UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12 (b) or (g)
of the Securities Exchange Act of 1934
Stratcomm Media, Ltd.
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(Name of Small Business issuer in its Charter)
Yukon 59-3131730
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1947 Lee Road
Winter Park, FL 32789
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number:
(407) 628-5700
Securities to be registered pursuant to Section 12 (b) of the
Act:
None
Securities to be registered pursuant to Section 12 (g) of
the Act:
Common Stock, no par value per share
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(Title of Class)
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TABLE OF CONTENTS
ITEM 1. DESCRIPTION OF BUSINESS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
ITEM 3. DESCRIPTION OF PROPERTY
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
ITEM 6. EXECUTIVE COMPENSATION
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 8. LEGAL PROCEEDINGS
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
ITEM 11. DESCRIPTION OF SECURITIES
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ITEM 13. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 14. FINANCIAL STATEMENTS AND EXHIBITS
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
Stratcomm Media Ltd. (the "Company") is a Yukon Corporation
founded in 1984, that has, over the past 15 years, published 12 different
publications all focusing on publicly traded companies or companies in the
process of going public.
The Company and its subsidiaries are engaged in the business
of public relations and publishing. The Company provides clients with a fully
comprehensive public relations program that includes promoting the client to
financial and investment professionals as well as members of the investing
public through numerous promotional articles, investor information publications
and other communication media.
(b) Business of the Issuer
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(1) Principal Products and Services and their Markets
The Company operates through a Canadian and U.S. holding
company and five operating subsidiaries. Over the past five years, the specific
functions by each of the companies has shifted to some degree, however, a
summary of the corporate group is generally as follows:
Stratcomm Media Ltd.
o Incorporated on February 1984 in the Province of British Columbia
under the name Contender Resources Ltd. The name was
changed twice: on August 29, 1986 to Strategic Communications Ltd.
and on July 5, 1991 to the present name. Stratcomm Media
Ltd. continued from British Columbia to the Yukon on November 12, 1997.
o The sole purpose of Stratcomm Media, Ltd. is to be the publicly traded
holding company of the companies comprising the Stratcomm Media Group.
o Stratcomm Media USA Inc. is owned 100% by Stratcomm Media Ltd. The
other five companies in the group are owned 100% by Stratcomm Media
USA Inc.
Stratcomm Media USA Inc.
o Incorporated on April 27, 1992 in the state of Florida.
o The sole purpose of this company is to be the United States holding
company of the operating companies within the Stratcomm Media Group.
Gulf/Atlantic Publishing, Inc.
o Incorporated on November 23, 1992 in the state of Florida.
o It is the investor information publisher of MoneyWorld, a 40 page
magazine carrying promotional articles with a monthly distribution
averaging 100,000 including 13,000 paid subscribers.
o It publishes RumorMill, a brief report faxed up to 1,000 subscribers from
time to time.
o It publishes the Financial Sentinel, a monthly financial tabloid with a
monthly distribution of 100,000 including 27,000 paid subscribers.
Arrow Marketing, Inc.
o Incorporated on November 23, 1992 in the state of Florida.
o Arrow Marketing develops and disseminates due diligence packages directed
to stockbrokers in the United States.
o Arrow assists in the development of press releases to financial editors
and computer generated graphics for client literature.
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o All content is prepared based on information provided by the client. The
client approves of all disclosure and warrants as to its accuracy and
completeness.
Applied List Management, Inc.
o Incorporated on November 23, 1992 in the state of Florida.
o Applied List maintains a database of approximately 5 million persons in
the United States who we believe would be interested in receiving
information about our clients.
o It also rents lists from other publications to augment its database.
o It rents portions of its database to investor newspapers and magazines,
financial advisors, mutual funds, newsletters and brokerage houses.
Altamonte Printing, Inc.
o Acquired by the Company on July 1, 1998.
o Altamonte Printing is a full service printing and mail house operation.
o Mr. Robert Lewis, former owner of Altamonte Printing, was named
president of this subsidiary by the Company's Board of
Directors on September 11, 1998. Mr. Lewis has also signed a three-year
employment agreement.
Rainbow Communications, Inc.
oIncorporated on August 14, 1998 in the state of Florida.
oRainbow Communications provides public relations services to publicly
traded companies and companies in the process of becoming publicly
traded. It develops public relations campaigns to heighten the awareness
of its clients in the investment community.
oInturn, this subsidiary subcontracts with other companies within the
Stratcomm Media Group and with external companies for certain services
such as mass printing and bulk mailing services.
Publications
The Company's main business is in the development of financial
publications. The totality of all the subsidiaries work together to publish
the following instruments:
o Bullet Sheet - a Bullet Sheet with all pertinent facts about the client
is prepared and sent to every broker who expresses interest in the stock
of one of our clients.
o Confidential Fax Alert - a newsletter is created featuring the client and
it is faxed to over 5,000 financial professionals who have previously
indicated to us that they desire information about companies trading on
the over the counter bulletin board. The Fax Alert is sent out for the
client once during the course of the marketing campaign.
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o MoneyWorld Magazine - a high-gloss, full-color publication containing
stock market information and client company promotional articles. Issues
are restricted to 40 pages and, if additional information is relevant,
then multiple editions are distributed to the public. This exclusive
publication is sent monthly to over 100,000 recipients. MoneyWorld has
over 13,000 paying subscribers who have each paid $29.95 per year for
twelve issues. The remaining recipients are made up of names obtained
from rented lists.
o RumorMill - a fax/express tip sheet limited to 1,000 subscribers. The
service consists of 12 issues. Subscribers pay $1,250 for one year and
$2,200 for two years.
o Financial Sentinel - This monthly financial tabloid had its first issue
in late 1997. The primary source of revenue for the Financial Sentinel is
third party advertising. This publication is sent monthly to over 100,000
recipients. The Financial Sentinel has over 27,000 paying subscribers who
pay $19.95 per year for twelve issues. The remaining recipients are made
up of names obtained from rented lists.
o Growth Industry Report - this four-page piece is created by Rainbow
Communications as an additional information piece on the client company.
It is mailed in response to inquiries from MoneyWorld readers and to
financial professionals.
Money World and Financial Sentinel contain the
following disclosures:
Disclaimer: The information contained in Money World
(Financial Sentinel) has been carefully compiled from sources believed
to be reliable, but its accuracy is not guaranteed. Gulf / Atlantic
Publishing does not endorse, assert, or stand behind the truthfulness
or reliability of opinions, advise, or statements made by advertisers
in Money World (Financial Sentinel). This is not a solicitation to buy
or sell securities and does not purport to give investment
recommendations. The companies featured in each advertorial contained
in this advertiser-supported publication pay for the advertorials and
for the promotional services provided by Gulf / Atlantic Publishing,
Inc., and its affiliates by issuing securities and options to purchase
securities and / or cash to such persons. Gulf / Atlantic Publishing
and its affiliates, together with their officers, directors,
consultants and employees may, from time to time, have a position in
and purchase and sell the securities referred to in this
advertiser-supported publication. See page (as placed in the magazine)
for additional information regarding the payment of a fee (either cash
or securities) to the publisher for the advertorials contained herein.
Safe Harbor Disclaimer: Certain statements contained
herein constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
Such statements include, without limitation, statements regarding
business and financing plans, business trends and future operating
revenues and expenses. Although the Company believes that the
statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Forward-looking statements are
typically identified by the words: believe, expect, anticipate, intend,
estimate and similar expressions, or which by their nature refer to
future events. The Company cautions investors that any forward-looking
statements made by the Company are not guarantees of future
performance, and that the actual results may differ materially from
those in the forward-looking statements as a result of various factors,
including but not limited to, the Company's ability to be able to
continue its substantial projected growth, or be able to fully
implement its business strategies, or that management will be able to
successfully integrate the operations of its various acquisitions.
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Advertorial Disclaimer: The companies featured in
each advertorial contained in this advertiser supported publication pay
for the promotional services provided by Gulf / Atlantic Publishing.
Inc. by issuing shares of common stock and options to purchase shares
of common stock to Gulf / Atlantic Publishing and its affiliates, all
of which can be sold when appropriate as listed below. (The companies
featured in the publication and their respective payment schedule are
then listed).
Rumor Mill contains the following disclosure:
Rumor Mill is intended to provide information and analysis
concerning the financial investment markets which may otherwise be
undisclosed to the public. This newsletter does not purport to provide
legal, tax or individual investment advise. It is intended solely for
information purposes, is not a solicitation to buy or sell securities
and does not purport to be a complete analysis of the companies
mentioned. Investing in securities is speculative and carries a high
degree of risk. You should independently investigate and fully
understand all risks before investing.
Other Products and Services
o Due Diligence Broker Package - With the client company's input, Arrow
Marketing creates a complete due diligence package which is sent to all
brokers. This package includes a custom-designed folder, a twelve page,
full-color company profile and a twelve-page industry profile, plus any
other pertinent company material such as an annual report.
o Web Page Development - The Internet is fast becoming one of the most
effective means of public relations for a firm's products or services.
Arrow Marketing will begin offering clients an extremely effective
Internet presence that includes website design and hosting e-mail
services and web access.
o Worldmicrocap.com - A website developed as a research tool for world wide
equities that will ultimately feature all stock exchange listings around
the world. The site will be supported by revenue generated from
advertisers on the site.
o Public Relations - Arrow Marketing sends out public relations releases to
key financial publications on behalf of client companies.
o Lead Tracking Survey - Every client company receives a regular report on
all responses received from readers of our publications.
o Regular Mailings - Rainbow Communications maintains regular
communications with all financial professionals interested in the client
company
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(2) Distribution Methods
The Company fulfills their marketing contracts and subscription
commitments based on monthly and periodic direct mail. Money World Magazine and
the Financial Sentinel are published monthly with a combined circulation of
200,000 per month. In addition, approximately 200,000 additional pieces are
mailed monthly. These include promotional mailings to increase the paid
subscription base as well as fulfilment pieces for investors wanting more
information about client companies. Money World Magazine is printed by Banta
Publications in Minnesota and the Financial Sentinel is printed by Ledger
Printers in Orlando, Florida. All other printing is done by Altamonte Printing.
(3) Status of Publicly Announced New Products or Services
The Company has no new publicly announced products or services.
(4) Competitive Business Conditions
The Company competes with numerous businesses including those
specifically in the public company public relations field and publications of
all sizes and nature including business magazines and newsletters and
newspapers. Since the Company's competition covers such a wide and diverse range
of businesses, it is difficult to name individual competitors.
The Company believes a key competitive advantage is the
generation and maintenance of lists of readers known to us to be involved in the
acquisition of publicly traded stocks. The Company also maintains a database of
stockbrokers who follow small cap and bulletin board stocks. We constantly
update these databases.
The Company may not be able to compete successfully
because the number of competitors is increasing and some competitors are better
known, have broader distribution, stronger sales and public relations abilities,
more technical expertise and have greater resources.
(5) Dependence on Major Customers
The Company anticipates that it will derive a significant
portion of its revenues from the sale of its public relations contracts. A
significant number of these public relations contract sales will be made under
short-term contracts that average 12 months in length. Some of the public
relations customers could terminate quickly and without penalty. As a result,
quarterly operating results will depend heavily on public relations contract
revenues from contracts entered into within the quarter and on our ability to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. If customers cancel or defer existing public relations contracts or
if we fail to obtain new contracts in any quarter, our business, results of
operations and financial condition for that quarter and future periods will be
adversely affected.
(6) Intellectual Property
The Company currently holds federal trademarks for the
name Corporate Relations Group and Market Express.
Market Express was a monthly financial newsletter sold to paying subscribers for
an annual fee of $19.95. The newsletter was discontinued in 1994. Applications
for federal trademanrks for the name Financial Sentinel and Rumor Mill were made
on March 13, 1998. Application for federal trademark for Worldmicrocap.com was
filed on July 16, 1999 and application for federal trademark for Money World was
filed on September 10, 1999.
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(7) Governmental Approval
At this point in time, there is no need for government
approval of the Company's principal products or services.
(8) Governmental Regulation
The Company faces significant liability, regulation and costs
relating to rules and disclosure surrounding disclosure of its compensation for
services rendered. The Securities and Exchange Commission has recently taken
action against a number of similar companies for failure to follow the rules in
this area. The Company believes it is in full compliance with all these rules
and all other rules and regulations affecting the business. Any failure to
comply with these regulations would have a material adverse effect on our
business, results of operations and financial condition.
(9) Research and Development
The Company does not conduct formal research and development.
(10) Employees
The Company employs 30 full time employees. The employees are
categorized as follows: five in management, six in administration, three in data
processing, five in sales, two in art, four in editorial, and five in printing.
None of the Company's employees are covered by a collective bargaining
agreement. The Company believes that it maintains good relations with its
employees. In addition, the Company utilizes two part time employee and outside
writers for its publications.
(c) Reports to Security Holders
Prior to filing this Form 10-SB, the Company has not been
required to deliver annual reports. The Company has, however, delivered annual
reports with audited financials to its shareholders for the last six years. To
the extent that the Company is required to deliver annual reports to security
holders through its status as a reporting company, the Company shall deliver
annual reports. Also, to the extent the Company is required to deliver annual
reports by the rules or regulations of any exchange upon which the Company's
shares are traded, the Company shall deliver annual reports with audited
financials.
Prior to the filing of this form 10-SB, the Company has not
filed reports with the Securities and Exchange commission. Once the Company
becomes a reporting company, management anticipates that Forms 3,4,5,10-KSB,
10-QSB, 8-K and Schedules 13D along with appropriate proxy materials will have
to be filed as they come due. If the Company issues additional shares, the
Company may file additional registration statements for those shares.
The public may read copies of the Registration Statement,
including the exhibits to the Registration Statement and other material that is
not included herein without charge at the Public Reference Section of the
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Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549, and may be available at the following Regional Offices of the Commission:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, New York, New York 10048. Copies of
such materials may be obtained at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549. Information on the operation of the Public Reference Room
may be obtained by calling the Commission at 1-800-SEC-0330. In addition, the
Commission maintains a site on the World Wide Web at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Disclaimer: Certain statements contained herein
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Such statements include,
without limitation, statements regarding business and financing plans, business
trends and future operating revenues and expenses. Although the Company believes
that the statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Forward-looking statements are typically
identified by the words: believe, expect, anticipate, intend, estimate and
similar expressions, or which by their nature refer to future events.
The following discussion and analysis regarding the Company's
consolidated financial position and consolidated results of operations should be
read in conjunction with the financial statements and related notes thereto
included elsewhere in this form.
Overview
The Company derives revenues from public relations agreements,
magazine / newsletter subscriptions, advertising, printing services, and the
sale of securities. The majority of revenue comes from the generation of monthly
direct mail and paid subscriber publications. The Company also derives revenue
from the rental of lists it has developed over the years and a printing
operation that not only provides in house printing but sells its service to a
number of outside clients. The Company intends to expand the marketing,
publication, list rental, and printing operation from its current level.
Results of Operations
Comparison of Nine Months Ended December 31, 1999 to Nine Months Ended December
31,1998
Revenue. The Company's revenues for the nine months ended
December 31, 1999 were $6.2 million, compared to $9.5 million in the same period
in 1998. A $3.4 million decrease in marketing revenue due in part to the
company's inability to attract as many new marketing contracts as in previous
periods. The failure to acquire new contracts was due largely to the
unfavorable press the Company received regarding the Securities
and Exchange Commission civil suit brought against the Company.
Cost of sales. Cost of sales decreased to $2.6 million for the
nine months ended December 31, 1999 compared to $4.9 million in the same period
in 1998. The decrease was due to a significant drop in publication production.
Publications in the nine months ended December 31, 1999 averaged 100,000 per
month versus an average of 300,000 per month for the same period in 1998. This
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drop in production impacts printing, postage , and list rental associated with
these publications. As a percentage of costs, the cost of sales increased to 60%
from 53% in 1998 due primarily to lost economies of scale in printing costs with
the decrease in printing runs per month and the increased cost in list rental.
The Company's selling, general and administrative expenses
decreased to $3.5 million for the nine months ended December 31, 1999 from $4.4
million in the same period in 1998. The results reflect an increase as a
percentage of revenues to 91.6% in the nine months ended December 31, 1999 from
47.5% in the comparable 1998 period. Though the Company has lowered in absolute
dollars in legal, accounting and other costs relating to its operation, there is
a fixed amount of this type of expense required to run the operation. The
Company will seek ways to even further reduce these costs thus attempting to
return to a more favorable percent of revenue.
Gain/Loss on Sale of Marketable Securities. The company's loss
on sale of securities for the nine months ended December 31, 1999, were $2.3
million, compared to a gain of $.2 million in the same period in 1998. A $2.5
million decrese was due to the loss in the value of securities that the company
receives and liquidates for marketing contracts.
Writedown of Marketable Securities and Options. The company's
write down of marketable securities and options for the nine months ended
December 31, 1999, were $.04 million compared to $.5 million in the same period
in 1998. In the contracts with clients providing for services, the company has
certain option rights which have been reflected previously as marketing income.
For those options which reached the expiration period and which have an exercise
cost greatere that the value of the underlying security the option has been
written off as a loss.
Interest Expense and Other Income. Interest expense totaled
$.28 million for the nine months ended December 31, 1999 compared to $.25
million for the same period in 1998, an increase of 16%. The increase resulted
primarily from a higher principle amount being carried as a result of a building
refinancing.
Other Income totaled $.062 million for the nine months ended
December 31, 1999 compared to $.1 million for the same period in 1998. The
decrease resulted from the liquidation of certificates of deposits the Company
was holding.
Net Income. Net Income totaled a net loss of $2.4 million for
the nine months ended December 31, 1999 as compared to a net loss of $1.0
million for the same period in 1998. The decrease resulted from the significant
drop in revenue during this period coupled with a minimal change in selling
expenses between periods.
Deferred Income Tax. The deferred tax asset at December 31,
1999 is zero compared to $95,378 at December 31, 1998. This is due primarily
to an increase in net unrealized losses on marketable securities due to the
prevailing market conditions. At December 31, 1999 the deferred tax asset of
$1,146,415 has been reduced by a valuation allowance resulting in a net deferred
tax asset of zero.
Comparison of the Fiscal Year Ended March 31, 1999 to the Fiscal Year Ended
March 31, 1998
The following compares of the results of operations for the
fiscal year ended March 31, 1999 to the results of operations for the fiscal
year ended March 31, 1998.
Revenue. The Company's revenues for the fiscal year ended
March 31, 1999 were $14.7 million, compared to $17.7 million in the same period
in 1998. A $2.9 million decrease in marketing revenue due in part to the
company's inability to attract as many new marketing contracts as in previous
periods. The failure to acquire new contracts was due largely to the market
downturn in the fall of 1998 and with it the reluctance on the part of
potential clients to contract with the Company for services it
provides.
Cost of sales. Cost of sales decreased to $5.4 million for the
fiscal year ended December 31, 1999 compared to $7.1 million in the same period
in 1998. The decrease was due to a significant drop in publication production.
Publications during the fiscal year ended March 31, 1999 dropped to 100,000
pieces per month from an average of 300,000 per month for the same period in
1998. This drop in production impacts printing, postage , and list rental
associated with these publications. As a percentage of costs, the cost of sales
increased to 46% from 40% in 1998 due primarily to lost economies of scale in
printing costs with the decrease in printing runs per month and the increased
cost in list rental.
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The Company's selling, general and administrative expenses
decreased to $6.1 million for the fiscal year ended March 31, 1999 from $7.6
million in the same period in 1998. The results reflect an increase as a
percentage of revenues to 51.4% in the fiscal year ended March 31, 1999 from
42.6% in the comparable 1998 period. The Company lowered in absolute dollars
legal, accounting, and personnel expenses during the fiscal year ended March 31,
1999 to attempt to stay in line with historical expense versus revenue
percentages.
Gain/Loss on Sale of Marketable Securities and Options. The
company's write down of marketable securities and options for the fiscal year
ended March 31, 1999, were $2.4 million, compared to a gain of $2.7 million in
the same period in 1998. A $5.1 million decrease was due to the loss in the
value of securities that the company receives and liquidates for marketing
contracts.
Writedown of Marketable Securities and Options. The company's
write down of marketable securities and options for the fiscal year ended March
31, 1999, were $.05 million compared to $2.6 million in the same period in 1998.
In the contracts with clients providing for services, the company has certain
option rights which have been reflected previously as marketing income. For
those options which reached the expiration period and which have an exercise
cost greater that the value of the underlying security the option has been
written off as a loss. Losses on sale of certain marketable securities were
also realized.
Interest Expense and Other Income. Interest expense totaled
$.2 million for the fiscal year ended March 31, 1999 compared to $.05 million
for the same period in 1998. The increase resulted primarily from the
acquisition of Altamonte Printing and an accounting adjustment for the issuance
of Company stock as payment for debt to a current and former employee of the
Company.
Other Income total remained at $.13 million for the fiscal
year ended March 31, 1999 compared to $.13 million for the same period in 1998.
Net Income. Net Income totaled a net loss of $.12 million for
the fiscal year ended March 31,1999 as compared to a net income of $1.9 million
for the same period in 1998. The decrease resulted from the significant drop in
revenue during this period from the loss in the value of securities that the
company receives and liquidates for marketing contracts.
Deferred Income Tax. The increase in the deferred tax reflected
as an asset at March 31, 1999, of $.25 million compared to March 31, 1998, of $0
is due primarily to the increase in net unrealized losses due to prevailing
market condition.
As a part of payment for its services, the company receives securities which are
valued at market at the time of receipt; at subsequent financial statement dates
the securities are revalued to reflect the then market value and the deferred
tax account is adjusted accordingly. Upon disposition of a security, the
deferred tax account is then adjusted for the recognized gain or loss.
Prevailing market conditions, from to time, with affect the value of the
deferred tax account.
Liquidity and Capital Resources
The Company has historically financed its operations primarily
through revenues received from marketing and publishing services provided to its
clients. The Company holds a mortgage on the property, a promissory note for the
purchase of a printing facility, and debentures. The Company's principal sources
of liquidity are cash and marketable securities. Funding sources potentially
available to the company include operating cash flow, third party investors, and
financial institution borrowings.
Net cash provided by (used for) operating activities was
($3.5) and ($1.9) million for the nine month periods ended December 31, 1999 and
1998 respectively. The 1999 amount reflects a $2.3 million gain on the sale of
marketable securities and a $7.2 million loss on marketable securities received
in payment of services. The 1998 amount reflects a $1.5 million loss on
marketable securities received in payment of services and a $.2 million loss on
the sale of marketable securities. Net cash provided by (used for) operating
activities was ($5.4) million and ($8.0) million for the fiscal year ended March
31, 1999 and 1998 respectively. The 1999 amount reflects $10.2 million received
as revenue and $4.5 million attributable to loss on marketable securities and
compensation paid in marketable securities. The 1998 amount reflects $10.3
million received as revenue and $2.6 million attributable to writedown on
marketable securities.
Net cash provided by investing activities was $3.1 and $1.0
million for the nine month periods ended December 31, 1999 and 1998
respectively. The 1999 amount reflects cash of $3.4 million received from sales
of marketable securities received from marketing contracts as well as cash used
to purchase $.28 million of marketable securities. The 1998 amount reflects cash
of $1.3 million received from sales of marketable securities received from
marketing contracts as well as cash used to purchase $.28 million of marketable
securities. Net cash provided by investing activities was $4.4 million and $8.0
million for the fiscal year ended March 31, 1999 and 1998 respectively. The 1999
amount reflects cash of $4.8 million received from sales of marketable
securities received from marketing contracts as well as cash used to purchase
$.32 million of marketable securities. The 1998 amount reflects cash of $11.3
million received from sales of marketable securities from marketing contracts as
well as cash used to purchase $2.2 million of marketable securities and $1.0 to
purchase the Company's current location.
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Net cash provided by financing activities was ($.08) million
and $.31 million for the nine month periods ended December 31, 1999 and 1998
respectively. The 1999 amount reflects $.4 million received from the sale of
Company stock through a private placement offset by $.48 million used to payoff
a note payable to the bank. The 1998 amount reflects cash received from a $.45
million note payable to the bank plus $.12 million cash used to payoff a note
payable to the bank. Net cash provided by financing activities was $8 million
and $.35 million for the fiscal year ended March 31, 1999 and 1998 respectively.
The 1999 amount reflects $.62 million cash received from notes payable, a $.45
million note payable to the bank and $.17 million received from four notes
payable to shareholders, $1.45 million cash received from a $.64 million
mortgage note payable to the bank and $.66 million from a 14% subordinated
convertible debenture due in July 2003, and $1.21 million cash used for payment
of long term debt. The 1998 amount reflects proceeds from long term debt of $.52
million from the purchase of Altamonte Printing offset by a $.2 million
repayment of debt to a former employee of the Company.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires companies to
recognize all derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at their fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge, the objective of
which is to match the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in fair value of the hedged
asset or liability that are attributable to the hedged risk or (ii) the earnings
effect of the hedged forecasted transaction. For a derivative not designated as
a hedging instrument, the gain or loss is recognized in income in the period of
change. FAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Historically, the Company has not entered into derivatives
contracts either to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new standard on April
1, 2001 to affect its financial statements.
Year 2000 Disclosure
The Year 2000 will impact computer programs written using two
digits rather than four to define the applicable year. Any programs with
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operation, including a temporary inability to process
transactions, send invoices or engage in other ordinary activities. This problem
largely affects software programs written years ago, before the issue came to
prominence. The Company has reviewed all of its software for exposure to Year
12
<PAGE>
2000 issues, including network and workstation software, and does not believe
that it has significant risk associated with the problem. The Company primarily
uses third-party software programs written and updated by outside firms, each of
whom has stated that its software is Year 2000 compliant. The Company has tested
and proven out all of its software and remedied any problems surrounding Year
2000 impacts. The company has experienced no Y2K problems.
Risk Factors
Risks Regarding Potential Future Acquisitions
The Company's growth strategy includes as a material element
the desire to acquire complementary companies, products or technologies. The
Company is in constant review of new acquisitions. If the Company does complete
one or more acquisitions, a number of risks arise, such as short-term negative
effects on the Company's reported operating results, diversion of management's
attention, unanticipated problems or legal liabilities, and difficulties in the
integration of potentially dissimilar operations. The occurrence of some or all
of these risks should have a minimal material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Key Personnel
Because of the specialized nature of the Company's business,
the success of the Company will be highly dependent upon its ability to attract
and retain qualified executive personnel. In particular, the Company believes
its success will depend to a significant extent on the efforts and abilities of
Mr. Roberto Veitia and Mr. Serluco who would be difficult to replace. There can
be no assurance that the Company will be successful in attracting and retaining
such skilled personnel, who are generally in high demand by other companies. The
loss of, inability to attract, or poor performance by key scientific and
executive personnel may have a material adverse effect on the Company's
business, financial condition and results of operations.
Limited Public Market; Possible Volatility in Stock Prices; Penny Stock Rules
Since the Company started trading on the Over the Counter
(OTC) Bulletin Board there has been a growing active public market for the
Company's Common Stock, but there can be no assurance that an active public
market will be sustained. Although the Company's Common Stock has been traded on
the OTC Bulletin Board since July 1998, the trading has been sporadic with
insignificant but growing volume.
Moreover, the over-the-counter markets for securities of very
small companies such as the Company historically have experienced extreme price
and volume fluctuations during certain periods. These broad market fluctuations
and other factors, such as new product developments and trends in the Company's
industry and the investment markets and economic conditions generally, as well
as quarterly variation in the Company's results of operations, may adversely
affect the market price of the Company's Common Stock. In addition, the
Company's Common Stock is subject to rules adopted by the Securities and
Exchange Commission regulating broker-dealer practices in connection with
transactions in "penny stocks." As a result, many brokers are unwilling to
engage in transactions in the Company's Common Stock because of the added
disclosure requirements.
ITEM 3. DESCRIPTION OF PROPERTY
The Company currently owns approximately 10,000 square
feet of space in one building in Winter Park, Florida,
13
<PAGE>
which is used for its administrative offices, public relations and operations.
The appraised value of the property is $1,100,000. As of December 31,1999 the
mortgage had a balance of $631,500 bearing interest at 7.5% per annum. The
building was acquired in 1997 and partially financed by a promissory note
secured by a mortgage on the office building and land. A refinancing took place
in February 1999 to take advantage of more favorable interest rates. The current
principal balance is $650,000 with an amortization period of 15 years. Interest
for the first five years is fixed at 7.5% per annum and for the second five
years will be determined at the Wall Street Journal prime rate plus 0.5%. The
principal balance remaining after ten years is to be paid out in full.
With the acquisition of Altamonte Printing, the Company
acquired an additional 3,500 square feet of facilities. This facility is fully
owned by the Company and there is no mortgage on this property. The market value
is approximately $300,000. The Company believes that suitable additional or
alternative space will be available on commercially reasonable terms as needed,
but that its existing facilities will be sufficient for its operational purposes
through the end of the leases.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
(a) 5% Shareholders.
The following information sets forth certain information as of
December 31, 1999 about each person who is known to the Company to be the
beneficial owner of more than 5% of the Company's Common Stock:
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent of
Title of Class of Beneficial Owner of Beneficial Ownership (1) Class (2)
- ---------------- ----------------------- --------------------------- -------------
<S> <C> <C> <C>
Common Brian King 657,500 6.83
1815 Central Park Drive
P.O. Box 77400
Steamboat Springs, CO 80477
</TABLE>
(b) Security Ownership of Management:
The following information sets forth certain information as of
November 30, 1999 about each person who is an executive officer of the Company.
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent
Title of Class of Beneficial Owner of Beneficial Ownership(1) of Class (2)
- ---------------- ------------------------ --------------------------- ----------
<S> <C> <C> <C>
Common Roberto Veitia 1,629,012 16.93
1947 Lee Road
Winter Park, Florida 32789
Paul Serluco 0 0
1947 Lee Road
Winter Park, Florida 32789
</TABLE>
14
<PAGE>
(1) The nature of beneficial ownership for all shares is sole voting and
investment power. (2) All percentages are calculated based upon 9,622,454 shares
issued and outstanding as of December 31, 1999.
(c) Changes in Control:
There is no arrangement which may result in a change of
control.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Directors and Executive Officers
As of December 31, 1999, the directors and executive officers
of the Company, their ages, and positions in the Company are as follows:
Name Age Position
Roberto Veitia 52 Chief Executive Officer and Director
Paul Serluco (2) 44 Chief Financial Officer and Director
Sky Robert Anderson (1) 30 Director
G. Paul Abernathy (1) 55 Director
Charles Gowen 69 Director
Van K. Koinis (1) (2) 37 Director
Dorothy Reisch 57 Corporate Secretary
(1)Member of Audit Committee.
(2)Member of Compensation Committee
(b) Business Experience:
Mr. Roberto Veitia - Mr. Veitia, age 52, President,
founded Strategic Communications Ltd., the forerunner of Stratcomm Media,
Ltd. in 1985. From 1983 to 1985 he was President of Money World Perspective
Enterprises, publishers of the second oldest hard money advisory investment
newsletter in the U.S. Mr. Veitia is also founder and president of the
registered non-profit Real Heroes Foundation.
Mr. Paul Serluco - Mr. Paul Serluco, age 44, Chief
Financial Officer, joined us in July 1997 and was voted a Director in August
1999. From March 1983 to July 1997, Mr. Serluco held various positions with
the Boeing Company, including Senior Finance Manager and Program Business
Manager. From July 1981 to March 1983, Mr. Serluco was a Systems Analyst
with Information Spectrum, Inc. Mr Serluco received an M.A and B.B.A. in
Finance / Economics from Temple University.
15
<PAGE>
Mr. Sky Robert Anderson - Mr. Sky Anderson, age 30, joined us as a Director
of the Board in March 1998. He is currently a student of Law at the University
of Alberta. From 1992 until 1999, Mr. Anderson was a Public Relations and
Investor Relations consultant for a number of both public and private companies,
including: Stratford Internet Communications, American Wild Woodland Ginseng
Corp., and Verus Group International. Mr. Anderson completed the Canadian
Securities Course in August 1997. He received a B.A from the University of
British Columbia in 1992.
Mr. G. Paul Abernathy - Mr. Paul Abernathy, age 55, joined us as a Director
of the Board in July 1997. From September 1980 to present, Mr. Abernathy has
been Office Manager for Canadian Wheel Industries in Vancouver.
Mr. Charles Gowen - Mr. Charles Gowen, age 69, joined us as a Director of
the Board in September 1994. From August 1997 to present, he has been a part
time consultant for American Wild Woodland Ginseng. From October 1996 to August
1998, Mr. Gowen was a part time Communication Consultant for Samex Mining Corp.
>From 1991 to March 1996, Mr. Gowen was a corporate Communication Consultant for
Chai-Na-Ta Ginseng.
Dr. Van K. Koinis - Dr. Koinis, age 37, joined us as a Director in July
1998. From 1992 to the present, Dr. Koinis has been in private pediatric medical
practice in Chicago. From 1989 to 1992, Dr. Koinis was a resident at the Christ
Hospital Hope Children's Hospital. He received his Doctor of Osteopathy degree
in 1989 from the Chicago College of Osteopathic Medical School. Dr. Koinis is
board certified from the American Academy of Pediatrics.
(c) Directors of Other Reporting Companies:
None of the Company's executive officers or directors is a
director of any company that files reports with the securities and Exchange
Commission.
(d) Employees:
In addition to Messrs. Veitia and Serluco, the Company employs
three key individuals:
Mr. Don Philpott - Mr. Philpott, age 53, President of Gulf Atlantic
Publishing, joined us in March 1997. From March 1987 to March 1998 he was
President of Mediawise Communications, an international media consultancy. From
March 1968 to March 1987, Mr. Philpott held various positions with Reuters-Press
Association, the wire service, including senior correspondent and news editor.
Mr. Philpott received a National Diploma in Journalism (BA equivalent) from
Portsmouth University, U.K. He is the author of more than 50 books on the media,
diet and health, wine and travel.
Mr. Robert Lewis - Mr. Robert Lewis, age 48, joined us in July 1998 when
Stratcomm Media acquired Altamonte Printing. He is currently in charge of all
operations at Altamonte Printing. Mr. Lewis started Altamonte Printing in 1984.
>From 1981 to 1984, Mr. Lewis held various printing positions in the Orlando
area.
(e) Family Relationships:
16
<PAGE>
There are no family relationships between the directors,
executive officers or any other person who may be selected as a director or
executive officer of the Company.
(f) Involvement in Certain Legal Proceedings:
The Company filed a Chapter 11 bankruptcy for Strategic
Communications, U.S.A., a subsidiary of Stratcomm Media, in the Middle District
of Florida-Orlando on June 9, 1992, and converted to a Chapter 7 in September
1992. The bankruptcy was discharged on November 10, 1997. The case number is
92-3839-6B7.
Other than the above, none of the officers, directors,
promoters or control persons of the Company have been involved in the past (5)
years in any of the following:
(1) Any bankruptcy petition filed by or against any
business of which such person was a general partner
or executive officer either at the time of the
bankruptcy or within two years prior to that time.
(2) Any conviction in a criminal proceedings or being
subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses);
(3) Being subject to any order, judgment or decree, not
subsequently reversed, suspended or vacated, or any
Court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or
otherwise limiting his involvement in barring,
suspending or otherwise limiting his involvement in
any type of business, securities or banking
activities; or
(4) Being found by a court of competent jurisdiction (in
a civil action), the Commission or the Commodity
Futures Trading Commission to have violated a federal
or state securities laws or commodities law, and the
judgment has not been reversed, suspended, or
vacated.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth summary information concerning
the compensation received for services rendered to the Company during the years
ended March 31, 1999, 1998, and 1997 by the chief executive officer. No other
executive officers received aggregate compensation during the last three fiscal
years which exceeded, or would exceed on an annualized basis, $100,000.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------
Long Term Compensation
- ---------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------------
Other Securities
- ---------------------------------------------------------------------------------------------------------------------------
Annual Annual Annual Restricted Underlying LTIP All Other
- ------------------------------------------------------------------------------------------------
Name and Fiscal Salary Bonus Comp. Stock Options/SAR Payouts Comp.
Principal Position Year ($) ($) ($) ($) # ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Roberto Veitia,
President & 1999 $ 60,000 $25,000 None None None None None
Director
1998 $ 60,000 $375,000 None None None None $ 200,000
1997 $ 60,000 $237,500 None None None None None
</TABLE>
17
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into an employment agreement with
Roberto Veitia and Robert Lewis. The term of the agreement with Mr. Veitia is
from January 1998 and is binding during the term of his employment and for two
continuous years following his termination of employment. Under the terms of the
agreement, Mr. Veitia is required to devote his full time to our business. In
1998, Mr. Veitia received $200,000 from the Company as additional consideration
for the specific covenants of the agreement.
The term of the agreement with Mr. Lewis is from July 1998
through July 2001. Under the terms of the agreement, Mr. Lewis is required to
devote his full time to our business. We have agreed to pay him a base salary of
$42,000 for the current fiscal year, subject to future increases as determined
by management. In addition, we have agreed to provide him a car allowance of
$300 per month.
The Company directors (non officer) receive a $5,000 per year
cash compensation for their services as directors, and are reimbursed for
reasonable expenses incurred in attending Board or committee meetings.
ITEM 8. LEGAL PROCEEDINGS
The Company is party to the following actions:
Horton v. Corporate Relations Group, Inc.(CRG),
Case No. :97-27976-CA06, In the Circuit Court of the Eleventh Judicial
Circuit in and for Dade County, Florida;
Mr. Horton has claimed that he is owed an undetermined
amount of money as a finder's fee from CRG for his work involving the Chicken
Kitchen Corporation. While Mr. Horton has not placed a dollar amount on his
claim it is believed that he seeks in excess of $100,000. Additionally,
Mr. Horton has recently amended his complaint and has alleged that CRG
committed fraud in the inducement to contract.
CRG intends to vigorously defend this suit. Currently
discovery is continuing.
Premier Mortgage Resources, Inc. vs. Corporate Relations
Group, Inc.(CRG), Gulf Atlantic Publishing, Inc.(GAP), Select Media, Inc.,
Roberto Veitia, Case No.: C199-7019, Division 35, in the Circuit Court in and
for the Ninth Judicial Circuit, Orange County, Florida;
Premier Mortgage is claiming a failure of consideration of
stock provided to CRG and GAP. CRG and GAP contend that the stock was provided
pursuant to a contract. CRG and GAP contend that they could not complete the
contract because of actions of Premier Mortgage in failing to provide factual
information for use in promotions. Both CRG and GAP seek recission of the
contract and are willing to return the stock upon payment by Premier of the
value of the services provided by CRG and GAP.
Securities and Exchange Commission v. Corporate Relations
Group, Inc., Stratcomm Media Ltd., Gulf Atlantic Publishing, Inc., New
Concepts L.L.C., CJL Corporation, Pow Wow, Inc.,
18
<PAGE>
Fondo De Adquisiciones E Inversiones Internacionales XL, S.A., C.A.
Oportunidad, S.A., Ammonia Hold, Inc., Roberto E. Veitia, James W. Spratt III,
James A. Skalko, Jack R. Rodriguez, Jose Antonio Gomez Cortes, Arnold zousmer,
Charles J. Lidman and Michael Parnell, Civil Action No. 99-1222-CV-22-A
(M.D. Fla., Orlando) (filed September 27, 1999).
On December 27, 1995, the Securities and exchange Commission
("Commission") issued an order directing a private investigation ("Order")
regarding trading in the shares of common stock of The Tracker Corporation of
America. The Order states that the staff had information which indicated that
beginning on or about January 1, 1994, certain persons or entities may have
engaged in actions in violation of Section 10 (d) of the Securities Exchange Act
of 1934 (the "34 Act") and Rule 10-(b)5 thereunder. As part of its
investigation, the staff of the Commission subpoenaed a significant number of
persons including Roberto Veitia, the President of the Company, James Skalko, a
former Vice President of the Company, James Spratt, a former Vice President of
the Company and Leonard Aronoff, an in-house lawyer for the Company and a number
of former officers and employees. The subpoena also required the production of a
substantial number or documents.
On September 27, 1999, approximately four years after the
investigation commenced, the Commission filed an action in United States
District Court for the Middle District of Florida (Civil Action no.
99-1222-CV-22-A) against the Company, its wholly owned subsidiaries Corporate
Relations Group, Inc., Roberto Veitia, James W. Spratt, III, James A. Skalko and
other persons ("the Complaint"). The Complaint alleges that the defendants
violated the registration requirements of Section 5 of the Securities Act of
1933 ( the "33 Act") and the anti-fraud provisions of Sections 17(a) and 17(b)
of the 33 Act and the anti-fraud provisions of Section 10(b) of the 34 Act and
the broker dealer registration requirements of section 15(b) of the 34 Act. The
Complaint alleges that the defendants obtained free or deeply discounted
securities from public companies in return for touting the securities of such
companies at the time that they were recommending the public purchase of such
securities. The Complaint alleges that the defendants through their publication,
Money World, failed to disclose that they were selling the securities being
recommended. The Complaint also alleges that the defendants offered and paid
bribes to registered representatives to induce them to sell the securities to
their customers, and that certain companies located in Costa Rica were used as
conduits to sell the securities in the United States in violation of the
registration requirements of Section 5 of the 33 Act.
The Commission is asking that the defendant be enjoined from
violating Sections 5, 17 (a) and 17 (b) of the 33 Act and sections 10 (b) and 15
(a) of the 34 Act. The Commission is also seeking to force the defendants to
disgorge $20,000,000.00 allegedly received by them in violation of such
Sections. The Commission is also asking the Court to impose such other penalties
as appropriate.
The defendants do not believe that their conduct violated
applicable law and they intend to aggressively defend themselves. To this end,
the defendants have prepared and filed a response to the Commission's Complaint
on December 13, 1999.
A copy of the Commission's Complaint is filed as an exhibit to
this Registration Statement.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market Information:
19
<PAGE>
The Company's Common Stock currently trades on the
Over-The-Counter Bulletin Board (OTC:BB) under the trading symbol "SMMM".
Trading began in July 1998.
The following table sets forth the high and low bid
prices for the Common Stock for each calendar quarter and subsequent interim
period since the Common Stock commenced actual trading, as reported by the
National Quotation Bureau, and represent interdealer quotations, without retail
markup, markdown or commission and may not be reflective of actual transactions:
Quarterly Period Ending High Bid Low Bid
- ----------------------------- ----------- -----------
December 31, 1999 1 1/2 13/32
September 30, 1999 3.12 1/4
June 30, 1999 2 3/16 1 1/4
March 31, 1999 1 7/16 9/16
December 31, 1998 23/32 3/16
September 30, 1998 1 3/8
There can be no assurance that an active public market for the
Common Stock will develop or be sustained. In addition, the shares of Common
Stock are subject to various governmental or regulatory body rules which affect
the liquidity of the shares.
Holders:
There were approximately 1,937 holders of record of the
Company's Common Stock as of December 31, 1999.
Dividends:
The Company has never paid cash dividends on its Common Stock
and does not intend to do so in the foreseeable future. The Company currently
intends to retain its earnings for the operation and expansion of its business.
The Company's continued need to retain earnings for operations and expansion are
likely to limit the Company's ability to pay dividends in the future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information relating to all
previous sales of Common Stock by the Registrant which sales were not registered
under the Securities Act of 1933.
20
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------- --------------------------------- ------------ --------------------------------------------
Name of Purchaser Securities sold - type and Date Consideration or
amount
<S> <C> <C> <C>
Terms of conversion or exercise
- -------------------------------------- --------------------------------- ------------ --------------------------------------------
Fondo De Acquisicones Common 379,870 9/30/98 Services - $154,322
- -------------------------------------- --------------------------------- ------------ --------------------------------------------
Donald Madden Common 300,030 9/30/98 Services - $121,887
- -------------------------------------- --------------------------------- ------------ --------------------------------------------
Roberto Veitia Common 315,934 9/30/98 Services - $128,348
- -------------------------------------- --------------------------------- ------------ --------------------------------------------
Jon Schmalowski Common 30,000 3/9/99 Services - $45,000
- -------------------------------------- --------------------------------- ------------ --------------------------------------------
Trans Global Financial Common 612,420 4/12/99 Services - $115,995
- -------------------------------------- --------------------------------- ------------ --------------------------------------------
Michel Cornis Common 32,000 4/12/99 Services - $16,000
- -------------------------------------- --------------------------------- ------------ --------------------------------------------
Roger Tichenor Common 200,000 4/19/99 Services - $287,500
- -------------------------------------- --------------------------------- ------------ --------------------------------------------
Lee Stoisner Common 20,000 9/6/99 506 Private Placement - $10,000
- -------------------------------------- --------------------------------- ------------ --------------------------------------------
Tentrino-Val S.A. Common 500,000 10/19/99 506 Private Placement - $250,000
- -------------------------------------- --------------------------------- ------------ --------------------------------------------
Tentrino-Val S.A. Common 300,000 12/15/99 506 Private Placement - $150,000
- -------------------------------------- --------------------------------- ------------ --------------------------------------------
Tentrino-Val S.A. Common 200,000 12/22/99 506 Private Placement - $100,000
- -------------------------------------- --------------------------------- ------------ --------------------------------------------
</TABLE>
(1) Unless otherwise indicated above, all securities were sold by our officers,
directors and employees in compliance with Rule 3a-4.
ITEM 11. DESCRIPTION OF SECURITIES
The Company's Articles of Incorporation authorizes the
issuance of 50,000,000 shares of Common Stock, no par value. There is no
preferred stock authorized. Holders of shares of Common Stock are entitled to
one vote for each share on all matters to be voted on by the stockholders.
Holders of shares of Common Stock are entitled to share ratably in dividends, if
any, as may be declared from time to time by the Board of Directors in its
discretion from funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, the holders of shares of Common Stock
are entitled to share pro rata all assets remaining after payment in full of all
liabilities. Holders of Common Stock have no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares. All of the shares of Common Stock issued
and outstanding are fully paid and non assessable.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
At present, there is no pending litigation or proceeding involving a
Director, officer or key employee of the Registrant as to which indemnification
is being sought nor is the Registrant aware of any threatened litigation that
may result in claims for indemnification by any officer or Director.
ITEM 13. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no disagreements with the Company's
independent auditors.
ITEM 14. FINANCIAL STATEMENTS AND EXHIBITS
21
<PAGE>
Financial Statements - The following Financial Statements
required by this Item are included at the end of this report beginning on page
F-1 as follows:
(b) Index to Exhibits
The following exhibits are filed with this Form 10-SB:
Assigned Number Description
- --------------------- --------------
TO BE PROVIDED
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange ACT of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 4, 2000
STRATCOMM MEDIA, LTD
By: ----------------------------
Roberto Veitia
President
22
<PAGE>
STRATCOMM MEDIA , LTD.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current:
Cash $ 85,192 $ 101,454
Certificate of deposit 100,000 450,000
Trade receivables 1,690,187 1,993,590
Marketable securities 484,697 991,857
Options to purchase marketable securities - 115,500
Deferred income taxes - 95,378
Prepaid expenses and other 219,160 262,514
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 2,579,236 4,010,293
Property,plant and equipment,net 1,703,170 1,839,879
Other 3,130 2,509
- --------------------------------------------------------------------------------------------------------------------------------
$ 4,285,536 $ 5,852,681
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STRATCOMM MEDIA , LTD.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1999 1998
- ---------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Deficit
Current liabilities:
Notes payable $ 150,972 $ 450,000
Accounts payable 848,695 792,843
Accrued liabilities 175,791 185,055
Income taxes payable 704,390 1,587,902
Deferred revenue - marketing agreements 4,895,913 4,122,515
Current portion of long-term debt 84,035
Current portion of leases 77,170
Customer Deposit 225,000 -
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 7,161,966 7,138,315
Long-term debt:
Long-term debt,less current portion 1,537,171 801,009
Long-term obligations under capital leases 33,680 163,964
Due to shareholders - -
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 8,732,817 8,103,288
- ---------------------------------------------------------------------------------------------------------------
Shareholders' Deficit
Common shares, no par value, shares
authorized 50,000,000, issued and
outstanding 9,322,668 and 8,978,034 8,495,812 8,069,216
Additional paid-in capital 1,089,863 932,588
Accumulated deficit (11,511,092) (9,251,162)
Accumulated other comprehensive (Loss) (2,207,999) (1,687,384)
- ---------------------------------------------------------------------------------------------------------------
(4,133,416) (1,936,742)
Treasury shares, 666,581 shares,at cost (313,865) (313,865)
- ---------------------------------------------------------------------------------------------------------------
Total shareholders' equity (4,447,281) (2,250,607)
- ---------------------------------------------------------------------------------------------------------------
$ 4,285,536 $ 5,852,681
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STRATCOMM MEDIA , LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C>
NINE MONTHS ENDED DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Revenue:
Revenue and sales $ 6,155,014 $ 9,523,501
- --------------------------------------------------------------------------------------------------------------------
$ 6,155,014 $ 9,523,501
Cost of revenue 2,636,283 4,947,697
- --------------------------------------------------------------------------------------------------------------------
Gross profit 3,518,756 4,575,804
Selling, general and administrative expenses 3,503,210 4,397,519
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 15,546 178,285
Other income (expenses):
Gain on sale of marketable securities - net (2,276,761) 214,706
Writedown of marketable securities and options (41,000) (484,950)
Interest expense (286,141) (246,921)
Other income (expenses) - net 62,850 100,648
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (2,525,505) (238,232)
Income taxes 995,262 (791,010)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) (3,520,767) (1,029,242)
Basic and diluted net income per common share (0.42) (0.15)
- --------------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding 8,412,086 6,852,792
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STRATCOMM MEDIA , LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C>
NINE MONTHS ENDED DECEMBER 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------
Net cash used in operating activities:
Net (loss) $(3,520,767) $(1,029,242)
Adustments to reconcile net (loss) to net cash used for operating activities:
Depreciation 165,933 74,160
Securities and options received as revenue (7,254,337) (1,565,527)
Securities issued for interest expense 42,622 180,441
Marketable securities issued as compensation 775,917 186,603
Services rendered for reduction of private placement liability - (220,710)
Gain (Loss) on sale of marketable securites, net 2,276,761 (214,706)
Writdown of marketable securities and options 41,000 484,950
Amortization of discount on debt 78,638
Stock issued for compensation 17,121 45,000
Common stock warrants issued for services - 54,658
Deferred income taxes 1,288,184 (158,982)
Changes in assets and liabilities:
Trade receivables (490,377) (929,688)
Receivables - other 45,000 75,000
Income tax refund receivable 30,669 56,678
Prepaid expenses and other (22,168) 2,778
Accounts payable (182,206) 241,090
Accrued liabilities (115,781) (676,170)
Income taxes payable (342,921) 703,134
Deferred revenue-marketing agreements 3,075,754 1,839,172
Customer deposits 225,000 (625,000)
- -----------------------------------------------------------------------------------------------------------
Net cash used for operating activities (3,865,958) (1,476,361)
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Increase (decrease)in certificates of deposits 350,000 (450,000)
Purchases of marketable securities (287,163) (277,552)
Proceeds from sales of marketable securities 3,381,848 1,354,776
Cash used for business acquisition - (60,000)
Purchase of property and equipment - (53,682)
Increase in other assets 47,679 3,866
- -----------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 3,492,364 517,408
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from notes payable - 450,000
Proceeds from long-term debt 50,000 -
Payments on long-term debt (484,197) (116,670)
Proceeds from sale of common stock 409,476 -
Payment of obligations under capital lease (62,927) (23,599)
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities (87,648) 309,731
- -----------------------------------------------------------------------------------------------------------
Net Decrease in cash (461,242) (649,222)
Cash, beginning of period 546,434 750,676
- -----------------------------------------------------------------------------------------------------------
Cash, end of period $ 85,192 $ 101,454
</TABLE>
<PAGE>
STRATCOMM MEDIA, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NINE MONTHS ENDED DECEMBER 31,
- -------------------------------------------------
1 Basis of presentation
- ------------------------------
The accompanying unaudited consolidated financial statements of
Stratcomm Media LTD. Inc.,("the company") have been prepared by the Company
pursuant to the rules and regulations of the securities and exchange commission.
The information furnished herein reflects all adjustments (consisting of
only normal recurring accruals and adjustments) which are, in the opinion of
management, necessary to fairly state the operation results for the respective
periods. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The notes to the consolidated financial statements should be read in conjuction
with the notes to the consolidated financial statements contained in the
Company's form 10-sb for the year ended March 31, 1999.
The results for interim periods are not necessarily indicative of trends
or results to be expected for a full year.
2 Litigation
- -------------------
A regulatory authority has subpoenaed the Company's president and
chairman, an employee, a former employee and Corporate Relations Group, a
wholly-owned subsidiary, requesting certain documentation in connection with two
orders directing private investigations for actions in violation of Sections 5
and 17 of the Securities Act of 1933 and Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder. The investigations are
continuing, and the Company has been advised that the staff of the regulatory
authority intends to recommend a civil enforcement proceeding against CRG. If
authorized, the civil enforcement action would seek recovery of proceeds from
certain securities sales that occurred during the period from January 1, 1994
through December 31, 1996. As of December 31, 1999, the Company has incurred
approximately $914,700 in legal fees on behalf of the former employee relating
to this matter, of which $68,700 was expensed during 2000, $246,000 was
expenses in 1999 and $600,000 during 1998. Management of the Company believes
that it is unlikely that the outcomes of these investigations will have
material impacts on the operations or financial condition of the Company.
<PAGE>
Stratcomm Media, Ltd.
Consolidated Financial Statements
Years Ending March 31, 1999 and 1998
Contents
Report of Independent Certified Public Accountants 2
Financial Statements
Consolidated balance sheets 3 - 4
Consolidated statements of operations 5
Consolidated statements of shareholders' equity 6
Consolidated statements of cash flows 7
Summary of significant accounting policies 8 - 11
Notes to consolidated financial statements 12 - 23
1
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders
Stratcomm Media, Ltd.
