALCOM, INC AND SUBSIDIARIES ---------------------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- ASSETS ------
DECEMBER 31 ----------- 2000 1999 ---- ---- Cash $ 7,787 $ 2,278,694 Accounts receivable 74,455 106,812 Mortgage escrow holdback -0- 327,900 Other receivables 52,634 -0- Prepaid expenses 11,569 -0- Property held for sale 3,940,000 -0- ------------ ------------- Total Current Assets $ 4,086,445 $ 2,713,406 ------------ ------------- Fixed Assets - net $ 11,681,381 15,700,154 Production costs 110,201 28,000 Prepaid loan fees 100,501 111,668 Deposits 30,000 -0- -------------------------- Total Assets $ 16,008,528 $ 18,553,228 ============== ============== See accompanying notes to consolidated financial statements F-2 LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accrued wages due stockholder $ 670,000 $ 550,000 Advances due stockholder 200,508 95,136 Loan payable affiliate 150,000 -0- Accrued interest payable 325,010 199,000 Other current liabilities 42,461 -0- Credit line payable 110,000 -0- Notes payable -- current portion 1,289,586 1,489,717 Accounts payable $ 297,285 172,181 ----------- --------- 3,084,850 2,506,034 Total Payable 5,902,919 5,916,464 ----------- ----------- Total Liabilities $ 8,987,769 $ 8,422,498 ============= ========== Commitments and contingencies (Note 5) Stockholders' equity: Preferred stock, par value $0.001; 10,000,000 shares authorized: 1,543,000 and 1,653,000 shares issued and outstanding at December 31, 2000 and December 31, 1999, respectively 1,543 1,653 Common stock, par value $.001; 100,000,000 shares authorized; 90,139,843 and 9,693,878 shares issued and outstanding at December 31, 2000 and 1999 respectively 90,140 9,694 Additional Paid in capital 8,101,157 9,399,742 Retained Earnings (deficit) (1,172,081) 719,641 ------------ ----------- 7,020,759 10,130,730 ------------ ----------- $ 16,008,528 $18,553,228 ============ ==========
See accompanying notes to consolidated financial statements F-3 VALCOM, INC. AND SUBSIDIARIES ------------------------------- CONSOLIDATED STATEMENT OF OPERATIONS ------------------------------------- [CAPTION] December 31, 2000 1999 ----- ----- Revenue Rental $1,328,782 $1,214,171 Production 37,500 260,000 Other 28,791 -0- ------------ ------------ $1,395,073 $1,474,171 Cost and Expenses: Production 273,217 83,049 Selling and promotion 104,176 89,017 Depreciation 271,714 135,376 Administrative and general 1,786,610 603,275 ----------- ----------- $2,435,717 $ 910,717 ----------- ----------- Operating income (loss) (1,040,644) 563,454 Interest Expense (851,078) (451,588) ----------- ----------- Net Income (loss) ($1,891,722) $111,866 Basic net income (loss) per share.............. ($.06) ($.01) ============ =========== Weighted number of shares 29,805,000 9,900,000 ------------- -----------
See accompanying notes to consolidated financial statements F-4 VALCOM, INC. AND SUBSIDIARIES ----------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOW ------------------------------------ [CAPTION] December 31 ----------- 2000 1999 ---- ---- Operating Activities: Net Income (Loss) ($1,892,722) $ 111,866 Items Not Requiring Cash: Depreciation and amortization 271,714 135,376 Stock issued for services 628,915 -0- Other 2,167 -0- ------------- ------------ ($988,926) $ 247,242 ------------- ------------ Changes in: Receivables 307,623 (58,686) Other assets (101,034) (21,830) Accounts payable and other accrued expenses 403,575 -0- Loans payable 110,000 -0- Due to stockholder 265,372 20,000 ----------- ----------- $ 985,536 $ 290,756 =========== =========== Cash Provided (used) by Operations ( 3,390) 537,998 Investing Activities: Acquisition of fixed assets (192,941) ( 39,531) ----------- ----------- Cash Used by Investing Activities (192,942) ( 39,531) Financing Activities: Principal amount on notes payable (213,676) -0- Principal payments on former mortgage -0- (152,000) Repayment of former mortgage -0- (3,261,165) Proceeds from mortgage refinancing -0- 5,664,997 Withdrawal of capital contributions (2,000,000) (480,440) Issuance of stock 169,100 -0- ----------- ------------ Cash Provided (Used) by Financial Activities (2,044,576) 1,771,392 ------------ ------------ Increase (Decrease) in Cash and Cash Equivalents (2,270,907) 2,269,859 Cash and cash equivalents, beginning of year (2,278,694) 8,835 ------------ ------------ Cash and cash equivalents, end of year $ 7,787 $ 2,278,694 ============ ============ Supplemental disclosure of cash flow information: Interest paid $ 651,078 $ 299,000 ============ ============ Income taxes paid $ 800 $ 800 ============ ============
See accompanying notes to consolidated financial statements F-5 VALCOM, INC. AND SUBSIDIARY --------------------------------------- CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY ----------------------------------------------- YEAR ENDED DECEMBER 31, 2000 AND 1999 ---------------------------------------
Additional Common Preferred Paid-in Accumulated ------- ---------- Capital Deficit Shares Amount Shares Amount ---------- ----------- ------- ------- ------ ------- Balance January 1 1999 11,140,878 $11,141 1,693,000 $1,653 $11,825,094 (9,751,767) Cancellation Common Stock (1,447,000) (1,447) (88,991) Recapitalization of VEI (2,336,361) 10,359,542 Net Income 111,866 for 1999 ----------- ------- -------- ------- ------------ ----------- Balance Dec.31, 1999 9,693,878 9,694 1,653,000 1,653 (9,399,742) 719,641 Shares issued for services 2,736,000 2,736 616,515 (458,250) Shares issued for assets 100,000 100 12,400 Shares issued for cash 900,000 900 169,100 Conversion of preferred 1,100,000 1,100 (110,000) (110) (900) Withdrawal of capital contribution (2,000,000) Retirement upon merger (100,000) (100) (19,900) Acquisition of VEI 75,709,965 75,710 (75,710) Net loss for 2000 (1,433,472) --------- ------- ----------- ----------- -------- ---------- Balance December 31, 2000 90,139,843$90,140 1,543,000 $ 1,543 $8,101,157 ($1,172,081) ========== ======= ========== ========= ========== ===========
See accompanying notes to consolidated financial statements F-6 VALCOM, INC. AND SUBSIDIARIES ---------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 2000 AND 1999 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: Organization - ------------ ValCom, Inc. (the "Company"), formerly SBI Communication, Inc. 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 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. In October 2000, the Company was issued 75,709,965 shares by SBI for 100% of the shares outstanding in Valencia Entertainment International LLC ("VEI"), a California limited liability corporation. This acquisition has been accounted for as a reverse acquisition merger with VEI becoming the surviving entity. The corporate name was changed to ValCom, Inc. 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 12/31/00. These financial statements include all activities as if the acquisition occurred on January 1, 1999. ValCom, Inc. ------------ Notes to Consolidated Financial Statements -------------------------------------------- December 31, 2000 and 1999 --------------------------- Note 1 Summary of Significant Accounting Policies (cont'd) - ---------------------------------------------------------- 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 form those estimates. Commitments, Risk And Contingencies - ------------------------------------ Financial instruments that potentially subject the Company to concentrations of risk consist of trade receivables principally arising from monthly leases from television producers. Management believes all receivables to be fully collectible. In addition, the Company has a standby letter of credit for $30,000 and a price protection agreement with a shareholder for $20,000. 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. 