PSE Circular for Brokers No. 2668-98

November 26, 1998 PSE CIRCULAR FOR BROKERS NO. 2668-98 25 November 1998 PHILIPPINE STOCK EXCHANGE, INC. PSE Centre, Exchange Road Ortigas Center, Pasig City Fax No. 636-0809, 637-1811 RE : PEP-NMB Agreement In response to the request of your Disclosures Department, we wish to re-iterate some points, as well as provide some additional information, that will clarify our disclosure letter dated November 20, 1998 on the above stated subject matter. 1. The reason for the assignment of shares and the assignment of the placements, as indicated in our disclosure letter, is for the "settlement of PEP's outstanding money market placements with NMB in the amount of P51.59M". 2. Terms of the Deal NMB assigned 57.8M Gem Communication Holdings Corp. (GemCom) shares worth P52.02M at a price of P1.40/share or a cash amount of P0.90/share. Subject shares has a par value of P1.00/share of which 50% has been paid. PEP assumes the unpaid subscription of P0.50/share, payable upon call by the GemCom Board of Directors. 3. The transaction will have no effect on the ownership and capital structure of PEP. LLpr 4. Since the Agreement has been fully accomplished on November 20, 1998, PEP is now in possession of the subject shares. 5. The background information about GemCom is provided in the attachment. Please find the following in the attachments: 1. New comprehensive corporate disclosure 2. Information on GemCom We hope that you will find everything to be in order. Very truly yours, (SGD.) ANASTACIO P. DIAZ, JR. Acting President and Chief Executive Officer COMPREHENSIVE DISCLOSURE ON PEP-NMB CAPITAL AGREEMENT Premiere Entertainment Productions, Inc. (PEP) entered into an agreement with Mr. Anselmo Trinidad, Jr. and NMB Capital Inc. (NMB) to acquire 57.8M shares with a par value of P1.00 per share of Gem Communication Holdings Corp. (GemCom) of which 50% has been paid, at a price of P1.40 per share. The purchase price of P52,020,000.00 will be applied to the settlement of PEP's outstanding money market placements with NMB Capital, Inc. in the amount of P51,593,792.62. The Agreement, which will have no effect on the ownership and capital structure of PEP, took effect on November 20, 1998. With the acquisition of the foregoing shares, PEP increased its holdings in GemCom to 111.8 million shares, or to approximately 10.61% of outstanding shares of GemCom. Moreover, the assignment of the shares, together with the execution of an irrevocable proxy over the shares in favor of the company, entitles PEP to a seat in GemCom's Board of Directors. Cdphil GemCom, which has an authorized capital of P3.2B, of which P1.054B has been subscribed and P420M paid-up, is a holding company with interests in companies engaged in media operations, content production and distribution, and leisure/entertainment activities. GemCom's media operations business is carried out by Southern Broadcasting Network (SBN), which was granted a 25-year broadcast franchise in 1995. SBN, which pioneered and currently operates a UHF channel in Manila, also runs VHF television frequencies in Cebu, Bacolod and Davao. GemCom also has an 11.5% interest in PEP, a film production and distribution company, and 100% ownership of Fat Lady Corp., a music distribution company that has distribution contracts with independent US and European labels. Among its other holdings, GemCom, through Acoje Holdings Corp., owns 320 (out of 1,600) membership shares in Metropolitan Club, a sports and leisure club located across the Rockwell Development project site. INFORMATION FOR GEM COMMUNICATION HOLDINGS INC. November 25, 1998 I Date of Incorporation August 01, 1995 Nature of Business Holding Company II Discussion of Major Project & Investment C/O Mr. De Leon III Capital Structure : Capital Stock P/ 1 par value Authorized 3,200,000,000 shares Subscribed 1,054,000,000 shares P/1,054,000,000.00 Paid-Up P/419,670,000.00 IV Ownership Structure before & after the transactions Amount Subscribed Stockholders Before After Arrow Fields Holdings Corp. P/200,000,000.00 P/200,000,000.00 George L. Go 150,000,000.00 150,000,000.00 Wilfrido Vergara 100,000,000.00 100,000,000.00 Alexander Ong 60,000,000.00 60,000,000.00 Antonio Ramon C. Lopez 58,750,000.00 58,750,000.00 Anselmo Trinidad Jr. 58,000,000.00 200,000.00 Premier Entertainment Prod., Inc. 54,000,000.000 111,800,000.00 Gregoria R. Legaspi 40,000,000.00 40,000,000.00 Carlos C. Syquia 40,000,000.00 40,000,000.00 Hirene U. Lopez 39,900,000.00 39,900,000.00 Others 253,350,000.00 253,350,000.00 Total P/1,054,000,000.00 P/1,054,000,000.00 V Board of Directors George L. Go Wilfrido Vergara Anselmo Trinidad Jr. Teofilo A. Henson Antonio Y. Tee Francis G. Estrada Richard Roque VI Officers : GEORGE L. GO Chairman FRANCIS G. ESTRADA Vice-Chairman TEOFILO