We have audited the consolidated balance sheets of Stratcomm Media, Ltd. as of
March 31, 1999 and 1998 and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Stratcomm
Media, Ltd. at March 31, 1999 and 1998 and the results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
June 16, 1999
Orlando, FL
2
<PAGE>
Stratcomm Media, Ltd.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Assets
Current:
Cash $ 546,434 $ 750,676
Certificates of Deposit (Note 5) 450,000 -
Trade receivables 1,199,810 1,063,902
Marketable securities (Note 3) 2,234,330 3,678,481
Options to purchase marketable securities 41,000 600,450
Income tax refund receivable 30,669 56,678
Deferred income taxes (Note 10) 259,384 -
Prepaid expenses and other 133,992 337,492
- --------------------------------------------------------------------------------------------------------------------
Total current assets 4,895,619 6,487,679
Property, plant and equipment, net (Note 4 and 6) 1,802,854 1,219,334
Loan costs 144,000 -
Other 50,809 6,375
- --------------------------------------------------------------------------------------------------------------------
$ 6,893,282 $ 7,713,388
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
3
<PAGE>
Stratcomm Media, Ltd.
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable (Note 5) $ 620,000 -
Accounts payable 1,030,901 $ 551,753
Accrued liabilities 291,572 1,085,343
Income taxes payable (Note 10) 1,047,311 884,768
Deferred income taxes (Note 10) - 542,346
Deferred revenue - marketing agreements 1,820,159 2,283,343
Current portion of long-term debt (Note 6) 84,035 38,594
Current obligations under capital leases (Note 8) 79,391 -
Customer deposit - 625,000
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 4,973,369 6,011,147
Long-term debt:
Long-term debt, less current portion (Note 6) 1,520,977 482,825
Long-term obligations under capital leases (Note 8) 64,137 -
Private placement liability (Note 9) - 220,710
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 6,558,483 6,714,682
- --------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 7 and 9) - -
Shareholders' Equity (Notes 7 and 12):
Common shares, no par value, shares authorized 50,000,000 8,069,216 7,619,657
Additional paid-in capital 1,072,588 877,930
Accumulated deficit (7,990,326) (7,978,510)
Accumulated other companies comprehensive income (loss) (502,814) 793,494
- --------------------------------------------------------------------------------------------------------------------
648,664 1,312,571
Treasury shares, 666,581 shares, at cost (313,865) (313,865)
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 334,799 998,706
- --------------------------------------------------------------------------------------------------------------------
$ 6,893,282 $ 7,713,388
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
4
<PAGE>
Stratcomm Media, Ltd.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
<S> <C> <C>
Year ended March 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Revenue:
Revenue and sales $ 14,731,729 $ 17,669,022
- --------------------------------------------------------------------------------------------------------------------
14,731,729 17,669,022
Cost of revenue 5,471,397 7,146,669
- --------------------------------------------------------------------------------------------------------------------
Gross profit 9,260,322 10,522,353
Selling, general and administrative expenses 6,074,839 7,559,637
- --------------------------------------------------------------------------------------------------------------------
Income from operations 3,185,493 2,962,716
Other income (expenses):
Gain (loss) on sale of marketable securities-net (2,435,738) 2,678,327
Writedown of marketavle securities and options (484,950) (2,613,564)
Interest expense (266,325) (54,545)
Other income - net 130,400 139,606
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 128,880 3,112,540
- --------------------------------------------------------------------------------------------------------------------
Income taxes (Note 10) (140,696) (1,209,827)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (11,816) $ 1,902,713
- --------------------------------------------------------------------------------------------------------------------
Basic and diluted net income (loss) per common share $ .00 $ .28
- --------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 7,797,116 6,852,792
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
5
<PAGE>
Stratcomm Media, Ltd.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Unrecorded
Common Stock Treasury Stock Gain
--------------------- Additional -------------------- (Loss) on Total
Number Paid-in Number Marketable Accumulated Shareholders'
of Amount Capital of Amount Securities Deficit Equity
Shares Shares
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1997 7,952,200 $ 7,619,657 $ 877,930 1,200,081 $ (433,960)$(9,881,223) $2,795,416 $ 977,820
Net income - - - - - 1,902,713 - 1,902,713
Other comprehensive income-net
unrealized holding losses
arising during the period
($531,425 net of tax of
$199,976) - - - - - - (311,449) (311,449)
Less reclassification adjustment
for net gain (losses) included
in net income (loss)($2,678,327
net of tax of $1,007,854) - - - - - - (1,670,473) (1,670,473)
Total comprehensive income - - - - - - - 3,904,635
Issuance of treasury stock - - - (533,500) 120,095 - - 120,095
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 7,952,200 7,619,657 877,930 666,581 (313,865) (7,978,510) 793,494 998,706
Net loss - - - - - (11,816) - (11,816)
Other comprehensive income-net
unrealized holding losses
arising during the period
($4,514,152) net of tax of
$1,698,674) - - - - - - (2,815,478) (2,815,478)
Plus reclassification adjustment:
net losses included in net
income (loss) ($2,435,735 net
of tax of $916,568) - - - - - - 1,519,170 1,519,170
Total comprehensive income (1,308,124)
Issuance of common stock to
satisfy accrued expenses
and interest 995,834 404,559 - - - - - 404,559
Issuance of common stock
for compensation 30,000 45,000 - - - - - -
Issuance of convertible
debentures at a discount - - 140,000 - - - - 140,000
Common stock warrants
issued for services - - 54,658 - - - - 54,658
Change in unrealized gain
(loss) on marketable securities - - - - - (1,296,308) - (1,296,308)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 8,978,034 $ 8,069,216 $ 1,072,588 666,581 $ (313,865) $(7,990,326) $(502,814) $ 334,799
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of significant accounting policies
and notes to consolidated financial statements.
6
<PAGE>
Stratcomm Media, Ltd.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
<S> <C> <C>
Year ended March 31, 1999 1998
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (11,816 ) $ 1,902,713
Adjustments to reconcile net income (loss) to net cash used for operating
activities:
Depreciation 126,861 87,217
Marketable securities and options received as revenue (10,179,541) (10,315,659)
(Gain) loss on sales of marketable securities, net 2,435,738 (2,678,327)
Writedown of marketable securities and options 484,950 2,613,564
Marketable securities issued as compensation 2,162,187 -
Services rendered for reduction of private placement liability (220,710) -
Stock issued for interest expense 180,441 -
Stock issued for compensation 45,000 -
Common stock warrants issued for services 54,658 -
Loss on sales of capital assets - 471
Deferred income taxes (19,624) (621,494)
Changes in assets and liabilities, net of effect of acquisition:
Trade receivables (135,908) (768,571)
Receivable - other - 486,997
Income tax refund receivable 26,009 141,783
Prepaid expenses and other 206,300 (82,889)
Accounts payable 479,148 333,872
Accrued liabilities (97,831) 797,266
Income taxes payable 162,543 884,768
Deferred revenue - marketing agreements (463,184) (790,694)
Customer deposit (625,000) -
- --------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities (5,389,779) (8,008,983)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Increase in certificates of deposits (450,000) -
Purchases of marketable securities (326,073) (2,216,579)
Proceeds from sales of marketable securities 4,876,104 11,346,418
Cash used for business acquisition (60,000) -
Purchases of property, plant and equipment (69,358) (1,093,394)
Increase in other assets (44,434) 1,125
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 3,926,239 8,037,570
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of due to related parties - (200,000)
Proceeds from notes payable 620,000 -
Proceeds from long-term debt 1,450,000 521,419
Payment on long-term debt (622,667) -
Increase in certificates of deposits (450,000) -
Issuance of treasury stock - 34,500
Payment of obligations under capital leases (44,035) -
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,259,298 355,919
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (204,242) 384,506
- --------------------------------------------------------------------------------------------------------------------
Cash, beginning of period 750,676 366,170
- --------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 546,434 $ 750,676
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
7
<PAGE>
Stratcomm Media, Ltd.
Summary of Significant Accounting Policies
Principles of The consolidated financial statements
Consolidation include the accounts of Stratcomm Media,
Ltd. and its wholly-owned U.S. subsidiaries,
Stratcomm Media U.S.A., Inc.; Corporate
Relations Group, Inc.; Applied List
Management, Inc.; Arrow Marketing, Inc.;
Gulf/Atlantic Publishing, Inc.;
Altamonte Printing, Incorporated; and
Corporate Holdings, Inc., collectively
referred to as the Company. All material
intercompany accounts and transactions
have been eliminated.
Property, Plant and Plant and Equipment Property, plant and
Equipment equipment are stated at cost. Depreciation is
computed over the estimated useful lives of
the assets by the straight-line method for
accounting purposes and the accelerated
method for tax purposes.
Revenue Revenue is recognized as services are
Recognition rendered or when the terms of marketing
agreements are fulfilled by amendment,
acceleration or otherwise. Revenue from
the sale of subscriptions is recognized as
the related subscriptions are fulfilled.
Deferred revenue represents marketing
contracts which are primarily for a period of
one year and subscriptions paid for that have
not been fully completed or earned by the
Company.
Certain of the Company's marketing services
are paid for by receipt of registered,
nonrestricted common shares of its clients.
In addition, the Company receives restricted
stock and options to acquire additional
common shares of these clients. Shares and
options are recorded at fair market value at
the date of the contract.
8
<PAGE>
Stratcomm Media, Ltd.
Summary of Significant Accounting Policies
Marketable Marketable equity securities are reflected
Securities as available-for-sale securities and are
stated at fair market value at each balance
sheet date, with unrealized holding gains and
and losses, net of related income tax effect,
are excluded from earnings and are reported
as a charge to other comprehensive income.
The cost of securities sold is determined
based on the specific identification method
for purposes of recording realized gains and
losses.
Included in marketable securities are
restricted shares which are subject to
one-year holding periods, which expire at
various dates through December 1999 and are
therefore considered as marketable
securities.
In addition to the marketable securities, the
Company holds options to purchase additional
marketable securities which are recorded at
amounts which reflects their market value
based on the exercise prices.
Loan Costs Costs Costs incurred in connection with the
issuance of the Subordinated Convertible
Debentures (see Note 5) are deferred and will
be amortized on the straight line basis over
the life of the debentures beginning in April
1999.
Income Taxes The Company accounts for income taxes on
the liability method. Under this
method, deferred tax assets and liabilities
are determined based on differences
between financial reporting and tax
bases of assets and liabilities.
Measurement of deferred income tax is based
on enacted tax rates and laws that
will be in effect when the differences
are expected to reverse, with the
measurement of deferred income tax assets
being reduced by available tax
benefits not expected to be realized.
Net Income per Net income per common share is computed
Common Share using the weighted average number of shares
outstanding during each period. Potential
common shares for 1999 have
not been included since their effect would be
antidilutive. Potential common shares as of
March 31, 1999 include warrants exercisable
for 500,000 shares and 602,409 shares
underlying the convertible debt. There are no
dilutive instruments as of March 31, 1998,
therefore, basic and diluted net income per
share are equal.
9
<PAGE>
Stratcomm Media, Ltd.
Summary of Significant Accounting Policies
Operating Segments
In June 1997, the Fiancial Accounting
Standards Board issued Statement of Financial
Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related
Information: ("FAS 131"). FAS 131
establishes standards for the way that public
companies reprot information statements. It
also requires the disclosure of certain
information regarding services provided,
geographic areas of operation and major
customers. See Note 12 for a further
decription of these segments and certain
business information.
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 at the date of the financial
statements and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from
those estimates.
Fair Value of Statement of Financial Accounting Standards
Financial Instruments No. 107, "Disclosures about Fair
Value of Financial Instruments," requires
disclosure of fair value information
about financial instruments. Fair value
estimates discussed herein are based upon
certain market assumptions and pertinent
information available to management as of
March 31, 1999.
The respective carrying value of certain
on-balance-sheet financial instruments
approximates their fair values. These
financial instruments include cash,
certificates of deposit, trade receivables,
marketable securities, options to purchase
marketable securities, accounts payable,
accrued liabilities and notes payable. Fair
values were assumed to approximate carrying
values for these financial instruments since
they are short term in nature and their
carrying amounts approximate fair values or
they are receivable or payable on demand. The
fair values of the Company's long-term debt
are estimated based upon the quoted market
prices for the same or similar issues or on
the current rates offered for instruments of
the same remaining maturities. The carrying
value of the Company's long-term debt
approximates their fair market value.
10
<PAGE>
Stratcomm Media, Ltd.
Summary of Significant Accounting Policies
Recent Accounting In June 1998, the Financial Accounting
Pronouncements Standards Board issued Statement of
Financing Accounting Standards No. 133,
"Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133
requires companies to recognize all
derivative contracts as either assets or
liabilities in the balance sheet and to
measure them at fair value. If certain
conditions are met, a derivative may be
specifically designated as a hedge, the
objective of which is to match the timing of
gain or loss recognition on the hedging
derivative with the recognition of (i) the
changes in the fair value of the hedged asset
or liability that are attributable to the
hedged risk or (ii) the earnings effect of
the hedged forecasted transaction. For a
derivative not designed as a hedging
instrument, the gain or loss is recognized in
income in the period of change. FAS 133 is
effective for all fiscal quarters or fiscal
years beginning after June 15, 2000.
Historically, the company has not entered
into derivative contracts either to hedge
existing risks or for speculative purposes.
Accordingly, the Company does not expect
adoption of the new standard to affect its
consolidated financial statements.
11
<PAGE>
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
1. Organization Stratcomm Media, Ltd. was incorporated in
the Province of British Columbia in
February 1984 under the name Contender
Resources Ltd. The Company changed its
name to Strategic Communications, Ltd. in
August 1986 and again changed its
name to Stratcomm Media, Ltd. in July 1991.
The Company provides corporate marketing,
investor relations, list rental, list
management and marketing consulting
services through its wholly-owned
subsidiaries.
2. Acquisition On July 1, 1998, the Company acquired all
of the outstanding common stock of
Altamonte Printing Incorporated for $60,000
cash and a mortgage note payable of
$299,000. The acquisition has been accounted
for using the purchase method of
accounting, and the results of the acquired
businesses have been included in
the consolidated financial statements
since the date of acquisition. The
purchase price has been allocated to assets
acquired and liabilities assumed
based on fair market values at the date of
acquisition as follows:
---------------------------------------------
Inventory $ 2,800
Property, plant and equipment $ 453,461
Notes payable $ (97,261)
---------------------------------------------
Proforma consolidated results of operations
are not presented since the acquisition was
not significant.
3. Marketable Securities Marketable securities consist of the
following:
March 31, 1999
--------------------------------------------
Unrealized Fair
Gains Market
Cost Basis (Losses) Value
--------------------------------------------
$ 3,040,508 $ (806,178) $ 2,234,330
--------------------------------------------
March 31, 1998
--------------------------------------------
$ 2,406,245 $ 1,272,236 $ 3,678,481
--------------------------------------------
12
<PAGE>
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
4. Property, Plant and Property, plant and equipment are summarized
Equipment as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
March 31 Useful Lives 1999 1998
--------------------------------------------------------------------------------
Land $ 281,087 $ 220,000
Building and leasehold
improvements 5 - 40 years 1,101,659 833,659
Machinery and equipment 5 years 580,828 211,075
Furniture and fixtures 5 years 138,343 126,802
--------------------------------------------------------------------------------
2,101,917 1,391,536
Less accumulated depreciation 299,063 172,202
--------------------------------------------------------------------------------
$ 1,802,854 $ 1,219,334
--------------------------------------------------------------------------------
</TABLE>
5. Notes Payable Notes payable consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
March 31, 1999 1998
---------------------------------------------------------------------------------
Note payable to bank, monthly payments of
interest only at prime (8% at March 31,
1999), due on demand and collateralized by
certificates of deposit of $450,000. $ 450,000 $ -
Four notes payable to shareholders, principal
plus interest at 10% due beginning April
1999. The notes are unsecured and were
repaid during April and May 1999. 170,000 -
---------------------------------------------------------------------------------
$ 620,000 $ -
---------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
6. Long-Term Debt Long-term debt consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
March 31, 1999 1998
----------------------------------------------------------------------------------
Mortgage note payable to bank, monthly payments
of $6,118 including interest at 7.75% through
February 1, 2009, at which time any remaining
unpaid principal and interest is due;
collateralized by real property. Upon the
fourth and seventh anniversary dates of the
loan, the interest rate will be adjusted to
the bank's then prime lending rate. $ 646,012 $ -
Mortgage note payable to former owner of
Altamonte Printing Incorporated due in annual
principal payments of $60,000 plus interest
at 6% beginning July 1, 1999 through July 1,
2003 at which time remaining unpaid principal
plus interest is due; collateralized by real
and personal property. $ 299,000 -
14% subordinated convertible debentures, net of
discount (see below). $ 660,000 $ -
$550,000 note payable, interest at 9%, repaid
during 1999 and was collateralized by real
property. - 521,419
----------------------------------------------------------------------------------
1,605,012 521,419
Less current portion 84,035 38,594
----------------------------------------------------------------------------------
$ 1,520,977 $ 482,825
----------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
The aggregate amount of the maturities of
long-term debt maturing in future years is as
follows:
----------------------------------------------
2000 $ 84,035
2001 85,965
2002 748,051
2003 90,304
2004 91,737
Thereafter 504,920
----------------------------------------------
$ 1,605,012
14% Subordinated Convertible Debentures
During March of 1999, the Company issued
$800,000 of subordinated convertible
debentures. Interest at 14% is payable
quarterly beginning June 22, 1999 until March
22, 2002, at which time all remaining unpaid
principal plus interest is due. Effective
September, 2000, the holder can elect to
convert the debentures into common stock at a
conversion price of $1.00 per share. If after
the 18-month period, should the share price
be equal to or greater than $1.25 per share
for twenty consecutive trading days, the
Company has the right to require conversion
of the debentures at the average share price
during the said twenty-day period.
Accordingly, $140,000 of deferred interest
has been recorded as a discount for the
difference between the conversion price of
the debentures and the fair market value of
the Company's common stock at the time of
issuance. The deferred interest will be
amortized into interest expense over 18
months, the period of time from when the
debentures were issued to when they can first
be converted. The debentures are subordinated
to mortgage notes payable and the note
payable to bank (Note 4).
15
<PAGE>
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
7. Related Party Due to Related Parties
Transactions
During 1997, the Company borrowed 503,500
common shares from a shareholder who is also
president and chairman of the Company. As of
March 31, 1997, the Company had recorded the
obligation to return these shares to the
shareholder at $85,595, the exchange and
estimated fair value of the transaction.
During 1998, the Company reissued and
delivered 503,500 common shares to the
shareholder.
As of March 31, 1997, an employee of the
Company and a corporation controlled by that
employee had loaned the Company $200,000. The
loans were repaid during 1998.
Other
During the years ended March 31, 1999 and
1998, the Company rented customer lists at
costs of $148,310 and $122,670 respectively,
from the president and chairman of the
Company. These transactions are in the normal
course of operations and are measured at the
exchange value (the amount of consideration
established and agreed to by the related
parties) which approximates the arm's length
equivalent value for these transactions.
As of March 31, 1997, $56,688 was owed to
directors and included in accounts payable.
The balance was paid during 1998.
8. Obligations Under The Company leases equipment under lease
Capital Leases agreements which are classified as capital
leases. The following is a schedule,
by year, of future minimum lease payments
under capital leases, together with
the present value of the minimum lease
payments as of March 31, 1999.
16
<PAGE>
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
Year ended March 31,
---------------------------------------------
2000 $ 98,990
2001 61,820
2002 8,068
----------------------------------------------
Total minimum lease payments $ 168,878
Less amount representing
interest (25,350)
----------------------------------------------
Present value of future
minimum lease payments $ 143,528
----------------------------------------------
9. Commitments Private Placement Liability
and
Contingencies During 1996, the Company received
approximately $220,710 in connection with a
subscription for 288,462 shares of the
Company's common shares. Under the terms
of the share subscription agreement, the
Company, after the expiration of a 12-month
holding period, guaranteed that such
shares would be resold at not less than $.76
per share or $220,710 in aggregate.
Fifty percent (50%) of any excess proceeds
are to be paid to the Company. During 1999
the Company reached an agreement to provide
certain marketing services in exchange for
settlement of the liability.
17
<PAGE>
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
Leases
The Company leases certain equipment under
long-term operating leases. Future minimum
rental payments required under operating
leases are as follows:
March 31,
---------------------------------------------
2000 $ 122,600
2001 104,800
2002 101,800
2003 103,700
2004 15,900
Thereafter 2,400
----------------------------------------------
Total net minimum lease payments $ 451,200
----------------------------------------------
Rental expense was approximately $140,000 and
$198,000 for the years ended March 31, 1999
and 1998, respectively.
Litigation
A regulatory authority has subpoenaed the
Company's president and chairman, an
employee, a former employee and Corporate
Relations Group, a wholly-owned subsidiary,
requesting certain documentation in
connection with two orders directing private
investigations for actions in violation of
Sections 5 and 17 of the Securities Act of
1933 and Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5
thereunder. The investigations are
continuing, and the Company has been advised
that the staff of the regulatory authority
intends to recommend a civil enforcement
proceeding against CRG. If authorized, the
civil enforcement action would seek recovery
of proceeds from certain securities sales
that occurred during the period from January
1, 1994 through December 31, 1996. As of
March 31, 1998, the Company has incurred
approximately $846,000 in legal fees on
18
<PAGE>
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
behalf of the former employee relating to
this matter, of which $246,000 was expensed
during 1999 and $600,000 during 1998.
Management of the Company believes that it is
unlikely that the outcomes of these
investigations will have material impacts on
the operations or financial condition of the
Company.
CRG was also named in a lawsuit by an
individual who claims he is owed an
undetermined amount for services performed
for CRG. Management intends to vigorously
defend itself against this lawsuit.
The Company is a party to various other legal
and administrative proceedings and claims of
various types, the outcome of which is not
determinable. While any litigation contains
an element of uncertainty, management, based
upon the opinion of legal counsel, believes
that the outcome of the proceedings, if any,
will not have a material adverse effect on
the Company.
10. Income Taxes The Company has no current or deferred Canadian
income taxes for the years 1999 and 1998.
The components of income taxes are as follows:
Year ended March 31, 1999 1998
-----------------------------------------------
Current:
Federal $ 153,639 $ 1,597,926
State 26,009 243,322
-----------------------------------------------
179,648 1,841,248
Deferred
Federal (35,194) (570,511)
State (3,758) (60,910)
-----------------------------------------------
(38,952) (631,421)
-----------------------------------------------
$ 140,696 $ 1,209,827
-----------------------------------------------
19
<PAGE>
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
The following summary reconciles differences
from taxes at the federal, state and
provincial statutory rates to the effective
rates:
Year ended March 31, 1999 1998
----------------------------------------------
Federal, state and
provincial income
taxes at statutory
rates 37.63% 37.63%
Nondeductible
expenses 71.57% 1.24%
----------------------------------------------
Effective tax rate 109.2% 38.87%
----------------------------------------------
Unused net operating losses for Canadian
income tax purposes, expiring in various
amounts from 2000 through 2003, of
approximately $660,000 are available at March
31, 1999 for carryforward against future
years' taxable income. Unused capital losses
for Canadian income tax purposes of
approximately $3,300,000 are available at
March 31, 1999 for carry forward against
future years' taxable income.
20
<PAGE>
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
The components of deferred income tax assets
and liabilities consist of the following:
<TABLE>
<CAPTION>
March 31, 1999 1998
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred income tax assets:
Canadian net operating loss and capital
loss carryforwards $ 1,490,148 $ 1,490,148
Unrealized losses on marketable securities 303,364 -
Stock issued for services - 26,068
Writedown of marketable securities 109,430 218,672
Depreciation 20,106 17,893
Other - 19,328
-----------------------------------------------------------------------------------
Gross deferred income tax assets 1,923,048 1,772,109
Valuation allowance (1,490,148 ) (1,490,148 )
-----------------------------------------------------------------------------------
Total deferred income tax assets 432,900 281,961
-----------------------------------------------------------------------------------
Deferred income tax liabilities:
Unrealized gains on marketable securities - (478,742 )
Stock and stock options received (173,516 ) (345,565 )
-----------------------------------------------------------------------------------
Total deferred income tax liabilities (173,516 ) (824,307 )
-----------------------------------------------------------------------------------
Net deferred income tax asset (liability) $ 259,384 $ (542,346 )
-----------------------------------------------------------------------------------
</TABLE>
The Company's valuation allowance did not
change for the years ended March 31, 1999 and
1998, respectively. The Company has recorded
a valuation allowance to state its deferred
tax assets at estimated net realizable value
due to the uncertainty related to realization
of these assets through future taxable
income.
21
<PAGE>
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
11. Supplemental Cash Certain supplemental disclosure of cash flow information
Flow Information and noncash investing and financing activities is as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year ended March 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Cash paid for interest during the year $ 85,885 $ 54,545
- --------------------------------------------------------------------------------------------------------------------
Stock issued to satisfy accrued expenses $ 224,118 $ -
Marketable securities issued to satisfy accrued expenses 471,822 -
Issuance of treasury stock to satisfy amount due to related parties - 85,595
Capital lease obligations incurred in connection with the acquisition 187,563 -
of equipment
Debt discount on convertible debt 140,000 -
Decrease in unrealized gain on marketable securities net of $782,106 of deferred
taxes 1,296,308 -
Increase in unrealized gain on marketable securities net of $1,207,830 of
deferred taxes - 2,001,922
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
12. Common During the year ended March 31, 1999, the
Stock Warrants Company issued common stock warrants to
purchase 500,000 shares of common stock at
an exercise price of $.18 per share as
payment for professional services. The
warrants were valued at $54,658 in
accordance with the provisions of Statement
of Financial Accounting Standard No. 123
"Accounting for Stock-Based Compensation."
The warrants expire November 2005.
22
<PAGE>
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
13. Segment The Company's operations are classified into two
Information reportable business segments, marketing and printing, based
upon similariries in product items, customers, marketing and
management of the businesses. The marketing segment provides
marketing, investor relations, list rental and list
management services. The printing segment provides various
types of printing services.
The reporting segments follow the same accounting as
policies used for the Company's consolidated financial
statements and described in the summary of significant
accounting policies. Management evaluates a segment's
performance based upon profit of loss from operations before
income taxes. Intersegment sales are recorded based on
prevailing market prices.
The table below shows certain financial information by
business segment for 1999. The year in which the printing
operations were acquired. Prior to that date the Company
operated as one segment.
<TABLE>
<CAPTION>
Elimination of
Segment Reporting Marketing Printing Intersegment Consolidated
March 31, 1999 Operations Operations Sales Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $14,629,060 $297,653 $(194,984) $14,731,729
Interest expense 259,866 6,459 266,325
Depreciation 117,552 9,309 126,861
Segment income(loss) 57,032 (45,216) (11,816)
Segment assets 6,291,582 601,700 6,893,282
Expenditures for segment
assets $ 126,236 $584,150 $ 710,382
- ---------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 3
1 A. Articles of Incorporation of the Registrant (26 pages)
2 B. Bylaws of the Registrant
ITEM 4
ITEM 5
ITEM 9
ITEM 10
1. C. Employment Agreement with Roberto Veitia, Presidentand CEO(7 pages)
2. D. Stock Subscription Agreement with Andre Dumont (13 pages)
3. E. Stock Subscription Agreement with TechTacTic (13 pages)
4. F. Stock Subscription Agreement with Asuno, Inc. (4 pages)
5. G. Stock Subscription Agreement with Concorde Bank, LTD (13 pages)
6. H. Stock Subscription Agreement with Aren Foundation (13 pages)
7. I. Contract with Banta Publications Group (4 pages)
8. J. Contract with BankVest Capital Group (2 pages)
9. K. Contract with Great America Leasing Corporation (4 pages)
10. L. Lease Agreement with National Leasing (7 pages)
11. M. Lease Agreement with Credential Leasing (5 pages)
12. N. Contract with Orix Credit Alliance, Inc. (5 pages)
13. O. Contract with Catalyst Financial Corporation (15 pages)
14. P. Consulting Agreement with TransGlobal Financial (11 pages)
15. Q. Standard Gulf Atlantic Publishing, Inc. Client Contract (21 pages)
16. R. Standard Rainbow Communications, Inc. Client Contract (23 pages)
17. S. Lease Agreement with Parkway Associates (59 pages)
18. T. Mortgage Agreement with 1st National Bank of Central Florida
(123 pages)
19. U. Line of Credit Agreement with BankFIRST (8 pages)
20. V. Line of Credit Agreement with BankFIRST (7 pages)
21. W. Promissory Note with Robert Lewis, Jr. (3 pages)
22. X. Securities and Exchange Commission Civil Action (72 pages)
ITEM 10.1 Employment Agreement with Roberto Veitia, President and CEO
<PAGE>
EX10.1
Employment Agreement with Roberto Veitia
EMPLOYMENT AGREEMENT
THIS AGREEMENT made this 12 day of January , 1998 by and between ROBERTO E.
VEITIA (hereinafter referred to as the "Employee") and STRATCOMM MEDIA, USA, a
Florida corporation (hereinafter referred to as the "Company").
R E C I T A L S
WHEREAS, the Company has employed and continues to employ Employee, who
likewise wishes to continue his employment with the Company, under the terms and
conditions set forth below; and,
WHEREAS, THE Employee hereby acknowledges that he has received, and will
continue to receive, from the Company extraordinary and specialized training in
the field of public relations and marketing of publicly traded companies; and,
WHEREAS, the Company has, through time, effort and expense, developed and
established, and continues to develop and establish, its business with clients,
prospective clients and a Special Broker Network in a business territory
identified herein; and,
WHEREAS, the Employee wishes to assure the Company that he will not
terminate his employment and solicit business that would otherwise go to the
Company from the Company's clients, prospective clients, and/or the Company's
Special Broker Network, or otherwise compete with the Company in its business
territory as set forth herein; and,
WHEREAS, the parties recognize that the Company has a property interest in the
names, addresses, and telephone numbers of subscribers to its publications,
clients (both current and prospective), and other names maintained in the
Company's master file of addresses (hereinafter collectively referred to as
"Company Data Base"). The Company Date Base, as well as the Company's Special
Broker Network, have been developed through the expenditure of significant
resources by the Company. The Company Data Base and the Broker Network represent
assets of the Company which the Company desires to protect from disclosure to
competitors and from uses not authorized by the Company. The Employee hereby
recognizes and agrees that the Company Data Base and the Broker Network are
property rights of the Company; and WHEREAS, the Company has revealed and made
available, and will continue to make available, to the Employee, the Company
Data Base, the Company's Special Broker Network, and the names and addresses of
clients (both current and prospective), as part of the sale or offer of the
<PAGE>
Company's product and to facilitate the sale and offer of the Company's product,
and the Company wishes to protect its proprietary value in the confidentiality
of such, its Data Base, Special Broker Network and client base; and
WHEREAS, the Company wishes to protect its clients, its Special Broker Network,
its confidential and proprietary information and its business territory;
NOW, THERFORE, in consideration of the mutual covenants and promises of the
parties hereto, and as an inducement to the Company for agreeing to continue the
employment of Employment and as a condition of said employment, and for the
additional consideration specifically set forth in paragraph 12 below, the
Employee and Company agree as follows:
Incorporation of Recitals
1. All recitals set forth above are incorporated herein as if set out fully.
Work Of Employee
2. Employee agrees to continue devoting his full work time and efforts for
and on behalf of the Company, as directed by management of the Company.
Compensation Of Employee
3. For all services and efforts rendered by Employee to Company, Company
will continue Employee's employment at the compensation rate of $5,000 per
month, together with a 10% "Finder's Fee" encompassing 10% of the proceeds from
clients which Employee brings to the Company. Said 10% Finder's Fee will be due
and payable by Company to Employee within five (5) business days subsequent to
the receipt by Company of full payment from any such client pursuant to such
client's contract with Company.
Employee will also be eligible to receive bonuses at the
discretion of management of the Company.
The Company will pay reasonable attorney's fees for or related
to Employee in the event that Employee, due to Employee's work for or on behalf
of the Company, is or becomes a party to or involved in any legal proceeding
related to such work. The Employee may select the attorney or attorneys of his
choice. This provision applies even if Employee's employment is or has been
terminated, and whether such termination is or was voluntary or involuntary.
The Company reserves the right to amend the compensation structure
set forth above from time to time as the management of the Company
shall determine.
<PAGE>
Employee will also be eligible for four (4) weeks vacation time
per year and allowed to participate in employee benefits as the
same are authorized by the Company and made available to other
employees. The Company reserves the right to modify or amend its
benefit policies and procedures from time to time in its sole
discretion.
Covenants With Respect To Information
And Documents Of The Company
4. Employee acknowledges that he has received, and will continue to
receive, from the Company, access to the Company's Data Base, the Company's
Special Broker Network, the Company's client list (both current and
prospective), data, figures, sales figures, prices, customer names, customer
addresses and telephone numbers, brokers' names, addresses and telephone numbers
and other confidential and proprietary information of the Company. Employee
hereby acknowledges and agrees that such information is made available to him on
the express condition that he is prohibited from appropriating such information
for his personal use, the use of any others besides the Company, or any other
uses not authorized by the Company in writing. Employee agrees that he will not
rent, sell, lend, give, exchange, or otherwise appropriate the Company
information set forth above without the prior written approval of the Company.
Covenant Not To Interfere
5. Employee agrees that he will not interfere with the business
relationships of the Company with its subscribers, customers, clients, and
brokers who are part of the Company's Special Broker Network.
Covenant Regarding Non-Solicitation Of Customers
6. Employee agrees that at no time will the Employee, for himself or on
behalf of any person, firm, partnership or corporation, other that the Company,
directly or indirectly, call upon, communicate with, or solicit any subscribers,
customers, or clients of the Company, or brokers who are part of the Company's
Special Broker Network, for the purpose of soliciting or obtaining any business
whatsoever. Employee further agrees that he will not, in any way, directly or
indirectly, for himself or on behalf of, or in conjunction with, any other
person, firm, partnership or corporation, solicit, divert or take away from
Company any subscribers, customers, clients, or brokers of the Company's Special
Broker Network.
7. Employee agrees that he will not, during the term of his employment and for a
continuous period of two years after the termination of such employment, whether
terminated voluntarily or involuntarily, attempt to entice, solicit, or persuade
any employee, agent, officer, or representative of Company to leave the employ
of Company, or otherwise to diminish their work on behalf of Company.
<PAGE>
Duty To Return Company Property
8. Employee acknowledges and agrees that he has no right to the Company Data
Base, the Company's Special Broker Network, the Company's client list (either
current or prospective) and that he has no right to remove any names, addresses,
telephone numbers and information from the same. Employee agrees that upon his
termination from Company, whether the same is voluntary or involuntary, he will
immediately return to the Company all records, documents, information, lists,
databases, networks, and any other information, materials or records of, or
pertaining to, the Company which he may have in his possession or control which
are not owned by the Employee.
Covenant Not To Compete
9. The employee acknowledges that he has become, and will continue to be, privy
to certain information, trade secrets, methods of operation, client names,
addresses and telephone numbers (both current and prospective), names, addresses
and telephone numbers of the Company's Special Broker Network, and the Company
Data Base, and that such are all valuable, special and unique assets of the
Company. Additionally, Employee acknowledges that he has received, and will
continue to receive, extraordinary and specialized training from the Company in
the field of public relations and marketing of publicly traded companies.
Employee agrees that during the term of his employment by Company and for two
continuous years after his termination from the Company, whether such
termination is voluntary or involuntary, he shall not, in any way, be a
shareholder, partner, officer, director, consultant, independent contractor or
employee of, or have any financial interest in, or become involved or
participate in any public relations or marketing of publicly traded companies
and their components, or receive any remuneration or other consideration from or
with any business, person, corporation, partnership, or any other entity
whatsoever, which is involved in any way in the field of public relations or
marketing of publicly traded companies within the business territory described
below.
The Employee understands and acknowledges that, by virtue of the
Company's business and the location of the Company's clients
throughout Asia, Canada, South America, North America, and Europe,
that the geographic territory of the Company's business is the
entire world. The Employee thus agrees that he will not engage in
any business in any way involved with the public relations or
marketing of publicly traded companies set forth above, other than
for or on behalf of the Company, anywhere in the world during the
term of his employment and for a period of two continuous years
subsequent to this termination, whether voluntary or involuntary,
from the Company.
<PAGE>
Terms Of Agreement and Covenants
10. This Agreement, and the covenants contained therein, shall be
binding on Employee during the term of his employment by the Company and for two
continuous years immediately following his termination of employment, whether
terminated voluntarily or involuntarily. The Company is entitled to have this
Agreement in effect for two continuous years following the Employee's
termination without interruption by virtue of, and exclusive of, any period of
violation or any period of litigation or judicial action necessary to enforce
the terms of this Agreement.
Injunctive Relief Available To Company
11. The Employee acknowledges that a violation of any of the covenants
on his part contained herein would cause irreparable injury to Company, and
Employee thus agrees that Company shall, in addition to any other rights and
remedies available to it at law, or otherwise, be entitled to injunctive relief
for the purpose of enjoining and restraining Employee from committing or
continuing to commit any violations of the covenants contained in this
Agreement.
Consultant After Termination
12. Employee agrees that, subsequent to this termination from Company,
whether such termination be voluntary or involuntary, and for a continuous
period of two years thereafter, his only involvement in the field of public
relations and/or marketing of publicly traded companies may be as an independent
consultant to the Company. This involvement would consist of Employee forwarding
all prospects or potential clients or customers he may generate or come in
contact with only to the Company. Moreover, it will be within the Company's sole
and absolute discretion as to whether it will accept any such prospect as a
customer or client. If Employee elects to render services as an independent
consultant to the Company in this field, for this time period and under these
conditions, his total compensation and remuneration therefor would consist of
15% of the proceeds of all prospects that he brings to the Company which are
accepted by the Company as clients or customers, payable within five (5)
business days subsequent to receipt of full and total payment by the Company
from any such prospect pursuant to the Company's contract with such prospect, as
well as an hourly fee of $250 plus a discretionary (on the part of the Company)
bonus.
Employee acknowledges and agrees that his work, after termination
from the Company, as an independent consultant to the Company on
the terms and for the period set forth above, is the only method
or manner in any way that he may be involved in the field of
public relations or marketing of publicly traded companies during
such time period.
Employee hereby acknowledges receipt of the sum of $200, 000 from
Company as additional consideration for the specific covenants and
agreements made and agreed to by Employee and Company in this
section.
<PAGE>
Assignment
13. The rights and obligations of Company under this Agreement,
including the right assigned by Company. Employee may not transfer or assign any
of his rights, obligations, covenants or duties set forth herein to any party.
14. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. In addition, if the scope of any restriction or covenant
contained herein should be or become too broad or extensive to permit
enforcement thereof to its fullest extent, then such restriction or covenant
shall be enforced to the maximum extent permitted by law.
Applicable Law And Binding Effect
15. This Agreement shall be governed by and construed and enforced
under the laws of the State of Florida. Exclusive venue for any legal action
brought under, or related to, this Agreement shall be in the State Circuit Court
in and for Orange County, Florida. Additionally, Employee waives his right to
trail by jury.
Attorney's Fee And Costs
16. The parties hereto agree that in the event litigation is instituted
seeking enforcement of, arising or resulting from the alleged breach of, or in
any other way related to this Agreement (including litigation seeking a
construction or declaration of its meaning, terms or effect), the prevailing
party in such litigation is entitled to recover from the other party its
reasonable attorney's fees, court costs and all other expenses of or pertaining
to such litigation.
Entire Agreement
17. This instrument contains the entire agreement of the parties with
respect to the subject matter contained herein, and no amendment, modification
or waiver of any provision hereto shall be valid unless in writing and signed by
all parties hereto.
<PAGE>
Exhibit 10.2 Stock Subscription Agreement with Andre Dumont
<PAGE>
EX-10.2
Stock Subscription Agreement with Andre Dumont
THE SECURITIES SUBSCRIBED FOR BY THIS AGREEMENT ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMIUED UNDER THE SECURITIES ACT OF 1993, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE SECURITIES SUBSCRIBED FOR BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF CERTAIN STATES
AND ARE BEING OFFERED AND SOLD IN RELIANCE ON THE EXEMPTION FROM THE
REGISTRATION PROVIDED IN REGULATION "S" OF SAID ACT AND SUCH LAWS. IN ACCORDANCE
WITHREGULATION "S", THESE SECURITIES MAY NOT BE OFFERED OR SOLD TO CITIZENS OR
RESIDENTS OF THE SHAREED STATES. THE SECURITIES SUBSCRIBED FOR BY THIS AGREEMENT
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF
THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE SECURITIES
OFFERED BY THE COMPANY.ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
SUBSCRIPTION AGREEMENT
ALL FIGURES IN UNITED STATES DOLLARS
-----------------------
THIS SUBSCRIPTION AGREEMENT (this "Agreement") has been executed by the
undersigned in connection with the private placement of a minimum of $1,000,000
(US) and up to a maximum of $5,000,000 (US) of convertible subordinated
debentures (the "Debentures") with. a minimum face value of $50,000.00 (US), of
STRATCOMM MEDIA LTD., a corporation organized under the laws of the jurisdiction
of the Yukon, Canada (NASD Bulletin Board symbol "SMMM") (hereinafter referred
to as the "Company"). The Subordinated Debentures being sold pursuant to this
Agreement have not been registered under the Securities Act, but are being
offered to non-residents and non-citizens of the Shareed States pursuant to an
exemption provided by Regulation S of the Securities Act of 1933. In addition to
such other terms as are set forth in this Agreement, the terms on which the
Subordinated Debentures may be converted into shares of Common stock, $.01 par
value, of the Company (the "Common Stock") and the other terms of the
Subordinated Debentures are set forth in the "STRATCOMM MEDIA LIMITED 14%
SUBORDINATED DEBENTURE" attached hereto as Exhibit I (the "Debentures"). The
offer of the Subordinated Debentures and, if this Subscription Agreement is
accepted by the Company, the sale of Subordinated Debentures are being made in
reliance upon Regulation 3, Rule 902(k) of the
The undersigned Purchaser
NAME: Andre Dumont
<PAGE>
ADDRESS: 52 Chantefleur
CH-1234 Vessy GE
if applicable, a [Corporate] [Partnership] [Trust] organized under the laws of
_____________, hereinafter referred to as "Purchaser")
hereby represents and warrants to, and agrees with the Company as follows:
- -------------------------------------------------------------------------------
1. Agreement to Subscribe
a. Subscription. The undersigned Purchaser hereby subscribes to purchase 10
shares of Subordinated Debentures, each having a face value of $5,000.00
per share, at an aggregate purchase price of $ 54,000.00.
b. Form of Payment. Purchaser shall pay the purchase price for the
Subordinated Debentures by delivering good funds in United States Dollars
in accordance with Paragraph 1(c) below, to escrow agent, the Delaware
Escrow Company (the "Escrow Agent") identified in the Escrow Instructions
attached hereto as Exhibit II (the "Escrow Agreement"). The Company shall
deliver one or more executed Subordinated Debentures to the Escrow Agent,
and upon payment by the Purchaser of the purchase price for the
Subordinated Debentures and the compliance with all of the terms of the
Escrow Agreement, the Escrow Agent shall cause the Subordinated Debentures
purchased thereby by the Purchaser to be delivered to the Purchaser as set
forth in paragraph 1(c) below. By signing this Agreement, the Purchaser and
the Company each agrees to all of the terms and conditions of, and becomes
a part to, the Escrow Instructions attached hereto, all of the provisions
of which are incorporated herein by this reference as if set forth in full.
c. Method of Payment. Payment of the purchase price for the Subordinated
Debentures shall be made by wire transfer of funds to:
Northern Trust Bank
301 Yamato Road
Boca Raton, Florida 33431
ABA #066009650
For the Account of: The Delaware Escrow Company
Account #5111010982
No later than three business days after the Company accepts
this Agreement and all other terms and conditions of this
Agreement and the Escrow Agreement have been complied with,
funds deposited with the Escrow Agent shall be disbursed to
the Company.
<PAGE>
2. Purchaser Representations: Access to Information: Independent Investigation
a. Purchaser Representations and Warranties. Purchaser represents and
warrants to the Company as follows:
(i) Purchaser is neither a US citizen or Resident Alien,
as such terms are defined in Rule 902, promulgated
under the Securities Act.
(ii) Purchaser is sufficiently experienced in financial
and business matters to be capable of evaluating the
merits and risks of its investments, and to make an
informed decision relating thereto, and to protect
its own interests in connection with the transaction.
(iii) Purchaser is purchasing the Subordinated Debentures
for its own account or for the account of
beneficiaries for whom the Purchaser has full
investment discretion, each of which beneficiaries is
bound to all of the terms and provisions hereof
including all representations and warranties herein.
Purchaser is purchasing the Subordinated Debentures
for investment purposes only and not with an intent
towards further sale or distribution thereof, and has
not pre-arranged any sale with any other purchaser.
(iv) The Subordinated Debentures have not been registered
under the Securities Act, but are being offered in
reliance upon an exemption therefrom; Regulation S,
Rule 902. Additionally, the underlying securities,
for which these Subordinated Debentures may be
converted into, will be issued in place of, and in
lieu of payment on the Subordinated Debentures, and
(v) Purchaser acknowledges that the purchase of the Securities involves a
high degree of risk, is aware of the risks and further acknowledges that
it can bear the economic risk of the Securities, including the total loss
of its investment.
(vi) Purchaser understands that the Securities are being offered and sold
to it in reliance on an exemption from the registration requirements of
the Securities Act, and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgments
and understandings of Purchaser set forth herein in order to determine the
applicability of such safe harbor and the suitability of Purchaser to
acquire the Securities.
(vii) Purchaser is purchasing the Securities for its own account or for
the account of beneficiaries for whom Purchaser has full investment
discretion and not with a view to, or for sale in connection with, any
"distribution" (as such term is used in Section 2(11) of the Securities
Act) thereof.
<PAGE>
(viii) In evaluating its investment, Purchaser has consulted its own
investment and/or legal and/or tax advisors.
(ix) Purchaser is not an underwriter or, or dealer in, the Securities, and
Purchaser is not participating, pursuant to a contractual agreement, in
the distribution of the Securities.
b. Current Information. Purchaser acknowledges that Purchaser has been
furnished with or has acquired copies of all request information
concerning the Company, including the most recent financials of the
Company.
c. Independent Investigation; Access. Purchaser acknowledges that
Purchaser, in making the decision to purchase the Subordinated
Debentures subscribed for, has relied upon independent investigations
made by it and its purchaser representatives, if any, and Purchaser and
such representatives, if any, have prior to any sale to it, been given
access and the opportunity to examine all material contracts and
documents relating to this offering and an opportunity to ask questions
of, and to receive answers from, the Company or any person acting on
its behalf concerning the terms and conditions of this offering.
Purchaser and its advisors, if any, have been furnished with access to
all
publicly available materials relating to the business,
finances and operation of the Company and materials relating
to the offer and sale of the Securities which have been
requested. Purchaser and its advisors, if any, have received
complete and satisfactory answers to any such inquiries.
d. No Government Recommendation or Approval. Purchaser understands that no
federal or state agency has passed on or made any recommendation or
endorsement of the Subordinated Debentures.
e. Entity Purchasers. If Purchaser is a partnership, corporation
or trust, the person executing this Agreement on its behalf
represents and warrants that:
(i) He or she made due inquiry to determine the truthfulness of the
representations and warranties made pursuant to this
Agreement.
(ii) He or she is duly authorized (if the undersigned is a trust, by
the trust agreement) to make this investment and to enter into
and execute this Agreement on behalf of such entity.
f. Non-Affiliate. Purchaser and any affiliate of Purchaser
represent, warrant and covenant that they are not an
affiliate of the Company.
3. Issuer Representations.
a. Listed Company Status. The Company's Common Stock is
listed on the NASD "Bulletin Board" Trading System,
and the Company has received no notice, either oral
or written, with respect to its continued eligibility
for such listing.
<PAGE>
b. Terms of Subordinated Debentures. The terms of the
Subordinated Debentures shall be as set forth in the form of
"STRATCOMM MEDIA LIMITED 14% SUBORDINATED DEBENTURE" attached
hereto as Exhibit I (the "Debentures")
c. Legality. The Company has the requisite corporate power and authority to
enter into this Agreement and to issue, sell and deliver the Securities;
this Agreement and the issuance, sale and delivery of the Securities
hereunder and the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action by the Company; this
Agreement and the Securities have been duly ad validly executed and
delivered by and on behalf of the Company, and are valid and binding
agreements of the company, enforceable in accordance with their respective
terms, except as enforceability may be limited by general equitable
principles,
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or other laws affecting creditors' rights generally. The
Subordinated Debentures and the Common Stock issuable upon conversion
of the Subordinated Debentures will not subject the holders thereof to
personal liability by reason of being such holders.
d. Proper Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified as a foreign
corporation in all jurisdictions where the failure to be so qualified
would have a materially adverse effect on its business, taken as whole.
e. No Legal Proceedings. There is no action, Suit or proceeding before
or by any court or any governmental agency or body, domestic or
foreign, now pending or to the knowledge of the Company, threatened,
against or affecting the Company, or any of its properties or assets,
which might result in any material adverse change in the condition
(financial or otherwise) or in the earnings, business affairs or
business prospects of the Company, or which might materially and
adversely affect the properties or assets thereof, except as described
in the Memorandum.
f. Non-Default. The Company, except as described in the Memorandum, is
not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any
indenture. mortgage. deed of trust or other material instrument or
agreement to which it is a party or by which it or its property may be
bound.
g. No Misleading Statements. The Memorandum does not contain, and as of
their respective dates, none of the Company's other filings with the
SEC, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading.
h. No Adverse Change. There has been no material adverse
change in the financial condition, earnings, business affairs or
business prospects of the Company since the date of the Company's
offering memorandum, dated January 13, 1999, which is on file at the
company's offices, and is available for inspection by any prospective
subscriber.
<PAGE>
i. Absence of Non-Disclosed Facts. There is no fact known to the
Company (other than general economic conditions known to the public
generally) that has not been disclosed in
writing to the Purchaser that: (i) could reasonably
be expected to have a material adverse effect on the condition
(financial or otherwise) or in the earnings, business affairs,
business prospects, properties or assets of the Company; or
(ii) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations
pursuant to this Agreement and the Subordinated Debentures.
j Non-Contravention. The execution and delivery of this Agreement and
the consummation of the issuance of the Securities and the transactions
contemplated by this Agreement do not and will not conflict with or result in a
breach by the Company of any of the terms or provisions of. or constitute a
default under the Articles of Incorporation or by-laws of the Company, or any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a part or by which it or any of its properties or assets
are bound, or any existing applicable Federal or State law, rule, or regulation
or any applicable decrees, judgment or order of any court. Federal or State
regulatory body, administrative agency or other domestic governmental body
having jurisdiction over the Company or any of its properties or assets.
4. Covenants of the Company.
a. For so long as any Subordinated Debentures held by the Purchaser
shall remain outstanding, the Company covenants and agrees with the Purchaser
that it will at all times fully reserve from its authorized but unissued shares
of Common Stock such sufficient number of shares of Common Stock to permit the
conversion in full of the outstanding Subordinated Debentures.
b. The Company, as a part of the issuance of the series of 14%
Subordinated Debentures pursuant to this Offering, shall enter into and keep in
full force and effect, for so long as an obligation pursuant to this Offering
remains outstanding, a Trust Indenture Agreement ("Trust Agreement"), thereby
creating a security interest in all property of the Company, subject only to any
senior indebtedness as set forth in the STRATCOMM MEDIA LIMITED 14% SUBORDINATED
DEBENTURE. As a term of the Trust Agreement, the Company shall file with all
appropriate agencies, evidence of the Trust Agreement, thereby creating a
perfected security interest on behalf of holders of securities issued pursuant
to this Offering.
5. Registration. The Purchaser acknowledges that the Company is under
no obligation to register the Subordinated Debentures or the Common
Stock issuable except as provided in the terms of the "STRATCOMM MEDIA
LIMITED 14% SUBORDINATED DEBENTURE" attached hereto as Exhibit I (the
"Debentures"). 6. Exemption: Reliance on Regulation S. Rule 902.
Purchaser understands that the offer and sale of the Subordinated
Debentures is not being registered under the Securities Act. The
Company is relying on an exemption from registration provided by
Regulation S, Rule 902 of the Securities Act.
<PAGE>
7. Closing Date and Escrow Agent. Closing shall be effected through
delivery of funds to the Company by the Escrow Agent, and delivery of
certificates evidencing the Subordinated Debentures to the Purchaser by
the Escrow Agent. Each of the Company and the Purchaser agrees that the
Escrow Agent has no liability as a result of any fraudulent or unlawful
conduct of any other party, and agrees to hold the Escrow Agent
harmless.
8. Conditions to the Company's Obligation to Sell. Purchaser
understands that the Company's obligation to sell the Subordinated
Debentures is conditioned upon:
a. The receipt and acceptance by the Company of this Agreement. as
evidence by execution of this Agreement by the President or any Vice President
or the Chief Financial Officer of the Company; and
b. Delivery to the Escrow Agent by Purchaser of goods funds as payment
in full for the purchase of the Subordinated Debentures; and
c. The accuracy as of the Closing Date of the representations and
warranties of the Purchaser contained in this Agreement, and performance by the
Purchaser of all covenants and agreements of the Purchaser required to be
performed on or before the Closing Date.
9. Conditions to Purchaser's Obligation to Purchase. The Company
understands that Purchaser's obligation to purchase the Subordinated
Debentures is conditioned upon:
a. Execution by Purchaser of this Agreement and the receipt of the
Company's acceptance of this Agreement as provided in Paragraph 8(a) above; and
b. Delivery of certificates evidencing the Subordinated Debentures to
the Escrow Agent, as heretofore set forth, and by the Escrow Agent to Purchaser;
and
c. Acceptance by the Company of subscriptions from the Purchaser and
other subscribers of Subordinated Debentures; and
d. The execution, and filing by the Company, of Trust Indenture
Agreement, Pursuant to Section 4(b) of this Agreement, and the
"STRATCOMM MEDLA LIMITED 14% SUBORDINATED DEBENTURE"; and
e. The accuracy as of the Closing Date of the representations and
warranties of the Company contained in this Agreement and the performance
by the
Company on or before the Closing Date of all covenants and
agreements of the Company required to be performed on or
before the Closing Date.
<PAGE>
10. Governing Law. This Agreement shall be governed by and
construed under the law of the State of Florida without regard to its
choice of law provision. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto.