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. F-8 ValCom, Inc. -------------- Notes to Consolidated Financial Statements -------------------------------------------- December 31, 2000 and 1999 --------------------------- Note 1 Summary of Significant Accounting Policies (cont'd) - ---------------------------------------------------------- Depreciation - ------------ For financial and reporting purposes, the Company follows the policy of providing depreciation an amortization on the straight-line and accelerated 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 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 rate applicable to future years differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Related Party Transactions - -------------------------- From time to time, a shareholder of the Company Advances money to the Company for operations. All amounts owed to the shareholders are non-interest bearing ($200,508 at 12/31/00). In addition to advances, the Company accrued salaries payable to the shareholder totaling $120,000 and $130,000 for the years ended December 2000 and 1999, respectively. All amounts owed to the shareholders are payable on demand. F-9 ValCom, Inc. ------------- Notes to Consolidated Financial Statements -------------------------------------------- December 31, 2000 and 1999 ---------------------------- Note 1 Summary of Significant Account Policies (cont'd) - ------------------------------------------------------- Stock-Based Compensation - ------------------------ As provided for in SFAS #123, the Company elected to apply APBO #25 and related interpretations whereby the fair value of stock given is determined at the grant date and additional disclosures are provided in Note 7. 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 as 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 is 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 licensing of television programming is recorded when the material is available for telecasting by the licensee and when certain other conditions are met. Rental revenue is recognized monthly pursuant to written contracts. Note 2 Property and Equipment - ----------------------------- Property and equipment at December 31, consists of the following: 2000 1999 [CAPTION] ------ ------ Land $7,392,292 $8,224,792 Building $4,028,785 $7,136,285 Building Improvements $1,240,070 $1,065,179 Office Furniture and equipment $ 39,500 $ 21,450 ------------ ----------- $12,700,647 $16,447,706 Less: Accumulated depreciation ( 1,019,266) ( 747,552) ------------ ------------- Net Book Value $11,681,381 $15,700,154 ============ ============= F-10 VALCOM, INC AND SUBSIDIARIES ---------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ December 31, 2000 and 1999 --------------------------- NOTE 3 Notes Payable - --------------------- The following is a summary of the Company's Notes Payable at year end.
December 31, ------------- 2000 1999 ----- ------ 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. $5,961,324 $6,000,000 Promissory note payable to private lender due with interest at 12% per annum and was due July, 1999. The note is secured by a Deed of Trust on the Piedmont property and is presently delinquent. $1,050,000 $1,050,000 Various other loans, short-term, 8.00% - -11.00% Interest 181,181 356,181 --------------- ------------- Total $7,192,505 7,406.181 Less: Current Maturities 1,289,586 1,489,717 -------------- --------------- Notes Payable $5,902,919 $5,916,464 =============== ============== Maturities on the notes are as follows: 2001 $1,289,586 2002 64,521 2003 71,277 2004 78,740 2005 86,986 Thereafter $5,601,396 ------------- $7,192,505 =============
The Company's average short-term weighted interest rate is 10% and 9% respectively for 2000 and 1999. F-11 VALCOM, INC. AND SUBSIDIARY --------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- December 31, 2000 and 1999 ---------------------------- NOTE 4 Income Taxes - --------------------- Deferred income tax assets and liabilities are summarized as follows at December 31,2000:
Deferred tax assets attributable to operating loss carry forwards $4,300,000 Valuation allowance due to uncertainty surrounding realization of operating loss carry forwards ($ 4,300,000) ------------ Total deferred taxes $ 0 ============
The Company has available at December 31, 2000, 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 $ 1,892,000 2015 ------------- $11,817,000 -------------
F-12 VALCOM, INC. AND SUBSIDIARIES ------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ December 31, 2000 and 1999 ---------------------------- NOTE 5 Commitments - ------------------ In May 2000 the Company leased additional facilities adjacent to its location in Valencia. 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. During fiscal 2000, the Company recognized $173,650 rent expense. The Company has various employment agreements with certain officers, shareholders and key employees which expire beginning in 2002. These agreements provide for compensation aggregating $300,000 per annum. NOTE 6 Net Loss Per Share - ------------------------- The Company's net loss per share was calculated using weighted average shares outstanding for 2000 and 1999, respectively. Although convertible preferred stock is a common stock equivalent, with a conversion rate of 5 shares of common stock for each share of preferred stock conversion has not been included in the calculation of earnings per share as it would be antidilutive. NOTE 7 Stockholders' Equity - --------------------------- In December 1999, the Company place a stop order on 1,447,000 shares of common stock for non-performance under contract. In January 2000, the Company issued 200,000 shares of its common stock for cash of $5,000 and financial marketing services with a fair value of $7,500. In January 2000, Valencia Entertainment International, LLC distributed $2,000,000 to its partners. This amount was accounted for as a reduction of partners' capital. F-13 ValCom, Inc. ------------- Notes to Consolidated Financial Statements ----------------------------------------- December 31, 2000 and 1999 -------------------------- NOTE 7 Stockholders' Equity (cont'd) - ------------------------------------- In February 2000, the Company issued 400,000 shares of restricted stock for the origination of a $150,000 loan from two parties. In June 2000, the Company issued 100,000 shares for $25,000 cash. In June 2000, the Company issued 100,000 shares for $20,000 cash. These shares were sold to VEI and were therefore retired upon merger in October 2000. In October 2000, the Company split its common stock on a 2-for-1 basis changed par value of its preferred stock from $5.00 to $.001 per share and issued 75,709,965 post-split shares of common stock to the partners of Valencia Entertainment International, LLC. The consolidated financial statements have been retroactively restated for the split. In November 2000, the Company issued 200,000 shares of restricted stock for legal services at fair value. A price guarantee of $0.50 accompanied the issuance. In December 2000, the Company issued 6,000 shares of restricted stock to employees of the Company. These shares were valued at $0.50 per share. In December 2000, the Company issued 500,000 shares of restricted stock as satisfaction of a debt of $250,000. In December 2000, the Company issued 500,000 shares of restricted common stock for cash of $125,000. In December 2000, the Company issued 1,000,000 shares of restricted common stock for management consulting and legal services with a fair value of $175,000. F-14 ValCom, Inc. -------------- Notes to Consolidated Financial Statements --------------------------------------------- December 31, 2000 and 1999 -------------------------- NOTE 8 Segment Information - -------------------------- The Company has two segments - studio operations and production/distribution of television programming.