A. HENSON President ANTONIO Y. TEE Treasurer ROBERTO V. SAN JOSE Corporate Secretary TO OUR STOCKHOLDERS : Fiscal year 1996-97 was a significant year for your company as we focused our attention on two immediate concerns of strategic importance. First, as we assimilated the ever-evolving dynamics of the media and entertainment industries, we have formulated an investment strategy which we believe, would enable your company to grow into a major player in the media and entertainment industries. Secondly, as we entered our second year of operations, we have put on stream projects that were conceptualized during our first year of operations. We are pleased to report that on June 5, 1997, your Board of Directors approved an investment plan anchored on our involvement in three diverse but related business activities: media operations, content production and sourcing, and "out-of-home" leisure and entertainment projects. More significantly, a policy of "building and holding" key investment accounts rather than "trading" them on a short term basis, was adopted. Media Operations Our entry into the media broadcast business was through the acquisition of 35% ownership of Southern Broadcasting Network, Inc. (SBN) in March 1996. SBNI is a congressional franchise grantee that allows it to operate radio and television stations nationwide. Commencing its operations in 1970, SBNI now broadcasts through four (4) television stations in Manila, Cebu, Bacolod and Davao, five (5) FM radio stations in Cebu, Bacolod, Davao, Vigan and Laoag, and one (1) AM radio station in Davao. It has acquired additional frequency assignments from the National Telecommunications Commission to set up television stations in Zamboanga, Tacloban and Legaspi and FM radio stations in Zamboanga and Tacloban. We are very pleased to report to you that, at the instruction of your Board of Directors, we have successfully negotiated the acquisition of an additional 62% block of SBNI. Effective November 26, 1997, GemCom has assumed majority control over SBNI. While negotiations with the previous owners were on-going, your management team has been putting together the business and operational plans for SBNI covering all aspects of broadcast operations including: facilities upgrade, programming concepts, organizational structure, marketing programs and the financial plan. Implementation of the business plan has been set in motion. A key component of this business plan is our on-going negotiations with a major American television network to launch a "branded and themed" television channel in the Philippines through the television network of SBNI. Given the very competitive state of the television industry with six (6) VHF stations, five (5) other UHF stations and a host of cable systems available, we have taken a novel approach to our programming requirements, one that we hope, will differentiate SBNI from the other television networks. LLpr Content Production and Sourcing Content (or more commonly referred to as "software") production and sourcing is the second major leg of our investment strategy. Our current investments in this area consist of Premiere Entertainment Productions, Inc. (PEP), Exchange Television Productions, Inc. (xTV) and the Fat Lady Corporation. On May 5, 1997, PEP successfully completed its initial public offering and became the first movie production company to be listed on the Philippine Stock Exchange. Apart from its traditional business, it is embarking on a diversification program that would allow it to compensate for the inherent investment risks in movie making. It was recently granted a franchise to operate bingo parlors. As added distribution outlets for its films, it is expanding its roving cinema (movies-on-wheels) fleet and is building mini-cinemas in remote municipalities. While GemCom owns only 11.5% of PEP, we continue to be actively involved in the management of the company through our representation in its Board of Directors and Executive Committee. On the television front, our first production venture was not a commercial success. While PSE Live! , our daily coverage of trading activities at the Philippine Stock Exchange, generated a fair degree of interest and a significant following among stock market players and the general market as well, advertisers have been slow in supporting the program with ad placements on account of its perceived limited viewership during the program's daytime slot. Consequently, we have suspended airing of the program as of October 31, 1997. However, considering the importance of the capital market in our financing strategy and the feedback that we have received from the public regarding the program, our production team is re-evaluating the economics of a reformatted PSE Live! to be carried on air by the upgraded SBN 21 