11. Arbitration. Subscriber represents, warrants and covenants
that any controversy or claim brought directly, derivatively or in a
representative capacity by him in his capacity as a present or former
security holder, whether against the Company, in the name of the
Company or otherwise, arising out of or relating to any acts or
omissions of the Company, or any security holder or any of their
officers, directors, agents, affiliates, associates, employees or
controlling persons (including without limitation any controversy or
claim relating to a purchase or sale of the Note) shall be settled by
arbitration under the Federal Arbitration Act in accordance with the
commercial arbitration rules of the American Arbitration Association
(AAA) and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. Any controversy or
claim brought by the Company against the Subscriber, whether in his
capacity as present or former security holder of the Company in or
against any of the Subscriber's officers, directors, agents,
affiliates, associates, employees or controlling persons shall also be
settled by arbitration under the Federal Arbitration Act in accordance
with the commercial arbitration rules of the AAA and judgment rendered
by the arbitrators may be entered in any court having jurisdiction
thereof. In arbitration proceedings under this Paragraph 11, the
parties shall be entitled to any and all remedies that would be
available in the absence of this Paragraph 11 and the arbitrators, in
rendering their decision, shall follow the substantive laws that would
otherwise be applicable. This Paragraph 5 shall apply, without
limitation, to actions arising in connection with the offer and sale of
the Notes contemplated by this Agreement under any Federal or state
securities laws.
11.2 The arbitration of any dispute pursuant to this Paragraph
11 shall be held in Florida, in the county where the principal business
of the Company is located.
11.3 Notwithstanding the foregoing in order to preserve the
status quo pending the resolution by arbitration of a claim seeking
relief of an injunctive or equitable nature, any party, upon submitting
a matter to arbitration as required by this Paragraph 5, may
simultaneously or thereafter seek a temporary restraining order or
preliminary injunction from a court of competent jurisdiction pending
the outcome of the
11.4 This Paragraph 11 is intended to benefit the security holders,
agents, affiliates, associates, employees and controlling persons of the
Company, each of whom shall be deemed to be a third party beneficiary of this
Paragraph 11, and each of whom may enforce this Paragraph 11 to the full extent
that the Company could do so if a controversy or claim were brought against it.
11.5 Subscriber acknowledges that this Paragraph 11 limits a number of
Subscriber's rights, including without limitation (i) the right to have claims
resolved in a court of law and before a jury; (ii) certain discovery rights; and
(iii) the right to appeal any decision.
<PAGE>
12. Survival of Representations. Warranties. and Covenants. Each of the
Company's and Purchaser's representations, warranties, and covenants shall
survive the execution and delivery of this Agreement and the delivery of the
certificates representing the Securities.
13. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding on the respective successors and assigns of the parties
hereto.
SIGNATURE PAGE FOR INDIVIDUAL SUBSCRIBER
IN WITNESS WHEREOF, the undersigned represents that the
foregoing statements are true and that he. she, or
they have executed this Subscription Agreement on
this 22nd day of March, 1999.
Andre' Dumont Andre' Dumont (Signature)_______
Printed Name Signature
- -------------------------- -----------------------------
Printed Name Signature
Accepted this 5th day of April, 1999:
STRATCOMM MEDIA, LTD.
By: Roberto E. Veitia (Signature)
Title: CEO - Stratcomm Media
SIGNATURE PAGE FOR ENTITIES
NAME: Andre' Dumont_______________________________________
ADDRESS: 52 Chantefleur CH 1234 Vessy GE____________________
TEL. NO.: 022 784 44 87_____________________________________
FAX NO.: 022 784 45 87______________________________________
CONTACT NAME: _________________________________________
Delivery Instructions (if different from Registration Name):
NAME: ___________________________________________________
ADDRESS: ________________________________________________
TEL. NO.: _________________________________________________
<PAGE>
FAX NO.: _________________________________________________
CONTACT NAME: _________________________________________
SPECIAL
INSTRUCTIONS: __________________________________________
Case posta!e 8 CH- 1234 Vessy
M. Andre' DUMONT: Please find enclosed the Subscription Agreement duly executed.
I wish to receive a copy of the Agreement and the investment memorandum
Tel: 022 784 44 87
022 784 27 87
Fax: 022 784 45 87
Natel: 079 202 17 60
Case postale 8
CH-1234 Vessy
<PAGE>
Exhibit 10.3 Stock Subscrition Agreement with Tech TacTic
<PAGE>
EX 10.3
Stock Subscription Agreement with Tech Tac Tic
9
THE SECURITIES SUBSCRIBED FOR BY THIS AGREEMENT ARY~ RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER
THE SEC 1993, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS~ REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD f THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS IN AN INDEFINITE PERIOD OF TIME.
Adm~
THE SECURITIES SUBSCRIBED FOR BY THIS AGREEMENT H~ REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AME SECURITIES LAWS OF CERTAIN STATES AND ARE BEING
OFFERE RELIANCE ON THE EXEMPTION FROM THE REGISTRATION REGULATION "S" OF SAID
ACT AND SUCH LAWS. IN ACCC~ REGULATION "S", THESE SECURITIES MAY NOT BE OFFERED
OR SOLD TO CITIZENS OR RESIDENTS OF THE SHAREED STATES. THE SECURITIES
SUBSCRIBED FOR BY THIS AGREEMENT HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER
REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR
ENDORSED THE MERITS OF THE SECURITIES OFFERED BY THE COMPANY. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
SUBSCRIPTION AGREEMENT
ALL FIGURES IN UNITED STATES DOLLARS
THIS SUBSCRIPTION AGREEMENT (this "Agreement") has been executed by the
undersigned in connection with the private placement of a minimum of
$1,000,000(US) and up to a maximum of $5,000,000 (US) of convertible
subordinated debentures (the "Debentures") with a minimum face value of
$50,000.00(US), of STRATCOMM MEDIA LTD., a corporation organized under the laws
of the jurisdiction of the Yukon, Canada (NASD Bulletin Board symbol "SMMM")
(hereinafter referred to as the "Company"). The Subordinated Debentures being
sold pursuant to this Agreement have not been registered under the Securities
Act, but are being offered to non-residents and non-citizens of the Shared
States pursuant to an exemption provided by Regulation S of the Securities Act
of 1933. In addition to such other terms as are set forth in this Agreement, the
terms on which the Subordinated Debentures may be converted into shares of
Common stock, $.01 par value, of the Company (the "Common Stock") and the other
terms of the Subordinated Debentures are set forth in the "STRATCOMM MEDIA
LIMITED 14% SUBORDINATED DEBENTURE" attached hereto as Exhibit I (the
"Debentures"). The offer of the Subordinated Debentures and, if this
Subscription Agreement is accepted by the Company, the sale of Subordinated
Debentures are being made in reliance upon Regulation 3, Rule 902(k) of the
Securities Act. (All dollar amounts in this Agreement are expressed in U.S.
Dollars.)
<PAGE>
The undersigned Purchaser
NAME: (signed by) Vermeersch Christiane
ADDRESS:
Boulevard D'Avroy 72E
4000 Liege
Belgium
if applicable, a [Corporate] [Partnership] [Trust] organized under the
laws of ____________,
hereinafter referred to as "Purchaser")
hereby represents and warrants to, and agrees with the Company as follows:
1. Agreement to Subscribe
a.Subscription. The undersigned Purchaser hereby subscribes to
purchase 10,-- shares of Subordinated Debentures, each
having a face value of $5,000.00 per share, at an aggregate
purchase price of $50,000
b. Form of Payment. Purchaser shall pay the purchase price for the
Subordinated Debentures by delivering good funds in United States Dollars
in accordance with Paragraph 1(c) below, to escrow agent, the Delaware
Escrow Company (the "Escrow Agent") identified in the Escrow Instructions
attached hereto as Exhibit II (the "Escrow Agreement"). The Company shall
deliver one or more executed Subordinated Debentures to the Escrow Agent,
and upon payment by the Purchaser of the purchase price for the
Subordinated Debentures and the compliance with all of the terms of the
Escrow Agreement, the Escrow Agent shall cause the Subordinated Debentures
purchased thereby by the Purchaser to be delivered to the Purchaser as set
forth in paragraph 1(c) below. By signing this Agreement, the Purchaser and
the Company each agrees to all of the terms and conditions of, and becomes
a part to, the Escrow Instructions attached hereto, all of the provisions
of which are incorporated herein by this reference as if set forth in full.
c. Method of Payment. Payment of the purchase price for
the Subordinated Debentures shall be made by wire
transfer of funds to:
[GRAPHIC OMITTED][GRAPHIC OMITTED]
Northern Trust Bank
301 Yamato Road
Boca Raton, Florida 33431
ABA #066009650
For the Account of: The Delaware Escrow Company Account
#5111010982
<PAGE>
No later than three business days after the
Company accepts this Agreement and all other
terms and conditions of this Agreement and
the Escrow Agreement have been complied
with, funds deposited with the Escrow Agent
shall be disbursed to the Company.
2. Purchaser Representations: Access to Information: Independent
Investigation
a. Purchaser Representations and Warranties. Purchaser represents and warrants
to the Company as follows:
(i) Purchaser is neither a US
citizen or Resident Alien,
as such terms are defined
in Rule 902, promulgated
under the Securities Act.
(ii) Purchaser is sufficiently
experienced in financial
and business matters to be
capable of evaluating the
merits and risks of its
investments, and to make an
informed decision relating
thereto, and to protect its
own interests in connection
with
the transaction.
(iii) Purchaser is purchasing the
Subordinated Debentures for
its own account or for the
account of beneficiaries
for whom the Purchaser has
full investment discretion,
each of which beneficiaries
is bound to all of the
terms and provisions
hereof including all
representations and
warranties herein.
Purchaser is purchasing the
Subordinated Debentures for
investment purposes only
and not with an intent
towards further sale or
distribution thereof, and
has not pre-arranged any
sale with any other
purchaser.
(iv) The Subordinated Debentures
have not been registered
under the Securities Act,
but are being offered in
reliance upon an exemption
therefrom; Regulation S,
Rule 902. Additionally,
the unde4ying securities,
for which these
Subordinated Debentures may
be converted into, will be
issued in place of,
and in lieu of payment on
the Subordinated
Debentures, and will be
subject to Regulation S
and the rules thereunder.
(v) Purchaser acknowledges that
the purchase of the
Securities Involves a high
degree of risk, is aware of
the risks and further
acknowledges that it can
bear the economic risk of
the Securities, including
the total loss of its
investment.
(vi) Purchaser understands that
the Securities are being
offered and sold to it in
reliance on an exemption
from the registration
requirements of the
Securities Act, and that
the Company is relying upon
the truth and accuracy of
the representations,
warranties, agreements,
acknowledgments and
understandings
of Purchaser set forth
herein in order to
determine the applicability
of such safe harbor and the
suitability of Purchaser
to acquire the Securities.
<PAGE>
(vii) Purchaser is purchasing the
Securities for its own
account or for the
account of beneficiaries
for whom Purchaser has full
investment discretion and
not with a view to, or for
sale in connection with,
any "distribution" (as
such term is used in
Section 2(11) of the
Securities Act) thereof.
(viii) In evaluating its
investment, Purchaser has
consulted its own
investment and/or legal
and/or tax advisors.
(ix) Purchaser is not an
underwriter or, or dealer
in, the Securities, and
Purchaser is not
participating, pursuant to
a contractual agreement, in
the distribution of the
Securities.
b. Current Information. Purchaser acknowledges that Purchaser has
been furnished with or has acquired copies of all request
information concerning the Company, including the most recent
financials of the Company.
c. Independent Investigation; Access. Purchaser acknowledges
that Purchaser, in making the decision to purchase the
Subordinated Debentures subscribed for, has relied upon
independent investigations made by it and its purchaser
representatives, if any, and Purchaser and such representatives,
if any, have prior to any sale to it, been given access and the
opportunity to examine all material contracts and documents
relating to this offering and an opportunity to ask questions
of, and to receive answers from, the Company or any person
acting on its behalf concerning the terms and conditions of this
offering.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
Purchaser and its advisors, if any, have been furnished with access to all
publicly available materials relating to the business, finances and operation of
the Company and materials relating to the offer and sale of the Securities which
have been requested. Purchaser and its advisors, if any, have received complete
and satisfactory answers to any such inquiries.
d. No Government Recommendation or Approval. Purchaser understands that no
federal or state agency has passed on or made any recommendation or endorsement
of the Subordinated Debentures.
e.Entity Purchasers. If Purchaser is a partnership, corporation or trust, the
person executing this Agreement on its behalf represents and warrants that:
(i) He or she made due inquiry to determine the truthfulness of the
representations and warranties made pursuant to this Agreement.
(ii) He or she is duly authorized (if the undersigned is a trust, by the trust
agreement) to make this investment and to enter into and execute this
Agreement on behalf of such entity.
f.Non-Affiliate. Purchaser and any affiliate of Purchaser represent, warrant and
covenant that they are not an affiliate of the Company.
<PAGE>
3. Issuer Representations.
a.Listed Company Status. The Company's Common Stock is listed on
the NASD "Bulletin Board" Trading System. and the Company has
received no notice, either oral or written, with respect to its
continued eligibility for such listing.
b.Terms of Subordinated Debentures. The terms of the Subordinated
Debentures shall be as set forth in the form of "STRATCOMM MEDIA
LIMITED 14% SUBORDINATED DEBENTURE" attached hereto as Exhibit I
(the "Debentures")
c.Legality. The Company has the requisite corporate power and authority
to enter into this Agreement and to issue, sell and deliver the
Securities; this Agreement and the issuance, sale and delivery of the
Securities hereunder and the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action by the
Company; this Agreement and the Securities have been duly and validly
executed and delivered by and on behalf of the Company, and are valid
wand binding agreements of the company,
[GRAPHIC OMITTED][GRAPHIC OMITTED]
enforceable in accordance with their respective terms, except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or other laws affecting creditors' rights generally. The
Subordinated Debentures and the Common Stock issuable upon conversion
of the Subordinated Debentures will not subject the holders thereof to
personal liability by reason of being such holders.
d.Proper Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and is duly qualified as a foreign corporation in all
jurisdictions where the failure to be so qualified would have a materially
adverse effect on its business, taken as whole.
e.No Legal Proceedings. There is no action, suit or proceeding before or by any
court or any governmental agency or body, domestic or foreign, now pending or to
the knowledge of the
Company, threatened, against or affecting the Company, or any
of its properties or assets, which might result in any
material adverse change in the condition (financial or
otherwise) or in the earnings, business affairs or business
prospects of the Company, or which might materially and
adversely affect the properties or assets thereof, except as
described in the Memorandum.
f.Non-Default. The Company, except as described in the Memorandum, is
not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust or other material instrument or
agreement to which it is a party or by which it or its property may be
bound.
g.No Misleading Statements. The Memorandum does not contain, and as of
their respective dates, none of the Company's other filings with the
SEC, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading.
<PAGE>
h. No Adverse Change. There has been no material adverse change in the financial
condition, earnings, business affairs or business prospects of the Company since
the date of the Company's offering memorandum, dated January 13, 1999, which is
on file at the company's offices, and is available for inspection by any
prospective subscriber.
i. Absence of Non-Disclosed Facts. There is no fact known to the Company (other
than general economic conditions known to the public generally) that has not
been disclosed in writing to the Purchaser that: (i) could reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise) or in the earnings, business affairs, business prospects, properties
or assets of the Company; or (ii) could reasonably be expected to materially and
adversely affect the ability of the Company to perform its obligations pursuant
to this Agreement and the Subordinated Debentures.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
j. Non-Contravention. The execution and delivery of this Agreement and the
consummation of the issuance of the Securities and the transactions
contemplated by this Agreement do not and will not conflict with or result
in a breach by the Company of any of the terms or provisions of, or
constitute a default under the Articles of Incorporation or by-laws of the
Company, or any indenture, mortgage, deed of trust, or other material
agreement or instrument to which the Company is a part or by which it or
any of its properties or assets are bound, or any existing applicable
Federal or State law, rule, or regulation or any applicable decrees,
judgment or order of any court, Federal or State regulatory body,
administrative agency or other domestic governmental body having
jurisdiction over the Company or any of its properties or assets.
4. Covenants of the Company.
a. For so long as any Subordinated Debentures held by the Purchaser shall
remain outstanding, the Company covenants and agrees with the Purchaser
that it will at all times fully reserve from its authorized but
unissued shares of Common Stock such sufficient number of shares of
Common Stock to permit the conversion in full of the outstanding
Subordinated Debentures.
b. The Company, as a part of the issuance of
the series of 14% Subordinated Debentures
pursuant to this Offering, shall enter into
and keep in full force and effect, for so
long as an obligation pursuant to this
Offering remains outstanding, a Trust
Indenture Agreement ("Trust Agreement"),
thereby creating a security interest in all
property of the Company, subject only to any
senior indebtedness as set forth in the
STRATCOMM MEDIA LIMITED 14% SUBORDINATED
DEBENTURE. As a term of the Trust Agreement,
the Company shall file with
all appropriate agencies, evidence of the Trust Agreement, thereby
creating a perfected security interest on behalf of holders of
securities issued pursuant to this Offering.
5. Registration. The Purchaser acknowledges that the Company is under no
obligation to register the Subordinated Debentures or the Common Stock issuable
except as provided in the terms of the "STRATCOMM MEDIA LIMITED 14% SUBORDINATED
DEBENTURE" attached hereto as Exhibit I (the "Debentures").
[GRAPHIC OMITTED][GRAPHIC OMITTED]
6. Exemptiom Reliance on Regulation S. Rule 902. Purchaser understands that the
offer and sale of the Subordinated Debentures is not being registered under the
Securities Act. The Company is relying on an exemption from registration
provided by Regulation S, Rule 902 of the Securities Act.
7. Closing Date and Escrow Agent. Closing shall be effected through delivery of
funds to the Company by the Escrow Agent, and delivery of certificates
evidencing the Subordinated Debentures to the Purchaser by the Escrow Agent.
Each of the Company and the Purchaser agrees that the Escrow Agent has no
liability as a result of any fraudulent or unlawful conduct of any other party,
and agrees to hold the Escrow Agent harmless.
<PAGE>
8. Conditions to the Company's Obligation to Sell. Purchaser understands that
the Company's obligation to sell the Subordinated Debentures is conditioned
upon:
a. The receipt and acceptance by the Company of this Agreement, as evidence by
execution of this Agreement by the President or any Vice President or the
Chief Financial Officer of the Company; and
b. Delivery to the Escrow Agent by Purchaser of goods funds as payment in full
for the purchase of the Subordinated Debentures; and
c. The accuracy as of the Closing Date of the representations and warranties
of the Purchaser contained in this Agreement, and performance by the
Purchaser of all covenants and agreements of the Purchaser required to be
performed on or before the Closing Date.
9. Conditions to Purchaser's Obligation to Purchase. The Company understands
that Purchaser's obligation to purchase the Subordinated Debentures is
conditioned upon:
a. Execution by Purchaser of this Agreement and the receipt of the Company's
acceptance of this Agreement as provided in Paragraph 8(a) above; and
b. Delivery of certificates evidencing the Subordinated Debentures to the
Escrow Agent, as heretofore set forth, and by the Escrow Agent to
Purchaser; and
c. Acceptance by the Company of subscriptions from the Purchaser and other
subscribers of Subordinated Debentures; and
[GRAPHIC OMITTED][GRAPHIC OMITTED]
d. The execution, and filing by the Company, of Trust Indenture Agreement,
pursuant to Section 4 (b) of this Agreement, and the "STRATCOMM MEDIA LIMITED
14% SUBORDINATED DEBENTURE"; and
e. The accuracy as of the Closing Date of the representations and warranties of
the Company contained in this Agreement and the performance by the Company on or
before the Closing Date of all covenants and agreements of the Company required
to be performed on or before the Closing Date.
10. Governing Law. This Agreement shall be governed by and construed under the
law of the State of Florida without regard to its choice of law provision. A
facsimile transmission of this signed Agreement shall be legal and binding on
all parties hereto.
11. Arbitration. Subscriber represents, warrants and covenants that any
controversy or claim brought directly, derivatively or in a representative
capacity by him in his capacity as a present or
<PAGE>
former security holder, whether against the Company, in the name of the Company
or otherwise, arising out of or relating to any acts or omissions of the
Company, or any security holder or any of their officers, directors, agents,
affiliates, associates, employees or controlling persons (including without
limitation any controversy or claim relating to a purchase or sale of the Note)
shall be settled by arbitration under the Federal Arbitration Act in accordance
with the commercial arbitration rules of the American Arbitration Association
(AAA) and judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof. Any controversy or claim brought by the
Company against the Subscriber, whether in his capacity as present or former
security holder of the Company in or against any of the Subscriber's officers,
directors, agents, affiliates, associates, employees or controlling persons
shall also be settled by arbitration under the Federal Arbitration Act in
accordance with the commercial arbitration rules of the AAA and judgment
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. In arbitration proceedings under this Paragraph 11, the parties shall
be entitled to any and all remedies that would be available in the absence of
this Paragraph 11 and the arbitrators, in rendering their decision, shall follow
the substantive laws that would otherwise be applicable. This Paragraph 5 shall
apply, without limitation, to actions arising in connection with the offer and
sale of the Notes contemplated by this Agreement under any Federal or state
securities laws.
11.2 The arbitration of any dispute pursuant to this Paragraph 11 shall be held
in Florida, in the county where the principal business of the Company is
located.
11.3 Notwithstanding the foregoing in order to preserve the status quo pending
the resolution by arbitration of a claim seeking relief of an injunctive or
equitable nature, any party, upon submitting a matter to arbitration as required
by this Paragraph 5, may simultaneously or thereafter seek a temporary
restraining order or preliminary injunction from a court of competent
jurisdiction pending the outcome of the arbitration.
11.4 This Paragraph 11 is intended to benefit the security holders, agents,
affiliates, associates, employees and controlling persons of the Company, each
of whom shall be deemed to be a third party beneficiary of this Paragraph 11,
and each of whom may enforce this Paragraph 11 to the full extent that the
Company could do so if a controversy or claim were brought against it.
11.5 Subscriber acknowledges that this Paragraph 1 1 limits a number of
Subscriber's rights, including without limitation (i) the right to have claims
resolved in a court of law and before a jury; (ii) certain discovery rights; and
(iii) the right to appeal any decision.
12. Survival of Representations. Warranties and Covenants. Each of the Company's
and Purchaser's representations, warranties, and covenants shall survive the
execution and delivery of this Agreement and the delivery of the certificates
representing the Securities.
13. Successors and Assigns. This Agreement shall inure to the benefit of and be
binding on the respective successors and assigns of the parties hereto.
<PAGE>
SIGNATURE PAGE FOR INDIVIDUAL SUBSCRIBER
IN WITNESS WHEREOF. the undersigned represents that the foregoing statements are
true and that he, she, or they have executed this Subscription Agreement on this
20 day of JULY ,1999.
Pnnted Name Vermeersch Christiane Signature signed by C. Vermeersch
Printed Name Signature
Accepted this 29th Day of July, 1999 Accepted by
Stratcomm Media, LTD
By: ________________________
<PAGE>
IN WITNESS WHEREOF, the undersigned represents that foregoing statements are
true and that he, she, or they have executed this Subscription Agreement on this
20th day of July 1999.
Pnnted Name Vermeersch Christiane Signature signed by C. Vermeersch
Printed Name Signature
Accepted this 29th Day of July, 1999 Accepted by
Stratcomm Media, LTD
By: ___Robert E. Veitia, President_
Signed by REV
Full name and Address of Purchasser for Registration Purposes
Vermeersch Christiane
Boulevard D'Avroy 7sE, 4000 Liege, Belgium
Tel: 32.4.223.7758
Fax: 32.4.224.00.02
<PAGE>
Exhibit 10.4 Stock Subscription Agreement with Asuno, Inc.
<PAGE>
FAX NO.: 001407 6280807
A
A
To
Mr. Paul Serluco
VP Finance
Stratcomm Media
Von Asuno Inc.
De P.H. Bolle/Andres Angst
From
Anzahl Seiten
Nombre de pages -4-
Numbers of pages incl. this page
Date 25.3.99
- ------------------------------------------------------------------------------
UBERMITTLUNG / MESSAGE:
Dear Sir
Please find enclosed signed subscription agreement for Stratcomm Media, The
Originals will follow by mail today. The funds of USD 200,000.--will be wired as
per your instructions into the account No. 5111010982 at Northern Trust Bank
Florida
Yours sincerely
Asuno Inc
P.H. Bolle President
<PAGE>
[GRAPHIC OMITTED][GRAPHIC OMITTED]
FAX NO.: 001407 6280807
A Mr. Paul Serluco
A VP Finance
T Stratcomm Media Asuno Inc
>From P.H.Bolle/ Andres Angst
-
Anzahl Serten
Nombre de pages
Numbers of pages mncl. this page
25.3.99
Date
UBERMITTLUNG I MESSAGE:
Dear Sir
Please find enclosed signed subscription agreement for Stratcomm Media The
Originals will follow by mail today. The funds of USO 200.000.--will be wired as
per your instructions into the account no 5111010982 at Northern Trust Bank
Florida
Yours sincerely
Asuno Inc
P.H.BoIIe
President
<PAGE>
The undersigned Purchaser
NAME: ASUNO INC____________________________
ADDRESS: P.O. Box 345________________________
CH--4010 Basel / Switzerland______________
if applicable, a [Corporate][Partnership][Trust]organized under the
laws of Panama______, hereinafter referred to as "Purchaser")
hereby represents and warrants to, and agrees with the Company as
follows:
- -------------------------------------------------------------------------
1. Agreement to Subscribe
a. Subscription. The undersigned Purchaser hereby
subscribes to purchase 40 shares of Subordinated
Debentures, each having a face value of $5,000.00 per
share, at an aggregate purchase price of $
200,000.--.
b. Form of Payment. Purchaser shall pay the purchase price for the
Subordinated Debentures by delivering good funds in United States Dollars
in accordance with Paragraph 1(c) below, to escrow agent, the Delaware
Escrow Company (the "Escrow Agent") identified in the Escrow Instructions
attached hereto as Exhibit II (the "Escrow Agreement"). The Company shall
deliver one or more executed Subordinated Debentures to the Escrow Agent,
and upon payment by the Purchaser of the purchase price for the
Subordinated Debentures and the compliance with all of the tents of the
Escrow Agreement, the Escrow Agent shall cause the Subordinated Debentures
purchased thereby by the Purchaser to be delivered to the Purchaser as set
forth in paragraph 1(c) below. By signing this Agreement, the Purchaser and
the Company each agrees to all of the terms and conditions of, and becomes
a part to, the Escrow Instructions attached hereto, all of the provisions
of which are incorporated herein by this reference as if set forth in full.
c. Method of Payment Payment of the purchase price for
the Subordinated Debentures shall be made by wire
transfer of funds to:
NAME: ASUNO INC.____________________________
ADDRESS: P.0.Box 345, CH 4010 Basel, Switzerland______
TEL. NO.: 061 286 62 96__________________________
<PAGE>
FAX NO.: __________________________________________
CONTACT NAME: P.H. Bolle________________________
Delivery Instructions (if different from Registration Name):
NAME: ____________________________________________
ADDRESS: _________________________________________
TEL.NO.: __________________________________________
FAX NO.: __________________________________________
CONTACT NAME: __________________________________
SP ECIAL
1NSTRUCTIONS: ___________________________________
[GRAPHIC OMITTED][GRAPHIC OMITTED] day of March,1999:
IN WITNESS WHEREOF, the undersigned represents that the foregoing statements are
true and that it has caused this Subscription Agreement to be duly executed on
its behalf on this 23rd day of March , 1999.
ASUNO INC________________
Printed Name of Subscriber
By: P.H. Bolle /s/________________
(Signature of Authorized Person)
P.H. Bolle, President__________
(Printed name and title)
Title: Chief Financial Officer___
Full Name and Address of Purchaser for Registration Purposes:
<PAGE>
Exhibit 10.5 Stock Subscription Agreement with Concorde Bank, LTD
<PAGE>
CONCORDE BANK LIMITED
Ex 10.5 Stock Subscription Agreement with Concorde Bank, Ltd
The Corporate Centre
Bush Hill, Bay Street
Bridgetown, Barbados, W.I.
Telephone: (246) 480-4320
Fax: (246) 429-7996
Telex: (0392) 2255 ERNSTYOUNG WB
<PAGE>
TELEFAX TRANSMITTAL SHEET
TO: Stratcomm Media
ATTN: Paul Serluco
FAX NO.: 1-407-628-0807
NO. OF PAGES: COVER + 12
SUBJECT: Subscription Agreement
FROM: A. Marina Corbin DATE: March 23,1999
PLEASE CALL (246) 430-5320 IMMEDIATELY IF ANY PAGES ARE
NOT RECEIVED.
MESSAGE:
Please see following Subscription Agreement duly completed. We confirm having
today transferred USD 50,000 as requested.
Should you require any further information, please do not hesitate to contact
ourselves.
Regards
A. Marina Corbin /s/
A. Marina Corbin
Manager
THE SECURITIES SUBSCRIBED FOR.BY THIS AGREEMENT ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER TILE SECURITIES ACT OF 1993, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS. PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
<PAGE>
THE SECURITIES SUBSCRIBED FOR BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF CERTAIN STATES
AND ARE BEING OFFERED AND SOLD IN RELIANCE ON THE EXEMPTION FROM THE
REGISTRATION PROVIDED IN REGULATION "S" OF SAID ACT AND SUCH LAWS. IN ACCORDANCE
WITH REGULATION "S", THESE SECURITIES MAY NOT BE OFFERED OR SOLD TO CITIZENS OR
RESIDENTS OF THE SHAREED STATES. THE SECURITIES SUBSCRIBED FOR BY THIS AGREEMENT
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF
THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE SECURITIES
OFFERED BY THE COMPANY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
SUBSCRIPTION AGREEMENT
ALL FIGURES IN UNITED STATES DOLLARS
----------------------
THIS SUBSCRIPTION AGREEMENT (this "Agreement') has been. executed by
the undersigned in connection with the private placement of a minimum of $1
,000,000 (US) and up to a maximum of $5,000,000 (US) of convertible subordinated
debentures (the "Debentures") with a minimum face value of $50,000.00 (US), of
STRATCOMM MEDIA LTD., a corporation organized under the laws of the jurisdiction
of the Yukon, Canada (NASD Bulletin Board symbol "SMMM") (hereinafter referred
to as the "Company"). The Subordinated Debentures being sold pursuant to this
Agreement have not been registered under the Securities Act, but are being
offered to non-residents and non-citizens of the Shareed States pursuant to an
exemption provided by Regulation S of the Securities Act of 1933. In addition to
such other terms as are set forth in this Agreement, the tents on which the
Subordinated Debentures may be converted into shares of Common stock, $.01 par
value, of the Company (the "Common Stock") and the other terms of the
Subordinated Debentures are set forth in the "STRATCOMM MEDIA LIMITED 14%
SUBORDINATED DEBENTURE" attached hereto as Exhibit I (the "Debentures"). The
offer of the Subordinated Debentures and, if this Subscription Agreement is
accepted by the Company, the sale of Subordinated Debentures are being made in
reLiance upon Regulation 3, Rule 902(k) of the
Securities Act, (All dollar amounts in this Agreement are expressed in U.S.
Dollars.)
<PAGE>
The undersigned Purchaser
NAME: CONCORDE BANK LIMITED
ADDRESS: P.O. Box 1161, The Corporate Centre
Bush Hi11, Bay Street, St. Michae1, Barbados, W.I.
if applicable, a (Corporate] [xxxxx] [xxxx] organized under the laws
of Barbados , hereinafter referred to as "Purchaser")
hereby represents and warrants to, and agrees with the Company as
follows:
- -------------------------------------------------------------------------------
1. Agreement to Subscribe
a. Subscription. The undersigned Purchaser hereby
subscribes to purchase 10 shares of Subordinated
Debentures, each having a face value of $5,000.00 per
share, at an aggregate purchase price of $ 50,000.00.
b. Form of Payment, Purchaser shall pay the purchase price for the
Subordinated Debentures by delivering good funds in United States Dollars
in accordance with Paragraph 1(c) below, to escrow agent, the Delaware
Escrow Company (the "Escrow Agent") identified in the Escrow Instructions
attached hereto as Exhibit II (the "Escrow Agreement"). The Company shall
deliver one or more executed Subordinated Debentures to the Escrow Agent,
and upon payment by the Purchaser of the purchase price for the
Subordinated Debentures and the compliance with all of the terms of the
Escrow Agreement, the Escrow Agent shall cause the Subordinated Debentures
purchased thereby by the Purchaser to be delivered to the Purchaser as set
forth in paragraph 1(c) below. By signing this Agreement, the Purchaser and
the Company each agrees to all of the terms and conditions of, and becomes
a part to, the Escrow Instructions attached hereto all of the provisions of
which are incorporated herein by this reference as if set forth in full.
c. Method of Payment. Payment of the purchase price for the Subordinated
Debentures shall be made by wire transfer of funds to: Northern Trust Bank
301 Yamato Road
Boca Raton, Florida 33431
ABA #0660O9650
For the Account of: The Delaware Escrow Company
Account #5111010982
<PAGE>
No later than three business days after the Company accepts
this Agreement and all other terms and conditions of this
Agreement and the Escrow Agreement have been complied with,
funds deposited with the Escrow Agent shall be disbursed to
the Company.
2. Purchaser Representations: Access to Information: Independent Investigation
a. Purchaser Representations and Warranties. Purchaser represents and
warrants to the Company as follows:
(i) Purchaser is neither a US citizen or
Resident Alien, as such terms are defined in
Rule 902, promulgated under the Securities
Act.
(ii) Purchaser is sufficiently experienced in
financial and business matters to be capable
of evaluating the merits and risks of its
investments, and to make an informed
decision relating thereto, and to protect
its own interests in connection with the
transaction.
(iii) Purchaser is purchasing the Subordinated
Debentures for its own account or for the
account of beneficiaries for whom the
Purchaser has full investment discretion,
each of which beneficiaries is bound to all
of the terms and provisions hereof including
all representations and warranties herein.
Purchaser is purchasing the Subordinated
Debentures for investment purposes only and
not with an intent towards further sale or
distribution thereof, and has not
pre-arranged any sale with any other
purchaser.
(iv) The Subordinated Debentures have not been
registered under the Securities Act, but are
being offered in reliance upon an exemption
therefrom; Regulation 5, Rule 902.
Additionally, the underlying securities, for
which these Subordinated Debentures may be
converted into, will be issued in place of,
and in lieu of payment on the Subordinated
Debentures, and
(v) Purchaser acknowledges that the purchase of the Securities Involves a high
degree of risk, is aware of the risks and further acknowledges that it can bear
the economic risk of the Securities, including the total loss of its investment.
<PAGE>
(vi) Purchaser understands that the Securities are being offered and sold to it
in reliance on an exemption from the registration requirements of the Securities
Act, and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
Purchaser set forth herein in order to determine the applicability of such safe
harbor and the suitability of Purchaser to acquire the Securities.
(vii) Purchaser is purchasing the Securities for its own account or for the
account of beneficiaries for whom Purchaser has full investment discretion and
not with a view to, or for sale in connection with, any "distribution" (as such
term is used in Section 2(11) of the Securities Act) thereof.
(viii) In evaluating its investment, Purchaser has consulted its own investment
and/or legal and/or tax advisors.
(ix) Purchaser is not an underwriter or, or dealer in, the Securities, and
Purchaser is not participating, pursuant to a contractual agreement, in. the
distribution of the Securities.
b. Current Information. Purchaser acknowledges that Purchaser has been
furnished with or has acquired copies of all request information
concerning the Company, including the most recent financials of the
Company.
c Independent Investigation; Access. Purchaser acknowledges that
Purchaser, in making the decision to purchase the Subordinated
Debentures subscribed fort has relied upon independent investigations
made by it and. its purchaser representatives, if any, and Purchaser
and such representatives, if any, have prior to any sale to it, been
given access and the opportunity to examine all material contracts and
documents relating to this offering and act opportunity to ask
questions of, and to receive answers from, the Company or any person
acting on its behalf concerning the terms and conditions of this
offering Purchaser and its advisors, if any, have been furnished with
access to all
publicly available materials relating to the business,
finances and operation of the Company and materials relating
to the offer and sate of the Securities which have been
requested. Purchaser and its advisors, if any, have received
complete and satisfactory answers to any such inquiries.
d. No Government RecommendatIon or ApprovaL Purchaser
understands that no fedoral or state agency has passed on or made any
recommendaLion or endorsement of the Subordinated Debentures4
e. Entity Purchasers. It Purchaser is a partnership, corporation
or trust, the person executing this Agreement on its behalf
represents and warrarns that:
<PAGE>
(1) He or she made due inquiry to determine the
truthfulness of the representations and warranties
made pursuant to this Agreement.
(ii) He or she is duly authorized (if the undersigned is
a trust, by the trust agreement) to make this
investment and to enter into and execute this
Agreement on behalf of such entity.
t Non~Affr11ate. Purchaser and any affiliate of Purchaser
represent, warrant and covenant that they arc not an.
affiliate of the Company
3' lj~cr Representations.
a. Listed Company Stows. The Company's Common Stock is listed on
the NASO b&sultetin Board" Trading System, and the Company has
received no notice, either oral or written, with respect to
its continued eligibility for such listing.
b. Terms of Subordinated Debentures. The terms of the
Subordinated Debentures shall be as set forth in the rorm of
"STRATCO?vfM MEDIA LIMiTED 14% SUBORDINATED DEBENTURE" attached hereto
as Exhibit I (the "Debentures")
c. Legality. The Company has the requisite corporate power and
authority to enter into this Agreement and to issue, sell and
deliver the Securities; this Agreement and the issuance, sale
and delivery of the Securities hereunder and the transactions
contemplated hereby have been duly and validly authorized by
all necessary corporate action by the Company; this Agreement
and the Securities have been duly ad validly executed and
delivered by and on behalf of the Company, and are valid and
binding agreements ot' the company, enfotceable in accordance
with their respective terms, except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or other laws affecting creditors rights generally. The
Subordinated Debentures and the Common Stock issuable upon conversion
of the Subordinated Debentures will not subject the holders thereof to
personal liability by reason of being such holders.
d. Proper Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction at incorporation and is duly qualified as a foreign
corporation in all jurisdictions where the failure to be so qualified
would have a materially adverse effect on its business, taken as whole.
e. No Legal Proceedings. There is no action, suit or proceeding before
or by any court or arty governmental agency or body, domestic or
foreign, now pending or to the knowledge of the Company, threatened,
against or affecting the Company, or any of' its properties or assets,
which might result in any material adverse change in the 4ondition
(financial or otherwise) or in the earnings, business affairs or
business prospects of the Company, or which might materially and
adversely affect the properties or assets thereof except as described
in the Memorandum.
<PAGE>
f. Non-Default. The Company, except as described in the
Memorandum, is not in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust or other material instrument or
agreement to which it is a party or by which it or its property may be
bound.
g. No Misleading Statements. The Memorandum does not contain,
and as of their respective dates, none of the Company's other filings
with the SEC, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading.
h. No Adverse Change. There has been no material adverse change in the
financial condition, earnings, business affairs or business prospects
of the Company since the date of the Company's offering memorandum,
dated January 13, 1999, which is on file at the company's offices, and
is available for inspection by any prospective subscriber.
i. Absence of Non-Disclosed Facts. There is no fact known to the Company
(other than general economic conditions known to the public generally)
that has not been disclosed in writing to the Purchaser that: (i) could
reasonably
be expected to have a material adverse effect on the condition
(financial or otherwise) or in the earnings, business affairs,
business prospects, properties or assets of the Company; or
(ii) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations
pursuant to this Agreement and the Subordinated Debentures.
j. Non-Contravention. The execution and delivery of this Agreement and the
consummation of the issuance of the Securities and the transactions
contemplated by this Agreement do not and will not conflict with or result
in a breach by the Company of any of the terms or provisions of, or
constitute a default under the Articles of Incorporation or by-laws of the
Company, or any indenture, mortgage, deed of trust, or other material
agreement or instrument to which the Company is a part or by which it or
any of its properties or assets are bound, or any existing applicable
Federal or State law, rule, or regulation or any applicable decrees,
judgment or order of any court, Federal or State regulatory body,
administrative agency or other domestic governmental body having
jurisdiction over the Company or any of its properties or assets.
4. Covenants of the Company.
<PAGE>
a. For so long as any Subordinated Debentures held by the
Purchaser shall remain outstanding, the Company covenants and
agrees with the Purchaser that it will at all times fully
reserve from its authorized but unissued shares of Common
Stock such sufficient number of shares of Common Stock to
permit the conversion in full of the outstanding Subordinated
Debentures.
b. The Company, as a part of the issuance of the series of 14% Subordinated
Debentures pursuant to this Offering, shall enter into and keep in full force
and effect, for so tong as an obligation pursuant to this Offering remains
outstanding, a Trust Indenture Agreement ("Trust Agreement"), thereby creating a
security interest in all property of the Company, subject only to any senior
indebtedness as set forth in the STRATCOMM MEDIA LIMITED 14% SUBORDINATED
DEBENTURE. As a term of the Trust Agreement, the Company shall file with all
appropriate agencies, evidence of the Trust Agreement, thereby creating a
perfected security interest on behalf of holders of securities issued pursuant
to this Offering.
5, Regjstration. The Purchaser acknowledges that the Company is under no
obligation to register the Subordinated Debentures or the Common Stock
issuable except as provided in the terms of the "STRATCOMM MEDIA
LIMITED 14% SUBORDINATED DEBENTURE" attached hereto as Exhibit I (the
"Debentures").
6. Exemption; Reliance on Regulation S, Rule 902. Purchaser
understands that the offer and sale of the Subordinated Debentures is
not being registered under the Securities Act. The Company is relying
on an exemption from registration provided by Regulation S, Rule 902
of the Securities Act.
7. C1osing Date and Escrow Agent. Closing shall be effected through
delivery of funds to the Company by the Escrow Agent, and delivery of
certificates evidencing the Subordinated Debentures to the Purchaser
by the Escrow Agent. Each of the Company and the Purchaser agrees that
the Escrow Agent has no liability as a result of any fraudulent or
unlawful conduct of any other party, and agrees to hold the Escrow
Agent harmless.
8. Condition to the Company's Obligation to Sel1, Purchaser
understands that the Company's obligation to sell the Subordinated
Debentures is conditioned upon:
a. The receipt and acceptance by the Company of this Agreement,
as evidence by execution of this Agreement by the President or
any Vice President or the Chief Financial Officer of the
Company; and
b. Delivery to the Escrow Agent by Purchaser of goods funds as payment
in full for the purchase of the Subordinated Debentures; and
c. The accuracy as of the Closing Date of the representations and
warranties of the Purchaser contained in this Agreement, and performance by the
Purchaser of all covenants and agreements of the Purchaser required to be
performed on or before the Closing Date. <PAGE>
9. Conditions to Purchase Obligation to Purchase. The Company
understands that Purchaser's obligation to purchase the Subordinated
Debentures is conditioned upon:
a. Execution by Purchaser of this Agreement and the receipt of
the Company's acceptance of this Agreement as provided in Paragraph 8(a)
above; and
b. Delivery of certificates evidencing the Subordinated
Debentures to the Escrow Agent, as heretofore set forth, and
by the Escrow Agent to Purchaser; and
c. Acceptance by the Company of subscriptions from the Purchaser
and other subscribers of Subordinated Debentures; and
d. The execution, and filing by the Company, of Trust Indenture
Agreement, pursuant to Section 4(b) of this Agreement, and the
"STRATCOMM MEDIA LIMITED 14% SUBORDINA TED DEBENTURE"; and
e. The accuracy as of the Closing Date of the representations and warranties of
the Company contained in this Agreement and the performance by the Company on or
before the Closing Date of all covenants and agreements of the Company required
to be performed on or before the Closing Date.
10. Governing Law. This Agreement shall be governed by and
construed under the law of the State of Florida without regard to its
choice of law provision. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto.
11. Arbitration Subscriber represents, warrants and covenants
that any controversy or claim brought directly, derivatively or in a
representative capacity by him in his capacity as a present or former
security holder, whether against the Company, in the name of the
Company or otherwise, arising out of or relating to any acts or
omissions of the Company, or any security holder or any of their
officers, directors, agents, affiliates, associates, employees or
controlling persons (including without limitation any controversy or
claim relating to a purchase or sale of the Note) shall be settled by
arbitration under the Federal Arbitration Act in accordance with the
<PAGE>
commercial arbitration rules of the American Arbitration Association
(AAA) and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. Any controversy or
claim brought by the Company against the Subscriber, whether in his
capacity as present or former security holder of the Company in. or
against any of the Subscriber's officers, directors, agents,
affiliates, associates, employees or controlling persons shall also be
settled by arbitration under the Federal Arbitration Act in accordance
with the commercial arbitration titles of the AAA and judgment rendered
by the arbitrators may be entered in any court having jurisdiction
thereof. In arbitration proceedings under this Paragraph 11, the
parties shall be entitled to any and all remedies that would be
available in the absence of this Paragraph 11 and the arbitrators, in
rendering their decision, shall follow the substantive laws that would
otherwise be applicable. This Paragraph 5 shall apply, without
limitation, to actions arising in connection with the offer and sale of
the Notes contemplated by this Agreement under any Federal or state
securities laws.
11.2 The arbitration of any dispute pursuant to this Paragraph
11 shall be held in Florida, in the county where the principal business
of the Company is located.
11.3 Notwithstanding the foregoing in order to preserve the
status quo pending the resolution by arbitration of a claim seeking
relief of art injunctive or equitable nature, any party, upon
submitting a matter to arbitration as required by this Paragraph 5, may
simultaneously or thereafter seek a temporary restraining order or
preliminary injunction from a court of competent jurisdiction pending
the outcome of the
11.4 This Paragraph 11 is intended to benefit the security holders,
agents, affiliates, associates, employees and controlling persons of the
Company, each of when shall be deemed to be a third party beneficiary of this
Paragraph 11, and each of whom may enforce this Paragraph 11 to the full extent
that the Company could do so if a controversy or claim were brought against it.
11.5 Subscriber acknowledges that this Paragraph 11 limits a number of
Subscriber's rights, including without limitation (i) the right to have claims
resolved in a court of law and before a jury; (ii) certain discovery rights; and
(iii) the right to appeal any decision.
12. Survival of Representations, Warranties, and Covenants, Each of
the Company's and Purchaser's representations, warranties, and covenants shall
survive the execution and delivery of this Agreement and the delivery of the
certificates representing the Securities.
13. Successors and Assigns & This Agreement shall. inure
to the benefit of and be binding on the respective
successors and assigns of the parties hereto.
SIGNATURE PAGE FOR INDIVIDUAL SUBSCRIBER
<PAGE>
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and that he, she, or they have executed
this Subscription Agreement on this _____ day of ___________,
1999.
- ---------------------------- -------------------------------
Printed Name Signature
- ---------------------------- -------------------------------
Printed Name Signature
Accepted this _____ day of____________, 1999:
STRATCOMM MEDIA, LTD.
By:.____________________________
Title: ___________________________ _________________
SIGNATURE PAGE FOR ENTITIES
[GRAPHIC OMITTED][GRAPHIC OMITTED]
1999;
1
<PAGE>
IN WITNESS WHEREOF, the undersigned represents that the
foregoing statements are true and that it has caused
this Subscription Agreement to be duly executed on
its behalf on this 22nd day of March, 1999.
CONCORDE BANK LIMITED
Printed Name of Subscriber
by: ______________________
(Signature of Authorized Person)
A. Marina Corbin, Manager
(Printed Name and Title)
Title: Chief Financial Officer
Full Name and Address of Purchaser for Registration Purposes:
2
<PAGE>
NAME: CONCORDE BANK LIMITED_________________________________
ADDRESS: P.O. Box 1161, The Corporate Centre, Bush Hill, Bay Street,
St. Michael,___
Barbados, W.I.
TEL.: (246) 430-5320______________________________________________
FAX: (246) 429-7996_____________________________________________
CONTACT NAME: A.Marina Corbin__________________________________________
Delivery Instructions (if different from Registration Name):
NAME: ____________________________________________________________
ADDRESS: _________________________________________________________
TEL.NO.: ________________________________________________________
FAX NO.: _________________________________________________________
CONTACT NAME: ____________________________________________________
S PECIAL
INSTRUCTIONS:______________________________________________________________
3
<PAGE>
Exhibit 10.6 Stock Subscription Agreement with Aren Foundation
4
<PAGE>
Ex - 10.6
Stock Subscription Agreement with Aren Foundation 12
TH EWA
VERWALTUNGS GMBH MANAGEMENT S.A.R.L
MESSAGE
TO :STRATCOMM
MEDIA, LTD
ATT :PAUL SERLUCO
1947 LEE ROAD
WINTER PARK
FLORIDA 32789
DATE :23rd MARCH 1999
PAGE :1
DEAR MR. SERLUCO
PLEASE SIGN THE CONV. BONDS AND RETURN THEM TO US AS SOON AS
POSSIBLE BY A VERY FAST MAIL.
THEWA VERWALTUNGS-GMBH.
POSTFACH 4851
6002 LUZERN
KIND REGARDS
THEWA Verwaltungs-GmbH
/S/
Walter Theiler
5
<PAGE>
THE SECURITIES SUBSCRIBED FOR BY THIS AGREEMENT ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1993, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE SECURITIES SUBSCRIBED FOR BY THIS AGREEMENT HAVE NOT BEEN REGISTERED IJNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF CERTAIN STATES
AND ARE BEING OFFERED AND SOLD IN RELIANCE ON THE EXEMPTION FROM THE
REGISTRATION PROVIDED IN REGULATION "S" OF SAID ACT AND SUCH LAWS. IN ACCORDANCE
WITH REGULATION "S", THESE SECURITIES MAY NOT BE OFFERED OR SOLD TO CITIZENS OR
RESIDENTS OF THE SHAREED STATES. THE SECURITIES SUBSCRIBED FOR BY THIS AGREEMENT
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF
THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE SECURITIES
OFFERED BY THE COMPANY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
SUBSCRIPTION AGREEMENT
ALL FIGURES IN UNITED STATES DOLLARS
--------------------
THIS SUBSCRIPTION AGREEMENT (this "Agreement") has been executed by the
undersigned in connection with the private placement of a minimum of
$1,000,000(US) and up to a maximum of $5,000,000 (US) of convertible
subordinated debentures (the "Debentures") with a minimum face value of
$50,000.00 (US), of STRATCOMM MEDIA LTD., a corporation organized under the laws
of the jurisdiction of the Yukon, Canada (NASD Bulletin Board symbol "SMMM")
(hereinafter referred to as the "Company"). The Subordinated Debentures being
sold pursuant to this Agreement have not been registered under the Securities
Act, but are being offered to non-residents and non-citizens of the Shareed
States pursuant to an exemption provided by Regulation S of the Securities Act
of 1933. In addition to such other terms as are set forth in this Agreement, the
terms on which the Subordinated Debentures may be converted into shares of
Common stock, $.01 par value, of the Company (the "Common Stock") and the other
terms of the Subordinated Debentures are set forth in the "STRATCOMM MEDIA
LIMITED 14% SUBORDINATED DEBENTURE" attached hereto as Exhibit I (the
"Debentures"). The offer of the Subordinated Debentures and, if this
Subscription Agreement is accepted by the Company, the sale of Subordinated
Debentures are being made in reliance upon Regulation 3, Rule 902(k) of the
6
<PAGE>
The undersigned Purchaser
NAME: AREN Foundation________________
ADDRESS: ___FL-9491 Ruggell______________
-------------------------------
if applicable, a [Corporate] [Partnership] [Trust] organized under the
laws of ___________________________________, hereinafter referred to as
"Purchaser")
hereby represents and warrants to, and agrees with the Company as follows:
- -----------------------------------------------------------------------------
1. Agreement to Subscribe
a. Subscription. The undersigned Purchaser hereby subscribes to purchase 100
shares of Subordinated Debentures, each having a face value of $5,000.00
per share, at an aggregate purchase price of $ 500,000.--.
b. Form of Payment. Purchaser shall pay the purchase price for the
Subordinated Debentures by delivering good funds in United States Dollars
in accordance with Paragraph 1(c) below, to escrow agent, the Delaware
Escrow Company (the "Escrow Agent") identified in the Escrow Instructions
attached hereto as Exhibit II (the "Escrow Agreement"). The Company shall
deliver one or more executed Subordinated Debentures to the Escrow Agent,
and upon payment by the Purchaser of the purchase price for the
Subordinated Debentures and the compliance with all of the terms of the
Escrow Agreement, the Escrow Agent shall cause the Subordinated Debentures
purchased thereby by the Purchaser to be delivered to the Purchaser as set
forth in paragraph 1(c) below. By signing this Agreement, the Purchaser
arid the Company each agrees to all of the terms and conditions of, and
becomes a part to, the Escrow Instructions attached hereto, all of the
provisions of which are incorporated herein by this reference as if set
forth in full.
7
<PAGE>
c. Method of Payment. Payment of the purchase price for the Subordinated
Debentures shall be made by wire transfer of funds to:
Northern Trust Bank
301 Yamato Road
Boca Raton, Florida 33431
ABA #066009650
For the Account of: The Delaware Escrow Company
Account #5111010982
No later than three business days after the Company accepts
this Agreement and all other terms and conditions of this
Agreement and the Escrow Agreement have been complied with,
funds deposited with the Escrow Agent shall be disbursed to
the Company.
2. Purchaser Representations: Access to Information: Independent Investigation
a. Purchaser Representations and Warranties. Purchaser represents and warrants
to the Company as follows:
(i) Purchaser is neither a US citizen or Resident Alien, as such terms
are defined in Rule 902, promulgated under the
Securities Act.
(ii) Purchaser is sufficiently experienced in financial and business
matters to be capable of evaluating the merits and risks of its
investments, and to make an informed decision relating thereto, and to
protect its own interests in connection with the transaction.
(iii) Purchaser is purchasing the Subordinated Debentures for its own
account or for the account of beneficiaries for whom the Purchaser has
full investment discretion, each of which beneficiaries is bound to
all of the terms and provisions hereof including all representations
and warranties herein. Purchaser is purchasing the Subordinated
Debentures for investment purposes only and not with an intent towards
further sale or distribution thereof, and has not pre-arranged any
sale with any other purchaser.
(iv) The Subordinated Debentures have not been registered under the
Securities Act, but are being offered in reliance upon an exemption
therefrom; Regulation S, Rule 902. Additionally, the underlying
securities, for which these Subordinated Debentures may be converted
into, will be issued in place of, and in lieu of payment on the
Subordinated Debentures. and
(v) Purchaser acknowledges that the purchase of the Securities
Involves a high degree of risk, is aware of the risks and further
acknowledges that it can bear the economic risk of the Securities,
including the total loss of its investment.