Studio Programming ------- ------------- Identifiable assets $15,898,327 $110,201 =========== ============= Revenues 1,357,573 37,500 =========== ============= Operating Profits (losses) ($804,927) ($235,717) =========== =============
NOTE 9 Subsequent Events - ------------------------ a) In 2001, the Company acquired 100% ownership of Half/Day Video, Inc., a California corporation, for 950,000 shares of ValCom, Inc. Common Stock. If this transaction took place on January 1, 2000, the revenues, net loss and net loss per share would be $3,395,000, ($3,644,000), and ($.12), respectively. b) In January 2001, the Company adopted an Employee Stock Compensation Plan. Such plan provides for issuance of shares of common stock to compensate employees, consultants, and other professionals engaged by the Company. The Company issued 1,500,000 shares for services by consultants valued at $262,500. c) The Company has listed the Piedmont Property of sale at an asking price of $4,500,000. The net book value at 12/31/2000 as included in Note #2 is #3.9 million. Management intends on using proceed to satisfy current obligations of approximately $2.5 million. Such obligations are also subject to negotiation. d) The Company has a letter of intent from as investment firm to raise $10,000,000 subject to certain conditions including a successful $1,000,000 private placement. F-15 VALCOM, INC. AND SUBSIDIARIES ----------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ December 31, 2000 and 1999 --------------------------- NOTE 10 Restatement of Financial Statements - ------------------------------------------- The balance sheet and statement of stockholders' equity as of December 31, 1999 and for the 12, months then ended have been restated to reflect a reversal of preferred stock cancellation. Originally in 1998, 1,500,000 shares of preferred sock with a par value of $5.00 per share was issued in connection with the purchase of the Company's building and land in Piedmont, Alabama. The preferred shares were canceled due to non-performance under the sale contract. It now has been determined that the cancellation should not be recorded unless or until the preferred stock certificates are surrendered to the Company. The reversal is necessary based on new information received by the Company. F-16 Summary Financial Data - ---------------------- Set forth below is selected financial information of the Company and its consolidated subsidiaries as derived from the audited statements of income (loss) for the last two calendar years, from the balance sheets for the periods then ended. The selected financial information should be read in conjunction with the financial statements (including the notes thereto) filed with this Registration Statement and are qualified by reference to such financial statements. [CAPTION] December 31, 2000 December 31, 1999 ----------------- ----------------- Statement of Operations Data - ---------------------------- Gross Revenues $ 1,395,073 $1,474,171 Income from Operations(Loss) ( $1,891,722) 111,866 Net Income(Loss) per share * ( .06) ( .01) Balance Sheet Data - ------------------ Assets ------ Current Assets $ 4,086,445 $ 2,713,406 ------------ ------------- Fixed assets-net $11,681,381 $ 15,700,154 Production costs 110,201 28,000 Prepaid loan fees 100,501 111,668 Deposits 30,000 -0- ------------- ------------- Total Assets $16,008,528 $18,553,228 ============= ============= Liabilities - ----------- Current Liabilities 3,084,850 2,506,034 Notes payable 5,902,919 5,916,464 ---------- ---------- Total Liabilities 8,987,769 8,422,498 Total Stockholders' Equity $7,020,759 $10,130,730 - -------------------------- ---------- --------- Total Liabilities and Equity $16,008,528 $ 18,553,228 =========== =============
______ * See above. Per share data is computed based on the weighted average of common stock outstanding as of the report date. -35- Item 8. Charges in and Disagreements with Accountants on Accounting ----------------------------------------------------------- and Financial Disclosure ------------------------ In March 20, 2000 Daniel, Ratliff, and Company, independent certified public accountants, previously engaged as the principal accountant to audit the prior financial statements of the Company, resigned. The resignation resulted from the Company moving its corporate offices to the west coast (Glendale, California) and the conclusion that the Company would be better served through the engagement of a local Certified Public Accounting firm. The Company elected to utilize the services of Jay J. Shapiro, CPA of Encino, California. The decision to change accountants was approved by the Board of Directors of the company. There have been no disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have cause it to make reference to the subject matter of the disagreements in connection with its report for 1998 and 1999. The Company has filed with the Securities and Exchange Commission an 8-K dated march 29, 2000 disclosing this action. The Company has requested that the former accountants furnish them with letter stating whether they agree with the statements made by the registrant, and, if not, stating the respects in which they do not agree as indicating in Item 4. A copy of this letter was filed by Exhibit with an 8-K. Item 9. Directors, Executive Officers, Promoters and Control Persons - -------------------------------------------------------------------- DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------- The following table sets forth the names and ages of the members of the Company's board of directors and its executive officers, the positions with the Company held by each, and the period during which each such person has held such position. Name Age Position Since - ---- --- -------- ---- Vince Vellardita 42 CEO/ Chairman of the Board 2000 Steve Weber 56 President/CFO/Director 2000 Ronald Foster 59 Secretary/Vice President/Director 1986 David Weiner 41 Director 2001
Messrs. Vellardita , Fosters, and Mr. Weber are all engaged with the Company's business on a full time basis. All directors hold office until the next annual meeting of stockholders of the Company (currently expected to be held during May 2001) and until their successors are elected and qualified. Officers hold office until the first meeting of directors following the annual meeting of stockholders and until their successors are elected and qualified, subject to earlier removal by the board of directors. There are currently no committees of the board of directors. -36- Biographies of the Company's Executive Officers and Directors - ------------------------------------------------------------- Vince Vellardita Vince Vellardita is currently President, Chief Executive Officer, and Chairman of the Board of ValCom, Inc. Mr. Vellardita was instrumental in having Valencia Entertainment acquire a 180,000 square foot production facility in Valencia, California that houses 8 film and production sound stages that have been occupied for the past four 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 bring Duran/Duran and U2 to North America for their first US tours. He also produced a benefit tour for the 1980 Presidential campaign of John Anderson. Mr. Vellardita is a 25 year veteran production exective with a successful track record that extends throughout many arms of the Entertainment Industry. While in Nashville Mr. Vellardita was responsible for the turn a round for a small,(run of the mill) production house for music into a television satellite network, housing multiple sound-stages and edit bays. Mr. Vellardita also increased revenues by