television network. LexLib On the music scene, studies and negotiations are currently on-going with two parties to organize a Philippine-based regional music company. The two parties bring with them significant experience and expertise in the recording and music distribution business that would allow us to, as it were, hit the ground running. The objective is to build a music company with strong cross-border linkages through local music companies in the different countries in the Asian region. Our records distribution company, the Fat Lady Corporation, will be integrated into this entity. "Out-of-Home" Leisure and Entertainment Projects Our leisure and entertainment projects are focused on two major undertaking: the Metropolitan Sports Club (Metro Club) and the proposed night entertainment center. To maximize the potentials of our Metro Club holdings, your Board of Directors in June 1997, approved the infusion of our Metro Club shares into Acoje Holdings Corporation, a publicly listed company. As a result, GemCom now controls 63.8% of Acoje. Our current thrust on Acoje Holdings is two-pronged. First, we are studying redevelopment options for Metro Club's 1.26 hectare property on Estrella Street in Makati, a prime property located just across the mammoth Rockwell Center redevelopment. Second, we are actively seeking potential partners who can infuse other major leisure property development projects into Acoje. In both cases, the objective is to enhance the value of our holdings in Acoje Holdings Corporation. Finally, on our entertainment center project, from several design alternatives, our consultant, Forrec Limited, recommended a night entertainment center in the Makati, Fort Bonifacio or the Greenhills areas. The center, which is designed as a destination complex, would have a mixed offering of entertainment activities ranging from light sports such as billiards and bowling, high-tech video simulation games, bars, music lounges and themed retail outlets. Vital to this project is the participation of major property owners in the identified locations which we are now trying to secure. aisadc Financials We report Net Income for the year for the parent company of P11.3 million. After considering Equity in net earnings/losses of affiliated company of P20.8 million however, our Consolidated Net Loss for the year reached P9.5 million. Our Balance Sheet remains healthy with Total Assets growing by 34.6% to P481.1 million, of which 82.6% or P397.3 million are in investments in stocks, properties and marketable securities. Debt to equity ratio stood at 0.6:1. Our Continuing Commitments Though much remains to be done, our vision and our mandates are clear. As a late entrant in the competitive world of media and entertainment, we have to strive to be smarter than the rest, to introduce innovations in an environment where copycats abound, and to be more focused and disciplined than our competitors. The prevailing financial crisis has caused adverse effects on the overall business climate. We are committed to respond rationally and clinically to these developments and will take tough, but necessary, decisive action to protect your investments. Thank you and we look forward to a fruitful and exciting new year. (SGD.) TEOFILO A HENSON President & COO STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of Gem Communications Holdings Corp. is responsible for all information and representations contained in the financial statement for the fiscal year ended June 30, 1997. The financial statements have been prepared in conformity with generally accepted accounting principles and reflect amounts that are based on best estimates and informed judgement of management with an appropriate consideration to materiality. In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. cdlex The Board of Directors reviews the financial statement before such statements are approved and submitted to the stockholders of the company. SYCIP, GORRES, VELAYO & CO., the independent auditors appointed by the stockholders have examined the financial statements of the company in accordance with generally accepted auditing standards and have expressed their opinion on the fairness of presentation upon completion of such examination, in the attached report to the stockholders. (SGD.) TEOFILO A. HENSON President REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Stockholders and Board of Directors Gem Communications Holdings Corporation We have audited the accompanying balance sheets of Gem Communications Holdings Corporation (parent company) as of June 30, 1997 and 1996, and the related statements of income and deficit and cash flows for the year ended June 30, 1997 and the eleven months ended June 30, 1996. 