8
<PAGE>
(vi) Purchaser understands that the Securities are being offered and
sold to it in reliance on an exemption from the registration
requirements of the Securities Act, and that the Company is relying
upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of Purchaser set forth
herein in order to determine the applicability of such safe harbor and
the suitability of Purchaser to acquire the Securities.
(vii) Purchaser is purchasing the Securities for its own account or
for the account of beneficiaries for whom Purchaser has full
investment discretion and not with a view to, or for sale in
connection with, any "distribution" (as such term is used in Section
2(11) of the Securities Act) thereof.
(viii) In evaluating its investment, Purchaser has consulted its own
investment and/or legal and/or tax advisors.
(ix) Purchaser is not an underwriter or, or dealer in, the Securities,
and Purchaser is not participating, pursuant to a contractual
agreement, in the distribution of the Securities.
b. Current Information. Purchaser acknowledges that Purchaser has been
furnished with or has acquired copies of all request information
concerning the Company, including the most recent financials of the
Company.
c. Independent Investigation; Access. Purchaser acknowledges that
Purchaser, in making the decision to purchase the Subordinated
Debentures subscribed for, has relied upon independent investigations
made by it and its purchaser representatives, if any, and Purchaser and
such representatives, if any, have prior to any sale to it, been given
access and the opportunity to examine all material contracts and
documents relating to this offering and an opportunity to ask questions
of, and to receive answers from, the Company or any person acting on
its behalf concerning the terms and conditions of this offering.
Purchaser and its advisors, if any, have been furnished with access to
all
publicly available materials relating to the business,
finances and operation of the Company and materials relating
to the offer and sale of the Securities which have been
requested. Purchaser and its advisors, if any, have received
complete and satisfactory answers to any such inquiries.
d. No Government Recommendation or Approval. Purchaser
understands that no federal or state agency has passed on or
made any recommendation or endorsement of the Subordinated
Debentures.
<PAGE>
e. Entity Purchasers. If Purchaser is a partnership, corporation or trust, the
person executing this Agreement on its behalf represents and warrants that:
(i) He or she made due inquiry to determine the truthfulness of the
representations and warranties made pursuant to this Agreement.
(ii) He or she is duly authorized (if the undersigned is a trust, by
the trust agreement) to make this investment and to enter into and
execute this Agreement on behalf of such entity.
f. Non-Affiliate, Purchaser and any affiliate of Purchaser represent, warrant
and covenant that they are not an affiliate of the Company.
3. Issuer Representations.
a. Listed Company Status. The Company's Common Stock is listed on the NASD
"Bulletin Board" Trading System, and the Company has received no notice, either
oral or written, with respect to its continued eligibility for such listing.
b. Terms of Subordinated Debentures. The terms of the
Subordinated Debentures shall be as set forth in the form of
"STRA TCOMM MEDIA
LIMITED 14% SUBORDINATED DEBENTURE" attached hereto as Exhibit I (the
"Debentures")
c. Legality. The Company has the requisite corporate power and authority to
enter into this Agreement and to issue, sell and deliver the Securities; this
Agreement and the issuance, sale and delivery of the Securities hereunder and
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action by the Company; this Agreement and the Securities
have been duly ad validly executed and delivered by and on behalf of the
Company, and are valid and binding agreements of the company, enforceable in
accordance with their respective terms, except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or other laws affecting creditors' rights generally. The
Subordinated Debentures and the Common Stock issuable upon conversion
of the Subordinated Debentures will not subject the holders thereof to
personal liability by reason of being such holders.
d. Proper Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified as a foreign
corporation in all jurisdictions where the failure to be so qualified
would have a materially adverse effect on its business, taken as whole.
<PAGE>
e. No Legal Proceedings. There is no action, suit or proceeding before
or by any court or any governmental agency or body, domestic or
foreign, now pending or to the knowledge of the Company, threatened,
against or affecting the Company, or any of its properties or assets,
which might result in any material adverse change in the condition
(financial or otherwise) or in the earnings, business affairs or
business prospects of the Company, or which might materially and
adversely affect the properties or assets thereof, except as described
in the Memorandum.
f. Non-Default. The Company, except as described in the Memorandum, is
not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust or other material instrument or
agreement to which it is a parry or by which it or its property may be
bound.
g. No Misleading Statements. The Memorandum does not contain, and as of
their respective dates, none of the Company's other filings with the
SEC, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading.
h. No Adverse Change. There has been no material adverse change in the
financial condition, earnings, business affairs or business prospects
of the Company since the date of the Company's offering memorandum,
dated January 13, 1999, which is on file at the company's offices, and
is available for inspection by any prospective subscriber.
i. Absence of Non-Disclosed Facts. There is no fact known to the
Company (other than general economic conditions known to the public
generally) that has not been disclosed in writing to the Purchaser
that: (i) could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise) or in the earnings,
business
affairs, business prospects, properties or assets of the
Company; or (ii) could reasonably be expected to materially
and adversely affect the ability of the Company to perform its
obligations pursuant to this Agreement and the Subordinated
Debentures.
j. Non-Contravention. The execution and delivery of this Agreement and the
consummation of the issuance of the Securities and the transactions
contemplated by this Agreement do not and will not conflict with or result
in a breach by the Company of any of the terms or provisions of, or
constitute a default under the Articles of Incorporation or by-laws of the
Company, or any indenture, mortgage, deed of trust, or other material
agreement or instrument to which the Company is a part or by which it or
<PAGE>
any of its properties or assets are bound, or any existing applicable
Federal or State law, nile, or regulation or any applicable decrees,
judgment or order of any court, Federal or State regulatory body,
administrative agency or other domestic governmental body having
jurisdiction over the Company or any of its properties or assets.
4. Covenants of the Company.
a. For so long as any Subordinated Debentures held by the Purchaser
shall remain outstanding, the Company covenants and agrees with the
Purchaser that it will at all times fully reserve from its authorized
but unissued shares of Common Stock such sufficient number of shares of
Common Stock to permit the conversion in full of the outstanding
Subordinated Debentures.
b. The Company, as a part of the issuance of the series of 14%
Subordinated Debentures pursuant to this Offering, shall enter into and
keep in full force and effect, for so long as an obligation pursuant to
this Offering remains outstanding, a Trust Indenture Agreement ("Trust
Agreement"), thereby creating a security interest in all property of
the Company, subject only to any senior indebtedness as set forth in
the STRATCOMM MEDIA LIMITED 14% SUBORDINATED DEBENTURE. As a term of
the Trust Agreement, the Company shall file with all appropriate
agencies, evidence of the Trust Agreement, thereby creating a perfected
security interest on behalf of holders of securities issued pursuant to
this Offering.
5. Registration. The Purchaser acknowledges that the Company is under
no obligation to register the Subordinated Debentures or the Common
Stock issuable except as provided in the terms of the "STRATCOMM MEDIA
LIMITED 14% SUBORDINATED DEBENTURE" attached hereto as Exhibit I (the
"Debentures").
6. Exemption: Reliance on Regulation S. Rule 902. Purchaser understands
that the offer and sale of the Subordinated Debentures is not being
registered under the Securities Act. The Company is relying on an
exemption from registration provided by Regulation S, Rule 902 of the
Securities Act.
7. Closing Date and Escrow Agent. Closing shall be effected through
delivery of funds to the Company by the Escrow Agent, and delivery of
certificates evidencing the Subordinated Debentures to the Purchaser by
the Escrow Agent. Each of the Company and the Purchaser agrees that the
Escrow Agent has no liability as a result of any fraudulent or unlawful
conduct of any other party, and agrees to hold the Escrow Agent
harmless.
8. Conditions to the Company's Obligation to Sell. Purchaser understands
that the Company's obligation to sell the Subordinated Debentures is
conditioned upon:
<PAGE>
a. The receipt and acceptance by the Company of this Agreement, as
evidence by execution of this Agreement by the President or any Vice
President or the Chief Financial Officer of the Company; and
b. Delivery to the Escrow Agent by Purchaser of goods funds as payment
in full for the purchase of the Subordinated Debentures; and
c. The accuracy as of the Closing Date of the representations and
warranties of the Purchaser contained in this Agreement, and
performance by the Purchaser of all covenants and agreements of the
Purchaser required to be performed on or before the Closing Date.
9. Conditions to Purchaser's Obligation to Purchase. The Company
understands that Purchaser's obligation to purchase the Subordinated
Debentures is conditioned upon:
a. Execution by Purchaser of this Agreement and the receipt of
the Company's acceptance of this Agreement as provided in Paragraph
8(a) above; and
b. Delivery of certificates evidencing the Subordinated Debentures to
the Escrow Agent, as heretofore set forth, and by the Escrow Agent to
Purchaser; and
c. Acceptance by the Company of subscriptions from the Purchaser and
other subscribers of Subordinated Debentures; and
d. The execution, and filing by the Company, of Trust Indenture
Agreement, pursuant to Section 4(b) of this Agreement, and the
"STRATCOMM MEDIA LIMITED 14% SUBORDINATED DEBENTURE"; and
e. The accuracy as of the Closing Date of the representations and
warranties of the Company contained in this Agreement and the
performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed on or
before the Closing Date.
10. Governing Law. This Agreement shall be governed by and construed
under the law of the State of Florida without regard to its choice of
law provision. A facsimile transmission of this signed Agreement shall
be legal and binding on all parties hereto.
<PAGE>
11. Arbitration. Subscriber represents, warrants and covenants that any
controversy or claim brought directly, derivatively or in a
representative capacity by him in his capacity as a present or former
security holder, whether against the Company, in the name of the
Company or otherwise, arising out of or relating to any acts or
omissions of the Company, or any security holder or any of their
officers, directors, agents, affiliates, associates, employees or
controlling persons (including without limitation any controversy or
claim relating to a purchase or sale of the Note) shall be settled by
arbitration under the Federal Arbitration Act in accordance with the
commercial arbitration rules of the American Arbitration Association
(AAA) and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. Any controversy or
claim brought by the Company against the Subscriber, whether in his
capacity as present or former security holder of the Company in or
against any of the Subscriber's officers, directors, agents,
affiliates, associates, employees or controlling persons shall also be
settled by arbitration under the Federal Arbitration Act in accordance
with the commercial arbitration rules of the AAA and judgment rendered
by the arbitrators may be entered in any court having jurisdiction
thereof. In arbitration proceedings under this Paragraph 11, the
parties shall be entitled to any and all remedies that would be
available in the absence of this Paragraph 11 and the arbitrators, in
rendering their decision, shall follow the substantive laws that would
otherwise be applicable. This Paragraph 5 shall apply, without
limitation, to actions arising in connection with the offer and sale of
the Notes contemplated by this Agreement under any Federal or state
securities laws.
11.2 The arbitration of any dispute pursuant to this Paragraph 11 shall
be held in Florida, in the county where the principal business of the
Company is located.
11.3 Notwithstanding the foregoing in order to preserve the status quo
pending the resolution by arbitration of a claim seeking relief of an
injunctive or equitable nature, any party, upon submitting a matter to
arbitration as required by this Paragraph 5, may simultaneously or
thereafter seek a temporary restraining order or preliminary injunction
from a court of competent jurisdiction pending the outcome of the
11.4 This Paragraph 11 is intended to benefit the security holders,
agents, affiliates, associates, employees and controlling
persons of the Company, each of whom shall be deemed to be a
third party beneficiary of this Paragraph 11, and each of whom
may enforce this Paragraph 11 to the full extent that the
Company could do so if a controversy or claim were brought
against it.
11.5 Subscriber acknowledges that this Paragraph 11 limits a number
of Subscriber's rights, including without limitation (i) the
right to have claims resolved in a court of law and before a
jury; (ii) certain discovery rights; and (iii) the right to
appeal any decision.
12. Survival of Representations. Warranties. and Covenants. Each
of the Company's and Purchaser's representations, warranties,
and covenants shall survive the execution and delivery of this
Agreement and the delivery of the certificates representing
the Securities.
<PAGE>
13. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding on the respective successors and
assigns of the parties hereto.
SIGNATURE PAGE FOR INDIVIDUAL SUBSCRIBER
IN WITNESS WHEREOF, the undersigned represents that the foregoing statements are
true and that he, she, or they have executed this Subscription Agreement on this
_____ day of ___________, 1999.
- ----------------------------- -----------------------------
Printed Name Signature
- ----------------------------- -----------------------------
Printed Name Signature
Accepted this _____ day of , 1999:
STRATCOMM MEDIA, LTD.
By:_________________________
Title:________________________
SIGNATURE PAGE FOR ENTITIES
IN WITNESS WHEREOF, the undersigned
represents that the foregoing statements are true this
Subscription Agreement to be duly executed on its
behalf on this _____ day of 23.03._, 1999.
AREN Foundation________
Printed Name of Subscriber
12
<PAGE>
- ---------------------------
(Signature of Authorized Person)
Walter Theiler________
(Printed Name and Title)
Accepted this _____ day of ___________, 1999;
STRATCOMM MEDIA, LTD.
By: Roberto E. Veitia /s/______
Title: ________________________
Full Name and Address of Purchaser for Registration Purposes:
NAME: AREN Foundation________________________________________________
ADDRESS: FL-9491 Ruggell_____________________________________________
TEL. NO.: 0041 75 373 3130_______________________________________________
FAX NO. 0041 75 373 2131_______________________________________________
CONTACT NAME: Lopag Herrn Louis Oehri______________________________
<PAGE>
Delivery Instructions (if different from Registration Name:
NAME: UBS AG_________________________________________________________
ADDRESS: Baarerstrasse 14a____________6301 Zug____________________________
TEL. NO.: 041 727 36 99__________________________________________________
FAX NO.: 041 727 35 95__________________________________________________
CONTACT NAME: Herrn Daniel Hoppler____________________________________
SPECIAL
INSTRUCTIONS: _________________________________________________________
- ----------------------------------------------------------------------------
<PAGE>
Exhibit 10.7 contract with Banta Publications Group
<PAGE>
Ex10.7 Contract with Bank Publications Group
BANTA Publications Group________________________________
Group Headquarters 908 North Elm Street Suite 110 Hinsdale,
IL 60521 -3636 630-323-9490 FAX 630-323-0782
Larry L. Panozzo
President
June 10, 1997
Mr. Joseph Landis
Chief Financial Officer
Corporate Relations Group, Inc.
1801 Lee Road
Suite 301
Winter Park, Florida 32789-2 165
Re: Printing Agreement
Dear Mr. Landis,
Enclosed is a fully executed copy of the printing agreement
with Banta Publications Group.
On behalf of all of us at the Banta Publications Group, I
want to thank you and the folks at Corporate Relations
Group, Inc. for awarding us with this two (2) year
commitment. We will strive to validate your trust and
confidence throughout the term of the agreement
Thanks again and please don't hesitate to contact me if I
can ever be of assistance.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
CONTRACT
#H1171r3
PROPOSAL FOR
CORPORATE RELATIONS GROUP, INC.
MAY 22, 1997
1. Subject and Term of Agreement. CORPORATE RELATIONS GROUP, INC.
("Customer), a Florida corporation located at 1801 Lee Road, Suite 301,
Winter Park, Florida 32789-2165 and BANTA PUBLICATIONS GROUP("Printer),
a division of Banta Corporation located at 100 Banta Road, Long Prairie,
Minnesota 56347 agree that Printer shall print all of Customer's
requirements for the publication(s) identified as MONEY WORLD,
commencing with the July 1997 issue and continuing through the June 1999
issue. Printer shall perform those printing services in accordance with
<PAGE>
the specifications and within the times(s) set forth, respectively, in
the attached Specifications Schedule, and the Production Schedule either
attached or (If not attached) established by mutual agreement of the
parties conforming to Section 24 below. This Agreement shall also apply
to other, future work performed by Printer for Customer, as provided in
Section 22 below. Upon expiration of the initial term, this Agreement
shall be renewed for successive periods of one (1) year each, unless
either party gives written notice to the other party of its intent to
terminate this Agreement not less than thirty (30) days prior to the
expiration of the initial or any successive renewal term.
2. Prices, Prices for Printers services are set forth in the attached
Price Schedule. Those prices are based upon (I) Printers labor costs on
the date of this Agreement, (ii) Printer's material costs on the date of
this Agreement and (iii) Customers specifications set forth in the
Specifications Schedule. Any volume or trade discounts earned with
respect to materials or services utilized by Printer or for which
Printer contracts on behalf of Customer in connection with Printers
performance under this Agreement shall be and remain the property of the
Printer.
Prices may be adjusted by Printer to reflect additional costs resulting
from changes In quantities or specifications; such adjustments will be
calculated at Printer's standard rates in effect on the date of such
changes, if applicable, and otherwise on any reasonable basis
established by Printer. Prices may also be adjusted as provided in
Section 3. Whenever practical, Printer shall provide reasonable advance
notice of price adjustments.
Customer recognizes that Printers prices are exclusive of: (a)
transportation charges, (b) charges for storage of paper and other
materials furnished by Customer and of finished goods produced by
Printer and (c) any manufacturer's, retailer's occupation, use, sales,
excise, value added or other tax, or any charge of any nature whatsoever
imposed by any governmental authority. Any such tax or charge shall be
the responsibility of the Customer; charges for storage and
transportation by Printer shall be based on Printer's standard rates in
effect from time to time.
3. Price Adjustments.
A. Except as provided in Section 2 above and In subsections 3B and 3C
below, prices In this Agreement shall remain firm through the June 1998
issue. Prices may be adjusted after the first12 months to
proportionately reflect any increases or decreases, since the effective
date of this Agreement, in labor costs, including, state or federal
social security taxes or other taxes related to labor utilization, not
to exceed two percent (2%) annually.
B. If at any time after the effective date of this Agreement Printer's
costs of materials employed in connection with its services under this
Agreement, including but not limited to film, plates, ink, adhesives and
energy or utilities, but excluding paper, shall increase or decrease,
then the prices for Printer's services shall be adjusted in proportion
to such increase or decrease, effective the date of the cost increase or
decrease to Printer.
C. If at any time after the effective date of this Agreement the
Printer's purchase order cost of paper required In the performance of
Printers services under this Agreement shall Increase or decrease, then
the prices for Printer's services shall be adjusted in proportion to
such increase or decrease, effective the date of the change in the
Printer's purchase order cost.
0. Printer will, on or before the effective date of any price change
under this Agreement, provide to Customer notice and an explanation of
such change, together with appropriate supporting data.
4. Payment Terms.
A. Net payment shall be due with incoming-material, except as provided
in subsection C below. Customer may deduct from invoice an amount equal
to five percent (5%) of manufacturing and two percent (2%) of paper,
excluding freight, postage and overnight charges. In the event that
Printer commences legal action to collect any sums due to Printer under
this Agreement, Customer shall be responsible to reimburse Printer for
Printer's costs of collection, including but not limited to Printer's
attorneys' fees. Past-due invoices are subject to a service charge of
1-1/2% per month on the outstanding balance or, if less, the maximum
such charge permitted by applicable law. Upon notice to Printer pursuant
to Section 16, disputed items shall not be subject to a service charge,
provided that Customer does not withhold payment of undisputed amounts.
B. Printer shall invoice Customer as follows:
(1) Preparatory work, plates, presswork, binding, cartons, pallets,
services preparatory for mailing finished work, freight and shipping
charges, and paper furnished by Printer - upon completion of Printer's
services with respect to each shipment of work under this Agreement;
provided, however, that if the Customer delays the performance of
Printer's services as established in the Production Schedule, printer
may invoice for services rendered to date.
(2) Storage of paper and other materials finished work produced by
Printer-as incurred by Printer.
C. In advance of the mailing date for publications to be mailed,
Customer shall deposit in the appropriate postal service office
sufficient funds to cover all postage, permit fees and other postal
service charges.
5. Production Schedule. Each of the parties will use its best efforts to
comply with the Production Schedule at all times. Customer's delay in
furnishing and/or returning all paper, copy, specifications, artwork,
proofs, copies or other material in accordance with the Production
Schedule may result In an extension of scheduled delivery date(s) and/or
additional charges to Customer for accelerated production at Printer's
standard overtime rates then in effect.
6. ~ Printer shall furnish Customer the proofs and materials set forth
in the Specifications Schedule; and Customer shall return to Printer one
set of proofs for each completed page indicating any and all changes
(editorial and art). Press standing time awaiting Customer's approval
shall not be charged to Customer unless press standing time is deemed
unreasonable. If unreasonable amount of time is required by Customer,
and Customer has been notified, Customer shall be charged at Printer's
standard rate then in effect for press standing time. Printer shall not
be liable for errors or subsequent corrective costs for work completed
pursuant to Customer's approval or for errors due to Customer's failure
to order proofs, refusal to accept proofs, failure to return proofs
marked with changes, or Customer's instructions to proceed without
submission of proofs.
7. Materials Furnished by Customer. Paper stock, film (negatives and
positives), and other materials furnished by Customer shall be property
packed, free from dirt, grit, torn sheets, bad splices, etc. and shall
comply with the specifications set forth in the Specifications Schedule,
and with S W 0 P standards. Additional costs due to delays, impaired
production or the necessity to repair or replace such materials because
of Customer's failure to meet such standards shall be charged to
Customer at Printer's standard rates then in effect. Semi-finished
materials or covers furnished by Customer shall include manufacturing
waste allowances Printer deems adequate and shall be adjusted to
Printer's count.
Printer shall not be liable for the fitness of any materials furnished
by Customer unless directed by Customer, at additional cost to Customer,
to make corrections, repairs, or substitutions Printer deems necessary.
In no event does Printer assume responsibility for color fidelity of
finished goods made from film furnished by Customer, unless proofed by
Customer to Printer's requirements.
In the event Customer furnishes paper, a sixty (60) day written
notification of such change to Printer is required.
8. Responsibility for Content: Right to Rescind. Customer warrants that
any matter it furnishes for printing pursuant to this Agreement does not
infringe any copyright or trademark, is not libelous or obscene, and
does not otherwise violate any law or infringe the rights of any third
party. Customer agrees to indemnity and hold Printer harmless against
all losses, claims. damages, liabilities and expenses, including
Printer's attorneys' fees, which Printer may incur as the result of any
claims of such violation or Infringement. Printer shall have the right,
without liability of any kind to Customer, to refuse to print any
publication containing material that, in Printer's good faith Judgment,
(a) may give rise to such claims, or (b) be considered scandalous or
offensive to some viewers or readers.
9. Business Reply Mail. Customer shall be responsible for complying with
all postal service requirements concerning business reply mail; and
Printer shall not be liable to Customer for any damages or claims
whatsoever in the event that business reply malt is rejected by the
postal service.
10. Quantity Variation. Variations in quantity of 1% over and 0% under
quantities ordered shall constitute acceptable delivery; and the excess
or deficiency shall be charged or credited at the "additional thousands"
rate set forth in the Price Schedule.
11. Warranty. Printer warrants that its services shall be performed
according to the terms of this Agreement and standards acceptable in the
printing industry. However, due to differences in equipment, paper,
inks, and other conditions between the color proofing and production
pressroom operations, a reasonable variation in color between color
proofs and the completed job, and a reasonable variation on press, may
exist. Work containing such variations shall be considered in conformity
with this warranty.
12. Risk of Loss. The risk of loss of finished work shall pass to the
Customer F.O.B. the facilities at which the same was printed, upon the
earlier of Printer's delivery to carrier or postal service, or delivery
into storage, regardless of whether the transport medium or storage
facilities are owned and/or operated by Printer. The risk of loss of
property furnished and/or owned by Customer shall be on Customer while
such property is at the facilities at which printing is to occur,
whether before or after the printing process, and while In transit to
and from those facilities. Printer shall bear the risk of loss during
the printing process to the extent of any all-risk insurance coverage
therefor.
13. Passage of Title, Title to finished goods shall pass to Customer
upon the earlier of Printer's delivery to carrier or postal service, or
delivery into storage, regardless of whether the transport medium or
storage facilities are owned and/or operated by Printer. Artwork,
drawings, sketches. dummies, film positives, negatives, and separations
furnished by Printer shall become the property of Customer upon
completion of printing and payment therefor; provided, however, that if
such items are furnished by Printer by subcontracting the production
thereof, then title thereto shall pass to Customer upon shipment to
Printer. All printing plates shall be and remain the property of
Printer.
<PAGE>
14. Storage. Customer's materials which are in film form shall be stored without
charge for a period of 12 months from the time of last use and thereafter
destroyed. If Customer's materials other than film are not shipped within 24
hours after notification to Customer that they are ready to be shipped, for any
reason beyond Printer's reasonable control, including but not limited to
Printer's retention of such materials pursuant to Section 18 below, Printer may
store such materials at Customer's risk in a warehouse or at the facilities at
which printing occurred, and Customer shall pay all resulting handling,
transportation and storage charges as invoiced by Printer.
15. Contingencies. Printer shall not be liable for any delay or failure to
perform under this Agreement if such delay or failure to perform arises out of
causes beyond its reasonable control, including but not limited to fires, severe
weather and other acts of God, accidents, governmental acts and regulations,
Inability to obtain materials or carrier space or equipment, or delays of
suppliers or carriers. Printer shall give notice to Customer of any such
condition within a reasonable time after it arises.
If Printer's operations are suspended for any of the above causes for a period
of greater than 10 days, Customer shall have the right to have the services
covered by this Agreement performed elsewhere. However, Customer shall not make
such arrangements for a longer period than is reasonably necessary; and it is
agreed that when Printer resumes operations, upon 30 days prior written notice,
Printer shall be entitled to provide all services in connection with all
subsequent work covered by this Agreement. Customer shall have the right in the
situation first described in this paragraph to remove from Printer's plant any
and all completed work, proofs, film, paper, and other material and uncompleted
work only upon payment to Printer for all services rendered and materials
furnished or ordered by Printer prior to the date written notice of Customer's
election to have said work completed elsewhere is received by Printer, and only
subject to Printer's rights under Section 18 below.
16. Claims, All claims for defective or damaged product or for shortages must be
made by Customer in writing fully setting forth the nature of the alleged
defect, damage or shortage, within 10 days after Customer's receipt thereof.
Customer's failure to so notify Printer shall constitute irrevocable acceptance
of the product and a waiver of any claim of defect, damage or shortage. Claims
for damage or loss in transit must be made by Customer directly against the
carrier.
17. Limitation of Remedies. Customer's sole and exclusive remedy for Printer's
negligence or other tort, breach of warranty or contract or any other claim
arising out of or connected with this Agreement shall be the return of the
selling price allocable to that portion of the work which is nonconforming or,
at Customer's option, printing of a correction in subsequent work, if
applicable.
IN NO EVENT SHALL PRINTER BE LIABLE FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, WHETHER FOR BREACH OF CONTRACT OR WARRANTY. NEGLIGENCE OR OTHER TORT OR
ON ANY STRICT LIABILITY THEORY.
Except with respect to a claim brought against Printer by a third party,
including, without limitation, a claim of the type referred to in Section 8, (a)
Customer shall not be liable to Printer beyond the contract price and other
charges and costs permitted under this Agreement, and (b) Customer shall not be
liable for any special, indirect or consequential damages, whether for breach of
warranty, negligence or other tort on any strict liability theory.
18. Printer's Security Interest and Rights Upon Customer's Default. By execution
of this Agreement, Customer grants to Printer a security interest in any
property of Customer which may at any time come into the possession of Printer,
to secure all obligations of Customer to Printer, whether arising prior or
subsequent to the effective date of this Agreement, and whether or not arising
out of or relating to this Agreement. If any amount due Printer from Customer
shall remain unpaid at the due date, or if Customer defaults in the performance
of any other covenant or condition of this Agreement or any other agreement with
Printer, Printer shall have the right to terminate its obligations under this
Agreement, to declare immediately due and payable all obligations of the
Customer for the work theretofore furnished by the Printer under this Agreement,
to retain possession of any product or materials owned by Customer (including
but not limited to work-in-process and undelivered work) pending payment in full
of all such obligations, to change credit terms with respect to any further work
furnished by Printer, and/or to suspend or discontinue any further performance
for Customer until overdue amounts are paid in full and until cash or security
satisfactory to Printer covering further work, as may be required by Printer, is
deposited in advance with Printer. These rights of Printer shall be in addition
to and not in substitution for any other rights of Printer and suspension or
discontinuance of work by Printer pursuant to this Section shall not in any way
prejudice any claim or right of action which Printer may have by reason of any
breach of this Agreement or any other agreement by Customer.
Agreed to:
Corporate Relations Group. Inc.
(Customer)
By: Joe Landis /s/
Title: CFO ___
Date: 5-23-97__
19. Right to Assurance. Whenever either party in good faith has reason to
question the ability or intent of the other party to perform, the party having
such question may demand in writing adequate assurance from the other party of
its ability or intent to perform, and may suspend performance under this
Agreement pending such assurance. In the event that such a demand is made and
such assurance is not given within a reasonable time, the party having made such
demand may treat that failure as an anticipatory repudiation of this Agreement
and exercise any appropriate remedy for repudiation.
20. Bankruptcy. If Customer makes an assignment for the benefit of creditors, or
admits in writing Its failure or inability to pay its debts as they become due,
or becomes the subject of an "order for relief' within the meaning of that
phrase in the U.S. Bankruptcy Code, or applies for or consents to the
appointment of a receiver for any of its property, Printer may terminate this
Agreement at any time, effective immediately upon notice. Such termination shall
not relieve either party from any obligations accrued under this Agreement up to
the date of notice of termination.
21. Waivers. No waiver by either party of any default by the other in the
performance of or compliance with any provision, condition or requirement in
this Agreement shall be deemed to be a waiver of, or in any manner release such
other party from compliance with any such provision. condition or requirement in
the future: nor shall any delay or omission of either party to exercise any
right under this Agreement or otherwise in law in any manner impair the exercise
of any such right thereafter.
22. Other Work. In the event that, at any time during the term of this
Agreement, Customer requests that Printer perform any work not related to the
publication(s) identified in Section 1 above, and Printer agrees to do so, all
rights and liabilities of Customer and Printer arising in connection with such
other work (as well as the rights and liabilities of the parties in connection
with Printer's work on the publication(s) Identified in Section 1 above) shall
be governed exclusively by the terms and conditions contained in this Agreement:
provided, however, that, with respect to such other work, the Specifications,
Price and Production Schedules to this Agreement shall be superseded by
specifications, scheduling terms, quantities and prices set forth in accepted
orders, to the extent that the same are inconsistent with such Schedules. No
additional or different terms contained in any of Customer's forms or other
correspondence shall be of any force or effect.
23. Entire Agreement. The attached Specifications Schedule and Price Schedule
and the Production Schedule either attached or established in accordance with
this Agreement form a part of this Agreement. This Agreement, together with such
Schedules, is intended by the parties as the final and exclusive expression of
their agreement, superseding all prior oral or written agreements,
understandings, negotiations, representations and correspondence between the
parties, on the subject of this Agreement. There are no conditions to this
Agreement not expressed in this Agreement.
24. Amendment. Except as provided in Sections 2 and 3, this Agreement, including
the Schedules made a part of this Agreement, may be amended or supplemented only
by a writing signed on behalf of both of the parties by their duly authorized
representatives. In the event that the Production Schedule is not attached,
mutual agreement to a Production Schedule shall be established only by a writing
so signed.
25. Assignment. Customer shall not assign any of its rights under this Agreement
without the prior written consent of Printer. Subject to any required consent,
this Agreement shall inure to the benefit of and shall bind the successors and
assigns of the parties to this Agreement.
26. Notices, Notice required or permitted by this Agreement shall be deemed
given only upon enclosure of such notice in an adequately post-paid envelope,
deposited in a U.S. Post Office. sent certified mail - return receipt requested,
and addressed to the party to be given notification at the address to which it
has previously notified the party giving notice that notices are to be sent or,
otherwise, to the address for the party receiving notice first set forth in this
Agreement.
27. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the state of Florida.
28. Quality. Performance and Termination. If Printer shall fail in any material
respect to perform the work, in accordance with the agreed upon standards or
schedules, except for (i) any failure caused by Customer's failure to meet any
of its obligations in the production schedule, or (ii) any failure caused by
Customer's original material, the Customer shall have the right to terminate
this Agreement pursuant and subject to the following provisions: Customer shall
give Printer written notice specifying in detail the failure or failures it
claims. If such failures occur in 3 or more issues within the same 12 month
period, Customer shall have the right to terminate this Agreement by giving
Printer written notice to that effect, in which case this Agreement will
terminate sixty (60) days thereafter. In the event of such termination, Customer
shall be obligated to make full payment to Printer for the work in process and
further work performed by the Printer under this Agreement. Upon request,
Printer shall deliver to Customer F.O.B. Printer's dock, all artwork, film,
paper and other property of the Customer then in possession of the Printer, upon
full payment of amount owed to Printer.
If the above terms are satisfactory, please sign two copies of this document and
return them. It will then be an offer, subject to acceptance by an authorized
agent of Printer at any time prior to 10 days after the date first above
written, Upon acceptance, Printer will return one fully executed copy of the
Agreement to Customer and this Agreement will be a binding contract between
Printer and Customer.
Respectfully submitted,
By________________________________________________________________________
Agreed to:
Banta Publication Group
(a Division of Banta Corporation)
("Printer")
By; /s/__________________
Title: President_____________
Date: 5-23-97_______________
<PAGE>
2
AMENDMENT TO AGREEMENT
DATED MAY 22, 1997
BETWEEN
BANTA PUBLICATIONS GROUP ("PRINTER")
AND
CORPORATE RELATIONS GROUP, INC. ("CUSTOMER")
APRIL 7, 1998
The Customer and Printer agree to amend the original Agreement dated May 22,
1097 in consideration of the mutual covenants contained herein. The parties
agree to the following changes to the Agreement
1) The term of the Agreement Is extended for one and a half additional
years, through December 31, 2000.
2) Upon execution of this Amendment, manufacturing prices shall be
adjusted effective, with the May, 1998 issue of Money World. Such
prices, shall remain firm through the extended term of the Agreement and
will not be adjusted as provided for under section 3A of the Agreement.
3) Upon acceptance of this Amendment, Printer will furnish Customer a
revised price schedule containing those prices used to prepare Estimate
3395-1, Including Printer's agreement to eliminate the charge for
digital proofs.
The Customer and Printer agree that all new existing work will be bound
by all other terms of the Agreement.
CUSTOMER'S ACCEPTANCE: PRINTER'S ACCEPTANCE:
CORPORATE RELATIONS GROUP, INC. BANTA PUBLICATIONS GROUP
1947 Lee Road 100 Banta Road
Winter Park, FL 32789 Long Prairie, MN 58347
By: Joseph Landis_/s/____________ By: ______/s/________________
Title: President___________________ Title: President_______________
Date: _____April 8, 1998_______________ Date: April 7, 1998____________
<PAGE>
Exhibit 10.8 Contract with BankVest Capital Group
<PAGE>
Exhibit 10.8 Contract with BankVest Capital Group
Banking On Small Business(R) BankVest__ CAPITAL CORP.
or subsidiary LeaseVest Capital Corp.
April 26, 1999
ALTAMONTE PRINTING
2649 PEMBERTON DRIVE
APOPKA, FL 32703 Lease Number: 66187-1
Dear Valued Customer:
We thank you for choosing BankVest Capital Corp. to service your leasing needs.
We are delighted to have you as a customer and our support staff stands ready to
provide any assistance you might require.
Payment Information
The following is information regarding your lease payments. Your next payment is
due on May 20, 1999. Subsequent payments will be due on the 20th of each month
thereafter. BankVest Capital Corp. may assess a late charge on any payments not
received within 10 days of their due date. You will receive an invoice under
separate cover so if you have already remitted this payment, kindly disregard
this notice.
When remitting a payment, please use the following address:
BankVest Capital Corp.
P.O. Box 641652
Pittsburgh, PA 15264-1652
If you need to provide copies of your insurance certificate or correspond with
us for any reason, please use the following address:
BankVest Capital Corp.
P.O. Box 9170
Marlboro, MA 01752
If you have any questions regarding your lease, insurance or any other matter
please do hot hesitate to call our customer support staff at (800) 497-9590.
Thank you again for choosing BankVest Capital Corp.
Very Truly Yours
BankVest Capital Corp.
<PAGE>
Invoice
Invoice #: 19599
Page No.: 1
Cust. No.: BV8080
Inv. Date: 04/19/99
Due Date: 04/29/99
Disc Date: 04/19/99
Bill To: Ship To:
BANKVEST CAPITAL CORP. ALTAMONTE PRINTING
200 NICKERSON ROAD 2649 PEMBERTON DR
MARLBORO, MA APOPKA, FL
1752-4603 32703
Telephone: 508/485-8080 Telephone:
- ----------------------------------------------------------------------------
Reference: PO# 1999-60455-1 P.O. No. :Terms :Ship Via :Slspr No.:
: :0 :EQUIP : 9 :
- --------------------------------------------------------------------------------
Qty Ordered :Qty. Ship :Item No. :Unit : :T
Extended
:Qty. Bkord :Description :Price: :X
Amount
- -------------------------------------------------------------------------------
1.00 1.00 (900-C)
0.00 BAUM 2020 FOLDER 37495.00 N
37495.00
<PAGE>
S/N J.30MC0043: 8 PG UNIT: 131MB0016.16 PG UNIT: 132MA0001
1.00- 1.00- (700)
0.00 TRADE: STAHL FOLDER 5000.00 N 5000.00-
1.00- 1.00- (700)
0.00 TRADE: B&H INSERTER 1945.00 N 1945.00-
1.00- 1.00- (700)
0.00 TRADE: RIGHT ANGLE 300.00N 300.00-
PAYMENT FOR EQUIPMENT IS DUE ON INSTALLATION. THANK YOU.
- ------------------------------------------------------------------------------
SHREVE PRESS SERVICE AND SALES SUBTOTAL: 30250.00 :
131 Candace Dr. SALES: 0.00 :
Maitland, FL. 32751 INVOICE TOTAL: 30250.00 :
PAYMENT: 0.00 :
407-531-1446 BALANCE: 30250.00 :
<PAGE>
Exhibit 10.9 Contract with Great America Leasing Corporation
<PAGE>
Ex 10.9 Contract with Great America Leasing Corporation
GALC100 1293
[GRAPHIC OMITTED][GRAPHIC OMITTED]
Lease Agreement
LEASING CORPORATION
LESSOR: Lease
No.: 76895
GreatAmerica Leasing Corporation
2750 First Avenue, NE o Cedar Rapids, Iowa 52402
[GRAPHIC OMITTED][GRAPHIC OMITTED]
<PAGE>
LESSOR: GreatAmerica Leasing Corporation
P.O. Box 609
Cedar Rapids, Iowa 32406-0609
GUARANTY
In consideration of the making of the Lease Agreement No. 76895 ("Lease") by
Lessor with Altamonte Printing, Inc. ("Lessee"), at the request of the
undersigned and in reliance on this guaranty, the undersigned (if more than one,
then jointly and severally) as a direct and primary obligation, guarantees to
Lessor and any assignee of Lessor (hereinafter "Holder") the prompt payment of
all rent to be paid by the Lessee and the performance by the Lessee of all the
terms, conditions, covenants and agreements of the Lease, irrespective of any
invalidity or enforceability thereof or the security therefore. For the purpose
of this Guaranty (hereinafter " Guaranty") and indemnity, all sums owing to
Lessor shall be deemed to have become immediately due and payable if (a) Lessee
defaults in any of its obligations; (b) Lessee files a petition under any
Chapter of the Bankruptcy Act; or (c) an attachment be levied or tax lien be
filed against any of Lessee's property. The undersigned promises to pay all of
Lessor's expenses, including attorneys' fees incurred by or in enforcing this
Guaranty, The undersigned waives notice of acceptance, presentment, demand,
protest, notice of protest or of any defaults and consents the Lessor may,
without affecting the obligation hereunder, grant the Lessee any extension or
indulgency under the Lease, and may proceed directly against the undersigned
without first proceeding against Lessee or liquidating or otherwise disposing of
any security afforded Holder under the Lease. Accounts settled or stated between
Holder and Lessee shall bind the undersigned.
This Guaranty shall be governed by and construed in accordance with the laws of
the State of Iowa. Guarantors hereby consent and submit to the jurisdiction of
the respective courts of the County of Linn and the State of Iowa for purposes
of enforcement of this Guaranty.
This Guaranty shall bind the respective heirs, administrators, representatives,
successors and assigns of the undersigned.
Dated: 11/25___, 1998 Guarantor: Stratcomm Media,Ltd.
By: Paul Serluco /s/_____________
Printed Name: Paul Serluco______
Title: CFO__________________
4. Title, GreatAmerica is the owner of and has title to the Equipment.
5. NET LEASE. YOU AGREE THAT YOU ARE UNCONDITIONALLY OBLIGATED TO PAY ALL
RENTAND OTHER AMOUNTS DUE FORTHE ENTIRE LEASE TERM NO MATTER WHAT HAPPENS
EVEN IF THE EQUIPMENT IS DAMAGED OR DESTROYED, IF IT IS DEFECTIVE OR IF YOU
NO LONGER CAN USE IT. YOU ARE NOT ENTITLED TO REDUCE OR SET-OFF AGAINST
RENT OR OTHER AMOUNTS DUE TO GREATAMERICA OR TO ANYONE TO WHOM GREATAMERICA
TRANSFERS THIS LEASE, WHETHER YOUR CLAIM ARISES OUT OF THIS LEASE ANY
STATEMENT BY THE EQUIPMENT VENDOR, OR ANY MANUFACTURER'S OR VENDOR'S
LIABILITY, STRICT LIABILITY OR NEGLIGENCE OR OTHERWISE. THIS LEASE IS A
"FINANCE LEASE' AS DEFINED IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE.
<PAGE>
6. DISCLAIMER OF WARRANTIES. THE EQUIPMENT IS BEING LEASED TO YOU IN AS-IS
CONDITION. NO SALESMAN OR AGENT OF VENDOR IS AUTHORIZED TO CHANGE ANY TERM
OF THIS LEASE OR TO MAKE ANY WARRANTIES OR REPRESENTATIONS, ORAL OR
OTHERWISE. YOU AGREE THAT GREATAMERICA DOES NOT MANUFACTURE THE EOUIPMENT
THAT REATAMERICA DOES NOT REPRESENT THE MANUFACTURER OR THE VENDOR, AND
THAT YOU HAVE SELECTED THE EQUIPMENT BASED UPON YOUR OWN JUDGMENT. YOU HAVE
NOT RELIED ON ANY STATEMENTS GREATAMERICA OR GREATAMERICA'S EMPLOYEES HAVE
MADE. GREATAMERICA HAS NOT MADE AND DOES NOT MAKE ANY REPRESENTATION OR
WARRANTY OF ANY KIND, DIRECT OR INDIRECT, EXPRESS OR IMPLIED, AS TO THE
SUITABILITY, DURABILITY, DESIGN, OPERATION OR CONDITION OF THE EQUIPMENT
ITS MERCHANTABILITY, FITNESS FOR USE FOR PARTICULAR PURPOSES OR OTHERWISE.
GREATAMERICA WILL NOT BE LIABLE TO YOU AND YOU WILL NOT MAKE ANY CLAIM
AGAINST GREATAMERICA FOR ANY LOSS, DAMAGE, OR EXPENSE OF ANY KINO CAUSED
DIRECTLY OR INDIRECTLY BY THE EQUIPMENT.
7. TERM, RENT AND SECURITY DEPOSIT. Payments are due monthly, beginning the
date Equipment is delivered to You, or any later date designated by
GreatAmenca and continuing on the same day of each following month until
fully paid. You authorize GreatAmenca to change the Rent by not more than
15% in the event of price changes, changed orders etc. GreatAmenca may
charge You a reasonable fee to cover documentation and investigation costs,
Security deposit is refundable to You when the Lease Agreement expires,
provided all Lease terms and conditions have been properly fulfilled by
You. Security deposits and rents may be comingled and do not earn interest.
8. USE AND MAINTENANCE. You agree that the Equipment will be used for business
purpose only. You will keep the Equipment in good repair, condition and
working order, ordinary wear and tear only excepted, and will furnish all
parts and servicing required. You may modify the Equipment only with the
prior written consent of GreatAmenca.
9. LOCATION, INSPECTION AND RETURN OF EUUIPMENT. You will not move the
Equipment from its location noted in this Lease Without the prior written
consent of GreatAmenca. GreatAmenca will have the right to enter the
premises where the Equipment is located, in order to confirm the existence,
condition and proper maintenance of the Equipment. At the expiration of the
Lease term or other termination, You will immediately return Equipment at
Your expense in as good condition as the Equipment was delivered to You,
except for ordinary wear and tear, to such place within the continental
U.S. as is designated by GreatAmenca. Should You fail to return the
Equipment at the end of the Lease term, renewal of the Lease will be
automatic, despite written notification from You to the contrary.
10. LOSS OR DAMAGE. You assume and bear the risk of loss or damage to the
Equipment. If the Equipment is lost or damaged, You agree to replace or
repair the Equipment and to continue to payment.
11. INSURANCE, You will keep the Equipment fully insured against loss, for not
less than the replacement cost of the Equipment, and will obtain a general
public liability insurance policy, covenng the Equipment and its use. You
will name GreatAmenca as an additional named Insured and any loss payee on
any such policy and will provide GreatAmenca with certificates or other
evidence of insurance acceptable to GreatAmerica, before this lease term
begins. In the event You fail to procure the insurance required,
GreatAmerica may obtain such insurance and pay the amounts due thereon. You
will reimburse GreatAmerica, upon demand, for the amount of such payment or
cost of such performance, plus interest. Any insurance proceeds received
with respect to the Equipment will be applied, at the option of
GreatAmerica, (i) to repair, restore or replace the Equipment, or (ii) to
pay to GreatAmerica the remaining balance of the Lease plus GreatAmerica's
estimated residual value, both discounted at 6% per year, whereupon this
Lease will terminate.
12. INDEMNITY. Great.America is not responsible for any losses or injuries
caused by the installation or use of the Equipment, and You agree to
indemnify GreatAmenca with respect to all claims for losses imposed on,
incurred by or asserted against GreatAmenca including attorneys' fees and
costs of defense, plus interest, where such claims in any way relate to the
Equipment. Furthermore, You agree, if requested by GreatAmerica, to defend
GreatAmenca against any claims for losses or injuries caused by the
Equipment.
13. TAXES. You agree to pay all taxes, fees and govemmental charges related to
this Lease or, at GreatAmerica's option, a monthly Personal Property Tax
Fee set by GreatAmenca. If GreatAmenca pays any of the above for You, You
agree to reimburse GreatAmerica on demand, plus interest.
14. DELINQUENT AMOUNTS AND ADVANCES. If any rent or additional amounts or other
sums required to be paid by You under this Lease are not paid when due,
such overdue amount will accrue interest, from the due date until paid, at
the lower of one and one-half percent (1.5%) per month or the highest rate
allowed by applicable law. In addition, You will pay GreatAmerica a late
charge" equal to the greater often (10) cents for each dollar overdue or
twenty-one dollars ($21.00), in order to defray part of the cost of
collection. This late charge will be due and payable with the next monthly
rental payment due. In the event that GreatAmerica has to make advance
payments of any kind to preserve the leased property, or to discharge any
tax, the amount advanced by GreatAmenca will be repayable by You to
GreatAmerica, together with interest until paid.
15. DEFAULT AND ADVANCES, Any of the following events or conditions will
constitute default hereunder: (a) You fail to pay any sum due GreatAmenca
within ten (10) days after the due date thereof; (b) You fail to observe or
perform any other term, covenant or condition of this Lease and such
failure continues for ten (10) days following receipt of written notice
from GreatAmerica; (c) the filing by or against You of a petition under the
Bankruptcy Code or under any other insolvency law providing for the relief
of debtors: (d) the voluntary or involuntary making of an assignment of a
substantial portion of its assets by You for the benefit of creditors,
appointment of a receiver or trustee for You or for Your assets,
commencement of any formal or informal proceeding for dissolution,
liquidation, settlement of claims against or winding up of your affairs, or
You cease doing business as a going concern: (e) any representation or
warranty made by You herein or in any document delivered by You in
connection here will prove to have been misleading in any material respect
when made: or (f) You are in default under any other contract with
GreatAmerica. Upon the occurrence of an event of default, GreatAmerica may,
at its option, require You (i) to pay as liquidated damages and not as a
penalty the present value, discounted at a rate of 6% per annum, of the
remaining balance of the Lease plus GreatAmenca's estimated residual value,
and (ii) regardless of whether such amounts are paid, to return the
Equipment. GreatAmenca may use any other remedies available to it under
applicable law, such as holding You liable for the difference between the
remaining unpaid rentals and the fair rental value of the Equipment. These
remedies will be applied, to the extent allowed bylaw, cumulatively. In
addition, You agree to pay GreatAmenca all costs and expenses, including
attorney's fees, incurred by GreatAmerica, In exercising or attempting to
exercise any of its rights or remedies, plus Interest at the highest lawful
rate on all amounts owing until paid. If this Lease is deemed to create a
security interest, remedies will include those available under Article 9 of
the UCC.
16. ASSIGNMENT AND PURCHASE ORDERS. YOU WILL NOT SUBLET, LEND, ASSIGN OR PLEDGE
THIS LEASE, THE EQUIPMENT, OR ANY INTEREST IN EITHER, OR PERMIT ANY LIEN OR
SECURITY INTEREST THEREON. You agree that all rights of GreatAmenca in the
Equipment and under this Lease may be assigned, pledged or otherwise
disposed of, without notice to You, but always subject to Your rights under
this Lease, Notwithstanding terms and conditions contained in any purchase
order relating to the Equipment, the terms and conditions of this Lease
will prevail.
<PAGE>
17. SEVERABILITY OF PROVISIONS. Any provision of this Lease which for any
reason may be held unenforceable in any jurisdiction will, as to that
jurisdiction, be ineffective to the extent of that unenforceability without
invalidating the remaining provisions of this Lease. Unenforceability in
any jurisdiction will not render unenforceable that provision in any other
jurisdiction.
18. OPTION TO PURCHASE AND RENEW. Provided You are not in default, GreatAmerica
grants to You the option to purchase all (not part) of the Equipment at the
expiration of the term of this Lease at the Purchase Option amount stated
on the front, AS IS WHERE IS, WITH NO EXPRESS OR IMPLIED WARRANTY. Renewal
of this Lease will be automatic, on a monthly basis, unless You deliver to
GreatAmerica written notice at least sixty (60) days prior to the
expiration of the term or the renewal term.
19. LESSEE WAIVERS. You waive notices of Great.America's intent to accelerate
the Rent, the acceleration of the Rent and Of the enforcement of
GreatAmerica's rights. GREATAMERICA AND YOU EACH AGREE TO WAIVE AND TO TAKE
ALL REQUIRED STEPS TO WAIVE ALL RIGHTS TO A JURY TRIAL. .To the extent You
are permitted by law, You waive all rights and remedies You have by Article
2A (Sections 508.522) of the Uniform Commercial Code, including but not
limited to your rights to: (I) cancel or repudiate the Lease: (ii) reject
or revoke acceptance of the Equipment: (iii) recover damages from
GreatAmerica for any breach of warranty or for any other reason; and (iv)
grant a security interest in any Equipment in your possession. To the
extent You are permitted to by law, You also waive any rights You now or
later may have under any statute or otherwise which require GreatAmenca to
sell, lease, or otherwise use any Equipment to reduce GreatAmerica's
damages or which may otherwise limit or modify any of GreatAmenca's rights
or remedies, Any action you take against GreatAmenca for any default,
including breach of warranty or indemnity, must be started within one (1)
year after the event which caused it. GreatAmerica will not be liable for
specific performance of this Lease or for any losses, damages, delay or
failure to deliver the Equipment. You authorize GreatAmerica to sign on
your behalf and file at any time any documents in connection with the UCC.
PROGRESSIVE OFFICE SYSTEMS
DATE INVOICE #
P.O. Box 522303
LONGWOOD, FL 32752 12/1/98 3331
407.327.6006 FAX 407.327.6005
BILL TO: SHIP TO:
GreatAmerica Leasing Corp. Altamonte Printing
2750 First Avenue, N.E., Suite 2649 Pemberton Drive
300 Apopka, FL 32703
Cedar Rapids, Iowa
P.O. NUMBER TERMS REP SHIP VIA F.O.B.
K.S. pon Receipt EP 12/1/98 UPS GRD
QUANTITY ITEM CODE DESCRIPTION PRICE EACH
AMOUNT
1 20K BRYCE 20K PRINTER S/N 16,950.00
16,950.00
08980087
1 c72n C72N CONVEYOR 0.00
0.00
1 az6 AccuZIP 6 Software 995.00
995.00
1 nip PSM 1412-IC4 Semi Automatic 2,495.00
2,495.00
Strapper S/N 70830302
1 Freight Freight 180.00
180.00
<PAGE>
Thank you! We Appreciate Your Patronage. TOTAL
$20,620.00
<PAGE>
PAST DUE INVOICES
Will accrue a FINANCE
CHARGE OF 11/2% MONTHLY
Exhibit 10.10 Lease Agreement with National Leasing
<PAGE>
FORM 104 REV 3/97
[GRAPHIC OMITTED][GRAPHIC OMITTED]
140 Route 17 North, Paramus. New Jersey 07652
(201) 845-0845o (800) NIA-3460o (201) 845-3046 (Fax)
April 29, 1998
Paul Serluco
Stratcomm Media USA Inc
1947 Lee Rd
Winter Park FL 32789
Dear Paul Serluco:
As per your request, enclosed please find the following lease
documents for the acquisition of your equipment:
x Lease Agreement Insurance Authorization
x Delivery & Acceptance UCC (s)
x Schedule A x Corporate Resolution
Personal Guaranty Exempt Certificate
X Purchase Agreement Highlights
Contemporaneous Letter
Please sign the enclosed documentation where indicated by red
"X", leaving all documentation undated, and without any changes. If you need
assistance, please call the salesperson.
X Lease Set - to be signed by Paul Serluco X Advance Payment
- please provide a business check,
drawn from the account verified on the credit
application, in the amount specified below. Make the
check Payable to: NIA National Leasing Inc. in the
amount - $663.44 which includes 1 advance payment(s) @
$497.40 + 41.04 (sales tax) and a $125.00 documentation
fee/filing fee.
X Please provide a copy of Signatory's Drivers License for
signature verification.
X Please provide your Federal ID Number for UCC Filing. X
Please provide us with a copy of your check payable to
Deskco in the amount of $3,000.00.
Prior to the start of any payments, we will perform a "verbal
audit" to verify that all the equipment has been received, installed and
operational. If the individual executing Lease is not going to be available to
do the verbal verification upon delivery of equipment, please insert Acceptors
name in space provided on Delivery & Acceptance form.