bring national accounts to this network. Mr. Vellardita has been involved in over 10,000 episodes of television and 100 films. After Mr. Vellardita's success in Nashville, he moved to Los Angeles focusing on film and television where he developed independent production studios. Mr. Vellardita handled everything from the coordination of sales and contracts negotiations, to the launching of Marketing strategies to lure some of the biggest names in the television community. These include Paramount, Warner Brothers, and Disney. Mr. Vellardita does not currently serve as a director of any other reporting company. Ronald Foster, Ron Foster has served as the Company's Chief Executive Officer, President and Chairman of the Board from 1986 to October 2000. Mr. Foster, 59, is presently Vice President and director on the Board of ValCom. He has been working with the Company since its inception in 1984. His primary responsibilities include finance, marketing and technical review. In addition to his responsibilities with the Company, 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 where he was responsible for coordinating television entertainers, sports figures and other celebrities for department store promotions. Previously, Mr. Foster has 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 has also been the president and chief executive officer of ROPA Communications, Inc., 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 the Company, Mr. Foster does not currently serve as a director of any other reporting company. -37- 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 ValCom, Inc. Mr. Weber has over 20 years of background in Finance and Management and is a certified public accountant. Prior to joining ValCom, Mr. Weber was the Co-founder and President of a publicly traded marketing company that had annual revenues of $60 million. Mr. Weber was instrumental in negotiating the sale ofthe company to a NYSE corporation. Prior to joining ValCom, Mr. Weber, was a practicing CPA for 13 years, where he wae the managing partner for a regional audit firm. Currently, in addition to his duties at ValCom Mr. Weber also consults for a publicly traded Internet company, Genesis Entermedia.com, Inc. where he sits on the Board of Director and is Chairman of the Audit Committee. Meeting and Committee of the Board of Directors ------------------------------------------------- Each director is elected to serve for a term of one (1) year until the next annual meeting of shareholders or until a successor is duly elected and qualified. There are no family relationships among directors or persons nominated or chosen by the Company to become a director. The present term of office of each director will expire at the next annual meeting of shareholders. During the fiscal year ended December 31, 2000, the Board of Directors held 42 meetings of which no director attended fewer than 75% of the total number of meetings. 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 the Company. No officer of the Company receives any additional compensation for his services as a director, and the Company does not contribute to any retirement, pension, or profit sharing plans covering its directors. Item 10 Executive Compensation - ---------------------------------- The Summary Compensation Table below sets forth all compensation paid to the Officers and Directors of the Company during the Company's year ended December 31, 2000 and 1999.Prior to June of 1992, the date on which a change in control of the Company was effected and current management took over their respective positions, previous management conducted no business, the Company's was inactive and no compensation was paid or deferred to and of the Company's officers or directors. -38- 2000 Summary Compensation Table ------------------------------- Name Annual Compensation Long Term Compensation and Awards Awards LTIP All Principal Restricted Restricted Pay- Other Position Salary Bonus Other Stock Options outs Compensation - -------- ------------ ------------ ------- ---- ------------ Vince Vellardita ** (5) * * * * * * Steve Weber*** (7) * * * * * * * Ron Foster + (6)*(4) * * * * * * ______________________________________________________________________________ 1999 Summary Compensation Table ------------------------------- Name Annual Compensation Long Term Compensation and Awards Awards LTIP All Principal Restricted Restricted Pay- Other Position Salary Bonus Other Stock Options outs Compensation Ronald Foster ** 5 Y * Y * * * Claude Pichard +(2) * * * * * * * Karien Anderson(1)(2)8 * * * * * *
_____________________________________________________________________________ _ * None. ** Chairman and Chief Executive Officer. *** President & Chief Financial Officer. + Vice President. (1) Secretary and Treasurer. (2) Director. (3) Director. (4) Vice President. (5) $120,000. (6) $120,000. (7) $ 80,000. (8) $ 30,000. (9) No person listed has any options to acquire securities of the kind required to be disclosed pursuant to instruction 1 of Item 403 of Regulation SB. (Y) Yes Employment Agreements - --------------------- The Company is a party to employment agreements with Vince Vellardita and Ronald Foster. On January 1, 1992, Mr. Foster entered into a ten year employment agreement with the Company, renewable thereafter for continuing one year terms unless one of the parties provides the other with written intention not to renew, on or before the 180th day prior to expiration of the then current term. Although the agreement can be terminated by the Company for cause, or the Company's stockholders can refuse to comply with its terms by not re-electing Mr. Foster as a director, such events accelerate Mr. Foster's rights to compensation under the Agreement. The Agreement provides the Company with an obligation to defend and indemnify Mr. Foster to the fullest extent legally permitted, and calls for the following compensation: -39- (a) Mr. Foster is entitled to a salary starting at $2,500.00 per Week, but subject to review on a quarterly basis, with the expectation that it will be substantially increased as increased profits and cash flow from operations permit. (b In addition to the foregoing, Mr. Foster is entitled to a benefit package equal to the most favorable benefit package provided by the Company or its subsidiaries to any of their employees, officers, directors, consultants or agents. All required payments are accruing until such time as the Company has adequate funds to meet its operating expenses and commitments. Item 11. Security Ownership of Certain Beneficial Owners & Management - ------------------------------------------------------------------------------ The following table sets forth, as of the date of this Registration Statement, the number and percentage of shares of common stock owned of record and beneficially by any group (as that term is defined for purposes of Section 13(d)(3) of the Exchange Act), person or firm that owns more than five percent (5%) of the Company's outstanding common stock (the Company's only class of voting securities). Name and Address of Amount of Nature of Percent of Beneficial Owner *Shares Ownership Class Ronald Foster 4,154,118 Record & 4.6% Common 103 Firetower Road Beneficial Leesburg, Georgia, 31763 Vince Vellardita 18,077,491 Record & 20% Common 26030 Avenue Hall Beneficial Valencia, California 91355 E-Blaster International 30,000,000 Record & 33% Common JL. H.R. Rasuna Said Kav. Beneficial B-1 6th Floor, Jakarta, 12920 Indonesia Radorm Technolgy Limited 5,678,247 Record & 6.2% Common Jakarta, 12920 Beneficial Indonesia Great Asian Holdings Limit 21,104,227 