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 did not audit the financial statements of Acoje Holdings, Inc. (AHI), formerly Acoje Oil Exploration and Drilling Co., Inc., the investment in which is reflected in the accompanying financial statements using the equity method of accounting. The investment in AHI as of June 30, 1997 represents approximately 35% of total assets and the equity in net losses represents approximately 56% of net losses. The financial statements of AHI were audited by other auditors whose report has been furnished to us and, our opinion, insofar as it relates to the amounts included for AHI, is based solely on the report of other auditors. prLL Except as discussed in the following paragraph, we conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 4 to the financial statements, the audits of the financial statements of Southern Broadcasting Network, Inc. (35% owned) in 1997 and 1996 are not yet complete. The investment in this affiliate represents approximately 11% and 15% of the total assets of the Company as of June 30, 1997 and 1996, respectively. Accordingly, we were not able to ascertain the carrying amount of the investment and the equity share in net earnings or losses of the affiliate. The Company was registered with the Securities and Exchange Commission on August 1, 1995 and started commercial operations on September 1, 1995. In our opinion, based on our audits and the report of other auditors and except for the effects of such adjustments, if any, as might have been disclosed had the audit of the affiliate been completed as discussed in the third paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Gem Communications Holdings Corporation (parent company) as of June 30, 1997 and 1996, and the results of its operations and its cash flows for the periods then ended in conformity with generally accepted accounting principles. PTR No. 8886532 January 9, 1997 Makati City October 17, 1997 GEM COMMUNICATIONS HOLDINGS CORPORATION (PARENT COMPANY) BALANCE SHEETS June 30 1997 1996 ASSETS Current Assets Cash and cash equivalents P8,255,191 P79,977,207 Marketable equity securities (Note 3) 17,682,653 12,219,820 Receivables 27,272,394 997,399 Current portion of due from affiliates (Note 7) 21,797,687 Other current assets 1,902,433 625,169 Total Current Assets 76,910,358 93,819,595 Due from Affiliates net of current portion (Note 7) 4,549,513 3,712,457 Investments (Note 4) 379,660,381 250,879,021 Property and Equipment net (Note 5) 2,861,087 4,800,030 Other Assets (Note 6) 17,156,774 4,309,241 P481,138,113 P357,520,344 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses P2,013,558 P639,543 Due to affiliates (Note 7) 49,750,000 47,983,816 Current portion of installments payable (Note 4) 10,353,728 Subscriptions payable (Note 4) 108,420,000 Total Current Liabilities 170,537,286 48,623,359 Installments Payable net of current portion (Note 4) 11,216,539 Stockholders' Equity Capital stock P1 par value Authorized 3,200,000.00 shares Subscribed 1,054,000,000 shares (subscriptions receivable on which amounts to P750,000,000) 304,000,000 304,000,000 Additional paid in capital 6,000,000 6,000,000 Deficit (10,615,712) (1,103,015) 299,384,288 308,896,985 P481,138,113 P357,520,344 See accompanying Notes to Financial Statements GEM COMMUNICATIONS HOLDINGS CORPORATION (PARENT COMPANY) STATEMENTS OF INCOME AND DEFICIT Eleven Months Year Ended Ended June 30, June 30, 1997 1996 INCOME Interest net P4,296,201 P7,120,265 Gain on sale of marketable equity securities 23,952,400 Others 56,151 729,747 28,304,752 7,850,012 EXPENSES Salaries and wages 3,260,186 1,730,014 Professional fees 3,177,794 875,735 Depreciation and amortization 2,107,409 1,098,582 Representation and entertainment 2,018,420 1,042,317 Rent 1,850,735 1,380,603 Amortization of preoperating expenses 1,029,178 857,648 Transportation and travel 681,475 65,193 Membership dues 642,626 597,220 Taxes and licenses 638,182 295,593 Employee benefits 419,150 32,200 Light and water 344,241 295,828 Postage and telecommunications 226,001 205,772 Janitorial services 168,471 115,309 Insurance 124,653 53,647 Office supplies 60,617 101,508 Miscellaneous 236,271 148,321 16,985,409 8,895,490 Equity in net losses of affiliated companies 20,832,040 57,537 37,817,449 8,953,027 NET LOSS 9,512,697 1,103,015 DEFICIT AT BEGINNING OF PERIOD 1,103,015 DEFICIT AT END OF PERIOD P10,615,712 P1,103,015 * The Company was registered with the Securities and Exchange Commission on August 1, 1995 and started commercial operations on September 1, 1995. See accompanying Notes to Financial Statements. GEM COMMUNICATIONS HOLDINGS CORPORATION (PARENT COMPANY) STATEMENTS OF CASH FLOWS Eleven Months Year Ended Ended June 30, June 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net loss (P9,512,697) (P1,103,015) Adjustments to reconcile net loss to net cash used in