Please forward all documents to my attention via the enclosed
prepaid overnight envelope to avoid any delays and ensure a timely delivery of
your equipment.
Very truly yours,
NJA National Leasing, Inc.
/s/
Leasing Coordinator
<PAGE>
FflRM 11)4 RFV 3/97
- -------------------------------------------------------------------------------
LESSOR LEASE NUMBER
- -------------------------------------------------------------------------------
NIA National Leasing Inc.
140 Route 17 N
Paramus NJ 07652
- -------------------------------------------------------------------------------
FULL LEGAL NAME AND ADDRESS OF LESSEE SUPPLIER OF
EQUIPMENT (COMPLETE ADDRESS)
- ------------------------------------------------------------------------------
Stratcomm Media USA Inc Deskco Office Furniture
1947 Lee Rd 910 Route 110
Winter Park, FL 32789 Farmingdale, NY 11735
JOINTLY AND SEVERALLY RESPONSIBLE
- -------------------------------------------------------------------------------
QUANTITY DESCRIPTION, MODEL #, CATALOG #, SERIAL # OR OTHER IDENTIFICATION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
E
Q L
U E SEE EXHIBIT A ATTACHED HERETO AND MADE A PART HEREOF
I A
P S
M E
E D
N
T
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
EQUIPMENT
LOCATION IF STREET ADDRESS___1377 Long Island Motor Pkwy____________________
DIFFERENT CITY Islandia___ COUNTY ___ STATE NY___ ZIP 11788______
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT OF EACH PAYMENT MONTHLY TERM OF LEASE NO, OF SECURITY
TERMS (PLUS SALES TAX, IF OTHER/SPECIFY (NO. OF MONTHS) PAYMENTS DEPOSIT
APPLICABLE) 1 Advance
<S> <C> <C> <C> <C> <C>
1-$3,497.40 2-24-$1,670.00 24 24 0.00
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
FORM 104 REV 3/97
- -----------------------------------------------------------------------------
TERMS AND CONDITIONS OF LEASE
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1. LEASE. Lessee hereby leases from Lessor, and Lessor leases to Lessee, the
personal property described above, together with any replacement pans,
additions, repairs or accessories now or hereafter incorporated in or affixed to
it (hereinafter referred to as the "Equipment").
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- --------------------------------------------------------------------------
2. ACCEPTANCE OF EQUIPMENT. Lessee agrees to inspect the Equipment and to
execute an Acknowledgement and Acceptance of Equipment by Lessee provided by
Lessor, after the Equipment has been delivered and after Lessee is satisfied
that the Equipment is satisfactory in every respect. Lessee hereby authorizes
Lessor to insert in this Lease serial number or other identifying data with
respect to the Equipment.
- ------------------------------------------------------------------------------
- ----------------------------------------------------------------------------
3. DISCLAIMER OF WARRANTIES AND CLAIMS; LIMITATION OF REMEDIES. THERE ARE NO
WARRANTIES BY OR ON BEHALF OF LESSOR. Lessee acknowledges and agrees by his
signature below as follows: (a) LESSOR MAKES NO WARRANTIES EITHER EXPRESS OR
IMPLIED AS TO THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY, ITS FITNESS
OR
SUITABILITY FOR ANY PARTICULAR PURPOSE, ITS DESIGN, ITS CAPACITY, ITS
QUALITY, OR WITH RESPECT TO ANY CHARACTERISTICS OF THE EQUIPMENT;
(b) Lessee has fully inspected the Equipment which it has requested Lessor
to acquire and lease to Lessee, and the Equipment is in good condition
and to Lessee's complete satisfaction.
(c) Lessee leases the Equipment "as is" and with all faults:
(d) Lessee specifically acknowledges that the Equipment is leased to Lessee
solely for commercial or business purposes and not for personal,
family, household, or agricultural uses.
(e) If the Equipment is not properly installed, does not operate as
represented or warranted by the supplier or manufacturer, or is
unsatisfactory for any reason, regardless of cause or consequence,
Lessee's only remedy, if any, shall be against the supplier or
manufacturer of the Equipment and not against Lessor:
(f) Provided Lessee is not in default under this Lease, Lessor assigns to
Lessee any warranties made by the supplier or the manufacturer of the
Equipment:
(g) LESSEE SHALL HAVE NO REMEDY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES
AGAINST LESSOR: and
(h) NO DEFECT, DAMAGE, OR UNFITNESS OF THE EQUIPMENT FOR ANY PURPOSE SHALL
RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR RELIEVE LESSEE OF ANY
OTHER OBLIGATION UNDER THIS LEASE.
The parties have specifically negotiated and agreed to the foregoing paragraph
- ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4. STATUTORY FINANCE LEASE. Lessee agrees and acknowledges that it is the intent
of both parties to this Lease that it qualify as a statutory finance lease under
Article 2A of the Uniform Commercial Code. Lessee acknowledges and agrees that
Lessee has selected both: (1) the Equipment; and (2) the supplier from whom
Lessor is to purchase the Equipment. Lessee acknowledges that Lessor has not
participated in any way in Lessee's selection of the Equipment or of the
supplier, and Lessor has not selected, manufactured, or supplied the Equipment.
LESSEE IS ADVISED THAT IT MAY HAVE RIGHTS UNDER THE CONTRACT EVIDENCING THE
LESSOR'S PURCHASE OF THE EQUIPMENT FROM THE SUPPLIER CHOSEN BY LESSEE AND THAT
LESSEE SHOULD CONTACT THE SUPPLIER OF THE EQUIPMENT FOR A DESCRIPTION OF ANY
SUCH RIGHTS. 5. ASSIGNMENT BY LESSEE PROHIBITED. WITHOUT LESSOR'S PRIOR WRITTEN
CONSENT, LESSEE SHALL NOT ASSIGN THIS LEASE OR SUBLEASE THE EQUIPMENT OR ANY
INTEREST THEREIN. OR PLEDGE OR TRANSFER THIS LEASE, OR OTHERWISE DISPOSE OF THE
EQUIPMENT COVERED HEP.EBY. 6. COMMENCEMENT; RENTAL PAYMENTS; INTERIM RENTALS.
This Lease shall commence upon the written acceptance hereof by Lessor and shall
end upon full performance and observance by Lessee of each and every term,
condition and covenant set forth in this Lease, any Schedules hereto and any
extensions hereof. Rental payments shall be in the amounts and frequency as set
forth on the face of this Lease or any Schedules hereto. In addition to regular
rentals, Lessee shall pay to Lessor interim rent for the use of the Equipment
prior to the due data of the first payment. Interim rent shall be in an amount
equal to 1/30th of the monthly rental, multiplied by the number of days elapsing
between the date on which the Equipment is accepted by Lessee and the
commencement date of this Lease, together with the number of days elapsing
between commencement of the Lease and the due date of the first payment. The
payment of interim rent shall be due and payable upon Lessee's receipt of
invoice from Lessor. The rental period under the Lease shall terminate following
the last day of the terms stated on the face hereof or in any Schedule hereto
unless Such Lease or Schedule has been extended or otherwise modified. Lessor
shall have no obligation under this Lease if the Equipment, for whatever reason,
is not delivered to Lessee within ninety (90) days after Lessee signs this
Lease. Lessor shall have no obligation to Lessee under this Lease. Lessee will
execute and deliver to Lessor an Acknowledgement and Acceptance of Equipment by
Lessee acknowledging its acceptance of the Equipment within thirty (30) days
after it is delivered to Lessee with respect to the Lease or any Schedule
hereto. THIS LEASE IS NOT CANCELABLE OR TERMINABLE BY LESSEE. SEE REVERSE SIDE
FOR ADDITIQNAL TERMS AND CONDITIONS WHICH ARE A PART OF THIS LEASE. LESSEE
UNDERSTANDS AND ACKNOWLEDGES THAT NO BROKER OR SUPPLIER, NOR ANY SALESMAN,
BROKER. OR AGENT OF ANY BROKER OR SUPPLIER, IS AN AGENT OF LESSOR. NO BROKER OR
SUPPLIER NOR ANY SALESMAN. BROKER. OR AGENT OF ANY BROKER OR SUPPLIER. IS
AUTHORIZED TO WAIVE OR ALTER ANY TERM OR CONDITION OF THIS LEASE, AND NO
REPRESENTATION AS TO THE EQUIPMENT OR ANY OTHER MATTER BY THE BROKER OR
SUPPLIER. NOR ANY SALESMAN, BROKER, OR AGENT OF ANY BROKER OR SUPPLIER. SHALL IN
ANY WAY AFFECT LESSEE'S DUTY TO PAY THE RENTALS AND TO PERFORM LESSEE'S
OBLIGATIONS SET FORTH IN THIS LEASE.
7. CHOICE OF LAW. This Lease shall not be effective until signed by Lessor at
its principal office listed above. This Lease shall be considered to have been
made in the slate of Lessor's principal place of business listed above and shall
be interpreted in accordance with the laws and regulations of the stale of
Lessors principal place of business.
Lessee agrees to jurisdiction in the state of Lessor's principal place of
business listed above in any action, suit or proceeding regarding this Lease,
and concedes that it, and each of them, transacted business in the state of
Lessor's principal place of business listed above by entering into this Lease.
In the event of any legal action with regard to this lease or the equipment
covered hereby. Lessee agrees that venue may be laid In the County of Lessor's
principal place of business.
LESSEE: LESSOR:
Stratcomm Media USA Inc NIA National Leasing Inc.
X Paul Serluco /s/____________ DATE _____________ DATE
- ----------
Paul Serluco, CFO DATE
4/29/98 Steven C Schachtel, President
- ----------------------------------------------------------------------
<PAGE>
8. SECURITY DEPOSIT. As security for the prompt and lull payment of
the amounts due under this Lease, and Lessees complete performance of
all of its obligations under this Lease, and any extension or renewal
hereof, Lessee has deposited with Lessor the security amount set
forth in the section shown as Security Deposit. In the event any
default shall be made In the performance of any of Lessees
obligations under this Lease, Lessor shall have the right, but shall
not be obligated, to apply the security deposit to the curing of such
default. Within 15 days after Lessor mails notice to Lessee that
Lessor has applied any portion of the security deposit to the curing
of any default. Lessee shall restore said security deposit to the
full amount set forth above. On the expiration or earlier termination
or cancellation of this Lease, or any extension or renewal hereof,
provided Lessee has paid all of the rent called for and fully
performed all other provisions of this Lease, Lessor will return to
the Lessee any then remaining balance of said security deposit,
without interest. Said security deposit may be commingled with
Lessors other funds.
9. LIMITED PREARRANGED AMENDMENTS; SPECIFIC POWER OF ATTORNEY. In the event
it is necessary to amend the terms of this Lease to reflect a change in one
or more of the following conditions: (a) Lessor's actual cost of procuring
the Equipment, or (b) Lessor's actual cost of providing the Equipment to
Lessee, or (c) A change in rental payments as a result of (1) or (2), above,
or (d) Description of the Equipment;
Lessee agrees that any such amendment shall be described in a letter
from Lessor to Lessee, and unless within 15 days after the date of
such letter Lessee objects in writing to Lessor, this Lease shall be
deemed amended and such amendments shall be incorporated in this
Lease herein as if originally set forth.
Lessee grants to Lessor a specific power of attorney for Lessor to use as
follows: (1) Lessor may sign and file on Lessee's behalf any document Lessor
deems necessary to perfect or protect Lessor's interest in the Equipment or
pursuant to the Uniform Commercial Code; and (2) Lessor may sign, endorse or
negotiate for Lessor's benefit any instrument representing proceeds from any
policy of Insurance covering the Equipment. 10. LOCATION. The Equipment shall be
kept at the location specified above or, if none is specified, at Lessee's
address as set forth above and shall not be removed without Lessor's prior
written consent. 11. USE. Lessee shall use the Equipment In a careful manner,
make all necessary repairs at Lessee's expense, shall comply with all laws
relating to its possession, use, or maintenance, and shall not make any
alterations, additions, or improvements to the Equipment without Lessor's prior
written consent. All additions, repairs or improvements made to the Equipment
shall belong to Lessor. 12. OWNERSHIP; PERSONALTY. The Equipment is, and shall
remain, the property of Lessor, and Lessee shall have no right, title, or
interest in the Equipment except as expressly set forth in this Lease. Th.
Equipment shall remain personal property even though installed in or attached to
real property. 13. SURRENDER. By this Lease, Lessee acquires no ownership rights
in the Equipment, and has no option to purchase same. Upon the expiration, or
earlier termination or cancellation of this Lease, or in the event of a default
under Paragraph 21, hereof, Lessee, at its expense, shall return the Equipment
In good repair, ordinary wear and tear resulting from proper use thereof alone
excepted, by delivering it. packed and ready for shipment, to such place or
carrier as Lessor may specify. 14. RENEWAL. At the expiration of the Lease,
Lessee shall return the Equipment in accordance with Paragraph 13, hereof. At
Lessor's option, this Lease may be continued on a month-to-month basis until 30
days alter Lessee returns the Equipment to Lessor. In the event the Lease is so
continued, Lessee shall pay to Lessor rentals in the same periodic amounts
indicated under `Amount of Each Payment,' above.
<PAGE>
15. LOSS AND DAMAGE. Lessee
shall at all times after signing this Lease bear the entire risk of loss, theft,
damage or destruction of the Equipment from any cause whatsoever, and no loss,
theft, damage or destruction of the Equipment shall relieve Lessee of the
obligation to pay rent or to comply with any other obligation under this Lease.
In the event of damage to any part of the Equipment. Lessee shall immediately
place the same in good repair at Lessee's expense. If Lessor determines that any
part of the Equipment is lost, stolen, destroyed, or damaged beyond repair,
Lessee shall, at Lessee's option. do one of the following:
(a) Replace the same with like equipment in good repair, acceptable to
Lessor or
(b) Pay Lessor in cash the following: (i) all amounts due by Lessee to
Lessor under this Lease up to the date of the loss; (ii) the accelerated balance
of the total amounts due for the remaining term of this Lease attributable to
said item, discounted to present value at a discount rate of 9% as of the date
of loss; and; (iii) the Lessor's estimate as of the time this Lease was entered
into of Lessor's residual interest in the Equipment discounted to present value
at a discount rate of 9%, as of the date of toss. Upon Lessor's receipt of
payment as set forth above, Lessee shall be entitled to title to the Equipment
without any warranties. If insurance proceeds are used to fully comply with this
subparagraph, the balance of any such proceeds shall go to Lessee to compensate
for loss of use of the Equipment for the remaining term of the Lease. 16.
INSURANCE; LIENS; TAXES. Lessee shall provide and maintain insurance against
loss, theft, damage, or destruction of the Equipment In an amount not less than
the full replacement value of the Equipment, with toss payable to Lessor. Lessee
also shall provide and maintain comprehensive general all-risk liability
insurance including but not limited to product liability coverage, insuring
Lessor and Lessee, with a severability of interest endorsement, or its
equivalent, against any and all loss or liability for all damages, either to
persons or property or otherwise, which might result from or happen in
connection with the condition, use, or operation of the Equipment, with such
limits and with an insurer satisfactory to Lessor. Each policy shall expressly
provide that said insurance as to Lessor and its assigns shall not be
Invalidated by any act, omission, or neglect of Lessee and cannot be cancelled
without 30 days' prior written notice to Lessor. As to each policy Lessee shall
furnish to Lessor a certificate of Insurance from the insurer, which certificate
shall evidence the Insurance coverage required by this paragraph. Lessor shall
have no obligation to ascertain the existence of or provide any insurance
coverage for the Equipment or for Lessee's benefit. If Lessee fails to provide
such Insurance, Lessor will have the right, but no obligation, to have such
Insurance protecting Lessor pieced at Lessee's expense. Such1 placement will
result in an increase in Lessee's periodic payments, such increase being
attributed to Lessor's costs of obtaining such Insurance and any customary
charges or fees of Lessor's or its designee associated with such Insurance.
Lessee shall keep the Equipment free and clear of all levies, liens, and
encumbrances. Lessee shall pay all charges and taxes (local, state, and federal)
which may now or hereafter be Imposed upon the ownership, leasing, rental, sale,
purchase, possession, or use of the Equipment, excluding, however, all taxes on
or measured by Lessor's net Income. If Lessee falls to pay said charges or
taxes, Lessor shall have the right, but shall not be obligated, to pay such
charges or taxes. In that event, Lessor shall notify Lessee of such payment and
Lessee shall repay to Lessor the cost thereof within 15 days after such notice
is mailed to Lessee. 17. INDEMNITY, Lessee shall indemnify Lessor against any
claims, actions, damages, or liabilities, including alt attorney fees, arising
out of or connected with Equipment, without limitation. Such indemnification
shall survive the expiration, cancellation, or termination of this Lease. Lessee
waives any immunity Lessee may have under any industrial insurance act, with
regard to indemnification of Lessor. 18. ASSIGNMENT BY LESSOR. Any assignee of
Lessor shall have all of the rights but none of the obligations of Lessor under
this Lease. Lessee shall recognize and hereby consents to any assignment of this
Lease by Lessor, and shall not assert against the assignee any defense,
counterclaim. or setoff that Lessee may have against Lessor. Subject to the
foregoing, this Lease inures to the benefit of and is binding upon the heirs,
devisees, personal representatives, survivors, successors in interest, and
assigns of the parties hereto. 19. SERVICE CHARGES; INTEREST. If Lessee shall
fall to make any payment required by this Lease within 10 days of the due date
thereof, Lessee shell pay to Lessor a service charge of 8% of the amount due;
provided, however, that not more than one such service charge shall be made on
any delinquent payment, regardless of the length of the delinquency. In addition
to the foregoing service charge, Lessee shall pay to Lessor a $100 default tee
with respect to any payment which becomes thirty (30) days past due. In
addition, Lessee shall pay to Lessor any actual additional expenses incurred by
Lessor in collection efforts, including but not limited to long-distance
telephone charges and travel expenses. Lessee shall pay to Lessor interest on
any delinquent payment or amount due under this Lease from the due date thereof
until paid, at the lesser of the maximum rate of interest allowed by law or 18%
per annum. 20. TIME OF ESSENCE. Time Is of the essence of this Lease, and this
provision shall not be impliedly waived by the acceptance on occasion of late or
detective performance. 21. DEFAULT. Lessee shall be in default If: (a) Lessee
shall fail to make any payment due under the terms of this Lease for a
period of 10 days from the due date thereof; or (b) Lessee shall
fail to observe, keep, or perform any provision of this
Lease, and such failure shall continue for a period of 10 days; or (c)
Lessee has made any misleading or false statement in connection with
application for or performance of this Lease; or (d) The Equipment or any
part thereof shall be subject to any lien, levy, seizure, assignment,
transfer, bulk transfer,
encumbrance, application, attachment, execution, sublease, or sale
without prior written consent of Lessor, or if Lessee shall abandon the
Equipment or permit any other entity or person to use the Equipment
without the prior written consent of Lessor; or
(e) Lessee dies or ceases to exist; or
(f) Lessee defaults on any other agreement it has with Lessor or (g) Any
guarantor of this Lease defaults on any obligation to Lessor or any
of the above listed events of default occur with respect to any
guarantor or any such guarantor files or has filed against it a
petition under the bankruptcy laws.
22. REMEDIES. If Lessee is in default, Lessor, with or without notice to Lessee,
shall have the right to exercise any one or more of the following remedies,
concurrenty or separately, and without any election of remedies being deemed to
have been made:
(a)Lessor may enter upon Lessee's premises and without any court order or
other process of law may repossess and remove the Equipment, or render the
Equipment unusable without removal, either with or without notice to Lessee.
Lessee hereby waives any trespass or right of action by damages by reason of
such entry, removal, or disabling. Any such repossession shall not constitute a
termination of this Lease unless Lessor so notifies Lessee in writing;
(b)Lessor may require Lessee, at its expense, to return the Equipment in
good repair, ordinary wear and tear resulting from proper use thereof alone
excepted, by delivering it, packed and ready for shipment, to such place or
carrier as Lessor may specify,
(c)Lessor may cancel or terminate this Lease and may retain any and all
prior payments paid by Lessee; (d)Lessor may declare all sums due and to
become due under this Lease
immediately due arid payable, including as to any or all items of Equipment,
without notice or demand to Lessee;
(e)Lessor may re- lease the Equipment, without notice to Lessee, to any
third party, upon such terms and conditions as Lessor alone, shall determine, or
may sell the Equipment, without notice to Lessee, at private or public sale, at
which sale Lessor may be the purchaser,
(f)Lessor may. sue f or and recover from Lessee the sum of alt unpaid rents
and other payments due Under this Lease then accrued, all accelerated future
payments due under this Lease, discounted to their present value at a discount
rate of 90/, as of the dale of default, plus Lessor's estimate at the time this
Lease was entered into of Lessor's residual interest in the Equipment, reduced
to present value at a discount rate of 9% as of the date of default. less the
net proceeds of disposition, if any, of the Equipment;
(g)To pursue any other remedy available at law, by statute or in equity. No
right or remedy herein conferred upon or reserved to Lessor is
exclusive of any other right or remedy herein. or by law or by equity
provided or permitted, but each shall be cumulative of every Other
right or remedy given herein or now or hereafter existing by law or
equity or by statute or otherwise, and may be enforced concurrently
therewith or from time to time. No single or partial exercise by
Lessor of any right or remedy hereunder shall preclude any other or
further exercise of any other right or remedy.
23. MULTIPLE LESSEES. Lessor may, with the consent of any one of the Lessees
hereunder, modify, extend, or change any of the terms hereof without consent or
knowledge of the others, without in any way releasing, waiving, or impairing any
right granted to Lessor against the others. Lessees and each of them are jointly
and severally responsible and liable to Lessor under this Lease. 24. EXPENSE OF
ENFORCEMENT. In the event of any legal action with respect to this Lease, the
prevailing party in any such action shall be entitled to reasonable attorney
fees, including attorney lees incurred at the trial level, including action in
bankruptcy court, on appeal or review, or incurred without action. suits, or
proceedings, together with all costs and expenses incurred in pursuit thereof,
25. ENTIRE AGREEMENT; NO ORAL MODIFICATIONS; NO WAIVER. This instrument
constitutes the entire agreement between Lessor and Lessee. No provision of this
Lease shall be modified or rescinded unless in writing signed by a
representative of Lessor. Waiver by Lessor of any provision hereof in one
Instance shall not constitute a waiver as to any other instance. 26.
SEVERABILITY. This Lease is intended to constitute a valid and enforceable legal
Instrument, and no provision of this Lease that may be deemed unenforceable
shall in any way invalidate any other provision or provisions hereof, all of
which shell remain in full force and effect.
<PAGE>
LESSOR: NIA National Leasing Inc
LESSEE: Stratcomm Media USA Inc
LEASE NUMBER:
DATE OF LEASE: 4/29/98
EQUIPMENT:SEE EXHIBIT A ATTACHED HERETO AND MADE A PART HEREOF
ACKNOWLEDGMENT AND ACCEPTANCE
OF EQUIPMENT BY LESSEE
Lessee hereby acknowledges that the Equipment described above has
been received in good condition and repair, has been properly
installed, tested, and inspected, and is operating satisfactorily in
all respects for all of intended uses and purposes. Lessee hereby
accepts unconditionally and irrevocably the Equipment.
By signature below Lessee specifically authorizes and requests Lessor
to make payment to the supplier of the Equipment. Lessee agrees that
said Equipment has not been delivered, installed, or accepted on a
trial basis.
WITH THE DELIVERY OF THIS DOCUMENT TO LESSOR, LESSEE ACKNOWLEDGES AND
AGREES THAT LESSEE'S OBLIGATIONS TO LESSOR BECOME ABSOLUTE AND
IRREVOCABLE AND LESSEE SHALL BE FOREVER ESTOPPED FROM DENYING THE
TRUTHFULNESS OF THE REPRESENTATIONS MADE IN THIS DOCUMENT.
<PAGE>
LESSEE Stratcomm Media USA Inc
DATE: ______________________________ BY: X Paul Serluco /s/___________
Paul Serluco, CFO
I HEREBY AUTHORIZE
-------------------------------
TO ORALLY VERIFY MY/OUR ACCEPTANCE
OF THE ABOVE REFERENCED EQUIPMENT IN
MY ABSENCE
IMPORTANT: THIS DOCUMENT HAS LEGAL AND FINANCIAL
CONSEQUENCES TO YOU. DO NOT SIGN THIS DOCUMENT
UNTIL YOU HAVE ACTUALLY RECEIVED ALL OF THE
EQUIPMENT AND ARE COMPLETELY SATISFIED WITH IT.
PURCHASE AGREEMENT
The Lease Agreement ("Lease") dated 4/29/98_________________________
between NIA National Leasing Inc "Lessor", and Stratcomm Media USA
Inc ("Lessee"), is hereby supplemented and amended to include therein
the following: Lessor agrees to sell and Lessee agrees to purchase,
effective as of the expiration of the term of this Lease, all, but
not less than all, of the equipment described in the Lease for a
purchase price of
$ 1.00_______________ plus applicable sales and/or other taxes.
The purchase price shall be paid in cash to the Lessor not less than
30 days prior to the expiration of the Lease.
The Lessor will execute and deliver to the Lessee a Bill of Sale
describing the Equipment purchased pursuant to this Purchase
Agreement. The Bill of Sale shall be without recourse to the Lessor.
The Equipment is sold "as is, where is and with all faults." Except
as provided in the Lease, Lessor makes no representations or
warranties, express or implied, with respect to the Equipment.
Dated 4/29/98___________
<PAGE>
NIA National Leasing Inc
By:_____________________
Steven C Schachtel President
Title: President__________
Stratcomm Media USA Inc
By:__Paul Serluco /s/____
Paul Serluco
Title: CFO___________
<PAGE>
EXHIBIT "A"
Quantity Description_________________________________________
15 Blk Bases 30x60 Desk
2 Green Side Chairs
1 48X192 Oval Conf Table
18 Leather Exec Chairs
1 AV Cart
1 Credenza Shell w/bullnose
2 Laminate Storage cabinets
15 Green Swivel Chairs
15-14 53x62 Panels Galaxt Bermuda
18-19 53x31 Panels Galaxy Bermuda
6 2 way connectors
12 3 way connectors
18 End of Run
1 Reception Desk- left return
1 Hunter green Sec Chair
1 Black Leather Sofa
1 Black Leather club chair
1 End table blk
1 Sofa table 14Dx48Wx36H
1 Mohag Bow Front desk
1 Leather Exec chairs
2 Fabric side chairs
1 Bow Front desk- Mohogany
1 Exec chair
1 72x21 credenza
1 Leather Sofa blk
1 Leather club chair blk
1 Round End Table
1 Desk 36x72
1 Right Return
1 Green Sec Chair
LESSEE:Stratcomm Media USA Inc
<PAGE>
BY: x Paul Serluco /s/______________________________________________
Paul Serluco, CFO
LESSOR:NIA National Leasing Inc
BY: ___________________________
Steven C Schachtel , PRESIDENT
CORPORATE LEASING
RESOLUTION
STATE OF FL
COUNTY OF
I, __________________________________________________________, do hereby
certify that I am the duly elected and qualified secretary of Stratcomm Media
USA Inc, a FL Corporation; that the following is a true and correct copy of
resolutions duly adopted by the Board of Directors of said corporation at a
meeting of said Board of Directors convened and held in accordance with the
Bylaws of said Corporation on this day of 4/29/9 8 and that said resolutions are
now in full force and effect:
RESOLVED; That Paul Serluco______________________________ as
CFO____________________________________ of this Corporation be, and
he/she hereby is, authorized and directed to negotiate, execute
and deliver on behalf of the Corporation a lease agreement with NIA
National Leasing Inc whereby this Corporation will lease:
(SEE EXHIBIT A ATTACHED HERETO AND MADE A PART HEREOF)
on terms and conditions which will be determined by said
officers to be advisable and in the best interests of this
corporation, and the execution of such lease agreement by said
officers shall be conclusive evidence of their approval thereof.
Said above-mentioned parties are further authorized and empowered to deliver and
pledge as collateral security for the payment of any such leases, such assets
of the corporation as may be required and agreed upon between the
above-referred to officers as NIA National Leasing Inc may require.
"BE IT FURTHER RESOLVED: That the secretary be and he/she hereby is authorized
to furnish to NIA National Leasing Inc a certified copy of these resolutions."
<PAGE>
IN WITNESS WHEREOF I have signed my name as Secretary of said Corporation and
have caused the corporate seal of said Corporation to be hereunto affixed this
day of 4/29/98.
Dorothy Reisch /s/__________________________________________________
Secretary
Corporate Seal
<PAGE>
Exhibit 10.11 Lease Agreement with Credential Leasing
<PAGE>
[GRAPHIC OMITTED]
This sales agreement is entered into between Southcomm, Inc. with its principal
office at 401 Commerce Way, Suite 101, Longwood, FL 32750, and
Name of Firm Corporate Relations Customer No.
Address 1947 Lee Road Winter Park Orange FL 32789
hereinafter called "CUSTOMER."
In consideration of the mutual agreements herein contained, Southcomm, Inc.
agrees to sell to CUSTOMER and CUSTOMER agrees to buy from Southcomm, Inc., a
Communications System in accordance with the following terms and conditions:
1. Southcomm, Inc. SHALL provide equipment described in Schedule 11 attached
hereto and made a part hereof.
2. Southcomm, Inc. Shall install the equipment at 1377 Long island Motor Pkwy,
Islandia, NY 11788
- ------------------------------------------------------------------------------
City/Township/Borough Islandia County State NY
- ------------------------------------------------------------------------------
RATE OF SALES TAX BY: City/Township/Borough % County % State 8.25 %
IF Customer is exempt from tax, insert tax exemption number and attach tax
exemption certificate: #
3. Southcomm, Inc. SHALL furnish all the necessary cable, wire, hardware, etc.,
including labor, for installation of the system (except the cost of concealing
wires, furnishing or installing rigid or flexible conduit. wiremold, plenum
cable (fire resistant) or the extra cost attributable to having to have the
installation made by someone other than Southcomm, lnc's regular installation
department), CUSTOMER agrees to obtain consent from his Landlord or the Building
Owner to install the equipment and to assist Southcomm, Inc, in obtaining any
other necessary approvals and permits. Southcomm, Inc. shall perform the
installation in a neat and workmanlike manner, but CUSTOMER understands and
agrees that the installation of the system sold hereunder may necessarily and
unavoidably result in damage to the CUSTOMER's premises. CUSTOMER agrees that
Southcomm, Inc. and its agents and employees will not be responsible for the
repair of any damage to CUSTOMER's premises resulting from the installation of
this system not resulting from Southcomm, Inc.'s negligence. If the equipment
sold hereunder is not installed within six months through no fault of Southcomm,
Inc., Southcomm, Inc. may, at its option, cancel this contract. In the event of
cancellation of the contract to Southcomm, Inc. as set forth above, or
cancellation by CUSTOMER prior to the beginning of installation for any reason
other than default by Southcomm, Inc., Southcomm, Inc. shall be entitled to
collect from CUSTOMER and CUSTOMER agrees to pay Southcomm, Inc. as fixed,
settled and liquidated damages and not as a penalty. Customer's down payment up
to a maximum of 10% of the cash selling price of the system.
4. CUSTOMER agrees that upon the Expiration of the one (1) year warranty period,
all maintenance of the system required during the balance of the term of this
Agreement will be provided only by Southcomm, Inc. and CUSTOMER agrees to pay
Southcomm, Inc. for said maintenance on a time and material basis at Southcomm.
Inc.'s then current rates. If this Agreement is accompanied by a Maintenance
Agreement the warranty as set forth in paragraph 11 on the reverse side hereof
shall apply and the Maintenance Agreement shall become effective in accordance
with its terms.
5. Southcomm, Inc. SHALL NOT be responsible for loss of or damage to equipment
installed pursuant to this Agreement for any reason whatsoever. Risk of loss
shall pass to CUSTOMER as soon as the equipment is delivered by Southcomm, Inc.
to CUSTOMER, so long as any financing hereunder remains outstanding. CUSTOMER
shall insure the equipment against fire, theft, and other perils for its full
insurable value, naming CUSTOMER and Southcomm, Inc., or its assignees, as
insureds and shall have a Certificate of Insurance with a ton day notice of
cancellation clause sent to Southcomm, Inc.
6. CUSTOMER agrees to pay Southcomm, Inc. as follows:
CASH PRICE
Total Cash Price .......................$ 21,976.00
Sales Tax ..............................$ 1,813.02
Total Contract ..........................$ 23,789.02
TO BE PAID AS FOLLOWS:
Down payment .......................$
At Cutover .........................$ 3rd party lease
Net Balance Due 10 Days after
Receipt of Invoice ..............$
7. THE CONDITIONS OF SALE IN SCHEDULE 1 ON THE REVERSE SIDE OF THIS AGREEMENT IN
SCHEDULE 2 AND IN THE SCHEDULES LISTED BELOW WHICH ARE ATTACHED ARE AN INTEGRAL
PART OF THIS SALES AGREEMENT , ,
, .
B. -CUSTOMER, HAVING CAREFULLY READ ALL PROVISIONS OF THIS AGREEMENT,
ACKNOWLEDGES RECEIPT OF AS COPY OF THIS AGREEMENT WHICH IS THE FINAL EXPRESSION
OF THE AGREEMENT OF THE PARTIES, AND THE COMPLETE AND EXCLUSIVE STATEMENT OF THE
TERMS AGREED UPON, ALL PRIOR AGREEMENTS AND UNDERSTANDINGS BEING MERGED HEREIN,
AND THAT THERE ARE NO REPRESENTATIONS, WARRANTIES OR STIPULATIONS, EITHER ORAL
OR WRITTEN NOT HEREIN CONTAINED. NO MODIFICATION OF THIS AGREEMENT MAY BE MADE
EXCEPT BY A LIKE SIGNED AGREEMENT. THIS AGREEMENT SHALL NOT BE BINDING UPON
Southcomm, Inc. UNTIL ACCEPTED BY AN AUTHORIZED OFFICER OF SOUTHCOK INC. AT ITS
HOME OFFICE IN LONGWOOD, FLORIDA.
IN WITNESS WHEREOF, the patties hereto haw caused this Agreement to be properly
executed intending that it shall be legally binding upon them and their
respective successors and assigns.
Date of contract 4/15/98
Customer Corporate Relations Group, Inc. Southcomm, Inc
By
Title Accepted by
Branch Name and No. Block No. Sales Rep.
<PAGE>
PAGE 2
Southcomm, Inc SCHEDULE II
This Schedule II of Sales Agreements is made and entered into between Southcomm,
Inc. with its principal office in Longwood, Florida, hereinafter called
"Southcomm, Inc." and Corporate Relations Group, Inc. , hereinafter called
"CUSTOMER."
A. GENERAL
A.1 This Schedule II describes the equipment and the materials to be
provided by Southcomm, Inc. to the CUSTOMER under this
Sales Agreement and further defines obligations and requirements
accepted by Southcomm, Inc. and the CUSTOMER as a part of this
Agreement.
A.2 Notwithstanding any other statements made or implied herein, the
CUSTOMER accepts and acknowledges his responsibility for coordinating
the effort of building trades, employees, and other activities on his
premises to insure that Southcomm, Inc. may deliver, safely store,
install, test and repair the equipment described herein without delay
or hindrance.
A.3 The equipment described herein is that which Southcomm, Inc. intends to
provide. Southcomm, Inc. reserves the right however, to modify this
list due to model or design change when in the sole opinion of
Southcomm, Inc., these modifications are necessary, and the functional
results are unchanged or improved.
A.4 Southcomm, Inc. reserves the right to supply, in connection with the
installation, additional materials not specifically listed here, at no
additional cost to the CUSTOMER, and the CUSTOMER acknowledges that
these additional materials are subject to all terms of this Agreement.
B. SYSTEM EQUIPMENTIFEATURE LISTING
The following equipment will be provided and installed:
Quantity Equipment Quantity Equipment
1 Inter-tel Axxess Cabinet 1 Applications processor
P.C.
1 CPU/MEM, Option card 1 Adminstrator Software
1 Premium Software/50 units 4 Prewires
1 T-1 Interface Card
1 Central Ofc Line Card
1 Central Ofc Daughter Card
2 Digital Keyset Card
1 Single Line Card
2 Executive Phns
2 60btn DSS/BLF
18 Std. LCD Phones
C. FLOOR PLAN
CUSTOMER is is not X required to provide Southcomm, Inc. with two sets
of floor plans detailing conduit or ductwork, telephone closets or
terminal boxes and equipment backboards. One floor plan will indicate
the location of each item of station equipment. In addition, the
location of each telephone will specify the telephone's type, color and
line number. The second set of floor plans will be unmarked.
THE CONDITIONS APPEARING ON THE BACK OF THIS SCHEDULE ARE AN INTEGRAL PART OF
THIS SCHEDULE JUST AS THOUGH THEY APPEARED IMMEDIATELY ABOVE THE CUSTOMER'S
SIGNATURE.
Corporate Relations Group, Inc. Jack Thomas
1377 Long Island Motor Pkwy.
Islandia, NY 11788
4/15/98
<PAGE>
PAGE 3
LEASE APPLICATION
Credential Leasing Corp of Florida, Inc. 800-688-6088 561-369-2100
Fax 561-369-4700
1501 Corporate Drive, Suite 260, Boynton Beach. Florida 33426-6657
P.O. Box 116, Boynton Beach, Florida 33425-0116
LESSEE
Company Corporate Relations Group, Inc.
Billing Address 1947 Lee Road City Winter Park County Orange State FL
Zip 32789
Telephone (407) 628-5700 Contact Person Kurt Ruthenbeck Title
Nature of Business Type of Business [ ] Non-Profit [ ] Proprietorship
[ ] Partnership [] Corp. [ ]
No of years
- -----------------------------------------------------------------------------
DESRIPTION OF EQUIPMENT:
- -----------------------------------------------------------------------------
Inter-Tel Axxess 112 telephone System with (1) Cabinet, Applications P.C. and
(20) Phones.
Equipment Cost $21,976.00 Total Price $23,789.02 -includes tax
Lease Term 36 month Purchase Option 10% Monthly Rental $697.52
Advanced Rental $1510.14
Location of Equipment 1377 Long Island Motor Pkwy., Islandia, NY 11788
PERSONAL INFORMATION ON OFFICERS, PARTNERS, OR GUARANTORS
- ------------------------------------------------------------------------------
Name Title Social Security No.
- -------------------------------------------------------------------------------
Home Address City State Zip Home Phone
- -------------------------------------------------------------------------------
Name Title Social Security No.
- -------------------------------------------------------------------------------
Home Address City State Zip Home Phone
BANK REFERENCES
- -------------------------------------------------------------------------------
Name of Bank/Branch City State Telephone Contact
- ------------------------------------------------------------------------------
Checking Account Number Loan Account Number
- -------------------------------------------------------------------------------
Name of Bank/Branch City State Telephone Contact
- -------------------------------------------------------------------------------
Checking Account Number Loan Account Number
TRADE/LEASING/FINANCE REFERNECES
- ---------------------------------------------------------------------------
Name of Supplier Account Number Telephone Number Contact
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Name of Supplier Account Number Telephone Number Contact
- ------------------------------------------------------------------------------
Vendor/Supplier Southcomm, Inc. Salesman Jack Thomas
Telephone #:_(407) 834-0366 - Fax#: (407) 834-9505 Date: 4/1 5/98
The undersigned certifies that the above information given for credit purposes
is true and correct and authorizes the firm or person to whom this application
is made and any credit bureau or other investigative agency to investigate the
references, statements, or other data listed or accompanying this application.
The undersigned authorizes all parties contacted to release credit and financial
information requested as a part of said investigation.
By:
CHECKLIST
o Have all documents been completed in the legal business name and
according to the approval?
o Was the correct rate factor used?
o Advance rental check made payable to Credential Leasing Corp. of
Florida, Inc. was tax included where applicable?
o If a personal guarantee was requested, did the same guarantor sign, and
was the signature witnessed?
o Does the original invoice show model 0. serial $, and sold to
Credential Leasing Corp. of Florida, Inc.?
o This is a legal document - cross outs and erasures are not acceptable,
complete new document.
<PAGE>
LEASE AGREEMENT
CREDENTIAL LEASING CORP. OF FLORIDA, INC.
1501 Corporate Drive, Suite 260, Boynton Beach, Florida 33426-6657
Lessee Supplier:
Name: CORPORATE RELATIONS GROUP, INC. Southcomm, Inc.
Address: 1947 Lee Road 401 Commerce Way, Suite 101
Winter Park, FL 32789 Longwood, FL 32750
- ------------------------------------------------------------------------------
EQUIPMENT DESCRIPTION: Model No, Catalog No., or other identification
- ------------------------------------------------------------------------------
Inter-Tel Axxess 112 Telephone System With:
(1) cabinet
(1) Applications processor PC
(20) Telephone
- -----------------------------------------------------------------------------
SCHEDULE OF PAYMENTS PAYABLE AT SIGNING OF THE LEASE(check one)
DURING ORIGINAL TERM OF LEASE [X] ADVANCE RENTAL FIRST AND LAST __1__
TOTAL _$1,510.14
[ ] SECURITY DEPOSIT $_________
NUMBER OF MONTHS _36_
MONTHLY PAYMENT __$697.52____ [ ] OTHER ______________________
- ------------------------------------------------------------------------------
TERMS AND CONDITIONS OF LEASE
1. ORDERING EOUIPMENT. Lessee hereby requests Lessor to order the Equipment
from the Supplier named above, to arrange for delivery to Lessee at Lessee's
expense, to pay for the equipment after its delivery to Lessee or sooner if
approved by Lessee in writing, arid to lease the Equipment to Lessee on the
terms and conditions of this lease.
2. LEASE AND ANY SCHEDULE HERETO. Lessor hereby leases to Lessee, and Lessee
hereby leases from Lessor, the Equipment described above and on any attached
schedule (herein with all replacement parts, repairs, additions and accessories
called ('Equipment on the terms and conditions on the face and reverse side
hereof.
3. DISCLAIMER OF WARRANTIES AND WAIVER OF DEFENSES.
(a) NO WARRANTIES BY LESSOR. NEITHER BEING THE MANUFACTURER. NOR A
SUPPLIER, NOR A DEALER IN THE EQUIPMENT. MAKES NO WARRANTY. EXPRESS OR IMPLIED.
TO ANYONE. AS TO FITNESS FOR A PARTICULAR PURPOSE. MERCHANTABILITY, DESIGN,
CONDITION, CAPACITY. PERFORMANCE OR ANY OTHER ASPECT OF THE EQUIPMENT OR ITS
MATERIAL OR WORKMANSHIP. LESSOR FURTHER DISCLAIMS ANY LIABILITY FOR LOSS. DAMAGE
OR INJURY TO LESSEE OR THIRD PARTIES AS A RESULT OF ANY DEFECTS. LATENT OR
OTHERWISE. IN THE EQUIPMENT WHETHER ARISING FROM LESSOR'S NEGLIGENCE OR
APPLICATION OF THE LAWS OF STRICT LIABILITY. AS TO LESSOR. LESSEE LEASES THE
EQUIPMENT 'AS IS', LESSEE HAS SELECTED THE SUPPLIER OF THE EQUIPMENT AND
ACKNOWLEDGES THAT LESSOR HAS NOT RECOMMENDED SUPPLIER. LESSOR SHALL HAVE NO
OBLIGATION TO INSTALL. MAINTAIN. ERECT. TEST. ADJUST OR SERVICE THE EQUIPMENT.
LESSEE AGREES TO INSTALL, MAINTAIN AND SERVICE THE EQUIPMENT OR CAUSE THE SAME
TO BE PERFORMED BY QUALIFIED THIRD PARTIES. IF THE EQUIPMENT IS UNSATISFACTORY
FOR ANY REASON, LESSEE SHALL MAKE CLAIM ON ACCOUNT THEREOF SOLELY AGAINST
SUPPLIER. AND ANY OF SUPPLIER'S VENDORS. AND SHALL NEVERTHELESS PAY LESSOR ALL
RENT PAYABLE UNDER THE LEASE.
(b) LESSOR HEREBY ASSIGNS TO LESSEE. SOLELY FOR THE PURPOSE OF PROELUTING
SUCH A CLAIM. ALL OF: THE RIGHTS WHICH LESSOR MAY HAVE AGAINST SUPPLIER AND
SUPPLIERS VENDORS FOR BREACH OF WARRANTY OR OTHER REPRESENTATIONS RES-
PECTING THE EQUIPMENT. (C) LESSEE ACKNOWLEDGES LESSOR'S INTENT TO ASSIGN THIS
LEASE ANO/OR THE ~LNTALS DUE HEREUNDER AND LESSEE AGREES THAT NO ASSIGNEE
OF LESSOR SHALL BE BOUND TO PERFORM ANY OUTY. COVENANT OR CONDITION OR
WARRANTY
Accepted in Florida:
(D) REGARDLESS OF CAUSE. LESSEE WILL NOT ASSERT ANY CLAIM WHATSOEVER AGAI
ST LESSOR FOR LOSS OF ANTICIPATORY PROFITS OR ANY OTHER INDIRECT. SPECIAL
ORCONSEQUENTIAL DAMAGES. NOR SHALL LESSOR BE RESPONSIBLE FOR ANY DAMAGES OR
COSTS Which MAY BE ASSESSED AGAINST LESSEE IN ANY ACTION FOR INFR INGEMENT OF:
ANY UNITED STATES LETTERS PATENT. LESSOR MAKES NO WARRANTY AS TO THE TREATMENT
OF THIS LEASE. FOR TAX OR ACCOUNTING PURPOSES.
(e) Notwithstanding any fees which may be d by Lessor to Supplier or any
agent of Supplier. Lessee understands and agrees J:I neither Supplier nor any
agent of Supplier is an agent of Lessor or is authorized to waive or after any
term or condition of this lease.
4. NON-CANCELLABLE LEASE- THIS LEASE CANNOT BE CANCELLED BY LESSEE DURING THE
TERM HEREOF. 5. TERM AND RENT. The lease term shall commence as of the date that
any of me Equipment is delivered to Lessee or Lessee's Agent or consigned to a
carrier for shipment to Lessee or Lessee's Agent (Commencement Date). The term
shall continue until the obligations of the Lessee under the lease shall have
been truly performed. Advance rentals shall not be refundable if the lease term
for any reason does not commence or if this lease is duly, terminated by Lessor.
The installments of rent shall be payable periodically in advance as indicated
above. It* first such payment being due on the Commencement Date, or such later
date as Lessor designates in writing, and subsequent payments due on the same
day of each successive rent Period thereafter until the balance of the rent and
any additional rent or expenses chargeable to Lessee under this lease shall have
been paid in full. If a security deposit is indicated above. the same shall be
held by lessor to secure me faithful performance of the lease and small be
refunded to Lessee at the satisfactory expiration of the lease without interest.
SEE REVERSE SIDE FOR ADDITIONAL TERMS AND CONDITIONS
WHICH ARE PART OF THIS LEASE.
- --------------------------------------------------------------------------------
LESSOR : Credential Leasing Corp of Florida, Inc CORPORATE RELATIONS GROUP, INC.
By:________________________ By:____________________________
Date:______________________ _______________________________
- -----------------------------------------------------------------------------
To Induce Lessor to enter into the within Lease the undersigned
unconditionally guarantee to Lessor the prompt-payment when due of all of
Lessee's obligations to Lessor under the Lease Lessor shall not be required
to proceed against Lessee or the Equipment or enforce any other remedy
before proceeding against the undersigned. The undersigned agrees to pay
all attorneys' fees and other expenses; Incurred by Lessor by reason of
default by Lessee or the undersigned. The undersigned waives notice of
acceptance hereof and of all other notices or demands of any kind to which
the undersigned may be entitled. The undersigned consorts to any extensions
or modifications granted to Lessee and the release and/or compromise of any
obligations of Lessee or any other obligors and guarantors without In any
way releasing the undersigned from his or her obligation naiCroundoc This
is a continuing Guaranty and shall not be discharged or affected by death
of the undersigned. "I bind the heirs. administrators. representatives,
successors and assigns of undersigned. and may be enforced by or for the
benefit of any assignee or solicitor of Lessor. The undersigned agrees that
in the event of any litigation filing from the subject matter of this
liability shall be brought. at Lessor's option, in a court of rorniow tent
)udedimion in o4hor Patirn Eissich or Broward County. Florida- The
undefsonsid further agree to be bound by all of the terms and conditions of
the Lease Agreement as it a Lessee and agree shall be font and several won
the Losia". Tt*, personal guaranty small extend to any fund all other
Lessee heretofore or hereafter executed between the Lessor and any Of the
hfh. unleas spocilrallili excluded In willing. This personal guaranty small
confinuo In onect urail lerfrinated In nfing by the Personal Guarantor: and
in that event &hail rot release the Personal Guarantor from kabilky to( any
Lease Agreement before or within 30 days after Leesors receipt of such
Notice of Termination.
X X
WITNESS SIGNATURE DATED PERSONAL GUARANTOR SIGNATURE DATED
X X
WITNESS - SIGNATURE DATED I GUARANTOR SIGNATURE DA TIE D
<PAGE>
6. FINANCE LEASE STATUS: The parties agree that this lease is a "Financial
Lease" as deemed in Article 2A of The Uniform Commercial Code in such
jurisdictions where the same 13 in effect. Lessee acknowledges either (a) that
Lessee has reviewed and approved any written Supply Contract (as defined in said
Article ZA) covering the Equipment purchased from the Supplier (as defined in
Said Article 2A) thereof for lease to Lessee or (b) that Lessor has informed or
advised Lessee. In writing, either previously or by this Lease of the following:
(i) the identify of the Supplier: (ii) that the laws may have rights under the
Supply Contract: and (iii) that the Lessee may contact the Supplier fix a
description of any such rights Lessee may have under the Supply Contract, 7.
LESSOR TERMINATION BEFORE EQUIPMENT ACCEPTANCE. ln within 60 days the data
Lessor orders the Equipment. Same has not been delivered, installed and accepted
by Lessee (in form satisfactory to Lessor for purposes of This lease Lessor may
on I O days' written notice to Losses terminate this Lame and as obligations to
Losses.
8. TITLE: PERSONAL PROPERTY. Equipment is, and shall at all times to remain the
property of Lessor, and Losses shall have no right, title or interest therein
and no right to purchase or Otherwise acquire title 10 or ownership of any of
the Equipment. It Lessor supplies Losses with labels indicating that the
Equipment is owned by Lessor. Losses shall affix such labels to" keep them in a
Prominent piece on the Equipment. Lessee hereby authorizes Lessor to Insert in
this Lasso In* serial numbers and other identification data of Equipment when
determined by Lessor. Lessee authorizes Lessor, its S4 lessors assigns and
lenders to Lessor, to file a carbon photographic or other reproduction of Lease
as a Financing statement for the Equipment, and Lessee further appoints Lessor
as the Losses's authorized agent lot the sole purpose of executing and filing
such other financing statements IS the Lessor shall desks pursuant to the
Uniform Commercial Codes. Such filings under the Uniform commercial Code shall
not make this a *Secured Transaction* nor after the nature at this Transaction
as a "true lease" Laos" agrees to execute and deliver any Statement Or
instrument requested by Lessor lot such purpose, and agrees to pay or reimburse
Lessor for any searches, filings recordings or stamp to" or taxes arising from
the filing or recording any such Instrument or statement. Lessee shall at its
expertise protect and defend Lessee title against Oil persons claiming against
or through Lessee at all times keeping the Equipment free from any legal process
or encumbrance whatsoever Including but not limited to lions. Attachments levies
and executions, and shall give Lessor immediate written notice thereof and shall
indemnity LESSOR train any loss Caused thereby. Losses shall execute or obtain
from third parties and deliver to Lessor upon Lessors request, such further
instruments and assurances, as Lessor deems necessary or advisable for the
confirmation or perfection at Lessors rights hereunder. Equipment is and shall
at all times be and remain, personal property not withstanding that Equipment or
any pan Thereof may now be of hereafter became, In any manner affixed or
attached to real property or any improvements thereon.
9. CARE, USE AND LOCATION Lessee at its own cost and expense shall maintain and
keep the Equipment in good repair condition and working order shall use the
Equipment lawfully and shall not after the Equipment without Lassoes prior
written consent. Lessee represents that the Equipment shall be used by Lessee
solely for business purposes. If the manufacturer of the Equipment has provided
Lessee with a Standard maintenance schedule, such schedule will constitute
minimum maintenance compliance and Losses, upon request will supply Lessor with
evidence of such compliance. The Equipment shall not be removed from the
Equipment location shown on the face of this Lease without Lessors written
consent. Lessor shall have the right to inspect the Equipment at any reasonable
Time, 10. Redelivery. Upon expiration or earlier termination of this Lease or
any schedules hereto as to any Equipment. Lessee will return the Equipment
freight property, to Lessor in good repair condition and working order, ordinary
wear and tear resulting from proper use thereof only excepted in a manner and to
a location reasonably designated by the Lessor. If upon such expiration or
termination Lessor does not immediately return the Equipment to Lessor. The
Equipment shall continue to be hold and Waited hereunder and this Lease shall
thereupon be extended indefinitely as to term at the monthly rent with rasped to
such Equipment, subject to the right of either the Lessee or the Lessee to
terminate this Lease upon thirty (30) days' written notice, whereupon Lessee
shall forthwith deliver the Equipment to Lessor as set forth in this paragraph.