Record & 23% Common Jakarta, 12920 Beneficial Indonesia
_______________________________________________________________________________ * Includes all stock held either personally or by affiliates. (b) Security Ownership of Management - ---------------------------------------- The following table sets forth, as of the date of this Registration Statement, the number and percentage of the equity securities of the -40- Company, its parent or subsidiaries, ,owned of record or beneficially by each officer, director and person nominated to hold such office and by all officers and directors as a group. Title of Name of Amount Nature of Percent of Class Beneficial Owner Shares Ownership Class - ----- --------------- ------ --------------- Common Ronald Foster 4,154,118 ** 04.50% Common Vince Vellardita 18,077,491 *** 20.05% Common Steve Weber 400,500 ** 00.07% Common David Weiner 0 *** 00.00% Common All officers and directors as a group (4 people) 22,632,109 ** 25.62%
___ * Includes all stock held either personally or by affiliates. ** Record & Beneficial. *** Not Applicable. To the best knowledge and belief of the Company, there are no arrangements, understandings, or agreements relative to the disposition of the Company's securities, the operation of which would at a subsequent date result in a change in control of the Company. Changes In Control - ------------------ ValCom is unaware of any contract or other arrangement, the operation of which may at a subsequent date result in a change in control of ValCom. Item 12. Certain Relationships and Related Transactions - --------------------------------------------------------- There are no family relationships among directors, executive officers or persons chosen by the Company to be nominated as a director or appointed as an executive officer of the Company of any of its affiliated subsidiaries. PART IV ------- Item 13. Index to Exhibits - ------- ------------------- Description of Exhibits
Page or Exhibit Source of Number Incorporation Description - ------ ----------------- --------------- EX 27 Summary Financial Information EX A Merger Agreement EX B Written Consent of The Majority Stockholders EX C The Name Amendment EX D The Par Value & Authorized Share Amendment EX E Joint Venture Agreement Woody Fraser EX F Memorandum of Agreement Half-Day 8-K Edgar 20 each 8-K filing were made throughout 2000 PRE14-C Edgar Filed October 23, 2000 DEF14-C Edgar Filed February 13, 2001
-41- Additional Information ---------------------- Headquarters ------------ ValCom, Inc. ------------ 26030 Avenue Hall Studio #5 - Valencia, California 91355. ------------------------------------------------------ Subsidiaries ------------ SBI Communications, Inc., a Alabama Corporation ------------------------- 576 Hwy 278 Bypass - Piedmont, Alabama 36272 ------------------------------------------- SBI Communications, Inc., a Nevada Corporation --------------------------------------------------- 1063 Centerville Lane, Gardnerville, Nevada 89410 ------------------------------------------------- Valencia Entertainment International, a California LLC -------------------------------------------------------- 26030 Ave Hall Studio #5, Valencia, California 91355 ------------------------------------------------------ Half/Day Video -------------- 2711 Empire Avenue - Burbank, California 91504 ------------------------------------------------- Woody Fraser Productions ------------------------ 28309 Avenue Crocker - Valencia, California 91355 -------------------------------------------------- Officers & Directors -------------------- Vince Vellardita: Chairman of the Board, President & Chief Executive Officer Steve Weber: CFO/Director Ron Foster:Secretary/Vice President/Director David Weiner: Director Auditors -------- Mr. Jay J. Shapiro Jay J. Shapiro, CPA. A Professional Corporation 16501 Ventura Boulevard, Suite 650, Encino, California 91436 Legal Counsel ------------ Pollet & Richardson - Mr. Nimish Patel Transfer Agent -------------- Corporate Stock Transfer 3200 Cherry Creek Drive South; Suite 430; Denver, Colorado 80209 Exhibits to this Form 10-KSB will be provided, subject to payment of actual copy costs, to shareholders of the Company upon written request addressed to Marcus Omote, ValCom, Inc., at the Company's headquarters listed above. -42- Signatures ---------- Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, as amended, the Company has duly caused this First Amended Registration Statement to be signed on its behalf by the undersigned, hereunto duly authorized. ValCom, Inc. Dated: April 14, 2001 /s/Vince Vellardita ------------------- Vince Vellardita Chairman, President & Chief Executive Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf or the Company and in the capacities and on the dates indicated. [CAPTION] Signature Title Date --------- ----- ---- /s/ Vince Vellardita Chairman, President May 30, 2001 ----------------- & Chief Executive Officer Vince Vellardita /s/ Steve Weber Director, And CFO May 30, 2001 - ------------------- Steve Weber /s/ Ronald Foster Director, Secretary/Vice President May 30, 2001 - ------------------ Ronald Foster /s/ David Weiner Director May 30, 2001 - ---------------- David Weiner
EX-27 2 0002.txt FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 Exhibit 27 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF VALCOM, INC. FOR THE YEAR ENDED DECEMBER 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. (In thousands, except per share amounts) DEC-31-2000 JAN-01-2000 DEC-31-2000 7,787 0 74,455 0 0 4,086,443 271,714 16,008,528 3,084,850 11,681,381 0 0 1,543 90,140 8,101,157 16,008,528 0 1,395,073 0 2,435,717 0 851,078 (1,891,722) 0 (1,891,722) 0 0 0 (1,891,722) (0.06) (0)
EX-20 3 0003.txt 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 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. 26030 Avenue Hall Studio 5 Valencia, CA 91355 Tel: 661-257-8000 Fax: 661-257-1780 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 Signature Shares Beneficially Owned /s/ Ronald Foster 4,154,178 /s/ Larry Cahill 1,000,000 /s/ Michael Graham 1,000,000 /s/ Peter Papas 800,000 as trustee for the Peter Papas 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"). EXHIBIT E --------- MEMORANDUM OF AGREEMENT This Joint Venture agreement ("Agreement") is made and entered into as of this 1st day of January 2001, by and between ValCom, Inc., a Delaware corporation, whose address is 26030 Avenue Hall, #5, Valencia, California 91355, ("ValCom") and Woody Fraser Productions ("WFP") and Woody Fraser \("Fraser"), whose address is 28309 Avenue Crocker, Valencia, California 91355 with reference to the following facts: RECITALS WHEREAS, ValCom desires to engage the services of WFP and Fraser as a television production company for ValCom, and WHEREAS, the parties (collectively "Parties" and individually a "Party") desire to form a joint venture for the purpose of development and production of various television projects, NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, and for valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the Parties to this Agreement agree as follows: AGREEMENT Purpose: The primary purpose of the joint venture is the development and production of television shows, including but not limited to pilots, and television specials. 