operating activities: Equity in net losses of affiliated companies 20,832,040 57,537 Depreciation and amortization 2,107,409 1,098,582 Amortization of preoperating expenses 1,029,178 857,648 Changes in operating assets and liabilities: Decrease (increase) in: Marketable equity securities (5,462,833) (12,219,820) Receivables (26,274,995) (997,399) Due from affiliates (22,634,743) (3,712,457) Other current assets (1,277,264) (625,169) Increase in accounts payable and accrued expenses 1,374,015 639,543 Net cash used in operating activities (39,819,890) (16,004,550) CASH FLOWS FROM INVESTING ACTIVITIES Increase in other assets (13,876,711) (5,159,651) Installment payments on condominium unit (10,785,133) Purchase of investments (8,838,000) (250,936,558) Acquisition of property and equipment (168,466) (5,905,850) Cash used in investing activities (33,668,310) (262,002,059) CASH FLOWS FROM FINANCING ACTIVITIES Advances from affiliates 1,766,184 47,983,816 Proceeds from issuance of capital stock 310,000,000 Cash provided by financing activities 1,766,184 357,983,816 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (71,722,016) 79,977,207 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 79,977,207 CASH AND CASH EQUIVALENTS AT END OF PERIOD P8,255,191 P79,977,207 SUPPLEMENT DISCLOSURES OF CASH FLOWS INFORMATION Cash paid during the period for interest P559,983 P Non-cash investing activities: Investment in shares of stock: Cost of proprietary shares exchanged for shares 56,050,000 of stock Subscriptions payable on shares of stock acquired 108,420,000 Investment in condominium unit: Cost of condominium unit 32,355,400 Installments payable (21,570,267) * The Company was registered with the Securities and Exchange Commission on August 1, 1995 and started commercial operations on September 1, 1995. See accompanying Notes to Financial Statements. GEM COMMUNICATIONS HOLDINGS CORPORATION (PARENT COMPANY) NOTES TO FINANCIAL STATEMENTS 1. Organization and Status of Operation The Company was registered with the Securities and Exchange Commission on August 1, 1995 primarily to engage in the business of investment by way of purchase or acquisition of and to own, hold, use, sell, assign, transfer, mortgage, pledge, exchange or otherwise, dispose real and personal property, or every kind and description; and to manage any business, joint venture, firm, partnership, corporation, institution or entity or otherwise act as holding or management corporation thereof. The Company started commercial operations on September 1, 1995. 2. Summary of Significant Accounting Policies Cash Equivalents The Company considers all highly liquid investments with maturities of three (3) months or less from dates of acquisition to be cash equivalents. LLjur Marketable Equity Securities Marketable equity securities are carried at the lower of aggregate cost or market value determined at balance sheet date. The amount by which aggregate cost of a portfolio exceeds market value is accounted for as a valuation allowance. Changes in the valuation allowance to reduce the carrying amount of the marketable equity securities are included in the determination of net income of the period in which they occur. The cost of marketable equity securities sold, if any, is based on the specific cost of all the shares of each security held at the time of sale. Investments The Company's investments in shares of stock of affiliated companies, in which it owns 20% or more or where significant influence are exercised, are accounted for under the equity method. Under this method, the cost of investments is increased or decreased by the Company's equity in net earnings or losses since date of acquisition and dividends received. The equity in net earnings or losses is adjusted for the straight line amortization of the difference between the Company's cost of such investments and its proportionate share in the underlying net assets as of dates of acquisition. Unrealized intercompany profits or losses are eliminated to the extent of the Company's proportionate share thereof. cdll Other investments are carried at cost. An allowance will be set up for any substantial and presumably permanent decline in the carrying values of these investments. Preoperating Expenses Cost and expenses incurred prior to the start of commercial operations were capitalized and amortized using the straight-line method over five years from the start of commercial operations. Preoperating expenses are included under the "Other Assets" account in the balance sheet. Property and Equipment Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is computed using the straight line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the term of the lease of their estimated useful lives whichever is shorter. The cost of maintenance and minor repairs is charged to income as incurred. Significant renewals and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss is charged to current operations. 