11. RISK OF LOSS. Lessee, shall bear all risks of loss of and damage to
Equipment from any cause: occurrence of such loss or damage shall not relieve
lessee at any obligation hereunder. In the event of loss or damage, Lessee, at
it option, provided it is not In default otherwise at Lassoes option, shall: (a)
place the damaged Equipment in good repair, corrosion and working order; or (b)
replace lost or damaged Equipment with like Equipment in good repair condition
and working order with documentation creating clear Title thereto in Lessor; or
(c) pay to Lessor the then present value computed at six (6%) percent per annum
of both the unpaid balance of the aggregate rent reserved under this Lease, plus
the value of Lassoes anticipated residual interest in The Equipment at the
expiration of the lease. Upon Lessors receipt of such payment, Lessee and/or
Lessee's insurer shall be entitled to Lessors interest in said gain lot salvage
purposes, in its then condition and location, as is without warranty, express or
implied. 12. INSURANCE. Lessee shall keep the Equipment insured against all
risks of loss or damage from every cause whatsoever for not low than the full
replacement value Thereof and Shall carry public liability and property damage
insurance covening the Equipment and Its use in a farm and in an amount
satisfactory to the Lessor. All such insurance shall be in form and amount and
with companies acceptable to Lessor and name lessor its assign" as Loss Payee,
as its interest may appear with rasped to Property damage coverage and as
additional insured with respect to public liability coverage. Lessee shall pay
the premiums therefor and deliver said policies or duplicates thereof or
certificates of coverage thereunder, to Lessor, with long form Lander's Loss
Payable endorsement upon the policy or policies or by independent instrument
that gives Lessor a right 10 thirty (30) days' written notice before the policy
Can be altered of cancelled and the right to payment of premium without
obligation. Should Losses fail to Provide such insurance coverage, Lessor may
obtain coverage for pan or all at the term of This agreement or such caverns
protecting interests of Lessor and Leases or &to interest at Lessor only. The
proceeds at such Insurance, at the option of Lessee, provided it Is not In
default hereunder otherwise at Lessees option, shag be applied (1) toward the
replacement, restoration or repair of the Equipment or (fi) toward payment of
the obligations of Lessee hereunder. Lessee hereby appoints Lessor as Lessee's
attorney-in-fact to make claim lot, receive payment of, and execute and endorse
all documents, checks or drafts lot loss or damage under any said Insurance
policies. 13. NET LEASE: TAXES. Lessee intends the rental payments hereunder to
be not to Lessor, and Lessee shall pay all sales use, excise, stamp, documentary
and ad valorem imposed on the Ownership possession or use at the Equipment
during the term of this Lease: shall pay so taxes (except Lessors Federal or
State net income taxes) imposed on Lessor Or Losses with respect TO the rental
payments hereunder and shall reimburse Lessor upon demand for any taxes paid by
or advanced by Lessor Unless Lessor otherwise agrees to in writing. Lessor shall
file for and Pay all personal property Taxes assessed with respect to the
Equipment during the term of this Lease and Losses Shall, upon Lessors demand
forthwith reimburse Lessor therefore.
14. Indemnity Losses shall hold lessor harmless from, and defend Lessor against
any and all claims, actions, suits, proceedings costs, expenses, damages, and
liabilities, including Attorneys lose, arising out of, connected with or
resuming from the Equipment or this Lessor, including without limitation, the
manufacture Selection, delivery, possession, use, Operation or return of the
Equipment, 15. DEFAULT AND REMEDIES It Losses default in any payments required
under Its Lease or under any other lease or agreement between Lessor and Lessee
or if a position In bankruptcy arrangement, Insolvency or reorganization is
filed by or against Lessee or any guarantor at Lessee obligations hereunder, or
If Losses or any guarantor of Losses's obligations makes an assignment lot the
benefit of creditors, Lessor may, to the extent permitted by law, exercise arty
one or more of the following remedies: (a) To declare the entire balance at ford
hereunder immediately due and payable as 10 any or all schedules at Equipment
covered hereby and to similarly accelerate the balances under any Other leases
or agreements between Lessor and Lasso* Grid to sue lot and recover the then
present value computed at six (11%) percent per annium of both the unpaid
balance of the aggressive from reserved under this Lessee. plus the value of
Lassoes anticipated residual Interest In the Equipment at the expiration of the
Lease. (b) To require Lessee to assemble all Equipment at Lease's expense, at a
place reasonably designated by Lessor. (c) To remove any physical Obstructions;
for removal of the Equipment from the Place where the Equipment is located and
take possession of any or all Items of Equipment, without demand or notice,
wherever same may be located disconnecting and separating at such Equipment from
arty other property with or without any count order or pro-taking hearing It
being understood that locality of repossession in the event of default is a
basis lot the financial accommodation reflected try this Lease, Lessee hereby
waives any and all damages Occasioned by such relaxing Lessor may, at its
option, use, ship, store, repair or lease, all Equipment so removed and sell or
otherwise dispose of any such Equipment at a private or public sale. Lessor may
expose Equipment and resell the Equipment at Lessee promises at reasonable
business hours without being required to remove the Equipment. In the event
Lessor Takes possession at the Equipment Lessor shah give Last" credit for any
sums received by Lessor from The a" or rental of the Equipment after deduction
at the expenses at safe or rental. Lessee shall also be liable far and shag pay
to Lessor (a) all expenses incurred by Lessor in connection with the
enforcoments at any at Lassoes remedies Including all expenses at repossessing,
storing, shipping, repairing and selling the Equipment (b) reasonable attorney's
to" and, (c) Interest on an sums due Lessor from the data 01 default until paid
81 the rate of one and one-half (1 1/2%) percent par month but only to the
extent permitted by law. Lessor and lessee acknowledge the difficulty in
establishing a value for the unexpired lease term and owing to such difficulty
agree that the provisions of this Paragraph represent an agreed measure of
damages and are not to be doomed a forfeiture or penalty Lessee understand and
agrees that Lessor s primary business is not that of remarketing repossessed
equipment, and absent a dew showing of bad faith on the part of Lessor, the fact
that a boner price could have been obtained, or that the manner of sale could
have yielded a baler price, shall not Serve as defenses in an action by Lessor
to recover damages pursuant to this Lease Agreement.
n the event Lessee fails 10 perform any of the Term convenience Or conditions of
this Lease other than as Provided above than Lessor` may recover from Losses any
loss or damage suffered by Lessor as a result of such failure. Whenever any
payment is not made by Lessee when due hereunder, Losses agrees to pay to
Lessor, not later than one month thereafter, an amount calculated at the rate of
five cents per one dollar of each such delayed payment, as an administrative lea
to offset Lessor's collection costs, but only to the extent allowed by law. Such
amounts shall be payable in addition to all amounts payable by Lessee as a
result of exercise of any of the remedies herein provided. Ali remedies of
Lessor hereunder are cumulative are in addition to any other remedies provided
for by law, and may, to the extent permitted by law, be exercised concurrently
or separately. The exercise of any one remedy shall not be deemed to be an
election of such remedy or to produce the exercise at any other tam". No failure
on the pan of the Lessor to exercise and no delay in exercising any right or
remedy shall operate as a waiver thereof or modify the terms of this Lease. In
the event this lessor is determined 10 be a security agreement Lassoes recovery
shall in no event exceed the maximum permitted by low. 16. LESSEE~S WAIVERS. To
the extent permitted by law, Lessee hereby waives any and all rights and
remedies conferred upon a lessee by Sections 2A.508 through 2A-522 of the
Uniform Commercial Code in those jurisdictions where Article ZA is in effect. To
the extent permitted by law, Lessee also waives any rights now and hereafter
conferred by statute or otherwise which may require Lessor to sell. lease or
otherwise use the Equipment in mitigation of Lessor's damages as set forth in
Paragraph 15 or which may limit or otherwise modify any of Lassoes rights and
remedies under Paragraph 15.
17. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATIONS. In the event Losses fails to
comply with any provision of This Lease. Lessor shall have the right but shall
not be obligated, to effect such compliance on behalf of Lessee upon ten (10)
days prior written not to Lessee. In such event all monies expanded by, and all
expenses of Lessor in affecting such compliance shall be doomed to be additional
rental, and shall be paid by Lessee to Lessor at the time of the next periodic
payment of rent. 18. MISCELLANEOUS. (a) Lessees Assignment: Without Lessor's
prior written consent, Loss" shall rot (Q assign, transfer, pledge, hypothecate
or otherwise Dispose of the Equipment or any Interest therein, or (10 sublet or
lend Equipment or Permit If to be used by anyone other than Lessee or Lessee's
employee. (b) Notices - service of ail notice under this Lease and Personal
Guaranty it any shall be in writing and shall be sufficient If delivered
personality or mailed to the party involved at its respective address sat forth
heroin, or such other address as said party may provide In writing from time to
time. Any such notice mailed to said address shall be effective when deposited
in Ina United States mail, duly addressed and with postage prepaid: except that
any notice at change of address shall be sent by either certified or registered
mail, or delivered by some other means in which the recipient signs an
acknowledgement at receipt. (c) Losses warrants that ail finical and Other
information furnish" to Lessor was of the time of delivery true and correct. (d)
Further Assurances-Lessee shelf provide Lessor with such interim or annual
financial statements as Lessor requests 19. GENERAL- this inures to the benefit
at and is binding upon the heirs, legatees personal representatives, successors
and assigns of the parties hereto. Time is of the essence of this lease. This
Lease contains the entire agreement between lessor and Lessee, and no
modification of This Lease shag be effective unless in writing and executed by
an executive officer of lessor. A waiver of default shall not be a waiver of
arty other or subsequent default. Lessee waives trial by jury in any action by
or against Lessor hereunder. If more than one lessee is named in this lease the
Liability of own shall be joint and several, in the event any Provision of this
Loa" shall be unenforceable then such provision snag be deemed deleted, however,
no other provision hereof shag be affected thereby. THIS LEASE SHALL BE BINDING
WHEN ACCEPTED IN WRITING BY THE LESSOR IN THE STATE OF FLORIDA AND SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF FLORIDA PROVIDED HOWEVER. IN THE EVENT THIS
LEASE OR ANY PROVISION HEREOF IS NOT ENFORCEABLE UNDER THE LAWS OF THE STATE OF
FLORIDA THEN THE LAWS OF THE STATE WHERE THE EOUIPMENT IS LOCATED SHALL GOVERN
THE UNDERSIGNED AGREES THAT IN THE EVENT OF ANY LITIGATION ARISING FROM THE
SUBJECT MATTER OF THIS LEASE, THAT SUIT SHALL BE BROUGHT. AT LESSORS OPTION, IN
A COURT OF COMPETE NT JURISDIC TION IN EITHER PALM BEACH 0R BROWARD COUNTY
FLORIDA NOTHING CONTAINED HEREIN IS INTENDED TO PRECLUDE LESSOR FROM COMMENCING
ANY ACTION HEREUNDER IN ANY COURT HAVING JURISDICTION THEREOF.
<PAGE>
Exhibit 10.12 Contract with Orix Credit Alliance, Inc.
<PAGE>
Ex 10.12
(Stair) Page 1 of 2 (Drivers License I) t5iaie)
ORIX CREDIT ALLIANCE, INC. (the "LESSOR") LEASE NO.C-09-11941.3
300 Lighting Way o Secaucus, New Jersey 07096-1 525 Telephone:(201) 601 -9000
FULL LEGAL NAME AND ADDRESS OF "LESSEE' SUPPLIER OF EQUIPMENT
2649 PEMBERTON (complete address)
DRIVE
GULFSTREAM MAILING & SHIPPING SYSTEMS, INC.
APOPKA FLORIDA 32703 9IOS.W. I2THAVENUE
POMPANOBEACH FL 33069
NAME AND TITLE OF PERSON TO CONTACT :
____ DESCRIPTION: MODEL #, CATALOG N, OR OTHER IDENTIFICATION.
E ONE ( I) BELL & HOWELL MODEL A496~I -C8 8 STATION INSERTER Q S/N 34~958 I WITH
T/O & CONVEYOR.
U
I
P
M ONE (I) HEIDELBERG MODEL SORKZ 19x25 PRINTING PRESS E S/N 522398.
N
T
L
E
A
S
E
D
LOCATION OF EQUIPMENT: STREET ADDRESS (IF DIFFERENT THAN LESSEE'S ADDRESS
SHOWN ABOVE)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
CITY: COUNTY: STATE: RECORD OWNER:
LEASE CHARGE $ 9,616.22 FOR INITIAL TERM OF THIS LEASE AFTER
INITIAL TERM
AMOUNT OF EACH NO. OF RENT TOTAL RENT INITIAL TERM OF AI)V&NCE RENT MONTHLY
RENEWAL
RENT PAYMENT PAYMENTS LEASE (NO. OF MONTHS) RENT
$_____4,700.00 24 $ 112,800.00 24 S 0.00 S 0.00
(PLUS SALES TAX, IF (PLUS SALES TAX, IF MONTHS (PLUS SALES TAX, IF (PLUS
SALES TAX, IF
APPLICABLE) APPLICABLE) APPLICABLE)
APPLICABLE)
</TABLE>
S Terms and Conditions of Lease 1 . Lessee hereby leases from
Lessor, and Lessor leases to Lessee, the equipment and/or personal property
described above and in any schedule made part hereof (herein called Equipment)
which Lessee warrants shall be used for commercial purposes only and not for any
farming or other agncultural purpose. 2. Lessee requests Lessor to purchase
Equipment of the type and quality specified above from the supplier named above
and agrees upon written acceptance hereof, signed at Lessor's office by an
authorized officer of Lessor to lease said Equipment from Lessor on the terms,
provisions and conditions of this lease. Lessor agrees to order such Equi pment
from said supplier, but shall not be liable for specific performance of this
lease or for damages if for any reason the supplier delays or fails to fill the
order. Lessee shall accept such equipment upon delivery. And hereby authorizes
Lessor to add to this lease the serial number of each item of Equipment so
delivered. Any delay in such delivery shall not affect Lessee's obligations
hereunder. Lessee represents that Lessee has selected the equipment leased AND
LESSEE AGREES THAT LESSOR HAS NOT MADE AND MAKES NO R PRESE~TATIONS OR W~(RANTIJ
DIRECTLY OR INDIRECTLY EXPRESS OR IMPLIED AS TO THE SUITABILITY DURABILITY
FITNESS FOR USE MERCHANTABILITY CONdITION QUALITY, OR OTHERWISE OF ANY SUCH
EQUIPMENT LESSEE SPECIFICALLY WAiVES ALL RIGHTS'TO MAKE CLAIM At~AINST
LESSdR}IEREIN FOR BREACH OF ANY WARRANTY OF ANY kIND WHATSOEVER AND AS TO LESSOR
OR LESSOR'S ASSIGNEE, LESSEE LEASES THE EQUIPMENT "AS IS" LESSOR HEREBY ADVISES
LESSEE THAT IT MAY HAVE RIGHTS AGAINST THE SUPPLIER OF THE EQUIPMENT AND TI-EAT
IT SHOULD CONTACT THE SUPPLIER FOR A DESCRIPTION OF SUCH RIGHTS. LESSEE AGREES
TO CLAIM ONLY AGAINST THE SUPPLIER FOR COMPLIANCE WITH ANY SUCH WARRANTIES AS
MAY EXIST' LESSOR AND LESSOR'S ASSIGNEE SHALL NOT BE LIABLE TO LESSEE FOR ANY
LOSS DAMAGE OR EXPENSE OF ANY KIND OR NATURE'CAUSED DIRECTLY OR INDIRECTLY BY
ANY EQUIPMENT LEASED HEREUNDER OR 1'HE USE OR MAINTENANCE THEREOF OR THE FAILURE
OF OPERATION THEREOF OR THE REPAIRS SERVICE OR AD1USTMENT THERETO OR BY ANY
DELAY OR FAILURE TO PROVIDE ANY THEREOF, OR BY ANY INTERRUPTiON OF SERVICE OR
LOSS OF USE THEREOF OR ~OR ANY LOSS OF BUSINESS OR DAMAGE WHATSOEVER AND
HOWSOEVER CAUSED. 3. As used herein, "Actual Cost' means the cost to Lessor of
purchasing and delivering Equipment to Lessee, including taxes, transportation
charges, and other charges and the amount of any transaction charge disclosed
below and not paid in cash by Lessee at the time of acceptance by Lessor. The
amount of each Rent Payment, the Advance Rent, and any Renewal Rent set forth
above are based on the estimated cost to Lessor and shall each be adjusted
proportionally if the Actual Cost differs from said estimated cost. Lessee
hereby irrevocably authorizes Lessor to correct the figures set forth above when
the Actual Cost is known, and each Rent Payment shall be increased by any sales
orother tax that may be imposed on or measured by the rent payments. If Actual
Cost differs from the estimated cost by more than ten percent thereof, Lessor at
its option, may terminate this lease by giving written notice to Lessee after
receiving notice of 4ctual Cost. If prior to delivery there shall occur any
event of default hereunder, Lessee shall be liable for Lessor's damages
occasioned thereby, which for purposes of this paragraph only, it is agreed
shall be all amounts paid on account of the Equipment and other charges incurred
in connection with the Lease plus interest thereon at the Past Due Rate defined
below., , . . . . 4. The initial term of this lease commences upon the
acceptance hereof by Lessor and ends upon the expiration of the number of months
specified above (for the initial lease term)after the rent commencement date,
which date shall be the date upon which the supplier ships the Equipment to
Lessee, or 12-7-98. whichever is earlier. Lessee agrees to pay Lessor a
transaction charge of $560.00 upon its acceptance hereof.,
5. . Lessor will upon Lessee's written request, request the supplier to
authorize Lessee to enforce in its own name all warranties, agreements or
representations, if any, which may be made by the supplier to Lessee or Lessor.
Notwithstanding the foregoing Lessor itself makes no express nor implied nor
statutory warranties as to any matter whatsoever, including without limitation,
the condition of Equipment its merchantability or its fitness for any particular
purpose. No defect or unfitness of Equipment shall relieve Lessee oi the
obligation to pay rent or of any other obligation under this lease. Lessee
agrees that any maintenance service to be performed is the sole obligation of
Lessee who may arrange for same with the supplier of Equipment. 6. Lessee agrees
to pay to Lessor at 100 Dutch Hill Road, Orangeburg, New York or at such other
place as Lessor may direct in writing Total Rent equal to the number of rent
payments specified herein multiplied by the amount of each payment specified
herein. The first rent payment and any advance rent shall be due upon execution
of this lease by Lessee; any deposit or acceptance of such sum by Lessor shall
not be deemed acceptance of this lease. In no event shall the first rent payment
or advance rent be refunded to Lessee. The second rent payment shall be due and
payable one month after the rent commencement date and subsequent rent payments
for the initial term shall continue on the same date of each successiye month
thereafter until the Total Rent and any other sums payable hereunder are paid in
full. Any installment not paid on or before its due date and, tq the. extent
permitted by applicable law, the entire unpaid Total Rent after acceleration
shall thereafter bear interest at a rate of, 1/15 of I % per day (the "Past Due
Rate") until this lease is paid in fill. in no event shall any late charge or
the Past Due Rate exceed any maximum permitted by law. It for any reason any
interest rate, late charge, fee or other charge imposed or which may be imposed
under this Lease exceeds the maximum amount which may be imposed under
applicable law, the amount of such interest rate late charge, fee or other
charge, in excess of the maximum shall be void and any such excess collected by
Lessor applied to the reduction of this lease or, to the extent permitted by
applicable law to other obligations of the Lessee owing to Lessor, as Lessor may
determine and any remaining excess shall be refunded to Lessee. Should Lessor
pay be or on account of the Equipment any sums more than thirty days prior to
the rent commencement date, Lessee will pay Lessor as additional rent along with
the first rent, payment due after the rent commencement date an amount equal to
the east Due Rate for each day from the date of payment to the rent commencement
date. Lessee will pay in advance to Lessor if so requested, any personal
property tax as estimated by Lessor pro-rated on a monthly basis. 7. Lessor may,
but shall not be obligated, to apply any advance .rent toward curing, any
default of Lessee hereunder, in which event Lessee shall promptly, restore the
advance rent to the full amount specified herein Any advance rents paid to
,Lessor without charge or interest and may be applied by Lessor, in its sole
discretion, against the unpaid installments of rent hereunder in the inverse
order of their respective maturities, but Lessor shall not be obligated to do
so. 8. , If, upon the expiration of the original or any renewal term hereof,
Lessee is not then and has not been in default in any of Lessees obligations to
Lessor and this lease specifies a RenewaI Rent amount, Lessee may renew this
lease for one year at the Renewal Rent amount so specified by giving Lessor
written notice of renewal at least sixty days prior to the expiration to the
initial or any renewal term and payment along with such notice of the Renewal
amount. If this lease is not renewed under, the terms of the immediately
preceding sentence for any reason whatsoever, Lessor may notify Lessee prior to
the expiration of the original or any renewal term hereof, that if Lessee fails
to return the Equipment as herein provided at the end of the then current term
hereof, this lease shall be renewed for an additional one year term at the same
rent provided for in this lease for the initial term. All of the terms and
conditions of this lease shall apply and be in full force and effect during any
and all renewal terms. 9. Lessor is hereby authorized to tile one or more
financing statements or reproduction hereof as a financing statement. Lessee
hereby, irrevocably appoints Lessor as the true and lawful attorney-in-fact of
Lessee, coupled with an interest with full power in Lessee's name, place and
stead to execute financing statements on Lessee's behalf and to do any and all
other acts on Lessee's behalf necessary or helpful to p4rfe~t Lessor s security
interest in the Collateral (defined below) pursuant to the Uniform Commercial
Code o~ other applicable law. The Lessee grants to Lessor a security interest in
,the equipment and any and all documents, instruments, chattel paper goods,
general intangibles, inventory, machinery, contract rights, equipment, fixtures,
accounts anti insurance in which Lessee now or hereafter has any right or
interest (all of the foregoing together with all accessories, attachments,
replacements, substitutions and accessions thereto, and all proceeds, products
and rents therefrom collectively called "Collateral) ) and agrees that said
security interest secures the payment, performance and fulfillment of all the
obligations of Lessee to Lessor or any affiliate qt Lessor whether such
obligations are now existjng or hereafter incurred or arising, are contingent or
non-contingent, ,are direct or indirect, arise by assignment or otherwise or are
contemplated or not contemplated as of the date of this lease. Lessor may at any
time, with or without exercising any of the rights or remedies available to it
and without
SEE PAGE (2) FOR ADDITIONAL TERMS AND CONDITIONS WHICH ARE PART OF THIS LEASE
The undersigned Lessor and Lessee agree to all terms and conditions set forth
above and on Page (2) hereof, and in wimess thereof hereby execute this lease.
THE EQUIPMENT IS LEASED HEREUNDER AS-IS AND LESSOR MAKES NO EXPRESS NOR IMPLIED
NOR STATUTORY WARRANTIES AS TO ANY MATTER WHATSOEVER, INCLUDING WITHOUT
LIMITATION THE CONDITiON OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS
FOR ANY PURPOSE.
Accepted By: ORIX CREDIT ALLIANCE, INC.
<PAGE>
At its Maitland Fl 32751 Office
By (Vice President) Date 12-4-98
Lessee(s)
[GRAPHIC OMITTED][GRAPHIC OMITTED]
Date
--------------------------------------------------------------------
(Witness ito L.essee's and (Drivers License #)
Co-Lessee's Signature) (State)
--------------------------------------------------------------------
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(Witness as to Lessee', and (Drivers License #)
Co-Lessees Signature)
TERMS AND CONDITIONS OF EQUIPMENT LEASE AGREEMENT (Continued) Page (2)
prior notice or demand to Lessee, appropriate and apply toward payment of any of
Lessees obligations to Lessor any and all balances, sums, property, credits,
deposits, accounts, reserves. collections, monies, drafts, notes or checks
coming into Lessor's possession and belonging or owing to Lessee and for such
purposes, endorse Lessee's name on any such instrument made payable to Lessee
for deposit, negotiation, discount or collection. Such applications may be made
and/or any monies paid to Lessor may be applied and/or previous application
changed to apply. without notice to Lessee, partly or entirely to any of
Lessee's obligations to Lessor arising hereunder or otherwise as Lessor in its
sole discretion may elect. 10 Unless Lessee agrees Lessor written notice of each
defect or other proper objection to an item of Equjpment within three business
days after receipt thereof, it shall be conclusively presumed, as between Lessee
and Lessor, that the item was delivered in good repair and that Lessee accepts
it as an item of Equipment described in this lease. Lessee warrants and
represents that no item of Equipment has been delivered to Lessee prior to the
date of Lessor's acceptance hereof, which shall be deemed the date of this
lease. Lessee will deliver to Lessor a delivery/installation receipt (Lessor's
form) for each and every item immediately upon Lessor's request. At Lessor's
request, Lessee will furnish current financial statements satisfactory to Lessor
in form, preparation and content, . I I Lessee shall use Equipment in a careful
manner and shall comply with all laws relating to its possession, use and
maintenance. The Equipment shall be delivered and thereafter kept at the
location specified above or. if none is specified, a; Lessee's address as set
forth above, and in no event shall the Equipment or the Collateral be removed
therefrom or from the 48 contiguous States of the United States without Lessor's
prior written consent. Lessor may, for the purpose of inspection. at all
reasonable times, enter upon any premises where Equipment is located and may
remove Equipment forth with, without notice to Lessee, if Equipment is, in the
opinion of Lessor, being used beyond its capacity or in any manner improperly
cared for or abused. . . 12. It Lessor supplies Lessee with labels stating that
Equipment is owned by Lessor, Lessee shall affix and keep same in a prominent
place on each item of Equipment. Lessee, at its expense, shall keep Equipment in
good repair and furnish all parts mechanisms and devices required therefor.
Lessee shall not make any alterations. additions or improvements to Equipment
without Lessor's prior written consent. All additions and improvements made to
Equipment shall belong to Lessor. Upon the expiration or earlier termination of
this lease, Lessee at its sole expense, shall return Equipment in good repair,
ordinary wear and tear resulting from proper use thereof alone excepted, by
delivering it to such place as Lessor may specify. If Lessor, for any reason,
does not receive the Equipment immediately upon the expiration of the term
hereof and there is no renewal under section 8 hereof, Lessor will receive as
use and occupancy of the Equipment or any portion thereof for cacti month or
portion thereof, between the date of expiration and the date of return of
Equipment, an amount equal to 150% of the monthly rent specified for the initial
lease term and the provisions hereof shall remain in effect and bind Lessee
until such return of Equipment. I 3 ~ Lessee hereby assumes and shall bear the
entire risk of loss of and damage to Equipment from any and every cause
whatsoever. No loss of or damage to Equipment or any part thereof shall impair
any obligation of Lessee hereunder, which shall continue in full force and
effect. In the event of damage of any kind whatever to any item of Equipment
(unless the same be damaged beyond repair), Lessee, at the option of Lessor,
shall at Lessee's expense place the same in good repair condition and working
order, or replace the same with like equipment of the same make and the same or
a later model, in good repair, condition and working order. It Equipment. or any
portion thereof, is determined by Lessor to be lost, stolen, destroyed or
damaged beyond repair, Lessee shall immediately pay Lessor therefor in cash an
amount equal to the sum of (a) the greater of he actual fair market value of the
Equipment involved or fifty percent(50%) of the Actual Cost of the Equipment
involved, plus (b) the greater of25% of the aggregate amount of unpaid Total
Rent for the balance of the term of this lease or 115% of the unpaid Total Rent
allocated by Lessor to the Equipment involved. Upon payment as aforesaid, this
lease shall terminate with respect to the items of Equipment involved. The
proceeds of any insurance payable as a result of loss of or damage to Equipment
shall be applied, at the option of Lessor, toward the replacement, restoration
or repair of Equipment. Lessee shall at Lessee's own expense, provide and
maintain insurance, satisfactory to Lessor against loss, theft, conversion,
damage or destruction of the Equipment in an amount not less than the full
replacement value thereof with loss payable to Lessor. Each policy shall be
delivered to Lessor and shall expressly provide that said insurance as to Lessor
and its assigns shall nor be invalidated by any act, omission or neglect of
Lessee, and that the insuror shall give thirty (30) days written notice to
Lessor of the alteration or cancellation of the policy. Lessor may apply the
proceeds of any of said insurance to replace or repair Equipment and/or to
satisfy, in whole or in part. Lessee's obligations to Lessor. Lessee hereby
irrevocably appoints Lessor as Lessee's attorney-in-fact to make claim for,
receive payment of and execute and endorse all documents, checks or drafts
received in payment for loss or damage under any of said insurance. Lessee shall
also provide and maintain paid public liability (personal injury and property
damage) insurance, satisfactory to Lessor, naming Lessor as additional insured.
Notwithstanding the above, Lessor has the right, but not the obligation, to
obtain insurance on the Equipment protecting Lessor at Lessee's expense and to
maintain such insurance at Lessee's expense unless written evidence of such
insurance satisfactory to Lessor is provided to Lessor when and as requested by
Lessor. Lessee's expense shall include the `oil premium paid by Lessor for such
insurance and any customary charges or fees of Lessor and of any designee
associated with such insurance. Lessee shall pay such amounts in equal
installments allocated to each lease payment plus interest on such amount at the
Past Due Rate. . o . . , 14. Lessee shall hold harmless and indemnify Lessor
against any and all claims, actions, proceedings, expenses, attorneys' fees,
damages and liabilities, arising in connection with the Equipment, its
manufacture, selection, purchase, delivery, possession, ownership, leasing,
renting, control, maintenance, use, operation and/or return and the recovery of
claims under insurance policies thereon. Lessee shall pay promptly when due all
charges and taxes (local, state and federal) which may now or hereinafter be
imposed upon the ownership leasing, renting, sale, purchase, possession or use
of Equipment, and shall save Lessor harmless against any actual or asserted
violations and pay all costs, expenses, penalties, interest and charges of every
kind in connection therewith or arising therefrom. The obligations of Lessee
shall survive the termination of this agreement. 15. Without Lessor's prior
written consent, Lessee shall not (a) assign, transfer, pledge, hypothecate or
otherwise
dispose of this lease or any interest the rent, or (b) sublet or lend
Equipment or any part thereof or permit it to be used by anyone other than
Lessee or Lessee's employees. Lessor and its assignee may assign this
lease and/or mortgage the Equipment, in whole or in part, without notice
to Lessee. Each such assignee and/or mortgagee shall have all of the
rights but none of the obligations of Lessor hereunder. Lessee hereby
recognizes each such assignment and agrees to pay the balance of Total
Rent to any assignee and not to assert against any assignee any defense,
counterclaim, recoupment or set-off that Lessee may have against Lessor.
Subject to the foregoing, this lease mores to the benefit of and is
binding upon the heirs, legatees, personal representatives, survivors,
successors and assigns of the parties hereto.
16. 16 Time is of the essence of this lease and shall not be affected by
acceptance of any overdue payment. Lessee hereby irrevocably authorizes
any attorney of any court of record to appear for and confess judgment
against Lessee (except in any jurisdiction where such action is not
permitted by law) for all unpaid amounts due hereunder, plus expenses and
20% added for attorneys' fees, without stay of execution, and Lessee
hereby waives the issue of process, all rights of appeal and relief from
any and all appraisement, stay or exemption laws then in force.
17. . If Lessee fails to pay any rent or any other amount hereunder when due or
fails to pay when due any obligations of Lessee to Lessor arising independently
of this lease or fails to perform any of the terms and provisions hereof or of
any other agreement held by Lessor or dies or changes its management,
operations, ownership of its stock, or control, becomes insolvent or makes an
assignment for the benefit of creditors or if any bankruptcy, receivership or
other insolvency proceeding is instituted by or against Lessee or if Lessor
shall at any time deem the Equipment in danger of misuse, concealment or
misappropriation or if Lessor shall deem itself insecure ~ (the occurrence of
one or more of the foregoing being a "default" hereunder) then Lessor may,
without notice or demand, declare immediately due and payable the unpaid
aggregate amount of Total Rent for the entire term hereof (discounted to its
then present value using as a rate the then current Federal Reserve Discount
Rate for the District of Lessee's residence or principal place of business) plus
any additional rent, taxes, late charges, collection charges and all other sums
owing to Lessor by Lessee (the sum of all 9f which is hereinafter called the
"Balance'1) and attorneys' fees (which attorneys' fees are hereby agreed to be
not less than 20% of the Balance), whereupon said Balance and attorneys' fees
shall immediately be due and payable and Lessee shall immediately deliver
possession of Equipment to Lessor and Lessor may, at its option and without
notice and without legal process (Lessee hereby waiving, with full knowledge of
Lessee's rights and the effect of this waiver, any right to a hearing nor to any
repossession of any Collateral by Lessor), to the extent permitted by law: (1)
recover the Balance (plus any Terminal Purchase Option Amount which represents
Lessor's reversionary interest in the Equipment, if Lessee fails to deliver
possession of the Equipment to Lessor), plus attorneys' fees in the amount
aforesaid' (2) take possession of the Equipment wherever same may be located
with all additions, accessions, replacements and substitutions), Lessee agreeing
to assemble same and deliver same to a place designated by Lessor, whereupon all
rights of Lessee in the Equipment shall terminate absolutely (but Lessee shall
not be released from its obligations under this agreement until the Balance plus
attorneys' fees in the amount aforesaid have been paid in full), Lessee hereby
authorizing and empowering Lessor or its designee to enter upon any premises
where the Equipment may be found and take possession and carry away same without
process of law, and (a) retain Equipment and all prior payments of rent; or (b)
retain all prior payments and either (i) sell Equipment at public or private
sale with the right in Lessor to purchase any of the Equipment at such sale,
which sale shall be deemed to be held in a commercially reasonable manner in
accordance with applicable law if at least 15 days prior notice of any private
sale is given, or if at least 10 days prior notice of any public sale is given
and advertised in a publication of general circulation in the area of the sale
at least twice prior to the sale, applying any net proceeds less, if Lessee
fails LO deliver possession of the Equipment any Terminal Purchase Option Amount
(which represents Lessor's reversionary interest in the Equipment), to all
charges and expenses incurred by Lessor in connection with or incidental to the
repossession and sale of the Equipment including but not limited to
transportation, storage, repair, refurbishing and advertising costs and
attorneys' fees then to the Balance and then to any other amounts owing by
Lessee to Lessor; or (ii) retain the Equipment and credit Lessee with the
reasonable re-leasing value of the Equipment during the remaining term of this
lease, Lessee remaining liable for any deficiency; and (3) pursue any other
remedy permitted by law or equally. It is agreed that any amounts to be retained
by Lessor and any sums to be paid by Lessee under this paragraph shall not be
deemed o be a penalty but are liquidated damages for the breach hereof. The
remedies provided for herein are cumulative and may be exercised to the extent
permitted by law, successively or concurrently and the exercise of one shall not
bar any other. TO THE MAXIMUM EXTENT PERMITTED BY LAW, LESSOR, LESSEE AND ANY
GUARANTOR, EACH THEREBY KNOWINGLY VOLUNTARILY AND INTENTIONALLY WAIVES (A) ANY
AND ALL RIGHT TO A TRIAL BY JURY OF ANY AND ALL CLAIMS, DEFENSES COUNTERCLAIMS
CROSSCLAIMS AND SETOFF OR RECOUPMENT CLAIMS ARISING, DIRECTLY OR INDIRECTLY OUT
OF UNDER IN CONNECTION WITH OR IN ANY WAY RELATED TO THIS LEASE AND WHETHER
BASED IN CONTRACT OR IN TORT OR PURSUA~TTO STATUTE, AND (B) ANY AND ALL RIGHTTO
CLAIM OR RECOVER ANY PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER
THAN, OR IN ADDITION TO, ACTUAL DAMAGES. 1 8 . All notices relating hereto shall
be in writing and delivered in person to an officer of the party to which such
notice is being given or ~ mailed by certified mail to such party at its address
specified above or at such other address as may hereafter be specified by like
notice by either party to the other. All notices will be deemed effective five
days after mailing by certified mail to the address shown herein for any party.
If more than one Lessee is named in this lease, the liability of each hereunder
shall be joint and several. <PAGE>
19. The Equipment is and shall remain the property
of Lessor. Lessee at its own cost and expense, shall protect and defend the
title of Lessor. Lessee shall at all times keep Equipment tree and clear from
all liens, attachments, levies, encumbrances and charges or other judicial
process shall give Lessor immediate written notice thereof and shall indemnify
and save Lessor harm1ess from any loss or damage caused thereby. Lessee shall
have no right, title or interest in or to Equipment, except as expressly set
forth in this lease, nor shall Lessee have any equity nor be deemed to develop
any equity in the Equipment by virtue of this agreement or any payment made by
Lessee or otherwise; Lessee's interest in the Equipment being that of a lessee
only. This Equipment shall remain personal property even though installed in or
attached to real property. No invoice issued prior to complete performance of
this lease shall operate to pass title to Lessee. All Equipment and any proceeds
thereof, accessories parts and replacements for or which are added to or become
attached to Equipment shall immediately become the property of Lessor and shall
be deemed incorporated in Equipment and subject to the terms of this lease as if
originally leased hereunder. AS PART OF THE CONSIDERATION FOR LESSOR'S ENTERING
INTO THIS LEASE LESSEE LESSOR AN!) ANY GUARANTOR HEREBY DESIGNATE AND APPOINT
EDWIN M. BAUM ESO. AND C-A CREDIT CORP. BOTH OF NEW'YORK, OR EITHER OF THEM, AS
THEIR TRUE AND LAWFUL ATFORNEY-IN-FACT AND AGENT FOR THEM AND IN THEIR NAME
PLACE AND STEAD TO ACCEPT SERVICE OF ANY PROCESS WITHIN THE STATE OF NEW YORK
THE PARTY CAUSING SUCH PROCESS TOI BE SERVED
AGREEING TO NOTIFY THE OTHER PARTYUES) AT THEIR ADDRESS SHOWN, OR THEIR LAST
KNOWN ADDRESS BY CERTIFIED MAIL, WITHIN THREE DAYS OF SUCH SERVICE HAVING BEEN
EFFECTED. LESSEE, LESSOR AND ANY GUARANTOR H~EREOF AGREE TO THE EXCLUSIVE
VENUE AND JURISDICTION OF ANY COURT IN THE STATE AND COUNTY OF NEW YORK FOR
ALL ACTIONS, PROCEEDINGS, CLAIMS COUNTERCLAIMS OR CROSSCLAIMS ARISING DIRECTLY
OR INDIRECTLY OUT OF UNDER IN CONNECTION WITH, OR IN ANY WAY RELATED TO THIS
LEASE, WHETHER BASED IN CONTRACT OR IN TORT OR AT LAW OR IN EQUITY OR PURSUANT
TO STATUTE WITH TiLE SOLE EXCEPTIONS THAT AN ACTION TO OBTAIN POSSESSION OF
ALL OR PART OF THE COLLATERAL OR ANY OTHER ASSETS OF TUE LESSEE OR THE
GUARANTOR HOWEVER DENOMINATED, AND EQUITABLE PROCEEDINGS TO ENFORCE THE TERMS
OF THIS LEASE MAY, IN THE SOLE DISCRETION OF THE LESSOR BE BROUGHT IN A STATE
OR FEDERAL COURT HAVING JURISDICTION OVER THE COLLA'I~ERAL, AND/OR SUCH OTHER
ASSETS AND/OR THE LESSEE AS THE CASE MAY BE, AND THAT JUDGMENTS MAY BE
CONFESSED ENTERED OR ENFORCED IN ANY JURISDICTION WHERE THE LESSEE OR ANY
GUARANTOR OR THE COLLATERAL AND/OR ANY OTHER ASSETS OF 1FHE LESSEE OR
GUARANTOR MAY BE LOCATED. LESSEE LESSOR AND ANY GUARANTOR HEREOF EACH WAIVE
ANY RIGHT THEY OR ANY OF THEM MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY
LITIGATION BROUGHT IN ACCORDANCE HEREWITH.
20. LESSEE AND ANY GUARANTOR HEREUNDER EACH DOES HEREBY WAIVE FOREGO AND AGREE
NOT TO ASSERT ANY AND ALL RIGHTS, CLAIMS AND DEFENSES IF ANY, UNDER THE FEDERAL
EOUAL CREDIT OPPOR1FUNITY ACT AND/OR THE FEDERAL FAIR CREDIT REPORTING ACT
AND/OR UNDER AN'Y COMPARABLE STATE LAWS THAT MAY INURE TO THE BENEFIT OF LESSEE
AND/OR GUARANTOR IN CONNECTION WITH THIS LEASE. LESSEE AND ANY GUARANTOR
HEREUNDER EACH DOES HEREBY RATIFY AND APPROVE THE OBTAINING BY LESSOR (AND/OR
ANY ASSIGNEE OF LESSOR) OF ANY CREDIT REPORT RELATING TO LESSEE AND GUARANTOR
AND HEREBY AGREE THAT LESSOR (AND/OR ANY ASSIGNEE OF LESSOR) MAY HEREAFTER
OBTAIN SUCH CREDIT REPORTS AS LESSOR (AND/OR ANY ASSIGNEE OF LESSOR) IN THEIR
SOLE DISCRETION IVIAY DETERMINE. 21. . Intending that each and every provision
of this lease be fully effective according to its terms, the parties agree that
the validity, enforceability and effectiveness of each provision hereof and the
obligations, rights and remedies of the Lessee Lessor and any Guarantor in any
way related to or arising under this lease sha11 be governed by and construed in
accordance with the laws of the State of New York (excluding its choice of law
rules). If any one or more provisions hereof are in conflict with any applicable
statute or law, and thus not valid or enforceable, then each such provision
shall be deemed null and void, but only to the extent of such conflict and
without invalidating or
affecting the remaining provisions hereof.
22. This instrument constitutes the entire agreement between Lessor and Lessee.
No agent or employee of the supplier is authorized to bind Lessor to this lease,
to waive or alter any term or condition printed herein or add any provision
hereto. Except as provided in section 3 hereof, a provision may be added hereto
or a provision hereof may be altered or varied only by a writing signed by an
authorized officer of Lessor. Waiver by Lessor of any provisions hereof in one
or more instances shall not constitute a waiver as to any other insurance.
<PAGE>
Exhibit 10.13 Contract with Catalyst Financial Corporation
<PAGE>
Exhibit 10.13 Contract with Catalyst Financial Corporation
15
Catalyst Financial Corp.
16 East 52nd Street
Suite 501
New York, New York 10022
Ladies and Gentlemen:
In accordance with recent discussions, Stratcomm Media Ltd., a British
Columbia corporation (the "Company"), hereby confirms its agreement with
Catalyst Financial Corp. (the "Placement Agent") as follows:
1. Description of Transaction. The Company proposes to issue and sell
through the Placement Agent, in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), to a limited number
of investors resident in, or whose principal place of business is located in,
the United States, which meet certain criteria for "Accredited Investor" status
as defined in Rule 501 of Regulation D under the Securities Act, and to the
maximum number of investors who do not meet such "Accredited Investor" criteria,
a minimum of 20 and a maximum of 50 units (the "Units"), each Unit consisting of
$50,000 of principal amount of the Company's 12% Convertible Subordinated
Debentures (the "Debentures"). The full terms of the offering of the Debentures
by the Company shall be more fully described in the private placement memorandum
which will be distributed to potential investors in the shares (the
"Memorandum").
2. Description of the Debentures. The relative rights, preferences and
limitations of the Debentures shall be, as follows:
Purchasing Price 100% of face value.
Closing Payment of funds into escrow; release of
funds to the Company upon delivery of
securities.
Term 3 years from the date of issuance.
Interest 12% per annum, payable quarterly on March 1,
June 1, September 1 and December 1 in
arrears, commencing on September 1, 1999.
This interest rate will only be guaranteed
for Debentures issued in the first tranche.
Redemption Rights The Debentures cannot be redeemed
during 12 months following the issue date.
Between'12 months and 18 months from the
issue date, the Company may redeem the
Debentures at its sole discretion from time
to time and in whole or in part, at a
<PAGE>
Interest Reserve
Conversion Rights
Registration Rights
Ranking
Security
redemption price of 100% of the principal amount thereof, together with accrued
and unpaid interest to the date of redemption, plus a 5% premium to the face
value. The Premium will be paid in Company's Common Stock with no registration
rights. If the Debentures are redeemed in part, redemption will be done on a
pro-rata basis.
The Company is required to maintain a fund sufficient to pay six months interest
on the Debentures.
The holders will have the right to convert the debenture into the common stock
of the company after 12 months from the issue date. Conversion price will be
$1.00 per share. After the 12 months from the issue date, should the share price
of the Company be equal to or greater than $1.50 per share for 20 consecutive
trading days, the Company shall have the right to force conversion of all
outstanding Debentures at the average of the share price during the said 20 day
trading period.
The Company agrees to register with Securities and Exchange Commission (the
"SEC"), the shares underlying the Debentures within 12 months of the Closing.
The Debentures will be expressly subordinated to, and subject in right of
payment to, the prior payment of the principal of, premium, if any, and interest
on Senior indebtedness (as defined).
Secured by a second priority security interest in all assets of the Company.
AsofMay2o, 1999
3. Terms of the Offering. The Units will be offered on a "best efforts, 20 Units
or none" basis, and thereafter on a "best efforts" basis until a maximum of 50
Units have been sold by the Placement Agent at a purchase price of $50,000 per
Unit. The Company, in its sole discretion, may accept subscriptions for
fractional Units. All proceeds received by the Company from subscribers for the
Units offered (the "Subscribers") will be held in escrow by Continental Stock
Transfer & Trust Company (the "Escrow Agent") and will be deposited by the
Escrow Agent in a non-interest bearing escrow account (the "Escrow Account"). If
at least 20 Units are subscribed on or before July 31, 1999 (the "Initial
Expiration Date"), which date may be extended by tife mutual consent of the
Company and the Placement Agent for an additional 30 days (the "Extended Initial
Expiration Date"), a closing (the "Initial Closing") will be held as soon as
practicable after the subscription documents for such Units have been accepted
by the Company and the Placement Agent and the funds held in the Escrow Account
will be paid to the Company on the date of such Initial Closing (less the
Placement Agent's applicable commissions, which will be retained by the
<PAGE>
Placement Agent and less the fees and expenses of the Offering). In such event,
the Company may continue to raise additional funds by offering the balance of
the unsold Units (up to 30 additional Units for a maximum of 50 Units). All such
additional sales must be completed not later than December 31, 1999 (the "Final
Expiration Date" which date may be extended by the mutual consent of the Company
and the Placement Agent through the January 31, 2000 (the "Extended Final
Expiration Date"). Unless 20 Units are subscribed for by the Expiration Date
(unless such date is extended to the Extended Initial Expiration Date, pursuant
to the mutual consent of the Company and the Placement Agent), the Offering will
terminate and all subscription proceeds will be promptly returned to the
subscribers without deduction or interest.
4. Appointment of the Placement Agent. On the basis of the representations,
warranties, covenants and agreements of the Placement Agent contained herein and
subject to the conditions contained herein, the Company hereby appoints the
Placement Agent as its agent to offer and sell to Accredited Investors the
Units, on a "best efforts, 20 Units or none" basis, and thereafter, on a "best
efforts" basis until a maximum of 50 Units have been sold. Prior to the
Expiration Date or the Extended Initial Expiration Date, as the case may be, the
Company shall not appoint any other agent to offer and sell the Units. If an
Initial Closing takes place, then Prior to the Final Expiration Date or the
Extended Final Initial Expiration Date, as the case may be, the Company shall
not appoint any other agent to offer and sell the Units. The Placement Agent, on
the basis of the representations, warranties, covenants and agreements of the
Company contained herein, and subject to the conditions contained herein,
accepts such appointment and agrees to use its best efforts to sell the Units.
It is understood that the Placement Agent has no commitment to sell the Units
other than to use its best efforts.
5. Purchase, Sale and Delivery of Units. On the basis of the
representations and warranties contained herein, and subject to the terms and
conditions set forth herein, the parties agree that:
(a) Regulation D Placement. Neither the offer nor the sale of the Units will be
registered with the SEC. The Units will be offered and sold in reliance upon the
exemption from registration provided by Regulation D ("Reg. D") adopted under
the Securities Act, and will only be sold to "Accredited Investors" as such term
is defined under Reg. D, and to such number of investors who shall not be
"Accredited Investors" as shall be permitted under Reg. D and any applicable
state securities laws; the Units will be offered for sale only in states in
which the Units are exempt from qualification or registration for sale and the
conditions for such exemption have been met; and the Company will provide the
Placement Agent for delivery to all offerees and purchasers and their
representatives, if any, with any information, documents and instruments which
the Placement Agent and the Company deem necessary to comply with the rules,
regulations and judicial and administrative interpretations concerning
compliance with applicable federal and state statutes and regulations.
(b) Subscription for Units. Subscription for Units shall occur by execution and
delivery by the Subscriber of a subscription agreement (the "Subscription
Agreement") in the form annexed to the Memorandum, together with such other
documents and instruments as are set forth in the Memorandum and payment of the
required subscription amount all in accordance with the terms of the
Subscription Agreement. <PAGE>
(c) Distribution of Proceeds; Closings. The proceeds of the Offering will be
held in the Escrow Account until such funds are released to the Company at the
closing of the Offering or returned to the Subscribers if the Offering is not
completed prior to the Expiration Date or Extended Expiration Date, as the case
may be. The Company shall deliver to the Placement Agent on each closing date,
on behalf of the Subscribers, the certificates evidencing the shares against
payment therefor, after deducting the amounts set forth in Section 6 below.
6. Compensation of Placement Agent. As compensation for its services
rendered as Placement Agent under this Agreement, if the Offering is
completed, the Placement Agent shall receive: (i) a sales commission equal to
10.0% of the gross proceeds from the sale of the Units, payable by deducting
the sales commission from such gross proceeds on each closing date, and (ii) a
non-accountable expense allowance equal to 3.0% of the gross proceeds from the
sale of the Units, and (iii) placement agent will receive 85,000 warrants
exercisable at $1.50 per share upon completion of the minimum offering, and
(iv) placement agent will also receive an additional 85,000 warrants
exercisable at $1.50 per share upon successful completion of AMEX listing.
On each closing date, the Company shall sell to the Placement Agent,
or its designees, for an aggregate price of $.001 per share, five-year
warrants (the "Placement Agent Warrants") to purchase 10% of the number shares
of the Company's common stock issuable upon conversion of the Debentures
issued to investors who shall have purchased and paid for Units on such date.
The exercise price of the Placement Agent Warrants shall be $1.10 per share.
The Placement Agent Warrants may be transferable to officers, directors,
consultants and shareholders of the Placement Agent. The Placement Agent
Warrants shall confer to the holders thereof one demand and unlimited piggy
back registration rights.
For a period of one year from the Closing Date, the Company hereby
grants to the Placement Agent the right to act as the Company's managing
underwriter or placement agent, as the case may be, in any public offering(s)
and/.or and private placement(s) to be effectuated by or on behalf of the
Company or any subsidiary provided that the material terms offered by the
Placement Agent are no less favorable than those offered by any other
underwriter, broker-dealer, or placement agent. In the event the Placement
Agent elects not to exercise its right of first refusal and the terms of the
proposed financing are subsequently changed, the Placement Agent shall again
be granted the right of first refusal to act as the exclusive managing
underwriter or placement agent, as the case may be, in any such financing as
modified. Notwithstanding anything contained in this Section to the contrary,
nothing hereunder shall obligate the Placement Agent to participate in any
such financing. If the Placement Agent elects not to exercise its right of
first refusal with respect to any proposed financing after being given the
opportunity to do so as herein above provided, the right of first refusal
shall expire as to all future financings. With respect to an initial public
offering of the Company's securities, the Company shall have the right, to
redeem such right of first refusal from the Placement Agent.
7. Representations and Warranties of the Company. The following representations
and warranties shall be binding upon the Company:
<PAGE>
(a) Memorandum. The Company will by the commencement of the Offering have
prepared the Memorandum, which wilt contain information, accurate as of the date
specified therein, of the kind specified by applicable statutes and regulations.
The Memorandum, as of its date and at all times subsequent thereto up to and
including the date of the Initial Closing, will not include any untrue statement
of a material fact, or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(b) Additional Information. The Company will provide to the Placement
Agent such information, documents and instruments as may be required under
Reg. D for an offer made to Accredited Investors pursuant to Reg. D.
(c) Reg. D Oualification. The Company will use its best efforts to ensure that
the offer and sale of the Units by the Company has satisfied, and on the Closing
Date will have satisfied, in all material respects, all of the requirements of
Reg. D.
(d) Finder's Fees. the Company has not incurred any liability for any finder's
fees or payments in connection with the transaction herein contemplated, except
as specifically provided in this Agreement. the Company agrees to indemnify the
Placement Agent with respect to any claim by any third party for a finder's fee
in connection with the Offering unless such third party's claim is based upon an
alleged agreement or understanding with the Placement Agent.
(e) Foreign Corrupt Practices Act. the Company has not, directly or indirectly,
at any time (i) made any contributions to any candidate for political office in
violation of law or failed to disclose fully any such contribution, or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. the Company'
internal accounting controls and procedures are sufficient to cause it to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
8. Covenants of the Company. The following covenants shall be binding
upon the Company:
(a) Memorandum. The Company will furnish the Placement Agent, during the
Offering, with as many copies of the Memorandum (and any amendments or
supplements thereto) as the Placement Agent may reasonably request. If, during
the Offering, any event occurs as a result of which the Memorandum, as then
amended or supplemented, would include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made in
light of the circumstances in which they were made not misleading, or if it
otherwise shall be necessary to amend or supplement the Memorandum to comply
with applicable law'; the Company will forthwith notify the Placement Agent
thereof, and furnish to the Placement Agent in such quantities as may be
reasonably requested, an amendment, supplement or amended or supplemented
Memorandum which corrects such statements or omissions or causes the Memorandum
to comply with applicable law. No copies of the Memorandum, or any exhibit
thereto, or any material prepared by the Company in connection with the Offering
will be given, without the prior written permission of the Placement Agent, by
the Company or its counsel or by a principal or agent of the Company to any
person not a party to this Agreement, unless such person is a director or
principal stockholder of, or directly employed by, the Company, or unless
required by law. <PAGE>
(b) State Securities Registration. The Company will cause its counsel to take
all necessary action and file all necessary forms and documents in order to
obtain an exemption from qualification or registration of the Debentures for
sale under the securities laws of the states in which offers or sales will be
made, such states to be mutually agreed upon between the Company and the
Placement Agent. The Company will promptly advise the Placement Agent:
(i) if any securities regulator of any state shall make a request or suggestion
of or to the Company of any amendment to the Memorandum or for any additional
information, including the nature and substance thereof, and
(ii) of the issuance of a stop order suspending the sale of the Debentures in
any state, including the initiation or threatening of any proceeding for such
purpose, and the Company will use its reasonable best efforts to prevent the
issuance of such a stop order, or if such an order shall be issued, to obtain
the withdrawal thereof at the earliest reasonably practicable date.
The Company will provide the Placement Agent with any additional
information, documents and instruments which the Placement Agent's counsel
shall determine to be necessary to comply with the rules, regulations and
judicial and administrative interpretations in those states and jurisdictions
where the Units are to be offered for sale or sold for delivery to all
offerees and purchasers. The Company will file all post-offering forms,
documents or materials and take all other actions required by states in which
the Units have been offered or sold. The Placement Agent will not make offers
or sales of the Units in any jurisdiction in which the Units are not exempt
from qualification or registration.