1. Duties of WFP and Fraser: (a) WFP and Fraser shall be responsible for developing, selling and producing the following series: "Truster", "Dame Edna", and "Hangin With The Boyz", "Ultimate Challenge", TNN game show pilot, "Face Off", "Million Dollar House"project, "Rock and Roll Hall of Fame", as well as any new projects to be developed for ValCom. The services of WFP and Fraser shall be exclusive to ValCom and they shall not render services to any third party without the prior express written approval of ValCom. WFP and Fraser shall use to best efforts to develop, sell and produce new television projects for ValCom. Gross receipts from any and all such productions shall be deposited into ValCom's Wells Fargo bank account. ValCom shall open a separate bank account for each show by show or project name. Funds shall notbe co-mingled between shows but must be disbursed only for each specified project. The distribution of such revenues shall be at the sole discretion of Woody Fraser, however each check shall be co-signed by Woody Fraser and an authorized signatory of ValCom. (b) WFP and Fraser will also oversee the reorganization, training and reprogramming of the Indonesian network, Great Asian Holdings, with all costs being paid by said network. 2. Contributions of ValCom: (a) ValCom shall advance to WFP or Fraser a draw in the amount of $500,000 per year beginning January 2001. This amount shall be paid in ten (10) equal payments in the amount of $50,000. Payments will be paid in February, March, April, May, June, July, August, September, October, and November. Payments \are due and payable on the first (1st) day of each month and must be made within five (5) working days. This money shall be used by WFP and Fraser for all office salaries, development personnel, T & E expenses, and fringe development costs for rights and title searches. WFP shall submit an accounting to ValCom each month, detailing the allocation of the monthly expenses. Office space shall be provided by ValCom. (b) ValCom shall set up a development fund to be used for pilots, presentations, and show development that WFP can draw from after obtaining approval from ValCom. WFP shall prepare and submit a budget breakdown for ValCom approval. 3. Profit Participation: The percentage of interest in the joint venture is as follows: ValCom:75 % WFP and Fraser: 25% The parties shall receive payment based on these percentages of 100% of the Net Profit from the exploitation of each television show produced by the joint venture. Net Profit means the amount of Gross Receipts remaining, if any, after first deducting from Gross receipts, on a continuing and cumulative basis, the aggregate of all administrative, production and distribution expenses, including monthly advance to WFP and Fraser. Gross Receipts means the aggregate of (a) Gross Film Distribution Receipts, including but not limited to cash sales from free television distribution, barter sales, copyright royalties, pay television receipts, home video receipts from both sales and rentals. (b) Music Publishing Receipts (c) Music Recording Receipts (d) Merchandising and Literary Publishing (e) Ancillary Rights Receipts No distribution of Net Profit from a project will be made to the Parties until all production and distribution expenses for said project are recouped by ValCom. 4. Term: The term of this Agreement shall be three (3) years beginning January 1, 2001 and terminating December 31, 2003. This Agreement may be terminated by ValCom in the event of illness or permanent disability of Fraser resulting in a failure to substantially dischargehis duties under this Agreement for a period of six (6) months or a total of one hundred and eighty (180) days in any calendar year. 5. Other Fees: WFP and/or Fraser may also be paid executive producer fees for television shows produced by this joint venture. Such fees shall be paid from the individual show budget. 6. Stock Options: Fraser shall be granted stock in the amount of 250,000 shares of restricted Company Common Stock in the first calendar year. If, at any time prior to the issuance of said shares there shall be any alteration in the capital stock of the Company, other than an increase in the authorized or issued capital, the said issuance shall attach to an appropriate number of the shares or securities of the Company, which shall have, been created by anysuch alteration. In addition, Fraser and Cathy Masamitsu, Fraser's assistant, shall be granted a stock option of restricted Company Common Stock in an amount to be determined by the Board of Directors of ValCom at the end of each calendar year. Fraser warrants and represents that the shares are being acquired solely for its own account and not with a view to, or for resale in connection with, any distribution of common shares within the meaning of the Securities Act. Fraser agrees that the shares may not be sold in absence of registration unless such sale is exempt from registration under the Act and any applicable state securities laws. The certificate for the shares shall bear the following restrictive legend: "THE SHARES REPRESENTED BY THE CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("THE ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY." 7. Dissolution: Upon dissolution, the business of the Joint Venture shall be wound up by the partners. Proceeds from all joint venture projects shall be applied to (i) payment of any joint venture debts (other than to partners) including any expenses of liquidation, (ii) deposit in a trust account of a reasonable reserve for payment of contingent liabilities and expenses, and (iii) repayment of loans from partners. The remaining proceeds shall be distributed in the manner provided for distribution of cash generally. After a reasonable time and payment of contingencies arising in that time, the balance remaining in the trust account shall be distributed to the Partners in the same manner. WFP and Fraser may terminate this Agreement if: a. Valcom becomes insolvent, executes an assignment for the benefit of creditors, or takes advantage of any applicable insolvency or any other like stature, or a petition under any bankruptcy or liguidation act is filed by or against it, or a receiver is appointed for Valcom's assets. b. ValCom fails to perform under the terms and conditions of this Agreement and fails to cure such default or breach within thirty (30) days after written notice from WFP and Fraser. In the event that WFP and Fraser terminate this Agreement due to any reason outlined in Paragraphs 7a. or 7b., WFP and Fraser shall be entitled to all of the rights and profit participation (after recoupment of all production and distribution expenses as outlined in Paragraph 3) of any production that has not been completed prior to the occurrence of such event. 8. Miscellaneous: The parties hereto agree to execute such further and other documents and to enter into such further undertakings as may be reasonably necessary to carry out the full force and intent of this Agreement. 8.1 The provisions of this Agreement shall enure to the benefit of and be binding upon the legal representatives of the ValCom, WFP and Fraser and upon their respective heirs, executors, administrators, successors and permitted assigns. 8.2 Each party ("Indemnifying Party") hereby indemnifies, defends and holds harmless the other party and its successors, licensees, assigns, and employees, officers, directors (collectively for the purposes of this Paragraph "Indemnified Party") from and against any and all liability, loss, damage, cost and expense, including, without limitation, reasonable attorney's fees, arising out of any breach, or claim by a third party with respect to any warranty, representation or agreement made by the Indemnifying Party herein. The Indemnified Party shall promptly notify the Indemnifying Party of any claim to which the foregoing indemnification applies and the Indemnifying Party shall undertake, at its own cost and expense, engage its own counsel. If the Indemnifying Party fails to promptly appoint competent and experienced counsel, the Indemnified Party may engage its own counsel and the reasonable charges in connection therewith shall promptly be paid by the Indemnifying Party. If the Indemnified Party settles or compromises any such suit, claim or proceeding, the amount thereof shall be charged to the Indemnifying Party, provided that the Indemnifying Party's reasonable prior approval has been secured. 