3. Marketable Equity Securities As of June 30, information on marketable equity securities are as follows: 1997 1996 Cost P17,682,653 P12,219,820 Market Value 25,744,800 12,401,600 Gross unrealized gain P8,062,147 P181,780 As of October 16, 1997, the investments in marketable equity securities had a gross unrealized loss of P7,839,053. 4. Investments Investments consist of: 1997 1996 Shares of stock: At equity: Acquisition cost P248,283,000 P74,975,000 Accumulated equity in net losses: Balance at beginning of period (57,537) Equity in net losses for the period (net of amortization of goodwill amounting to P176,218 in 1997 and P146,848 in 1996 (20,832,040) (57,537) Balance at end of period (20,889,577) (57,537) (Carried forward) 227,393,423 74,917,463 (Brought forward) P227,393,423 P74,917,463 At cost: Premiere Entertainment Productions, Inc. 60,000,000 60,000,000 Southern Broadcasting Network, Inc. 52,500,000 52,500,000 Metropolitan Club, Inc. 550,000 56,600,000 113,050,000 169,100,000 340,443,423 244,017,463 Real estate 6,861,558 6,861,558 Condominium unit 32,355,400 P379,660,381 P250,879,021 The Company's investments in its affiliates and the related effective percentages of ownership are shown below: Percentage of Cost Ownership 1997 1996 Citylite Holdings Corporation 100.0% P20,000,000 P20,000,000 Club Properties, Inc. 100.0% 30,000,000 30,000,000 Exchange Television Production, Inc. 100.0% 20,000,000 20,000,000 The Fat Lady Corporation 99.5% 4,975,000 4,975,000 Acoje Holdings, Inc. 63.8% 173,308,000 P248,283,000 P74,975,000 The investment in Southern Broadcasting Network, Inc. (SBN, Inc.), which is 35% owned, amounting to P52,500,000 is recorded at cost. The equity share in net earnings or losses will be recorded upon completion of the audit of the financial statements of SBN, Inc. for 1997 and 1996. On January 22, 1997, the Company signed a Memorandum of Agreement with JP Properties and Ventures Corporation, where the Company agreed to make a reservation payment for the purchase of a condominium unit at Jollibee Plaza with a total contract price of P32,355,400. The terms of the agreement include a reservation fee of P6,471,080 and the balance of P25,884,320 payable in thirty (30) equal monthly installments without interest starting February 15, 1997. LLjur In March 1997, the Company and two other parties executed a Deed of Assignment with Acoje Holdings, Inc. (AHI). Under the terms of the assignment, the Company will assign and transfer 320 proprietary membership shares in the Metropolitan Club, Inc. (MCI) costing P56,050,000 plus cash of P8,838,000 to AHI in exchange for subscription to 32,525,800,000 shares (18,069,800,000 shares fully paid and 14,456,000,000 shares 25% paid) of the capital stock of AHI with a par value of P.01. The balance of P108,420,000 on the shares subscribed is shown as "Subscriptions payable" account in the balance sheet. 5. Property and Equipment Property and equipment consists of: 1997 1996 Transportation equipment P2,509,505 P2,509,505 Office furniture, fixtures and equipment 1,671,547 1,503,081 Leasehold improvements 1,893,264 1,893,264 6,074,316 5,905,850 Less accumulated depreciation and amortization 3,213,229 1,105,820 P2,861,087 P4,800,030 6. Other Assets Other assets consist of: 1997 1996 Deposit for investment P10,000,000 P Deferred charges 3,850,519 Preoperating expenses 3,259,063 4,288,241 Others 47,192 21,000 P17,156,774 P4,309,241 7. Related Party Transactions The Company has extended interest bearing loans computed at 16% per annum to SBN, Inc. payable in two (2) years. In the event that SBN, Inc. is unable to pay, the loans will be converted to equity in SBN, Inc. subject to the approval of SBN, Inc.'s board of directors. The Company also has transactions with its other subsidiaries, consisting mainly of noninterest bearing advances to and from affiliates. These advances were primarily used for the payment of various operating activities. BOARD OF DIRECTORS GEORGE L. GO Chairman ANSELMO TRINIDAD, JR. Vice Chairman WILFRIDO V. VERGARA Member FRANCIS G. ESTRADA Member TEOFILO A. HENSON Member LISTING DIRECTORY Officers Teofilo A. Henson President & Chief Operating Officer Antonio Y. Tee Treasurer Hirene U. Lopez Assistant Treasurer Roberto V. San Jose Corporate Secretary Corporate Offices 17th Floor, Strata 100 Building Emerald Avenue, Ortigas Center Pasig City Telephone Nos. 636-3286 to 9; 636-3307 to 10 Fax No. 635-7996 Bankers Equitable Banking Corporation Mindanao Development Bank Legal Counsel Castillo Laman Tan Pantaleon San Jose Law Offices Auditors SyCip, Gorres, Velayo & Company Tranfer Agents Equitable Banking Corporation