(c) Use of Proceeds. The Company intends to apply the net proceeds from this
Offering for the purpose of acquiring regional advertising agencies, printers
and an internet service provider.
(d) Reg. D Compliance. The Company will use its reasonable best efforts to
determine whether a Subscriber is an "Accredited Investor", and the Company will
comply in all respects with the terms and conditions of Reg. D and applicable
state securities laws with respect to the offering and the sale of the Units to
qualified investors.
(e) Reservation of Shares. The Company will reserve for issuance sufficient
shares of Common Stock for issuance in connection with the offering and sale of
the Units.
(f) Mergers and Acquisitions. In the event the Company effectuates a financial
reorganization, strategic alliance, merger, joint venture, acquisition or
similar transaction subsequent to the date hereof and on or prior to one year
from the date of termination of this Agreement, irrespective of any reason for
such termination, and such financial reorganization, strategic alliance, merger,
joint venture, acquisition or similar transaction is effectuated as a result or
consequence of any introduction made by the Placement Agent prior to such
termination, including, without limitation, any introduction made by any third
party to whom the Company was originally introduced by the Placement Agent, then
the Company hereby agrees to pay the Placement Agent the following cash
consideration, which payment shall be due and payable in cash on the date of any
such closing with respect thereto: <PAGE>
5% of the consideration from $1 and up to $5,000,000, plus 4% of the
consideration in excess of $5,000,000 and up to $10,000,000, plus 3% of the
consideration in excess of $ 10,000,000 and up to $15,000,000, plus 2% of the
consideration in excess of $15,000,000 and up to $20,000,000, plus 1% of the
consideration in excess of $20,000,000.
For purposes of this Agreement, "consideration" shall mean the value of the
transaction described herein and shall include the aggregate value of all cash,
securities, and other property and consideration of every kind, including but
not limited to assumption and forgiveness of indebtedness, the amount realized
under the terms of an "earn-out" provision, rights to receive periodic payments
and all other rights that may be at any time either (i) transferred or
contributed to the Company, its affiliates or shareholders in connection with an
acquisition of equity or assets thereof, or (ii) transferred or contributed by
the Company, its affiliates or shareholders in any transaction involving an
investment in or acquisition of any third party, or acquisition of the equity or
assets thereof, by the Company or any affiliate thereof, or (iii) transferred or
contributed by the Company, its affiliates or shareholders and any other parties
entering into any joint venture or similar joint enterprise or undertaking with
the Company or any affiliate thereof. The aggregate value of all such cash,
securities and other property shall be the aggregate fair market value thereof
as determined by the Placement Agent and the Company, or by an independent
appraiser jointly selected by the Placement Agent and the Company, the cost of
which shall be borne entirely by the Company. Notwithstanding anything to the
contrary herein, fees payable hereunder by the Company to the Placement Agent
with respect to amounts which are contingent or subject to later determination
shall only be payable upon receipt by the Company or final determination of such
amounts.
9. Representations Warranties and Covenants of the Placement Agent.
The Placement Agent represents, warrants and covenants to the Company that:
(a) Duly Registered. The Placement Agent is duly registered, pursuant to the
applicable provisions of the Exchange Act, as a dealer, and is a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD"), and
is duly registered as a broker-dealer in such states as the Placement Agent is
required to be registered in order to complete the Offering contemplated by this
Agreement and the Memorandum. In connection with the Offering, the Placement
Agent shall have the right at no additional compensation or cost to the Company
to select co-placement agents and to form a syndicate of selected dealers who
will assist it in the Offering. Any firm with which the Placement Agent
associates will be (i) a fully registered broker-dealer and a member of the
NASD, or (ii) a foreign broker-dealer and/or a member of a national stock
exchange of its country of origin who is lawfully registered or licensed to act
in such jurisdiction.
(b) No General Solicitation' or Advertising. The Placement Agent
has not and will not offer or sell the Units by means of
general solicitation or general advertising.
(c) Furnish Memoranda. A reasonable time prior to the date of the
Initial Closing and each closing subsequent thereto, the
Placement Agent will furnish to each offeree of the Units a
copy of the Memorandum, each supplement or amendment thereto,
a Subscription Agreement and a Confidential Subscriber
Questionnaire (the "Subscription Documents"). Notwithstanding
the foregoing, the delivery of the Memorandum shall not
<PAGE>
constitute an offer to sell the Units to any person. Such sale
may be made only upon acceptance by the Company of a
Subscriber's subscription, after a determination that the
Subscriber satisfies all of the applicable requirements. The
Placement Agent will not provide any other written information
to potential investors in the Units which has not been
approved in advance by the Company and its counsel.
(d) Reg. D Compliance. The Placement Agent will use its reasonable best efforts
to determine whether a Subscriber is an Accredited Investor. The Placement Agent
is not disqualified from participation in the Offering by reason of Rules 262(b)
and (c) of Regulation A and Reg. D. The Placement Agent will not conduct the
Offering contrary to any of the provisions of Reg. D or corresponding state
statutes or regulations.
(e) Blue Sky Compliance. The Placement Agent will solicit purchasers of the
Units only in those jurisdictions where such solicitation could and can be made
in and in which it is so qualified to act and will conduct the Offering in such
jurisdictions in full compliance with all applicable state statutes and
regulations.
(f) Finder's Fees. The Placement Agent has not incurred any liability for any
finder's fees or payments in connection with the transactions herein
contemplated, except as specifically provided in this Agreement. The Placement
Agent agrees to indemnify the Company and the Company with respect to any claim
by any third party for a finder's fee in connection with the Offering unless
such claim is based upon an alleged agreement or understanding with the Company.
(g) Subscription Documents. The Placement Agent will furnish to the Company
copies of all subscription documents completed by the Subscribers as well as
copies of any and all correspondence between the Placement Agent and the
Subscribers.
10. Conditions to Obligations.
(a) Conditions to Placement Agent's Obligations. The obligations of
the Placement Agent hereunder will be subject to the following conditions:
(i) Exemption. (A) The Offering contemplated by this Agreement will be exempt
from qualification or registration under the securities laws of the several
states pursuant to Section 10(b) above not later than the date of the Initial
Closing, and (B) at the Initial Closing and each subsequent Closing, no stop
order suspending the sale of the Units shall have been issued, and no proceeding
for that purpose shall have been initiated or threatened;
(ii) No Material Missstatements~Satisfactorv Memorandum. ...(A)
The Memorandum, or any amendment or supplement thereto, shall not
contain an untrue statement of a fact which is material, or omit to state a
fact, which is material and is required to be stated therein, or is necessary to
make the statements therein not misleading, and (B) the Memorandum shall be
reasonably satisfactory in form and in substance to the Placement Agent and its
legal and accounting advisors; <PAGE>
(iii) Compliance with Agreements. The Company will have complied with all
agreements and satisfied all conditions on its part to be performed or satisfied
in all material respects hereunder at or prior to the date of the Initial
Closing and on the date of each subsequent Closing;
(iv) Corporate Action. The Company will have taken all necessary
corporate action in connection with the performance by the Company of its
obligations hereunder and thereunder, if applicable, and the consummation of
the Offering;
(v) Opinion of Counsel. On the Closing Date, the Placement Agent will
have received from the Company's counsel, [ ] ("Company Counsel"), a signed
opinion in a form to be mutually agreed upon between the Company, the
Placement Agent and their respective counsels. In rendering its opinion,
Company Counsel may rely upon (1) opinions of counsel reasonably acceptable to
Placement Agent's counsel with respect to matters relating to the laws of any
jurisdiction other than [ ] and federal law or matters in which Company
Counsel was not significantly involved, (2) the certificates of government
officials and officers of the Company as to matters of fact, (3) the
genuineness of all signatures, and (4) the authenticity of the books and
records of the Company and such other qualifications and conditions consistent
with the Company Counsel's opinion practices.
(vi) Representations and Warranties. The representations and
warranties of the Company will be, as of the Closing Date, accurate in all
material respects.
(vii) Certificate of President. On the Closing Date, the Company will
have delivered a certificate of its President confirming the satisfaction of
the conditions set forth in this Section 10(a).
(b) Conditions to the Company's Obligations. The obligations of the
Company hereunder will be subject to the following conditions:
(i) Absence of Certain Events. No stop order or other judicial or
administrative action suspending the sale of the Units will have been issued,
and no proceeding for that purpose will have been initiated or threatened.
(ii) No Material Misstatements. The Memorandum, or any amendment or
supplement thereto, shall not contain an untrue statement of a fact which is
material, or omit to state a fact which is material and is required to be
stated therein or is necessary to make the statements therein not misleading.
(iii) Compliance witl Agreements. The Placement Agent will have
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder in all material respects at or prior to the
Closing Date.
<PAGE>
(iv) Corporate Action. The Placement Agent will have taken all necessary
corporate action, including, without limitation, obtaining the approval of the
Placement Agent's board of directors for the execution and delivery of this
Agreement and the performance by the Placement Agent of its obligations
hereunder and the consummation of the Offering.
(v) Registration. The Placement Agent will continue to be duly registered as a
member in good standing of the NASD and as a broker-dealer in states required
for the Offering.
(vi) Representations and Warranties. The representations and warranties of the
Placement Agent will be, as of the Closing Date, accurate in all material
respects.
(vii) Certificate. On the Closing Date, the Placement Agent will have delivered
a certificate of its President or Vice President confirming the satisfaction of
the conditions set forth in this Section 10(b).
11. Expenses of Sale.
(a) It shall be the Company's obligation, whether or not the Offering is
consummated, to bear all expenses in connection with the proposed Offering,
including, but not limited to the following: filing fees, printing costs,
experts and due diligence expenses, postage and mailing expenses with respect to
the transmission of Offering material, Company counsel and accounting fees,
issue and transfer taxes, if any, and the fees and disbursements of the
Placement Agent's counsel. It is agreed that the Placement Agent's counsel shall
perform any legal services that may be required in order to obtain exemptions
from registration or qualification of the Units under applicable state
securities laws. In this connection, Blue Sky applications shall be made in such
states and jurisdictions as shall be requested by the Placement Agent provided
that such states and jurisdictions do not require the Company to qualify as a
foreign corporation or to file a general consent to service of process.
(b) If the Offering is not completed because (i) of any reason solely within the
control of the Company, its management, or its stockholders, (ii) the Company
unilaterally withdraws the Offering from the Placement Agent for any reason
other than unreasonable delays by the Placement Agent, or (iii) of any material
discrepancy in any representation made to the Placement Agent or the failure of
the Company to meet any of its material obligations under this Agreement, then
the Company will be obligated to reimburse the Placement Agent for its
reasonable direct out-of-pocket costs, expenses and legal fees incurred in
connection with the Offering. Otherwise, the Company will not be obligated to
reimburse the Placement Agent for the Placement Agent's costs and expenses
incurred in connection herewith.
<PAGE>
12. Indemnification and Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify and hold
harmless the Placement Agent and each person, if any, who controls the Placement
Agent within the meaning of the Securities Act or the Exchange Act against any
losses, claims, damages or liabilities, joint or several, to which the Placement
Agent or such controlling person may become subject, under the Securities Act or
otherwise, to the extent and only to the extent such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or `alleged untrue statement of a material fact contained
(A) in the Memorandum, or (B) in any document executed by the Company filed in
any state or other jurisdiction in order to obtain an exemption from
registration or qualification of any or all of the Units under the securities
laws thereof (any such document being hereinafter called a "Blue Sky
Application"), or (ii) the omission or alleged omission to state in the
Memorandum or in any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein, under the circumstances in
which they were made, not misleading, and will reimburse the Placement Agent and
each such controlling person for any legal or other expenses reasonably incurred
by the Placement Agent or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by the Placement Agent or Blue Sky counsel specifically
for use in the preparation of the Memorandum or any such Blue Sky Application.
(b) Indemnification by the Placement Agent. The Placement Agent agrees to
indemnify and hold harmless the Company, its directors and officers and each
person, if any, who controls the Company within the meaning of the Securities
Act and the Exchange Act against any losses, claims, damages or liabilities,
joint or several, to which the Company or such controlling person may become
subject, under the Securities Act or otherwise to the extent such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in the Memorandum, or (B) in any Blue Sky
Application, or (ii) the omission or alleged omission to state in the Memorandum
or in any Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein, not misleading in each case to the
extent but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by the Placement
Agent or Blue Sky counsel specifically for use in the preparation of the
Memorandum or any such Blue Sky Application.
(c) Procedure. Within five (5) business days (unless shorter period
is required) of receipt by an indemnified party under this Section 12 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under
this Section 12, notify in writing the indemnifying party of the commencement
thereof; and the omission so to notify the indemnifying party will relieve it
from any liability under this Section 12 as to the particular item for which
indemnification is then being sought, but not from any other liability which
it may have to any
<PAGE>
indemnified party. In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the extent
that it may wish, jointly with any other indemnifying party, similarly notified,
to assume the defense thereof, with counsel who shall be to the reasonable
satisfaction of such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 12 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. Any such indemnifying party shall not be
liable to any such indemnified party on account of any settlement of any claim
or action effected without the consent of such indemnifying party.
(d) Contribution. If the indemnification provided for in this Section 12 is
unavailable to any indemnified party with respect to any losses, claims,
damages, liabilities or expenses referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party, will contribute to the
amount paid or payable by such indemnified party, as a result of such losses,
claims, damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand, and the Placement Agent on the other hand, from the offering of the Units,
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand, and of the Placement Agent on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand,
and the Placement Agent on the other hand, shall be deemed to be in the same
proportion as the total proceeds from the Offering (net of sales commissions and
non-accountable expense allowance, but before deducting expenses) received by
the Company relative to the commissions and non-accountable expense allowance
received by the Placement Agent. The relative fault of the Company on the one
hand, and the Placement Agent on the other hand, will be determined with
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company or the Placement Agent, and its relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount payable by a party as a result of the
losses, claims, damages, liabilities or expenses referred to above will be
deemed to include, subject to the limitations set forth in Section 12(e) below,
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
(e) Equitable Considerations. The Company and the Placement Agent agree that it
would not be just and equitable if contribution pursuant to this Section 12 were
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to in the
immediately preceding paragraph. No person committing fraudulent
misrepresentation (within the meaning of Section 1 1(f) of the Securities Act)
shall be entitled to contribution or indemnification from any person not
committing such fraudulent misrepresentation.
<PAGE>
13. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements of the Company and of the Placement Agent herein will
survive the delivery and execution hereof and the closing hereunder, and shall
remain operative and in full force and effect for a period of two years from the
Initial Closing Date or Final Closing Date, if there shall be more than one
closing, regardless of any investigation made by or on behalf of the Placement
Agent or any person who controls the Placement Agent within the meaning of the
Securities Act, or by the Company or any person who controls the Company within
the meaning of the Securities Act, and will survive delivery of the securities
constituting the Units hereunder and any termination of this Agreement.
Notwithstanding anything contained herein to the contrary, the Placement Agent
will promptly notify the Company if it becomes aware of any facts that could be
deemed to be a breach of any representation or warranty of the Company.
14. Termination.
(a) Either the Placement Agent or the Company will have the right to
terminate this Agreement by giving written notice as herein specified, at any
time, at or prior to the date of the Initial Closing:
(i) If the other shall have failed, refused, or been unable, at or prior to the
Offering Expiration Date, to perform any of its respective obligations
hereunder; or
(ii) If there has occurred an event materially or adversely affecting the value
of the Units or any of the Debentures.
(b) If the Placement Agent, the Company or the Company elects to
terminate this Agreement pursuant to Subsections (i) or (ii) hereof, notice
will be provided to the non-terminating party promptly by telephone,
telecopier or telegram, and such notification will be confirmed by written
notice as provided for in Section 15 below.
15. Notices. Any notice hereunder shall be in writing and shall be effective
when delivered by guaranteed next day deliver overnight courier service, or sent
by facsimile transmission, to the appropriate party or parties, at the following
addresses: if to the Placement Agent, to Catalyst Financial Corp., 16 East 52nd
Street, New York, New York 10022, Attention:
Mr. Steven N. Bronson (fax no. 212-832-1636); if to the Company,
to Statcomm Media Ltd., 1947 Lee Road, Winter Park, Florida
32789, Attention: [ ] (fax no. 407-628-0807).
16. Parties. This Agreement will be binding upon the Placement Agent, the
Company, and their respective successors and assigns. This Agreement is intended
to be, and is for the sole and exclusive benefit of the parties hereto, and
their respective successors and assigns, and for the benefit of no other person,
and no other person will have any legal or equitable right, remedy or claim
under, or in respect of this Agreement and the parties hereto may not assign any
of their rights or obligations hereunder. No purchaser of any of the Units will
be construed as successor or assign merely by reason of such purchase.
<PAGE>
17. Amendment and/or Modification. Neither this Agreement, nor any term or
provision hereof, may be changed, waived, discharged, amended, modified or
terminated orally, or in any manner other than by an instrument in writing
signed by each of the parties hereto.
18. Further Assurances. Each party to this Agreement will perform any and all
acts and execute any and all documents as may be necessary and proper under the
circumstances in order to accomplish the intents and purposes of this Agreement
and to carry out its provisions.
19. Validity. In case any term of this Agreement will be held invalid, illegal
or unenforceable, in whole or in part, the validity of any of the other terms of
this Agreement will not in any way be affected thereby.
20. Non-Waiver. The failure of any party hereto to insist upon strict
performance of any of the covenants and agreements herein contained, or to
exercise any option or right herein conferred in any one or more instances, will
not be construed to be a waiver or relinquishment of any such option or right,
or of any other covenants or agreements, and the same will be and remain in full
force and effect.
21. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the entire subject matter hereof,
and there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied herein. Any and all prior discussions, negotiations,
commitments and understanding relating thereto are superseded hereby. There are
no conditions precedent to the effectiveness of this Agreement other than as
stated herein, and there are no related collateral agreements existing between
the parties that are not referred to herein.
22. Counterparts. This Agreement may be executed in counterparts and each of
such counterparts will for all purposes be deemed to be an original, and such
counterparts will together constitute one and the same instrument.
[The balance of this page has been left blank intentionally]
<PAGE>
23. Law. This Agreement will be deemed to have been made and delivered in New
York, New York, and will be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York, without application of the principles of conflicts of law.
If the foregoing correctly sets forth our understanding, please so indicate in
the space provided below for that purpose, whereupon this letter will constitute
a binding agreement between us.
STRATCOMM MEDIA LTD,
A British Columbia corporation
Signed by Roberto E. Veitia, President
Confirmed and Accepted this 20th day of May, 1999 by the undersigned authorized
representative.
Catalyst Financial Corp.,
A Florida corporation
Signed by Steven N. Bronson, President
<PAGE>
Exhibit 10.14 consulting Agreement with TransGlobal Financial
<PAGE>
Exhibit 10.14 consulting Agreement with TransGlobal Financial
Friday, November 06, 1 998 01:29:00 PM TransGlobal Financial Corporation
1
Page 3 of 11
3
CONSULTING AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into this -- day of
November. 1998 by and between TransGlobal Financial Corporation
("TGF"), a Florida corporation having a place of business at 1800
Century Park East, Suit.e 600. Los Angeles, California 90067 and.
Stratcomm Media Limited ("the Company"), a Yukon, Canada corporation
having a place of business at 1947 Lee Road, Winter Park, FL 32789.
WITNESSETH
WHEREAS, the Company desires to obtain business and financial
advisory and services from TGF: and
WHEREAS, TGF desires to perform these services for the Company
on terms and conditions as set forth herein:
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and TGF hereto agree as follows:
1. Engagement of TGF: Subject to the terms of this Agreement.
the Company does hereby appoint and engage TGF as a consultant and TGF
hereby accepts its appointment and engagement by the Company as a
consultant to the Company with respect to the services specified in
paragraph 2 of this Agreement for the compensation set forth in
paragraph 4 of this Agreement.
2. Services:
(a) As mutually determined from time to time by the parties hereto. during the
term specified in paragraph 6 of this Agreement. TGF shall undertake to consult
with and advise the Company, by telephone or in person. with respect to
financial and business matters, including but not limited to assistance with
fund raising to implement its business plans: implementation of the o Friday,
November 06, 1 998 01:29:00 PM TransGlobal Financial Corporation Page 2 of 11
<PAGE>
Company's efforts to review capitalization, pursue mergers. acquisitions or
divestitures and other transactions on a non-exclusive basis.
(b) TGF agrees to spend a reasonable amount of time needed
to accomplish its services under this Agreement. and to be available
for telephone calls, meetings and other matters on as needed basis.
3. Term: Except as otherwise specified in Paragraph 4 hereof, this
Agreement shall be effective for three (3) years from its execution
by TGF and the Company, and will automatically renew for a new Term
unless either party notifies the other in writing 60 days prior to
the expiration of the current Term.
4. Compensation:
(a) As full consideration for the services to be provided
pursuant to Paragraph 2 of this Agreement (and in addition to the
expenses provided for in Paragraph 5 hereof), the Company shall pay
TOF the following fees:
i) Retainer Fee - The Company hereby agrees
to grant TGF. 500,000 warrants
convertible into the Company's 500.000
registered and free trading Common
Shares according to the Warrant Agreement
attached as Exhibit A to and made
an integral part of this Agreement. The
warrants will be exercisable at an
exercise price of SO. 18 per share. In
case of the merger of the Company
with and into, the consolidation of the
Company with. or the sale by the
Company of all or substantially all of
its assets to, another corporation
(other than such a transaction wherein the
shareholders of the Company retain or
obtain a majority of the voting capital
stock of the surviving, resulting or
purchasing corporation). all of the
Warrants shall become exercisable.
ii) Transaction Fees -
1. For financing secured on behalf of the Company by or through TCIF. the
Company will pay cash fees at the closing of such in financing an amount equal
to ten percent (1 0(degree)'~) of any and all funds committed and available to
the Company.
<PAGE>
2. In the event that TGF represents the
Company with respect to a merger.
acquisition. investment, exchange, or other
securities or assets of the Company and/or
a merger or acquisition candidate, then the
Company shall pay TOF a Transaction Fee
equal to 10% of the total market value on
the day of the closing of stock, cash,
assets and all other property (real or
personal) exchanged or received, directly
or indirectly by the Company or any of its
security holders in connection with any
such transaction.
3. In the event TGF introduces the Company
to a joint venture partner or customer and
sales develop as a result of the
introduction. the Company hereby agrees to
pay a fee often percent (10%) of the net
sales revenue generated directly from this
introduction. Net sales shall be cash
receipts less any applicable refunds,
returns, allowances, credits and shipping
charges and monies paid by the Company by
way of settlement or judgement arising out
of claims made by or threatened against the
Company. Commission payments shall be paid
on the 15th day of each month following the
receipt of customers' payment. In the event
any adjustments are made to the total sales
after the commission has been paid. the
Company shall be entitled to an appropriate
refund or credit against future payments
under this Agreement.
4. All financings or other transactions
shall be within the sole discretion of the
Company.
(b) All fees to be paid pursuant to this Agreement. except as otherwise
specified, are due and payable to TGF in cash at the closing or closings of any
transaction specified in Paragraph 4 hereof . In the event that this Agreement
shall not be renewed or if terminated for any reason, notwithstanding any such
non-renewal or termination. TGF shall be entitled to a full fee as provided
under Paragraphs 4 and 5 hereof, for any transaction for which the discussions
were initiated during the term of this Agreement and which is consummated within
a period of 36 (thirty six) months after non-renewal or termination of this
Agreement.
<PAGE>
(c ) The Company and TGF mutually agree that the status of
TGF is that of an independent contractor operating at its own risk.
TGF agrees that it is not and will not act. represent, describe or
hold itself out in any way, directly or by implication, as a
partner. joint venturer or agent of the Company and will not
describe itself as a representative for the Company, except with
respect to the performance of the services as contemplated by
paragraph 2 of this Agreement.
(d) The obligation of the Company to pay the Fees described
in subparagraph 3 of this Agreement shall be absolute and
unconditional as long TGF performs its obligations under this
Agreement. and shall be payable without offset. deduction or claim
of any kind or character.
(e) The Company hereby acknowledges that TOF may receive
additional compensation from one or more of TGF's subscribers,
clients and sources for various services which may include, in part.
services related to this Agreement.
5. Expenses: In addition to the fees payable hereunder, and regardless
of whether any transaction set forth in Paragraph 4 hereof is proposed
or consummated. the Company shall reimburse TGF for all fees and
disbursements of TGFs counsel and TGF's travel and out-of-pocket
expenses incurred in connection with the services performed by TGF
pursuant to this Agreement. including without limitation. hotels, food
and associated expenses and long distance calls. The Company shall have
the right to pre-approve any expenses under this paragraph.
6. Liability of TGF:
The Company acknowledges that all opinions and
advice (written or oral) given by TGF to
the Company in connection with TGF's
engagement are intended solely for the
benefit and use of the Company in
considering the transaction to which they
relate, and the Company agrees that no
person or entity other than the Company
shall be entitled to make use of or rely
upon the advice of TGF to be given
hereunder, and no such opinion or advice
shall be used for any other purpose or
reproduced.
<PAGE>
Friday. November 06, 1 998 01:29:00 PM TransGlobal Financial Corporation
Page 6 of 11
6
disseminated, quoted or referred to at any time. in any manner or for any
purpose. nor may the Company make any public references to TGF. or use TGFs name
in any annual reports or any other reports or releases of the Company without
TGF's prior written consent.
7. TGF's Services to Others: The Company acknowledges that TGF or its
affiliates are in the business of providing financial services and
consulting advice to others. Nothing contained herein shall be
construed to limit or restrict TGF in conducting such business with
respect to others, or in rendering such advice to others.
8. Company Information:
(a) The Company recognizes and confirms that,
in advising the Company and in fulfilling
its engagement hereunder. TGF will use and
rely on data. material and other
information furnished to TGF by the
Company. The Company acknowledges and
agrees that in performing its services
under this Agreement, TGF may rely upon
the data, material and other information
supplied by the Company without
independently verifying the accuracy,
completeness or veracity of same.
(b) Except as contemplated by the terms hereof
or as required by applicable law. TGF
shall keep confidential all material
non-public information provided to it by
the Company, and shall not disclose such
information to any third paty, other than
such of its employees and advisors as TGF
determines to have a need to know.
9. Indemnification:
(a) The Company shall indemnify and hold TGF harmless against any and all
liabilities. claims, lawsuits, including any and all awards and/or judgements to
which it may become subject under the Securities Act of 1933. as amended (the
"1933 Act"). the Securities Exchange Act of 1934. as amended (the "Act") or any
other federal or state statue, at common law or otherwise. insofar as said
liabilities, claims and lawsuits (including awards and/or judgements) arise out
of or are in connection with the services rendered b~ TGF or any transactions in
connection with this Agreement. except for any liabilities, claims and lawsuits
(including awards and/or judgements). arising out of acts or omissions of TGF.
In addition, the Company shall also indemnify and hold TGF harmless against
<PAGE>
Friday. November 06, 1 998 01:29:00 PM TransGlobal Financial Corporation
Page 6 of 11
6
any and all costs and expenses. including reasonable counsel fees. incurred or
relating to the foregoing.
TGF shall give the Company prompt notice of any such liability, claim or
lawsuit which TGF contends is the subject matter of the Company's
indemnification and the Company thereupon shall he granted the right to take
any and all necessary and proper action, at its sole cost and expense. with
respect to such liability, claim and lawsuit, including the right to settle,
compromise and dispose of such liability, claim or lawsuit, excepting therefrom
any and all proceedings or hearings before any regulatory bodies and/or
authorities.
TGF shall indemnify and hold the Company harmless against any and all
liabilities. claims and lawsuits. including any and all awards and/or
judgements to which it may become subject under the 1933 Act, the Act or any
other federal or state statue, at common law or otherwise, insofar as said
liabilities, claims and lawsuits (including awards and or judgements) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact required to be stated or necessary to make the statement therein,
not misleading. which statement or omission was made in reliance upon
information furnished in writing to the Company by or on behalf of TGF for
inclusion in any registration statement or prospectus or any amendment or
supplement thereto in connection with any transaction to which this Agreement
applies. In addition, TGF shall also indemnify and hold harmless against any
and all costs and expenses. including reasonable counsel fees. incurred or
relating to the foregoing.
The Company shall give to TGF prompt notice of any such liability, claim or
lawsuit which the Company contends is the subject matter of TGF's
indemnification and TGF thereupon shall be granted the right to take any and
all necessary and proper action, at its sole cost and expense. with respect to
such liability, claim and lawsuit, including the right to settle. compromise or
dispose of such liability, claim or lawsuit. excepting therefrom any and all
proceedings or hearings before any regulatory bodies and/or authorities.
(b) In order to provide for just and equitable
contribution under the Act in any case in
which (i) any person entitled to indemnification under this
section 9 makes claim for indemnification
<PAGE>
Friday, November 06, 1 998 01:29:00 PM TransGlobal Financial Corporation
Page 7 of 11
7
pursuant hereto but it is judicially determined (by the entry of a
final judgement or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal)
that such indemnification ma not be enforced in such case not
withstanding the fact that this section 9 provides for indemnification
in such case, or (ii) contribution under the Act may be required on the
part of any such person in circumstances for which indemnification is
provided under this Section 9. then, and in each such case, the Company
and TGF shall contribute to the aggregate losses, claims. damages or
liabilities to which they may be sub eat (after any contribution from
others) in such proportion taking into consideration the relative
benefits received by each party from the Transactions in connection
with this Agreement. the partiest' relative knowledge and access to
information concerning the matter with respect to which the claim was
assessed, the opportunity to correct and prevent any statement or
omission and other equitable considerations appropriate under the
circumstances: provided, however, that notwithstanding the above, in no
event shall TGF shall he required to contribute any amount in excess of
the 10% of the public offering price of any securities offered in
connection with this Agreement: and provided, that, in any such case.
no person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
Within fifteen (15) days after receipt by any party to this Agreement (or its
representative) of notice of the commencement of any action, suit or
proceeding. such party will, if a claim for contribution in respect thereof is
to be made against another party (the "Contributing Party"), notify the
Contributing Party of the commencement thereof, but the omission so to notify
the Contributing Party will not relieve it from any liability which it may have
to any other party other than for contribution hereunder. In case any such
action. suit or proceeding is brought against any party. and such party
notifies a Contributing Party or his or its representative of the commencement
thereof within the aforesaid fifteen (15) days. the Contributing Party will be
entitled to participate therein with the notifying party and any other
Contributing Party similarly notified. Any such Contributing Party shall not be
liable to any party seeking contribution on account of any settlement of any
claim, action or proceeding effected by such party seeking contribution without
the written consent of the Contributing Party. The indemnification provisions
contained in this action 9 are in addition to any other rights and remedies
which either party hereto may have with respect to the other or hereunder.
<PAGE>
oTuesday, November 1 0. 1 998 09:51 :1 6 AtTransGlobal Financial Corporatio
Page 1 of 3
9
10. Covenants of the Companv: The Company covenants and
agrees that it will:
(a) For the duration of this Agreement. furnish to TGF copies of such financial
statements and other periodic and special reports as the Company from time to
time furnishes generally to holders of any class of its securities or to its
directors and officers. and promptly furnish TOF (i) a copy of each periodic
report the Company shall be required to file with the Securities and Exchange
Commission ("Commission"). (ii) a copy of every press release and ever news
item and article with respect to the Company or its affairs which was released
by the Company. and (iii) such additional documents and information with
respect to the Company or its affairs or any future subsidiaries of the Company
as TGF may from time to time reasonably request.
(b) Apply the net proceeds from any funding secured from sources identified by
TGF according to the "Use of Proceeds" that the Company shall be obligated to
prepare prior to any such funding: and provide to TGF any periodic reports
requested b~ TGF showing the actual disbursements of funds to monitor if the
"Use of Proceeds" is complied with.
(c) Provide TGF. upon its request. at the Company's sole expense. with
access to daily consolidated financial transfer sheets relating to the
Company's securities.
(d) Notify TGF of each meeting of the Board of Directors ("the Board") where an
agenda item is presented that affects the efforts of TGF as outlined in this
Consulting Agreement. Paragraph 2~ subsection (a.) titled SERVICES. Under these
circumstances. TGF may send a representative ("Representative") to the Board
meeting for the purposes of facilitating the discussion on specific agenda
item(s). The Representative shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings. TGF shall be notified
fifteen (15) days in advance of such meeting.
The Company agrees to indemnify and
hold TGF harmless against any and all
claims, actions, damages, costs and
expenses. and judgements arising solely
out of the attendance and participation of
the Representative at any such meeting
described herein. In the event that the
Company shall maintain
<PAGE>
oFriday, November 06, 1998 01:29:00 PM TransGlobal Financial Corporatio
Page 11 ofli
11
a liability insurance policy affording coverage for the
acts of its officers and directors. It shall include the
Representative as an insured under such policy, if possible.
11 Notices: All notices. demands and requests required
and permitted to be given under the provisions of this Agreement
shall be deemed duly given if and when delivered personally or
mailed by certified mail, postage prepaid, addressed as follows or
to such other address as The Company or TGF may hereafter specify
in writing:
If to The Company:
1947 Lee Road
Winter Park. FL 32789
Attention: President
If to TGF:
TransGlobal Financial Corporation
1800 Century Park East. Suite 600
Los Angeles, CA 90067
Attention: Mike M. Mustafoglu. President
12. General:
(a) This Agreement embodies the entire agreement and
understanding between the Company and TGF with respect to the subject
matter hereof and it is expressly agreed that any prior agreement is or
understandings between The Company and TGF relating to the subject
matter of this Agreement. whether oral or written, are canceled by
execution of this Agreement
<PAGE>
(b) This Agreement shall be construed and governed in
accordance with the laws of the State of Florida.
(c) This Agreement shall be binding upon and inure to the
benefit of the Company and TGF and their respective
successors and assigns. Neither party shall have the
right to assign this contract.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
day and
written.
By:
Name: Roberto E.
Title: President
Ve it ia
IN WITNESS WHEREOF, The Company and TGF have
executed this Agreement as of the day and year first
above written
Stratcomm Media Limited
By
Name: Roberto E. Veitia
Title: President
TransGlobal Financial Corporation:
By:
Mike M. Mustafoglu
President
<PAGE>
Exhibit 10.15 Standard Gulf Atlantic Publishing, Inc. Client Contract
<PAGE>
Exhibit 10.15 Standard Gulf Atlantic Publishing, Inc. Client Contract
GULF ATLANTIC PUBLISHING, INC. AGREEMENT
This GULFATLANTIC PUBLISHING, INC. Agreement (the "Agreement") is
entered into on this day of ___________, 19_, between Gulf Atlantic
Publishing, Inc., a Florida corporation ("GAP"), and
______________________, a _______________ corporation ("Client").
Whereas, GAP is in the business of planning, developing and
implementing advertising, marketing and promotional campaigns for
corporations and other business entities ("Advertising and Promotional
Services");
Whereas, the Client desires to retain GAP to provide the
Advertising and Promotional Services, and GAP desires to provide such
Advertising and Promotional Services to Client, pursuant to the terms,
conditions and provisions contained in this Agreement;
Now, therefore, in consideration of the mutual promises contained
herein and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound hereby, agree as follows:
1. Advertising and Promotional Services. Subject to Client's
compliance with each of the representations, warranties and covenants and
agreements made by Client in this Agreement, GAP agrees to provide to
Client the Advertising and Promotional Services identified on Exhibit A
which is attached hereto and incorporated herein by reference, for the
period commencing on the latter of (the "Effective Date") the date that
this Agreement is executed and delivered by Client or the date that GAP
receives payment of its fees as herein provided and expiring on the 365th
day following the effective date of this Agreement (the "Term").
2. Obligations and Responsibilities of Client. As of the date
hereof and during the Term of this Agreement, Client agrees as follows.
1. Representation and Warranties.
Client represents and warrants to GAP that:
(1) Organization. Client is a corporation
duly organized, validly existing and in good standing
under the laws of the State of its incorporation and it is duly qualified
to do business as a foreign corporation in each jurisdiction in which it
owns or leases property or engages in business.
(2) Formal Action. Client has the
corporate power and authority to execute and deliver this Agreement and to
perform each of its obligations hereunder and this Agreement has been duly
approved by Client's Board of Directors.
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<PAGE>
(3) Valid and Binding Agreement. This
Agreement has been duly executed and delivered by Client and is the valid
and binding obligation of Client enforceable against it in accordance with
its terms.
(4) No Violation. The execution, delivery
and performance of this Agreement does not and will not violate any
provisions of the charter or bylaws of Client or any agreement to which
Client is a party or any applicable law or regulation or order or decree of
any court, arbitrator or agency of government and no action of, or filing
with, any governmental or public body or authority is required in
connection with the execution, delivery or performance of this Agreement.
(5) Litigation. No action, suit or
proceeding is pending against or affecting the Client or any of its
properties before any court, arbitrator or governmental body or
administrative agency and none of the persons owning beneficially or of
record more than 10% of the outstanding capital stock of the Client or any
of the directors or officers of Client is a party to any action, suit or
proceeding before any federal or state court, arbitrator or governmental
body or administrative agency (other than routine traffic violations) and
no such person has been a party to any such proceedings for more than the
past five years.
(6) Accuracy of Information. The
information furnished by Client to GAP regarding the business, operations,
financial condition, including financial statements, business plans and
biographical information regarding the Client's directors and officers
(collectively referred to as the "Information Package") is complete and
accurate in all material respects and does not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made not misleading.
2. Covenants and Agreements.
Client covenants and agrees to comply with the following
covenants:
(1) Client Certjfication. Client
acknowledges that it is responsible for the accuracy and completeness of
the Information Package and for all other information furnished to GAP and
for the accuracy and completeness of the contents of all materials prepared
by GAP for and on behalf of Client. The Client hereby designates the
individuals listed on Exhibit B attached hereto and incorporated herein by
reference as the duly authorized representatives of Client for purposes of
certifying to GAP the accuracy of all documents, advertisements or other
materials prepared by GAP for and on behalf of Client. The Client agrees to
promptly advise GAP in writing of any condition, event, circumstance or act
that would constitute a material adverse change in the business,
properties, financial condition or business prospects of the Client or
which would make any of the information contained in the Information
Package or in any report, advertorial or other
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<PAGE>
document prepared by GAP for and on behalf of Client misleading in any material
respect. Client hereby agrees that GAP and its directors, officers, agents and
employees may rely on the Information Package and on all other information
furnished by Client, and on each and every certification provided by an
authorized representative of Client, until GAP is advised in writing by an
authorized representative of Client that the information previously furnished to
GAP is inaccurate or incomplete in any material respect. Client acknowledges
that GAP shall have no obligation to provide services hereunder until it has
received a written certificate from an authorized representative of Client as
follows: GAP shall prepare proofs and/or tapes of the agreed upon materials and
information, as set for dissemination, for the Client's review and approval and
Client shall sign and return such materials marking all corrections and changes
that the Client believes appropriate. Client acknowledges that GAP will make
oral representations based on the information furnished hereunder and the Client
authorizes such representations.
(2) Books and Records. Client shall
maintain true and complete books, records and accounts in which true and
correct entries shall be made of its transactions in accordance with
generally accepted accounting principles consistently applied ("GAAP").
(3) Financial and Other Information. Client
agrees to furnish to GAP the following information:
(i) Annual Financial Statements. As soon as practicable, and in
any event within 90 days after the close of the Client's fiscal year,
annual financial statements including a balance sheet, an income statement,
a statement of cash flows, and a statement of stockholder's equity, and all
notes thereto prepared in accordance with GAAP and audited by an
independent certified public accountant.
(ii)Quarterly Financial Statements. As soon as practicable, and in
any event within 45 days after the end of each fiscal quarter, quarterly
financial statements, including a balance sheet, a quarterly and
year-to-date income statement, a statement of cash flows, and a statement
of stockholder's equity, prepared by Client in accordance with GAAP and
certified by the chief financial officer and chief executive officer of
Client as fairly presenting, subject to normal year-end audit adjustments,
the Client's fmancial position as of and for the periods indicated.
(4) GAP Reliance on Client's Full Disclosure. Client will provide,
or cause to be provided, to GAP all financial and other information
requested by GAP for the purpose of rendering its services pursuant to this
Agreement. Client recognizes and confirms that GAP will use such
information in performing the services contemplated by this Agreement
without independently verifying such information and that GAP does not
assume any responsibility for the accuracy or completeness of such
information. The persons executing this Agreement on behalf of Client
certify that there is no fact known to them which materially adversely
affects or may (so far as the Client's senior management can now reasonably
foresee) materially adversely affect the business, properties, condition
(financial or other) or operations (present or prospective) of the Client
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which has not been set forth in written form delivered by Client to GAP. The
persons executing this Agreement on behalf of Client agree to keep GAP promptly
<PAGE>
informed of any facts hereafter know to Client which materially adversely
affects or may (so far as the Client's senior management can now reasonably
foresee) materially adversely affect the business, properties, condition
(financial or other) or operations (present or prospective) of Client.
(5) Legal Representation. Client
acknowledges and agrees that it has been and will continue to be,
represented by legal counsel experienced in corporate and securities laws
and Client acknowledges that it has been advised as to the obligations
imposed on it pursuant to such laws and understands that it will have the
obligation and responsibility to see that all such laws are complied with
at all times during the Term of this Agreement.
3. Compensation. In consideration of the Advertising and
Promotional Services to be performed by GAP hereunder, Client hereby agrees
to compensate GAP in the manner and in the amount specified in Exhibit C
which is attached hereto and incorporated herein by reference thereto. In
addition to the compensation to be paid to GAP as provided in Exhibit C,
Client shall reimburse GAP promptly after a written request therefor
accompanied by appropriate documentation, for all reasonable out-of-pocket
expenses (including reasonable fees and disbursements of GAP's counsel, if
any) incurred in connection with providing services hereunder or to the
extent provided in Exhibit C.
4. Indemnity. Client acknowledges that it is responsible for the
accuracy of the Information Package and all other information provided to
GAP and for the contents of all materials, advertorials and other
information prepared by GAP for an on behalf of Client as provided herein
and Client agrees to indemnify GAP in accordance with the Indemnification
Agreement set forth in Exhibit D, which is attached hereto and incorporated
herein by reference.
5. Relationship of the Parties. This Agreement provides for the
providing of marketing, promotional and advertising services by GAP to
Client and the provisions herein for compliance with financial covenants,
delivery of financial statements, and similar provisions are intended
solely for the benefit of GAP to provide it with information on which it
may rely in providing services hereunder and nothing contained in this
Agreement shall be construed as permitting or obligating GAP to act as a
financial or business advisor or consultant to Client, as permitting or
obligating GAP to participate in the management of client's business, as
creating or imposing any fiduciary obligation on the part of GAP with
respect to the provisions of services hereunder and GAP shall have no such
duty or obligation to client, as providing or counseling Client as to the
compliance by Client with any federal or state securities or other laws
effecting the services to be provided hereunder, or as creating any joint
venture, agency, or other relationship between the parties other than as
explicitly and specifically stated in this Agreement. The Client
acknowledges that it has had the opportunity to obtain the advice of
experienced counsel of its own choosing in connection with the negotiation
and execution of this Agreement, the provision of services hereunder
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and with respect to all matters contained herein, including, without
limitation, the provisions of Section 4 hereof..
6. Survival of Certain Provisions. The
Client's obligations to pay the fees and expenses of GAP pursuant to
Section 3 of this Agreement and to comply with the
<PAGE>
indemnification provisions pursuant to Section 4 shall remain operative and
in full force and effect regardless of any termination of this Agreement
and shall be binding upon, and shall inure to the benefit of, GAP and, in
the case of the indemnity agreement, the persons, agents, employees,
officers, directors and controlling persons referred to in the
Indemnification Agreement, and their respective successors and assigns and
heirs, and no other person shall acquire or have any right under or by
virtue of this Agreement. All amounts paid or required to be paid under
Sections 3 and 4 of this Agreement shall be fully earned on the Effective
Date of this Agreement notwithstanding prior termination of this Agreement.
7. Termination. GAP shall have the right
in its sole and absolute discretion to terminate its obligations hereunder
and to immediately cease providing Advertising and Promotional Services
pursuant to this Agreement if GAP, in the exercise of its reasonable
judgment, believes that the representations and warranties made by Client
hereunder are inaccurate in any material respect or if Client breaches any
of its covenants and agreements contained herein or if any federal or state
governmental agency or instrumentality institutes an investigation or suit
against Client or pertaining to the services hereunder.
8. Non-Solicitation Covenant. Client
agrees that it will not directly or indirectly during the term of this
Agreement or for three years following the termination or expiration of
this Agreement, either voluntarily or involuntarily, for any reason
whatsoever, recruit or hire or attempt to recruit or hire any employee of
GAP or of any of its affiliates or subsidiaries, or otherwise induce any
such employees to leave the employment of GAP or of any of its affiliates
or subsidiaries or to become an employee of or otherwise be associated with
Client or any affiliate or subsidiary of Client. Client acknowledges that
GAP and its affiliates and subsidiaries have invested a significant amount
of time, energy and expertise in the training of their employees to be able
to provide Advertising and Promotional Services and Client therefore agrees
that this covenant is reasonable and agrees that the breach of such
covenant is very likely to result in irreparable injury to GAP, which is
unlikely to be adequately compensated by damages. Accordingly, in the event
of a breach or threatened breach by Client of this Section 8, GAP shall be
entitled to an injunction restraining Client and any affiliate, subsidiary
or director or officer thereof from recruiting, or hiring or attempting to
recruit or hire any employee of GAP or of any affiliate or subsidiary of
GAP. Nothing herein shall be construed as prohibiting GAP from pursuing any
other remedies available to GAP for such breach or threatened breach,
including recovery of damages from Client. The undertakings herein shall
survive the termination or cancellation of the Agreement for three years.
9. Miscellaneous.
A. GoverningLaw. This Agreement shall be governed by the laws of the State of
Florida applicable to contracts executed and performed in the Circuit Court,
Orange County, in the State of Florida (without regard to the principles of
conflicts of laws).
B. Entire Agreement. This Agreement and the Exhibits hereto embody the entire
agreement of the parties with respect to its subject matter. There are no
restrictions, promises, representations, warranties, covenants, or undertakings
other than those expressly set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to its subject matter.
C. Amendments to be in Writing. This Agreement may be amended only in a writing
signed by all of the parties.
<PAGE>
D. No Waivers by Course of Dealing; Limited Effect of Waivers. No waiver
shall be effective against any party unless it is in a writing signed by
that party. No course of dealing and no delay on the part of GAP in
exercising its rights shall operate as a waiver of that right or otherwise
prejudice GAP. GAP's failure to insist upon the strict performance of any
provision of this Agreement, or to exercise any right or remedy available
to GAP, shall not constitute a waiver by GAP of such provision. No specific
waiver by GAP of any specific breach of any provision of this Agreement
shall operate as a general waiver of the provision or of any other breach
of the provision. Client shall have no right to cure any breach except as
specifically provided herein.
E. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
F. Cumulation of Rights and Remedies. No right or remedy of GAP under this
Agreement is intended to preclude any other right or remedy and every right and
remedy shall coexist with every other right and remedy now or hereafter
existing, whether by contract, at law, or in equity.
G. Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the parties and their successors and assigns. Client shall not have
any right to assign any of its rights or delegate any of its obligations or
responsibilities under this Agreement except as expressly stated herein. H.
Payment of Fees and Expenses on Enforcing Agreement. In the event of any dispute
between the parties arising out of or related
to this Agreement or the interpretation thereof, at the trial level or
appellate level, the prevailing party shall be entitled to recover from the
non-prevailing party all costs and expenses, including reasonable fees and
disbursements of counsel which may be incurred in connection with such
proceeding, without limitation, including any costs and expenses of
experts, witnesses, depositions and other costs.
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I. Notices. Any notice or other communication required or permitted to be given
hereunder shall be in writing, and shall be delivered to the parties at the
addresses set forth below (or to such other addresses as the parties may specify
by due notice to the others). Notices or other communications shall be effective
when received at the recipient's location (or when delivered to that location if
receipt is refused). Notices or other communications given by facsimile
transmission shall be presumed received at the time indicated in the recipient's
automatic acknowledgment. Notices or other communications given by Federal
Express or other recognized overnight courier service shall be presumed received
on the following business day. Notices or other communications given by
certified mail, return receipt requested, postage prepaid, shall be presumed
received 3 business days after the date of mailing.
Client:
Attn:
Fax:
with a copy to:
Attn:
Fax:
<PAGE>
Company: Gulf Atlantic Publishing, Inc. 1947 Lee Road
Winter Park, FL 32789
Attn: Donald R. Philpott, President
Fax: (407) 628-0807
with a copy to:
J. Headings. The headings in this Agreement are intended solely for
convenience of reference. They shall be given no effect in the
construction or interpretation of this Agreement.
K. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not impair the validity or enforceability of any
other provision.
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In Witness Whereof, the parties have executed this Agreement
as of the date first above written.
Attest: Client:
By:
Secretary
[Corporate Seal]
Attest:
By:
Secretary
[Corporate Seal] Company: Donald R. Philpott,
President By:
------------------------------------------
President
Gulf Atlantic Publishing, Inc.
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GAP\pub-rel
Initials
<PAGE>
EXHIBIT A
Advertising and Promotional Services
The services to be provided are as follows:
A. A Four-Color Financial Sentinel -- Featured advertorial mailing
of_____ will be created of which a ________ page advertorial will
be dedicated to the Client.
<PAGE>
JuniorPage advertorial in
<PAGE>
______ separate issues of the financial Sentinel
B. A Four-Color Money-World Magazine-- Featured advertorial mailing of
______ will be created of which a ________ page advertorial will be dedicated to
the Client.
JuniorPage advertorial in _____ separate issues of MoneyWorld magazine.
C. A Four-Color Financial Sentinel Special Project -- Featured
advertorial mailing of_____ will be created of which a ____ page advertorial
will be dedicated to the Client.
The parties The parties hereto by signing this Exhibit in the space provided
below signify their agreement regarding the service the service to be provided
by GAP under the Agreement.
Client:
By:
President
Company:
Gulf Atlantic Publishing, Inc.
By:
--------------------
Donald R. Philpott, President
1
Client hereby designates the following person or persons to act on its
behalf for the purposes set forth in Section 2.B.(l) of the Agreement.
<PAGE>
DIRECTOR (PLEASE SIGN)
DIRECTOR (PLEASE PRINT)
PRESIDENT (PLEASE SIGN)
PRESIDENT (PLEASE PRINT)
VICE PRESIDENT (PLEASE SIGN)
COMPENSATION
1. Client agrees to issue to GAP ______ Dollars ($______) in cash
on execution and delivery of the Agreement or, at the option of Client, to
issue GAP______ shares of freely tradable Common Stock in Client (the
"Shares"), which Shares shall be duly and validly issued, fully paid and
nonassessable and shall not be issued in violation of any preemptive right
of any stockholders of client. The Shares shall be issued in compliance
with the exemption from the registration requirements of the Securities Act
of 1933 (the "Act") provided by Section 4(2) of the Act and/or pursuant to
Rules 505 or 506 of the General Rules and Regulation under the Securities
Act of 933.
2. If compensation is paid in shares, concurrently with the
issuance of the Shares, Client will execute and deliver the Registration
Rights Agreement attached hereto as Exhibit F under which the Client agrees
to register the Shares for sale in compliance with the Act as therein
provided and to comply with all conditions necessary or required to enable
the Shares to be sold pursuant to Rule 144 of the General Rules and
Regulation under the Securities Act of 1933.
3. Should the Company affect payment of this contract by the
tender of free-trading Client shares belonging to individuals, the Client
assures and guarantees GAP that the Client will not reimburse the
individuals for shares given GAP.
4. The Shares, if any, to be issued to GAP shall be approved for
issuance in accordance with the rules and regulations of any stock exchange
on which the Shares are listed for trading or by the NASDAQ if the shares
are listed for trading thereon and shall be issued in compliance with all
appropriate federal or state governmental rules and regulations.
<PAGE>
5. Client acknowledges that the consideration to be paid to GAP
shall be fully earned on the date that GAP commences providing services
under the Agreement regardless of whether the Agreement is terminated as
provided in the Agreement prior to completion of all services.
6. Client agrees to pay or reimburse GAP for all expenses arising
out of or related to the provision of services by GAP under
the Agreement to the extent provided in the Agreement and/or
in Exhibit A thereto.
7. "Options" mean the Options issuable, in certain circumstances,
pursuant to the Agreement which are exercisable for Common Stock.
Client shall issue options to GAP as outlined below.
Amount Price Duration
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____shares
______shares
______shares _____shares ______shares
at $______ at $
at $_____ at $_
at $______ at $
at $
OnOne (1) year from the date of this Agreement TwTwo (2) years from the
date of this Agreement ThrThree(3) years from the date of this
Agreement FoFour(4) years from the date of this Agreement FivFive (5)
years from the date of this Agreement. The parties hereto by signing
this Exhibit in the space provided below signify their agreement to the
Compensation provisions contained heredi Therein.
Client:
By:
Company:
By:
---------------------------------------------
,President
Gulf Atlantic Publishing, Inc.
4
Donald R. Philpott, President
<PAGE>
INDEMNIFICATION
This Indemnification Agreement constitutes part of the Gulf
Atlantic Publishing Agreement (the Agreement) dated the ____ day of
________, 19_, between Client (as defined in the Agreement) and GAP.
Client acknowledges and agrees that if, in connection with the
services or matters that are the subject of or arise out of such Agreement,
GAP becomes involved (whether or not as a named party) in any action, claim
or legal proceeding (including any governmental inquiry or investigation),
Client agrees to reimburse GAP for its reasonable legal fees, disbursements
of counsel and other expenses (including the cost of investigation and
preparation) as they are incurred by GAP. Client also agrees to indemnify
and hold GAP harmless against any losses, claims, damages or liabilities,
joint or several, as incurred, to which GAP may become subject in
connection with the services or matters which are the subject of or arise
out of the Agreement; provided, however, that Client shall not be liable
under the foregoing indemnity in respect of any loss, claim, damage or
liability to the extent that a court having jurisdiction shall have
determined by a final judgment that such loss, claim, damage or liability
is a consequence of intentional fraudulent acts committed by GAP without
the knowledge and/or consent of Client. In the event that the foregoing
indemnity is unavailable by operation of law, then Client shall contribute
to amounts paid or payable by GAP in respect of such losses, claims,
damages and liabilities in the proportion that Client's interest bears to
GAP's interest in the matters contemplated by the Agreement. If, however,
the allocation provided by the immediately preceding sentence is not
permitted by applicable law, or otherwise, then Client shall contribute to
such amount paid or payable by GAP in such proportion as is appropriate to
reflect not only such relative interests but also the relative fault of
Client on the one hand and GAP on the other hand in connection with the
matters as to which such losses, claims, damages or liabilities relate and
other equitable considerations.