8.3 Any notice required or permitted to be given hereunder may be delivered, sent by registered mail, postage prepaid, or sent by facsimile, addressed to the proposed recipient of the notice at the address set out on the first page hereof or to such other address or addresses as the parties may indicate from time to time by notice in writing to the others. 8.4 This Agreement shall in all respects be interpreted, enforced and governed under the laws of the State of California. The language and all parts of this Agreement shall be in all cases construed as a whole according to its very meaning and not strictly for or against any individual party. ValCom, WFP and Fraser agree that any legal disputes that may occur between them, and that arise out of, or related in any way to, this Agreement, and which disputes cannot be resolved informally, shall be resolved exclusively through final and binding private arbitration before an arbitrator mutually selected by ValCom, WFP and Fraser with each party to bear its own costs and attorney fees. If ValCom, WFP and Fraser are unable to agree upon an arbitrator within twenty-one (21) days after any party made a demand for arbitration, the matter will be submitted for arbitration to the Los Angeles office of the American Arbitration Association pursuant to the rules governing contract dispute resolution in effect as of December 1, 1998. Notwithstanding the foregoing, in no event shall a demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute, or other matter in question would be barred by the applicable statutes of limitation. 8.5 This Agreement memorializes and constitutes the entire agreement and understanding between the parties regarding the subject matter hereof, and supersedes all prior negotiations, proposed agreements and agreements, whether written or unwritten. The parties acknowledge that no other party, nor any agent or attorney of any other party, has made any promises, representations, or warranties whatsoever, expressly or impliedly, which are not expressly contained in this Agreement, and the parties further acknowledge that they have not executed this Agreement in reliance upon any collateral promise, representation, warranty, or in reliance upon any belief as to any fact or matter not expressly recited in this Agreement. This Agreement may not be altered or modified except by a writing signed by all of the respective parties hereof. No breach or violation of this Agreement shall be waived except in writing executed by the party granting such waiver. 8.6 Should any provision of this Agreement be declared or determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and, in lieu of such illegal or invalid provision, there shall be added a provision as similar in terms and amount to such illegal or invalid provision as may be possible and, if such illegal or invalid provision cannot be so modified, then it shall be deemed not to be a part of this Agreement. 8.7 For the convenience of the parties, this Agreement may be executed by facsimile signatures and in counterparts that shall together constitute the agreement of the parties as one and the same instrument. It is the intent of the parties that a copy of this Agreement signed by any party shall be fully enforceable against that party. IN WITNESS THEREOF the parties have executed this Agreement as of the date first above written, VALCOM, INC. By:_/s/ Vince Vellardita - ------------------------ Vince Vellardita Chief Executive Officer WOODY FRASER PRODUCTIONS By:_/s/ Woody Fraser - ------------------- Woody Fraser WOODY FRASER, AN INDIVIDUAL By:_/s/Woody Fraser - -------------------- Woody Fraser EXHIBIT F ----------- MEMORANDUM OF AGREEMENT This purchase/option agreement ("Agreement") is made and entered into as of this ___________ day of January 2001, by and between SBI Communications, Inc., a Delaware corporation, whose address is 26030 Avenue Hall, #5, Valencia California 91355, ("Company") and Half Day Video, whose address is 2711 Empire Avenue, Burbank California 91504, ("Half Day") and Clay Harrison ("Harrison") with reference to the following facts: RECITALS WHEREAS, Company desires to purchase 100% of the stock, including the business operations and goodwill ("Operations") of Half Day; and WHEREAS, Company desires an option to purchase the real estate belonging to Harrison, located at 2711 Empire Avenue, Burbank California 91504 ("Property"), NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, and for valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties to this Agreement (collectively "parties" and individually a "party") agree as follows: AGREEMENT 1. Company agrees to purchase the Operations of Half Day for a total purchase price of $950,000. This acquisition shall include all of the equipment of Half Day, as outlined on the attached Exhibit A. The following assets are specifically excluded from the purchase: a. Receivables from Frank Olsen and/or Triangle Multi Media, Inc. in settlement of the claim against them for damages sustained to video production truck and equipment. b. Any monies recovered from an insurance claim against Triangle Multi Media, Inc. for damages sustained to video production truck and equipment. The Company shall assume the liabilities of Half Day as outlined on Exhibit B. The following liabilities are specifically not assumed by the Company: a. Outstanding Wells Fargo loan in the amount of approximately $34,000, except that Company shall assume the payment obligation for the first year in the amount of $1100.00 per month. Following the first year the payment obligation shall revert to Clay Harrison. b. Outstanding loan to Half Day from Tom Cruce in the amount of approximately $25,000 2. Payment of the purchase price shall be as follows: Company agrees to issue 950,000 shares of Company Common Stock to Harrison, or his designee upon execution of the Agreement. In the event the Fair Market Value of the Company Common Stock is less than $1.00 per share on the first anniversary date of the issuance of said shares, Company shall issue an appropriate number of shares to Harrison in order to arrive at the agreed upon amount of $950,000. Fair Market Value means the value of a share of the company's Common Stock determined as follows: a. if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal securities exchange on which the Common Stock is listed or admitted to trading; b. if such Common Stock is quoted on the NASDAQ National Market, its closing price on the NASDAQ National Market on the date of determination as reported; c. if such Common Stock is publicly traded but is not listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported; and d. if none of the foregoing is applicable, by an independent appraisal company, the cost of which is to be borne by the parties equally. 3. Harrison warrants and represents that the shares are being acquired solely for its own account and not with a view to, or for resale in connection with, any distribution of common shares within the meaning of the Securities Act. Harrison agrees that the shares may not be sold in absence of registration unless such sale is exempt from registration under the Act and any applicable state securities laws. Company represents and warrants that at the end of the one-year statutory restriction, said shares shall be fully marketable by Harrison. The certificate for the shares shall bear the following restrictive legend: "THE SHARES REPRESENTED BY THE CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("THE ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY." 4. Company shall have the option to purchase the real estate located at 2711 Empire Avenue, Burbank 91504 in one year from the date of execution of this Agreement. Company shall have thirty (30) days from the anniversary date in which to exercise its option by delivering written notice to Harrison, after which Harrison is free to market the Property. The purchase price of said real estate shall be $600,000. In the event that Company exercises its option, the transaction shall be completed within ninety (90) days. Exercise of the option by Company is expressly conditioned upon its compliance with all of its obligations under this Agreement. Terms of such purchase shall be negotiated in good faith. Nothing herein contained or done pursuant shall obligate the Company to purchase the real estate. 5. Company shall retain Harrison as a regular employee of SBI subject to the terms of the Employment Agreement, attached as Exhibit C. 6. Half Day and Harrison represent and warrant that: (i) Half Day is a corporation duly formed and validly existing in good standing under the laws of the State of California and has the full right, power, legal capacity and authority to enter into and carry out the terms of this Agreement. (ii) Half Day has no agreement with or obligations to any third party with respect to its Operations or Property, which might conflict or interfere with or adversely affect any of the provisions of this Agreement or the use or enjoyment by Company of any of the rights granted to it hereunder. Half Day has secured all rights necessary for Company to use and enjoy the rights granted to it herein. Half Day has not sold, assigned, transferred or conveyed to any party any right, title or interest in and to the Operation or Property or any part thereof adverse to or in derogation of the rights granted to Company. (iii) Half Day 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 Half Day Financial Statements, free and clear of all liens, claims, security interests or other encumbrances except as those described in the Half Day Financial; Statements or arising thereafter in the ordinary course of business (none of which will be material). (iv) To the best of Half Day's and Harrison's Knowledge there is no claim, proceeding, litigation or investigation, whether civil or criminal in nature, pending or threatened against Half Day or its principals, 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 prevention the execution, delivery or consummation of this Agreement. Half Day 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. 7. Company represents and warrants that: (i) Company is a corporation duly formed and validly existing in good standing under the laws of the State of Delaware and has the full right, power, legal capacity and authority to enter into and carry out the terms of this Agreement. 8. Each party ("Indemnifying Party") hereby indemnifies, defends and holds harmless the other party and its successors, licensees, assigns, and employees, officers, directors (collectively for the purposes of this Paragraph "Indemnified Party") from and against any and all liability, loss, damage, cost and expense, including, without limitation, reasonable attorney's fees, arising out of any breach, or claim by a third party with respect to any warranty, representation or agreement made by the Indemnifying Party herein. The Indemnified Party shall promptly notify the Indemnifying Party of any claim to which the foregoing indemnification applies and the Indemnifying Party shall undertake, at its own cost and expense, engage its own counsel. If the Indemnifying Party fails to promptly appoint competent and experienced counsel, the Indemnified Party may engage its own counsel and the reasonable charges in connection therewith shall promptly be paid by the Indemnifying Party. If the Indemnified Party settles or compromises any such suit, claim or proceeding, the amount thereof shall be charged to the Indemnifying Party, provided that the Indemnifying Party's reasonable prior approval has been secured. 9. The parties hereto agree to execute such further and other documents and to enter into such further undertakings as may be reasonably necessary to carry out the full force and intent of this Agreement. 10. The provisions of this Agreement shall enure to the benefit of and be binding upon the legal representatives of the Company, Half Day and Harrison and upon their respective heirs executors, administrators, successors and permitted assigns. 11. Any notice required or permitted to be given hereunder may be delivered, sent by registered mail, postage prepaid, or sent by facsimile, addressed to the proposed recipient of the notice at the address set out on the first page hereof or to such other address or addresses as the parties may indicate from time to time by notice in writing to the others. 12. This Agreement shall in all respects be interpreted, enforced and governed under the laws of the state of California. The language and all parts of this Agreement shall be in all cases construed as a whole according to its very meaning and not strictly for or against any individual party. 13. This Agreement memorializes and constitutes the entire agreement and understanding between the parties regarding the subject matter hereof, and supersedes all prior negotiations, proposed agreements and agreements, whether written or unwritten. The parties acknowledge that no other party, nor any agent or attorney of any other party, has made any promises, representations, or warranties whatsoever, expressly or impliedly, which are not expressly contained in this Agreement, and the parties further acknowledge that they have not executed this Agreement in reliance upon any collateral promise, representation, warranty, or in reliance upon any belief as to any fact or matter not expressly recited in this Agreement. Any modification to this Agreement shall be made in writing. 14. Should any provision of this Agreement be declared or determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and, in lieu of such illegal or invalid provision, there shall be added a provision as similar in terms and amount to such illegal or invalid provision as may be possible and, if such illegal or invalid provision cannot be so modified, then it shall be deemed not to be a part of this Agreement. 15. For the convenience of the parties, this Agreement may be executed by facsimile signatures and in counterparts that shall together constitute the agreement of the parties as one and the same instrument. It is the intent of the parties that a copy of this Agreement signed by any party shall be fully enforceable against that party. IN WITNESS WHEREOF the parties have executed this Agreement as of the date first above written SBI COMMUNICATIONS, INC. A Delaware Corporation By:_/s/Vince vellardita - ----------------------- Vince Vellardita Chief Executive Officer HALF DAY VIDEO, INC. A California Corporation By:_/s/Clay Harrison - --------------------- Clay Harrison President CLAY HARRISON, AN INDIVIDUAL By:_/s/Clay Harrison - --------------------- Clay Harrison -----END PRIVACY-ENHANCED MESSAGE-----