Promptly after GAP's receipt of notice of the commencement of any
action or of any claim, GAP will, if a claim in respect thereof is to be
made against Client under this Indemnity Agreement, notify Client of the
commencement thereof. In case any such action or claim is brought against
GAP, Client will be entitled to participate therein and, to the extent that
Client may wish, to assume the defense thereof, with counsel satisfactory
to GAP. After notice from Client to GAP of Client's election to so assume
the defense thereof, Client will not be liable to GAP for indemnification
as provided in the preceding paragraph for any legal fees, disbursements of
counsel or other expenses subsequently incurred by GAP in connection with
the defense thereof other than reasonable costs of investigation; provided
that GAP shall have the right to employ separate counsel if, in the
reasonable judgment of GAP's counsel, it is advisable far GAP to be
represented by separate counsel
5 _____
Initials
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Initials
or if in the reasonable judgment of GAP's counsel, Client is not vigorously and
actively defending against any such claim or claims, and in either such event
the reasonable legal fees and disbursements of such separate counsel shall be
paid by Client.
The foregoing agreements shall apply to any modification of the
Agreement, shall remain in full force and effect following the completion or
termination of GAP's engagement under the Agreement and shall be in addition to
any rights that GAP may have at common law or otherwise. The agreements in this
Indemnification Agreement shall extend to and inure to the benefit of each
person, if any, who may be deemed to control GAP, be controlled by GAP or be
under common control with GAP and to GAP's, and to each such other person's
respective affiliates, directors, officers, employees and agents. This
Indemnification Agreement shall be binding on any successor of Client.
Client represents that the Indemnification Agreement contained
herein is the legal, valid, bindingnd enforceable obligation of Client,
enforceable against Client according to its terms.
This Indemnification Agreement shall be governed by, and
construed in accordance with, the laws of the State of Florida without regard to
principles of conflicts of law, and the forum for resolution of legal and
interpretative issues shall be the Federal District courts in the State of
Florida.
The parties hereto by signing this Exhibit in the space provided
below signify their agreement to the indemnification provisions contained
herein.
Client:
By: _____________________
President
Company: Gulf Atlantic Publishing, Inc.
By: _____________________
Donald R. Philpott, President
<PAGE>
EXHIBIT E
ABATEMENT CLAUSE
The parties to this contract understand and
agree that Client is under a federal mandate to become fully reporting and
approved for listing by the Securities and Exchange commission by a time certain
or be delisted from the Electronic Bulletin Board.
The Client and GAP understand and agree that
should the Company be delisted from the Bulletin Board such an event would
unduly interfere with GAP's ability to fulfill its contractual obligations.
WHEREFORE, the Client and GAP hereby agree that
should the Client be delisted from the Electronic Bulletin Board for any reason,
GAP's obligations under this contract shall be abated until such time as the
Client is relisted and resume trading on the Electronic Bulletin Board.
Should the Client fail to gain relisting within
one hundred twenty (120) days of being delisted, GAP amy treat that even as a
material breach of this contract. In such event, GAP may declare the contract
void through breach and retain whatever payments have been made as liquidated
damages.
Client:
By:
President
Company: Gulf Atlantic Publishing, Inc
By:
Donald R. Philpott, President
<PAGE>
EXHIBIT F
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this
"Registration Agreement") is made and entered into as of ____________, 199_
by and between Gulf Atlantic Publishing, Inc., a Florida corporation (GAP),
and ______________, a _________ corporation (the Client).
WHEREAS, GAP concurrently with the execution
of this Registration Agreement is acquiring shares of the Client's common
stock, par value $_____ per share ("Common Stock") and/or options to
purchase shares of Common Stock; and
WHEREAS, as a condition to such acquisition,
the parties are willing to enter into the agreements contained herein.
NOW, THEREFORE, in consideration of the
foregoing and of the mutual covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:
Section 1. Definitions
"Affiliate" means, with respect to any
Person, any other Person which, directly or indirectly, controls, is
controlled by or is under common control with such Person.
"Agreement" means the Public Relations and Advertising Agreement
dated as of the date of this Registration Agreement between GAP and Client.
"Client" is defined in the Preamble to this Registration
Agreement.
"Common Stock" is defined in the Recitals to this Registration
Agreement.
"GAP" is defined in the Preamble to this Registration Agreement.
"Holder" is defined in Section 2.1 hereof.
"Lock-Up Period" is defined in Section 2.1 hereof.
"Options" mean the Options issuable, in certain circumstances,
pursuant to the Agreement, which are exercisable for Common Stock.
"Other Holders" is defined in Section 4.3 hereof.
8
"Person" means an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and government or any
department or agency thereof.
<PAGE>
"Piggyback Notice" is defined in Section 4.1 hereof.
"Piggyback Registration" is defined in Section 4.1 hereof.
"Registrable Securities" means (i) the Common Stock issued to GAP
pursuant to the Agreement, (ii) any Common Stock issued to GAP pursuant to
the exercise of Options, and (iii) any securities issued or issuable with
respect to the Common Stock referred to in clauses (i) or (ii) by way of
replacement, share dividend, share split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Registration Agreement" is defined in the Preamble to this
Registration Agreement.
"Registration Expenses" is defined in Section 6.1 hereof.
"Restricted Securities" is defined in Section 2.1 hereof.
"SEC" means the Securities and Exchange Commission.
"Securities Act"means the Securities Act of 1933, as amended, or
any similar federal law then in force.
"Transfer"is defined in Section 2.1 hereof.
Section 2. Restrictions on Transfer
2.1 Lock-Up Period. Without the express prior written consent of
the Client, GAP agrees that, except as set forth in Section 2.2 below, it
will not, directly or indirectly, offer, sell, contract to sell or
otherwise dispose of (or announce any offer, sale, contract of sale or
other disposition of) ("Transfer") any Registrable Securities or Options
(collectively, "Restricted Securities") prior to the first anniversary
following the date of this Registration Agreement.
2.2 Permitted Transfers. The restrictions contained in this
Section 2 will not apply with respect to any of the following transactions
(each, a "Permitted Transfer"):
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Initials
2.2.1 a natural person may Transfer Restricted Securities to his or her spouse,
siblings, parents or any natural or adopted children or other descendants or to
any personal trust in which such family members or such transferee retains the
entire beneficial interest; 2.2.2 GAP may (A) Transfer Restricted Securities to
one or more other entities that are wholly owned and controlled, legally and
beneficially, by GAP or an Affiliate, or (B) Transfer Restricted Securities by
distributing such Restricted Securities in a liquidation, winding up or
otherwise without consideration to the equity owners of such corporation,
partnership or business entity or to any other corporation, partnership or
business entity that is wholly owned by such equity owners; or (C) Transfer
Restricted Securities to a director, officer or key employee of GAP or an
Affiliate;
2.2.3 a transferee acquiring Restricted Securities in a Permitted Transfer may
Transfer Restricted Securities on his or her death or mental incapacity to such
Person's estate, executor, administrator or personal representative or to such
Person's beneficiaries pursuant to a devise or bequest or by the laws of descent
and distribution; or <PAGE>
2.2.4 GAP or any transferee acquiring Restricted Securities in a Permitted
Transfer may Transfer Restricted Securities pursuant to an effective
Registration Statement as provided herein or pursuant to an exemption from the
registration requirements of the Securities Act.
If any Person Transfers Restricted Securities
as described in this Section 2.2, such Restricted
Securities shall remain subject to this Registration Agreement and, as a
condition of the validity of such Transfer, the transferee shall be
required to execute and deliver a counterpart of this Registration
Agreement. Thereafter, such transferee shall be deemed to be a Holder for
purposes of this Registration Agreement.
2.3 Rights of Subsequent Holder. Subject to the foregoing
restrictions, the Client and GAP hereby agree that any subsequent holder of
Registrable Securities shall be entitled to all benefits hereunder as a
holder of such securities.
Section 3. Demands for Registration.
3.1 Demand Period3. 1 From the date hereof, until the date which
is four years from the date hereof (the "Demand Period"), subject to the
terms and conditions set forth herein, GAP and the Permitted Transferees
will have in the aggregate three opportunities, in addition to other rights
enumerated in this Registration Agreement, to request registration under
the Securities Act of all or part of its Registrable Securities (a "Demand
Registration"). The Holders of 50% or more of the Registrable Securities
shall have the right to exercise the registration rights under this Section
3.
3.2 Demand Procedure.
3.2.1 Subject to Sections 3.2.2 and 3.2.4 below,
during the Demand Period any Holder or
combination of Holders (the "Demanding
Shareholders") owning 50% or more of the
Registrable Securities may deliver to the Client
a written request (a "Demand Registration
Request") that the Client register any or all of
such Demanding Shareholders' Registrable Shares.
3.2.2 Holders, in the aggregate, may only make one Demand Registration
Request in each six-month period during the
Demand Period (the "Interim Demand Periods").
The Client shall only be required to file one
registration statement (as distinguished from
supplements or pre-effective or post-effective
amendments thereto) in response to each Demand
Registration Request.
3.2.3 A Demand Registration Request from Demanding Shareholders shall (i) set
forth the number of Registrable Securities intended to be sold pursuant to the
Demand Registration Request (ii) disclose whether all or any portion of a
distribution pursuant to such registration will be sought by means of an
underwriting, and (iii) identify any managing underwriter or managing
underwriters proposed for the underwritten portion, if any, of such
registration. <PAGE>
3.2.4 If during any Interim Demand Period, the Client receives a Demand
Registration Request from Demanding Shareholders for the registration of
Registrable Securities having an aggregate market value of $100,000 or greater,
as determined according to the closing price of the Common Stock on the NASDAQ
National Market, on the Bulletin Board or in the Pink Sheets on the date of such
Demand Registration Request, then the Client shall, subject to the limitations
in Sections 3.2.5 and 3.2.6 hereof, (i) use its reasonable best efforts to
prepare and file within 30 days of receipt of the Demand registration request
with the SEC a registration statement under the Securities Act with respect to
all the Registrable Securities that the Demanding Shareholders requested to be
registered in the Demand Registration Request, (ii) use its reasonable best
efforts to cause such registration statement to become effective within 75 days
of receipt of the Demand Registration Request, and (iii) if such registration
can be accomplished by means of a registration statement on Form S-3, keep such
registration statement effective until such time as the Demanding Shareholders
shall have sold or otherwise disposed of all of their Registrable Securities
included in the registration. If such registration cannot be accomplished by
means of a registration statement on Form S-3, the Client shall use its
reasonable best efforts to keep such registration statement effective for at
least 180 days.
3.2.5It is anticipated that the registration contemplated under this Section 3
will be accomplished by means of the filing of a Form S-3, and that
registration on such form will allow for different means of distribution,
including sales by means of an underwriting as well as sales into the open
market. If the Demanding Shareholders desire to distribute all or part of
the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Client in writing in their initial
Demand Registration Request as described in Section 3.2.3 above. A
determination of whether all or part of the distribution will be by means
of an
3.2.1 Subject to Sections 3.2.2 and 3.2.4 below,
during the Demand Period any Holder or combination of Holders (the
"Demanding Shareholders") owning 50% or more of the Registrable
Securities may deliver to the Client a written request (a "Demand
Registration Request") that the Client register any or all of such
Demanding Shareholders' Registrable Shares.
3.2.2 Holders, in the aggregate, may only make
one Demand Registration Request in each six-month period during
the Demand Period (the "Interim Demand Periods't). The Client
shall only be required to file one registration statement (as
distinguished from supplements or pre-effective or post-effective
amendments thereto) in response to each Demand Registration
Request.
3.2.3 A Demand Registration Request from
Demanding Shareholders shall (i) set forth the number of
Registrable Securities intended to be sold pursuant to the Demand
Registration Request (ii) disclose whether all or any portion of a
distribution pursuant to such registration will be sought by means of an
underwriting, and (iii) identify any managing underwriter or managing
underwriters proposed for the underwritten portion, if any, of such
registration.
3.2.4 If during any Interim Demand Period, the
Client receives a Demand Registration Request from
Demanding Shareholders for the registration of Registrable Securities
having an aggregate market value of $100,000 or greater, as determined
<PAGE>
according to the closing price of the Common Stock on the NASDAQ National
Market, on the Bulletin Board or in the Pink Sheets on the date of such
Demand Registration Request, then the Client shall, subject to the
limitations in Sections 3.2.5 and 3.2.6 hereof, (i) use its reasonable best
efforts to prepare and file within 30 days of receipt of the Demand
registration request with the SEC a registration statement under the
Securities Act with respect to all the Registrable Securities that the
Demanding Shareholders requested to be registered in the Demand
Registration Request, (ii) use its reasonable best efforts to cause such
registration statement to become effective within 75 days of receipt of the
Demand Registration Request, and (iii) if such registration can be
accomplished by means of a registration statement on Form S-3, keep such
registration statement effective until such time as the Demanding
Shareholders shall have sold or otherwise disposed of all of their
Registrable Securities included in the registration. If such registration
cannot be accomplished by means of a registration statement on Form S-3,
the Client shall use its reasonable best efforts to keep such registration
statement effective for at least 180 days.
3.2.5 It is anticipated that the registration
contemplated under this Section
3 will be accomplished by means of the filing of a Form S-3, and
that registration on such form will allow for different means of
distribution, including sales by means of an underwriting as well as sales
into the open market. If the Demanding Shareholders desire to distribute
all or part of the Registrable Securities covered by their request by means
of an underwriting, they shall so advise the Client in writing in their
initial Demand R~gistration Request as described in Section 3.2.3 above. A
determination of whether all or part of the distribution will be by means
of an
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Initials
underwriting shall be made by Demanding Shareholders holding a majority of the
Registrable Securities to be included in the registration. If all or part of the
distribution is to be by means of an underwriting, all subsequent decisions
concerning the underwriting which are to be made by the Demanding Shareholders
pursuant to the terms of this Registration Agreement, which shall include the
selection of the underwriter or underwriters to be engaged and the
representative, if any, of the underwriters so engaged, shall be made by the
Demanding Shareholders who hold a majority of the Registrable Securities to be
included in the underwriting, subject to approval by the Board of Directors of
the Client.
3.2.6 Upon the receipt by the Client of a Demand
Registration Request in accordance with Section
3.2.4 hereof, the Client shall, within ten days following receipt of such
Demand Registration Request, give written notice of such request to all
Holders. The Client shall include in such notice information concerning
whether all, part or none of the distribution is expected to be made by
means of an underwriting, and, if more than one means of distribution is
contemplated, may require Holders to notify the Client of the means of
distribution of their Registrable Securities to be included in the
registration. If any Holder who is not a Demanding Shareholder desires to
sell any Registrable Securities owned by such Holder, such Holder may elect
to have all or any portion of its Registrable Securities included in the
registration statement by notifying the Client in writing (a "Supplemental
Demand Registration Request") within 20 days of receiving notice of the
Demand Registration Request from the Client. The right of any Holder to
include all or any portion of its Registrable Securities in an underwriting
shall be conditioned upon the Client's having received a timely written
request for such inclusion by way of a Demand Registration Request or
Supplemental Demand Registration Request (which right shall be further
conditioned to the extent provided in this Registration Agreement). All
Holders proposing to distribute their Registrable Securities through an
underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting.
<PAGE>
3.2.7 Notwithstanding any other provision of
this Section 3, if an underwriter advises the Client
in writing that marketing factors require a limitation on the number of
shares to be underwritten, then the number of shares of Registrable
Securities that may be included in the underwriting shall be allocated
among the Holders in proportion (as nearly as practicable) to the
respective amounts of Registrable Securities each Holder owns (or in such
other proportion as they shall mutually agree). Registrable Securities
excluded or withdrawn from the underwriting in accordance with this Section
3.2.7 shall be withdrawn from the registration.
3.3 Priority on Request Registration. The Client will not include
in any Demand Registration any securities which are not Registrable
Securities without the prior written consent of the Holders of a majority
of the shares of Registrable Securities included in such registration. If a
Demand Registration is an underwritten offering and the managing
underwriters advise the Client in writing that in their opinion the number
of Registrable Securities and, if permitted hereunder, other securities
requested to be included in such offering exceeds the number of securities
that can be sold in an orderly manner in such offering within a price range
acceptable to the Holders of a majority of the shares of Registrable
Securities initially requesting
Initials
registration, the Client will include in such registration prior to the
inclusion of any securities which are not Registrable Securities the number
of shares of Registrable Securities requested to be included that in the
opinion of such underwriters can be sold in an orderly manner within such
acceptable price range, pro rata among the respective Holders thereof on
the basis of the number of shares of Registrable Securities owned by each
such Holder.
Section 4. Piggyback Registrations
4.1 Right to Piggyback. If the Client proposes to undertake an
offering of shares of Common Stock for its account or for the account of
other stockholders and the registration form to be used for such offering
may be used for the registration of Registrable Securities (a "Piggyback
Registration"), each such time the Client will give prompt written notice
to all Holders of Registrable Securities of its intention to effect such a
registration (each, a "Piggyback Notice") and, subject to Sections 4.3 and
4.4 hereof, the Client will use its best efforts to cause to be included in
such registration all Registrable Securities with respect to which the
Client has received written requests for inclusion therein within 20 days
after the date of sending the Piggyback Notice.
4.2 Priority on Primary Registrations. If a Piggyback Registration
is an underwritten primary registration on behalf of the Client, and the
managing underwriters advise the Client in writing that in their opinion
the number of securities requested to be included in such registration
exceeds the number that can be sold in an orderly manner within a price
range acceptable to the Client, the Client will include in such
registration (a) first, the securities the Client proposes to sell and (b)
second, the Registrable Securities requested to be included in such
registration and any other securities requested to be included in such
registration that are held by Persons other than the Holders of Registrable
Securities pursuant to registration rights, pro rata among the holders of
Registrable Securities and the holders of such other securities requesting
such registration on the basis of the number of shares of such securities
owned by each such holder.
4.3 Priority on Secondary. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of the Client's
securities other than the Holders of Registrable Securities (the "Other
Holders"), and the managing underwriters advise the Client in writing that
in their opinion the number of securities requested to be included in such
registration exceeds the number that can be sold in an orderly manner in
such offering within a price range acceptable to the Other Holders
requesting such registration, the Client will include in such registration
(a) first, the securities requested to be included therein by the Other
Holders requesting such registration and (b) second, the Registrable
Securities requested to be included in such registration hereunder, pro
rata among the Holders of Registrable Securities requesting such
registration on the basis of the number of shares of such securities owned
by each such Holder.
<PAGE>
4.4 Selection of Underwriters4. In the case of an underwritten
Piggyback Registration, the Client will have the right to select the
investment banker(s) and manager(s) to administer the offering.
Section 5. Registration Procedures Section.
Whenever the Holders of Registrable Securities have
requested that any Registrable Securities be sold pursuant to this
Registration Agreement, the Client will use its reasonable best efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof, and pursuant
thereto the client will as expeditiously as possible:
5.1.1 Registration Statement. Prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use
its reasonable best efforts to cause such registration statement to become
effective.
5.1.2 Amendments and Supplements. Promptly prepare and file with
the SEC such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for the period required by the
intended method of disposition and the terms of this Registration Agreement
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement.
5.1.3 Provision of Copies. Promptly furnish to each seller of
Registrable Securities the number of copies of such registration statement,
each amendment and supplement thereto, the prospectus included in such
registration statement (including each preliminary prospectus) and such
other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
seller.
5.1.4 Blue Sky Laws. Use its reasonable best efforts to register
or qualify such Registrable Securities under the securities or blue sky
laws of such jurisdictions as any seller reasonably requests and do any and
all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of
the Registrable Securities owned by such seller, provided, that the Client
will not be required to (a) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this Section 5.1.4, (b) subject itself to taxation in any such jurisdiction
or (c) consent to general service of process in any such jurisdiction.
5.1.5 Anti-fraud Rules.. Promptly notify each seller of such
Registrable Securities when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a
result of which the prospectus included in such registration statement
contains an untrue statement of a material fact or omits any material fact
necessary to make the statements therein not misleading, and in such event,
at the request of any such seller, the Client will promptly prepare a
supplement or amendment to such prospectus so that, as
<PAGE>
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading,
provided, that the Client will not take any action which causes the prospectus
included in such registration statement to contain an untrue statement of
material fact or omit any material fact necessary to make the statements therein
not misleading, except as permitted by Section 5.5.
5.1.6 Securities Exchange Listings.. Use its
reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which securities of
the same class issued by the Client are then listed and use its reasonable
best efforts to qualify such Registrable Securities for trading on each
system on which securities of the same class issued by the Client are then
qualified.
5.1.7 Underwriting Agreements. Enter into
such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
holders of a majority of the shares of Registrable Securities being sold or
the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.
5.1.8 Due Diligence. Make available for
inspection by any underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other agent
retained by any such underwriter, all financial and other records,
pertinent corporate documents and properties of the Client, and cause the
Client's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such underwriter,
attorney, accountant or agent in connection with such registration
statement.
5.1.9 Earning Statement. Otherwise use its
best efforts to comply with all applicable rules and
regulations of the SEC, and make available to its security holders, as soon
as reasonably practicable, an earning statement covering the period of at
least twelve months beginning with the first day of the Client's first full
calendar quarter after the effective date of the registration statement,
which earning statement shall satisfy the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder.
5.1.10 Deemed Underwriters or Controlling
Persons. Permit any Holder of Registrable Securities which Holder, in such
Holder's reasonable judgment, might be deemed to be an underwriter or a
controlling person of the Client, to participate in the preparation of such
registration or comparable statement and to require the insertion therein
of material in form and substance satisfactory to such Holder and to the
Client and furnished to the Client in writing, which in the reasonable
judgment of such Holder and its counsel should be included.
5.1.11 Management Availability.. In connection
with underwritten offerings, make available
appropriate management personnel for participation in the preparation and
drafting of such registration or comparable statement, for due diligence
meetings and for "road show" meetings.
5.1.12 Stop Orders. Promptly notify
Holders of the Registrable Securities of the threat of issuance by the SEC
of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceeding for that purpose, and make
every reasonable effort to prevent the entry of any order suspending the
effectiveness of the registration statement. In the event of the issuance
of any stop order suspending the effectiveness of a registration statement,
or of any order suspending or preventing the use of any related prospectus
or suspending the qualification of any Registrable Securities included in
such registration statement for sale in any jurisdiction, the Client will
use its reasonable best efforts promptly to obtain the withdrawal of such
order.
<PAGE>
5.1.13 Opinions. At each closing of an underwritten offering,
request opinions of counsel to the Client and updates thereof (which
opinions and updates shall be reasonably satisfactory to the underwriters
of the Registrable Securities being sold) addressed to the underwriters
covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such Holders or their counsel.
5.1.14 Comfort Letter.. Obtain a cold comfort letter and related
bring down letters from the Client's independent public accountants
addressed to the selling Holders of Registrable Securities in customary
form and covering such matters of the type customarily covered by cold
comfort letters as the Holders of a majority of the Registrable Securities
being sold reasonably request.
5.2 Further Information. The Client may require each Holder of
Registrable Securities to furnish to the Client in writing such information
regarding the proposed distribution by such Holder of such Registrable
Securities as the Client may from time to time reasonably request.
5.3 Notice to Suspend Offers and Sales. Each Investor severally
agrees that, upon receipt of any notice from the Client of the happening of
any event of the kind described in Sections 5.1.5 or 5.1.12 hereof, such
Investor will forthwith discontinue disposition of shares of Common Stock
pursuant to a registration hereunder until receipt of the copies of an
appropriate supplement or amendment to the prospectus under Section 5.1.5
or until the withdrawal of such order under Section 5.1.12.
5.4 Reference to Holders. If any such registration or comparable
statement refers to any Holder by name or otherwise as the holder of any
securities of the Client and if, in the Holder's reasonable judgment, such
Holder is or might be deemed to be a controlling person of the Client, such
Holder shall have the right to require (a) the insertion therein of
language in form and substance satisfactory to such Holder and the Client
and presented to the Client in writing, to the effect that the holding by
such Holder of such securities is not to be construed as a recommendation
by such Holder of the investmento quality of the Client's securities
covered
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thereby and that such holding does not imply that such Holder will assist
in meeting any future financial requirements of the Client, or (b) in the
event that such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar Federal statute then in
force, the deletion of the reference to such Holder; provided that with
respect to this clause (b) such Holder shall furnish to the Client an
opinion of counsel to such effect, which opinion and counsel shall be
reasonably satisfactory to the Client.
5.5 Client's Ability to Postpone. Notwithstanding anything to the
contrary contained herein, the Client shall have the right twice in any
twelve month period to postpone the filing of any registration statement
under Sections 3 or 4 hereof or any amendment or supplement thereto for a
reasonable period of time (all such postponements not exceeding 90 days in
the aggregate in any twelve month period) if the Client furnishes the
Holders of Registrable Securities a certificate signed by the Chairman of
the Board of Directors or the President of the Client stating that, in its
good faith judgment, the Client's Board of Directors (or the executive
committee thereof) has determined that effecting the registration at such
<PAGE>
time would materially and adversely affect a material financing, acquisition,
disposition of assets or stock, merger or other comparable transaction, or
would require the Client to make public disclosure of information the
public disclosure of which would have a material adverse effect upon the
Client.
Section 6. Registration Expenses Section.
6.1 Expenses Borne by Client. Except as specifically otherwise
provided in Section 6.2 hereof, the Client will be responsible for payment
of all expenses incident to any registration hereunder, including, without
limitation, all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws, printing expenses, messenger
and delivery expenses, road show expenses, advertising expenses and fees
and disbursements of counsel for the Client and all independent certified
public accountants and other Persons retained by the Client in connection
with such registration (all such expenses borne by the Client being herein
called the "Registration Expenses").
6.2 Expenses Borne by Selling Securityholders.. The selling
securityholders will be responsible for payment of their own legal fees (if
they retain legal counsel separate from that of the Client), underwriting
fees and brokerage discounts, commissions and other sales expenses incident
to any registration hereunder, with any such expenses which are common to
the selling securityholders divided among such securityholders (including
the Client and holders of the Client's securities other than Registrable
Securities, to the extent that securities are being registered on behalf of
such Persons) pro rata on the basis of the number of shares being
registered on behalf of each such securityholder, or as such
securityholders may otherwise agree.
Section 7. Indemnification Section.
7.1 Indemnification by Client.. The Client agrees to indemnify, to
the fullest extent permitted by law, each Holder of Registrable Securities
and each Person who controls
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the indemnifying party will not be subject to any liability for any
settlement made by the indemnified party without its consent (but such
consent will not be unreasonably withheld). An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not
be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
(within the meaning of the Securities Act) such Holder against all losses,
claims, damages, liabilities and expenses in connection with defending against
any such losses, claims, damages and liabilities or in connection with any
investigation or inquiry, in each case caused by or based on any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading or arise out of any violation by the Client of any rules or
regulation promulgated under the Securities Act applicable to the Client and
relating to action or inaction required of the Client in connection with such
registration, except insofar as the same are (i) contained in any information
furnished in writing to the Client by such Holder expressly for use therein,
(ii) caused by such Holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto, or (iii)
caused by such Holder's failure to discontinue disposition of shares after
receiving notice from the Client pursuant to Section 5.3 hereof. In connection
with an underwritten offering, the Client will indemnify such underwriters,
their officers and directors and each Person who controls (within the meaning of
the Securities Act) such underwriters at least to the same extent as provided
above with respect to the indemnification of the Holders of Registrable
Securities. <PAGE>
7.2 Indemnification by Holder. In
connection with any registration statement in which a Holder of Registrable
Securities is participating, each such Holder will furnish to the Client in
writing such information as the Client reasonably requests for use in
connection with any such registration statement or prospectus and, to the
extent permitted by law, will indemnify the Client, its directors and
officers and each Person who controls (within the meaning of the Securities
Act) the Client against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the
extent that such untrue statement or omission is contained in any
information so furnished in writing by such Holder expressly for use in
connection with such registration; provided that the obligation to
indemnify will be individual to each Holder and will be limited to the net
amount of proceeds received by such Holder from the sale of Registrable
Securities pursuant to such registration statement. In connection with an
underwritten offering, each such Holder will indemnify such underwriters,
their officers and directors and each Person who controls (within the
meaning of the Securities Act) such underwriters at least to the same
extent as provided above with respect to the indemnification of the Client.
7.3 Assumption of Defense by Indemnifying Party. Any Person
entitled to indemnification hereunder will (a) give prompt written notice
to the indemnifying party of any claim with respect to which it seeks
indemnification and (b) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying
party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed,
7.4 Binding Effect. The indemnification provided for under this
Registration Agreement will remain in full force and effect regardless of
any investigation made by or on behalf of the indemnified party or any
officer, director or controlling Person of such indemnified party and will
survive the transfer of securities. The Client also agrees to make such
provisions, as are reasonably requested by any indemnified party, for
contribution to such party in the event the Client's indemnification is
unavailable for any reason. Each Holder of Registrable Securities also
agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event such
Holder's indemnification is unavailable for any reason.
Section 8. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved by the Person or Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents required under the terms of such underwriting
arrangements.
Section 9. Miscellaneous.
<PAGE>
9.1 No Inconsistent Agreements. The Client will not hereafter
enter into any agreement with respect to its securities which violates the
rights granted to the Holders of Registrable Securities in this
Registration Agreement.
9.2 Remedies. Any Person having rights under any provision of this
Registration Agreement will be entitled to enforce such rights specifically
to recover damages caused by reason of any breach of any provision of this
Registration Agreement and to exercise all other rights granted by law. The
parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Registration
Agreement and that any party may in its sole discretion apply to any court
of law or equity of competent jurisdiction (without posting any bond or
other security) for specific performance and for other injunctive relief in
order to enforce or prevent violation of the provisions of this
Registration Agreement.
9.3 Term. Except for the provisions of Section 7 or as
specifically otherwise provided herein, the provisions of this Registr~tion
Agreement shall apply until such time as all
Registrable Securities have ceased to be Registrable Securities
hereunder but in no event later than three years from the date of this
Registration Agreement.
9.4 Amendments and Waivers. Except as otherwise specifically
provided herein, this Registration Agreement may be amended or waived only
upon the prior written consent of the Client and of the Holders of a
majority of the then outstanding shares ofRegistrable Securities.
9.5 Successors and Assigns. Subject to Section 2 hereof, all
covenants and agreements in this Registration Agreement by or on behalf of
any of the parties hereto will bind and inure to the benefit of (i) the
respective successors and assigns of the parties hereto whether so
expressed or not and (ii) the persons referred to in clause (iv) of the
definition of Registrable Securities. In addition, whether or not any
express assignment has been made but subject in any case to Section 2
hereof, the provisions of this Registration Agreement which are for the
benefit of GAP or Holders of Registrable Securities are also for the
benefit of, and enforceable by, any subsequent holder of such securities so
long as such securities continue to be restricted securities, as that term
is defined in Securities Act Rule 144.
9.6 Severability. Whenever possible, each provision of this
Registration Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Registration Agreement is held to be prohibited by or invalid under
applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Registration Agreement.
9.7 Counterparts. This Registration Agreement may be executed
simultaneously in multiple counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken
together will constitute one and the same Registration Agreement.
9.8 Descriptive Headings. The descriptive headings of this
Registration Agreement are inserted for convenience only and do not
constitute a part of this Registration Agreement.
9.9 Governing Law. All questions concerning the construction,
validity and interpretation of this Registration Agreement will be governed
by and construed in accordance with the domestic laws of the State of
Florida, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Florida or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Florida.
<PAGE>
9.10Entire Agreement. This Registration Agreement is intended by
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto with respect of the subject matter contained herein. This
Registration Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
9.11Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this
Registration Agreement shall be in writing and shall be deemed to have been
given when delivered personally to the recipient, sent to the recipient by
facsimile transmission, sent to the recipient by reputable express courier
service (charges prepaid) or three business days after being mailed to the
recipient by certified or registered mail, return receipt requested and
postage prepaid. Such notices, demands and other communications will be
sent to each Holder at the address indicated on the records of the Client
and to the Client at the address set forth in the Agreement or to such
other address or to the attention of such other person as the recipient
party has specified by prior written notice to the sending party.
9 .12 Confidentiality. The Client shall hold in strict confidence
and shall not disclose information with respect to sales of Common Stock by
any Holder, including the fact of such sales, the amount of such sales and
the timing of such sales, except as such information shall become public
without violation of this Section 9.12, as may be required by applicable
law, rules or regulations or with the express written consent of such
Investor.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Agreement as of the date first above written.
Client:
By:__________ _________________
Company: Gulf Atlantic Publishing, Inc.
By: ___________________
Donald R. Philpott, President
<PAGE>
Exhibit 10.16 Standard Rainbow Communicationns, Inc. Client Contract
<PAGE>
Exhibit 10.16 Standard Rainbow Communicationns, Inc. Client Contract
RAINBOW COMMUNICATIONS, INC. AGREEMENT
This RAINBOW COMMUNICATIONS, INC. (the "Agreement") is entered into on
this ___ day of_________, 19__, between Rainbow Communications, Inc., a Florida
corporation ("RCI"), and ______________________, a _______________ corporation
("Client").
Whereas, RCI is in the business of planning, developing and
implementing advertising, marketing and promotional campaigns for corporations
and other business entities ("Advertising and Promotional Services");
Whereas, the Client desires to retain RCI to provide the Advertising
and Promotional Services, and RCI desires to provide such Advertising and
Promotional Services to Client, pursuant to the terms, conditions and provisions
contained in this Agreement;
Now, therefore, in consideration of the mutual promises contained
herein and other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Advertising and Promotional Services. Subject to Client's
compliance with each of the representations, warranties and covenants and
agreements made by Client in this Agreement, RCI agrees to provide to Client the
Advertising and Promotional Services identified on Exhibit A which is attached
hereto and incorporated herein by reference, for the period commencing on the
latter of (the "Effective Date") the date that this Agreement is executed and
delivered by Client or the date that RCI receives payment of its fees as herein
provided and expiring on the 365th day following the effective date of this
Agreement (the "Term").
2. Obligations and Responsibilities of Client. As of the date
hereof and during the Term of this Agreement, Client agrees as follows.
1. Representation and Warranties.
Client represents and warrants to RCI that:
(1) Organization. Client is a corporation duly
organized, validly existing and in good standing under the laws of the State of
its incorporation and it is duly qualified to do business as a foreign
corporation in each jurisdiction in which it owns or leases property or engages
in business.
(2) Formal Action. Client has the corporate
power and authority to execute and deliver this Agreement and to perform each of
its obligations hereunder and this Agreement has been duly approved by Client's
Board of Directors.
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<PAGE>
(3) Valid and Binding Agreement. This
Agreement has been duly executed and delivered by Client and is the valid and
binding obligation of Client enforceable against it in accordance with its
terms.
(4) No Violation. The execution, delivery and
performance of this Agreement does not and will not violate any provisions of
the charter or bylaws of Client or any agreement to which Client is a party or
any applicable law or regulation or order or decree of any court, arbitrator or
agency of government and no action of, or filing with, any governmental or
public body or authority is required in connection with the execution, delivery
or performance of this Agreement.
(5) Litigation. No action, suit or proceeding
is pending against or affecting the Client or any of its properties before any
court, arbitrator or governmental body or administrative agency and none of the
persons owning beneficially or of record more than 10% of the outstanding
capital stock of the Client or any of the directors or officers of Client is a
party to any action, suit or proceeding before any federal or state court,
arbitrator or governmental body or administrative agency (other than routine
traffic violations) and no such person has been a party to any such proceedings
for more than the past five years.
(6) Accuracy of Information. The information
furnished by Client to RCI regarding the business,
operations, financial condition, including financial statements, business plans
and biographical information regarding the Client's directors and officers
(collectively referred to as the "Information Package") is complete and accurate
in all material respects and does not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made not misleading.
2. Covenants and Agreements.
Client covenants and agrees to comply with the following
covenants:
(1) Client Certification. Client acknowledges
that it is responsible for the accuracy and completeness of the Information
Package and for all other information furnished to RCI and for the accuracy and
completeness of the contents of all materials prepared by RCI for and on behalf
of Client. The Client hereby designates the individuals listed on Exhibit B
attached hereto and incorporated herein by reference as the duly authorized
representatives of Client for purposes of certifying to RCI the accuracy of all
documents, advertisements or other materials prepared by RCI for and on behalf
of Client. The Client agrees to promptly advise RCI in writing of any condition,
event, circumstance or act that would constitute a material adverse change in
the business, properties, financial condition or business prospects of the
Client or which would make any of the information contained in the Information
Package or in any report, advertorial or other document prepared by RCI for and
on behalf of Client misleading in any material respect.
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<PAGE>
Client hereby agrees that RCI and its directors, officers, agents and
employees may rely on the Information Package and on all other information
furnished by Client, and on each and every certification provided by an
authorized representative of Client, until RCI is advised in writing by an
authorized representative of Client that the information previously furnished to
RCI is inaccurate or incomplete in any material respect. Client acknowledges
that RCI shall have no obligation to provide services hereunder until it has
received a written certificate from an authorized representative of Client as
follows: RCI shall prepare proofs and/or tapes of the agreed upon materials and
information, as set for dissemination, for the Client's review and approval and
Client shall sign and return such materials marking all corrections and changes
that the Client believes appropriate. Client acknowledges that RCI will make
oral representations based on the information furnished hereunder and the Client
authorizes such representations.
(2) Books and Records. Client shall maintain
true and complete books, records and accounts in which true and correct entries
shall be made of its transactions in accordance with generally accepted
accounting principles consistently applied ("GAAP").
(3) Financial and Other Information. Client
agrees to furnish to RCI the following information:
(i) Annual Financial Statements. As soon
as practicable, and in any event within 90 days after the close of the Client's
fiscal year, annual financial statements including a balance sheet, an income
statement, a statement of cash flows, and a statement of stockholder's equity,
and all notes thereto prepared in accordance with GAAP and audited by an
independent certified public accountant.
(ii) Quarterly Financial Statements. As
soon as practicable, and in any event within 45 days after the end of each
fiscal quarter, quarterly financial statements, including a balance sheet, a
quarterly and year-to-date income statement, a statement of cash flows, and a
statement of stockholder's equity, prepared by Client in accordance with GAAP
and certified by the chief financial officer of Client as fairly presenting,
subject to normal year-end audit adjustments, the Client's financial position as
of and for the periods indicated.
(4) RCI Reliance on Client's Full Disclosure.
Client will provide, or cause to be provided, to RCI all financial and other
information requested by RCI for the purpose of rendering its services pursuant
to this Agreement. Client recognizes and confirms that RCI will use such
information in performing the services contemplated by this Agreement without
independently verifying such information and that RCI does not assume any
responsibility for the accuracy or completeness of such information. The persons
executing this Agreement on behalf of Client certify that there is no fact known
to them which materially adversely affects or may (so far as the Client's senior
management can no reasonably foresee) materially adversely affect the business,
properties, condition (financial or other) or operations (present or
prospective) of the Client which has not been set forth in written form
delivered by Client to RCI. The persons
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<PAGE>
executing this Agreement on behalf of Client agree to keep RCI promptly informed
of any facts hereafter know to Client which materially adversely affects or may
(so far as the Client's senior management can now reasonably foresee) materially
adversely affect the business, properties, condition (financial or other) or
operations (present or prospective) of Client.
(5) Legal Representation. Client acknowledges
and agrees that it has been and will continue to be, represented by legal
counsel experienced in corporate and securities laws and Client acknowledges
that it has been advised as to the obligations imposed on it pursuant to such
laws and understands that it will have the obligation and responsibility to see
that all such laws are complied with at all times during the Term of this
Agreement.
3. Compensation. In consideration of the Advertising and Promotional
Services to be performed by RCI hereunder, Client hereby agrees to compensate
RCI in the manner and in the amount specified in Exhibit C which is attached
hereto and incorporated herein by reference thereto. In addition to the
compensation to be paid to RCI as provided in Exhibit C, Client shall reimburse
RCI promptly after a written request therefor accompanied by appropriate
documentation, for all reasonable out-of-pocket expenses (including reasonable
fees and disbursements of RCI's counsel, if any) incurred in connection with
providing services hereunder or to the extent provided in Exhibit C.
4. Indemnity. Client acknowledges that it is responsible for the
accuracy of the Information Package and all other information provided to RCI
and for the contents of all materials, advertorials and other information
prepared by RCI for an on behalf of Client as provided herein and Client agrees
to indemnify RCI in accordance with the Indemnification Agreement set forth in
Exhibit D, which is attached hereto and incorporated herein by reference.
5. Relationship of the Parties. This Agreement provides for the
providing of marketing, promotional and advertising services by RCI to Client
and the provisions herein for compliance with financial covenants, delivery of
financial statements, and similar provisions are intended solely for the benefit
of RCI to provide it with information on which it may rely in providing services
hereunder and nothing contained in this Agreement shall be construed as
permitting or obligating RCI to act as a financial or business advisor or
consultant to Client, as permitting or obligating RCI to participate in the
management of client's business, as creating or imposing any fiduciary
obligation on the part of RCI with respect to the provisions of services
hereunder and RCI shall have no such duty or obligation to client, as providing
or counseling Client as to the compliance by Client with any federal or state
securities or other laws effecting the services to be provided hereunder, or as
creating any joint venture, agency, or other relationship between the parties
other than as explicitly and specifically stated in this Agreement. The Client
acknowledges that it has had the opportunity to obtain the advice of experienced
counsel of its own choosing in connection with the negotiation and execution of
this Agreement, the provision of services hereunder and with respect to all
matters contained herein, including, without limitation, the provisions of
Section 4 hereof.
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<PAGE>
6. Survival of Certain Provisions. The Client's obligations to pay the
fees and expenses of RCI pursuant to Section 3 of this Agreement and to comply
with the indemnification provisions pursuant to Section 4 shall remain operative
and in full force and effect regardless of any termination of this Agreement and
shall be binding upon, and shall inure to the benefit of, RCI and, in the case
of the indemnity agreement, the persons, agents, employees, officers, directors
and controlling persons referred to in the Indemnification Agreement, and their
respective successors and assigns and heirs, and no other person shall acquire
or have any right under or by virtue of this Agreement. All amounts paid or
required to be paid under Sections 3 and 4 of this Agreement shall be fully
earned on the Effective Date of this Agreement notwithstanding prior termination
of this Agreement.
7. Termination. RCI shall have the right in its sole and absolute
discretion to terminate its obligations hereunder and to immediately cease
providing Advertising and Promotional Services pursuant to this Agreement if
RCI, in the exercise of its reasonable judgment, believes that the
representations and warranties made by Client hereunder are inaccurate in any
material respect or if Client breaches any of its covenants and agreements
contained herein or if any federal or state governmental agency or
instrumentality institutes an investigation or suit against Client or pertaining
to the services hereunder.
8. Non-Solicitation Covenant. Client agrees that it will not directly
or indirectly during the term of this Agreement or for three years following the
termination or expiration of this Agreement, either voluntarily or
involuntarily, for any reason whatsoever, recruit or hire or attempt to recruit
or hire any employee of RCI or of any of its affiliates or subsidiaries, or
otherwise induce any such employees to leave the employment of RCI or of any of
its affiliates or subsidiaries or to become an employee of or otherwise be
associated with Client or any affiliate or subsidiary of Client. Client
acknowledges that RCI and its affiliates and subsidiaries have invested a
significant amount of time, energy and expertise in the training of their
employees to be able to provide Advertising and Promotional Services and Client
therefore agrees that this covenant is reasonable and agrees that the breach of
such covenant is very likely to result in irreparable injury to RCI, which is
unlikely to be adequately compensated by damages. Accordingly, in the event of a
breach or threatened breach by Client of this Section 8, RCI shall be entitled
to an injunction restraining Client and any affiliate, subsidiary or director or
officer thereof from recruiting, or hiring or attempting to recruit or hire any
employee of RCI or of any affiliate or subsidiary of Rd. Nothing herein shall be
construed as prohibiting RCI from pursuing any other remedies available to RCI
for such breach or threatened breach, including recovery of damages from Client.
The undertakings herein shall survive the termination or cancellation of the
Agreement for three years.
9. Miscellaneous.
A. Governing Law. This Agreement shall be governed by the laws
of the State of Florida applicable to contracts executed and performed in the
Circuit Court, Orange County, in the State of Florida (without regard to the
principles of conflicts of laws).
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B. Entire Agreement. This Agreement and the Exhibits hereto
embody the entire agreement of the parties with respect to its subject matter.
There are no restrictions, promises, representations, warranties, covenants, or
undertakings other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to its subject matter.
C. Amendments to be in Writing. This Agreement may be
amended only in a writing signed by all of the parties.
D. No Waivers by Course of Dealing; Limited Effect of Waivers.
No waiver shall be effective against any party unless it is in a writing signed
by that party. No course of dealing and no delay on the part of RCI in
exercising its rights shall operate as a waiver of that right or otherwise
prejudice RCI. RCI's failure to insist upon the strict performance of any
provision of this Agreement, or to exercise any right or remedy available to
RCI, shall not constitute a waiver by RCI of such provision. No specific waiver
by RCI of any specific breach of any provision of this Agreement shall operate
as a general waiver of the provision or of any other breach of the provision.
Client shall have no right to cure any breach except as specifically provided
herein.
E. Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
F. Cumulation of Rights and Remedies. No right or remedy of
RCI under this Agreement is intended to preclude any other right or remedy and
every right and remedy shall coexist with every other right and remedy now or
hereafter existing, whether by contract, at law, or in equity.
G. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties and their successors and assigns.
Client shall not have any right to assign any of its rights or delegate any of
its obligations or responsibilities under this Agreement except as expressly
stated herein.
H. Payment of Fees and Expenses on Enforcing Agreement. In the
event of any dispute between the parties arising out of or related to this
Agreement or the interpretation thereof, at the trial level or appellate level,
the prevailing party shall be entitled to recover from the non-prevailing party
all costs and expenses, including reasonable fees and disbursements of counsel
which may be incurred in connection with such proceeding, without limitation,
including any costs and expenses of experts, witnesses, depositions and other
costs.
I. Notices. Any notice or other communication required
or permitted to be given hereunder shall be in writing, and shall be delivered
to the parties at the addresses set forth below (or to such other addresses
as the parties may specify by due notice to the others). Notices
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or other communications shall be effective when received at the recipient's
location (or when delivered to that location if receipt is refused). Notices or
other communications given by facsimile transmission shall be presumed received
at the time indicated in the recipient's automatic acknowledgment. Notices or
other communications given by Federal Express or other recognized overnight
courier service shall be presumed received on the following business day.
Notices or other communications given by certified mail, return receipt
requested, postage prepaid, shall be presumed received 3 business days after the
date of mailing.
Client:
Attn:
Fax:
with a copy to:
Attn:
Fax:
Company: Rainbow Communications, Inc.
1947 Lee Road
Winter Park, FL 32789
Attn: Kevin Price, President
Fax: (407) 628-0807
J. Headings. The headings in this Agreement are
intended solely for convenience of reference. They shall be given no effect
in the construction or interpretation of this Agreement.
K. Severability. The invalidity or unenforceability
of any provision of this Agreement shall not impair the validity or
enforceability of any other provision.
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In Witness Whereof, the parties have executed this Agreement as of the
date first above written.
Attest: Client:
By: ___________________________ By: ___________________________
Secretary , President
[Corporate Seal]
Attest: Company: Rainbow Communications, Inc. Group
By: ___________________________ By: ___________________________
Secretary Kevin Price, President
[Corporate Seal]
RCI\pub-rel
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EXHIBIT A
Advertising and Promotional Services
The services to be provided are as follows:
A. Growth Industry Report -- A minimum of four-page, two-color
follow-up mail pieces designed for additional informational purposes,
that is mailed to respondents, in addition to those brokers requesting
said information. A total of 10,000 will be printed to satisfy RCI's
responsibility to the Client. Any additional Growth Industry Reports
needed or requested by the Client will be at the Client's expense.
B. The Lead Distribution Program -- RCI will contact retail brokers,
market makers and/or money managers and will arrange a meeting between
representative of the Client and interested retail brokers, market
makers, and money managers, which will include a show and tell from the
top management of the "Client" in disseminating information to these
interested parties. The aforementioned may be accomplished by a Road
Show.
This process will begin immediately upon RCI receiving the payment as
stipulated in Exhibit "C".
C. Other Advertising and Promotional Services.
1. Public relations exposure to newsletter writers,
trade and financial publications. The Client shall be
totally responsible for all travel expenses for the
purpose of due diligence of the Client by financial
newsletter writers and/or brokers. The Client will
have total pre-approval rights on these trips. Road
Show(s) -- Locations to be determined. Client will
cover all expenses of Road Show(s). Client will have
prior approval of those expenses. RCI will be
responsible for RCI's own travel expenses to support
the show
2. Preparation of a Broker Bullet Sheet to be sent to
every broker who indicates an interest in the Client.
3. Lead Tracking Summary maintained for all response
leads generated and provided to the "Client" monthly.
4. Press releases -- Up to four (4) press releases --
the first Press Release shall announce the hiring of
RCI by the "Client"; with three Press Releases
remaining which may be extended at the option of the
"Client", at the Client's expense, at a rate of
$1,000.00 per Press Release. Should the
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Client chose to publish their own Press Release, RCI
shall be mentioned as the Client's Public Relations
firm.
5. RCI will distribute at its cost the due diligence
packages to all inquiring brokers only. The Client
shall supply the necessary materials for this
package, if an Arrow Marketing Contract is not
entered into. In the event an Arrow Marketing
Contract is not entered into, the Client will provide
RCI with 300 packages or in the alternative provide a
master to RCI and RCI will then charge the Client for
the cost of reproduction.
6. RCI targets a minimum of 3% return of qualified
investor leads specifically generated for the Client.
D. Performance By Client.
1. Client is required to do a Standard & Poor's listing at the Client's expense.
2. Client is required to provide RCI with all S& P listings on their attorney's
stationary.
3. Client will provide its shareholder's with audited financials on a yearly
basis and unaudited financials on a quarterly basis.
4. Client agrees to send RCI, DTC sheets on a weekly basis.
5. Client agrees to provide RCI with a complete shareholders list on a
semiannual basis.
6. Client will use its reasonable best efforts to register or qualify any
shares of common stock of Client under the securities or blue sky laws of
such jurisdictions as any broker or market maker may reasonably request and
do any and all other acts and things which may be reasonably necessary or
advisable to enable such broker or market maker to consummate the
disposition in such jurisdictions of shares of common stock of Client,
provided that the Client will not be required to (1) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section and (2) subject itself to taxation in any such
jurisdiction or (3) consent to general service of process in any such
jurisdiction.
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The parties hereto by signing this Exhibit in the space provided below
signify their agreement regarding the service to be provided by RCI under the
Agreement.
Client:
By: ____________________
,President
Company: Rainbow Communications, Inc.
By: ___________________
Kevin Price, President
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EXHIBIT B
Client hereby designates the following person or persons to act on its
behalf for the purposes set forth in Section 2.B.(1) of the Agreement.
- ------------------------------- -------------------------------
DIRECTOR (PLEASE SIGN) DIRECTOR (PLEASE PRINT)
- ------------------------------- -------------------------------
PRESIDENT (PLEASE SIGN) PRESIDENT (PLEASE PRINT)
- ------------------------------- -------------------------------
VICE PRESIDENT (PLEASE SIGN) VICE PRESIDENT (PLEASE PRINT)
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EXHIBIT C
COMPENSATION
1. Client agrees to issue to RCI __________ Dollars ($ _________ in
cash on execution and delivery of the Agreement or, at the option of Client to
issue RCI ______ shares of freely tradable Common Stock in Client (the
"Shares"), which Shares shall be duly and validly issued, fully paid and
nonassessable and shall not be issued in violation of any preemptive right of
any stockholders of client. The Shares shall be issued in compliance with the
exemption from the registration requirements of the Securities Act of 1933 (the
"Act") provided by Section 4(2) of the Act and/or pursuant to Rules 505 or 506
of the General Rules and Regulation under the Securities Act of 1933.
2. If compensation is paid in shares, concurrently with the issuance of
the Shares, Client will execute and deliver the Registration Rights Agreement
attached hereto as Exhibit F under which the Client agrees to register the
Shares for sale in compliance with the Act as therein provided and to comply
with all conditions necessary or required to enable the Shares to be sold
pursuant to Rule 144 of the General Rules and Regulation under the Securities
Act of 1933.
3. Should the Company affect payment of this contract by the tender of
free-trading Client shares belonging to individuals, the Client assures and
guarantees RCI that the Client will not reimburse the individuals for shares
given RCI.
4. The Shares, if any, to be issued to RCI shall be approved for
issuance in accordance with the rules and regulations of any stock exchange on
which the Shares are listed for trading or by the NASDAQ if the shares are
listed for trading thereon and shall be issued in compliance with all
appropriate federal or state governmental rules and regulations.
5. Client acknowledges that the consideration to be paid to RCI shall
be fully earned on the date that RCI commences providing services under the
Agreement regardless of whether the Agreement is terminated as provided in the
Agreement prior to completion of all services.
6. Client agrees to pay or reimburse RCI for all expenses arising out
of or related to the provision of services by RCI under the Agreement to the
extent provided in the Agreement and/or in Exhibit A thereto.
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7. "Options" means the Options issuable, in certain circumstances,
pursuant to the Agreement which are exercisable for Common Stock.
Client shall issue options to RCI as outlines below.
Amount Price Duration
______ shares at $___ One (1) year from the date of this Agreement
______ shares at $___ Two (2) years from the date of this Agreement
______ shares at $___ Three (3) years from the date of this Agreement
______ shares at $___ Four (4) years from the date of this Agreement
______ shares at $___ Five (5) years from the date of this Agreement
The parties hereto by signing this Exhibit in the space provided below
signify their agreement to the compensation provisions contained herein.
Client:
By: ____________________
,President
Company: Rainbow Communications, Inc.
By: ___________________
Kevin Price, President
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EXHIBIT D
Client acknowledges and agrees that if, in connection with the services
or matters that are the subject of or arise out of such Agreement, RCI becomes
involved (whether or not as a named party) in any action, claim or legal
proceeding (including any governmental inquiry or investigation), Client agrees
to reimburse RCI for its reasonable legal fees, disbursements of counsel and
other expenses (including the cost of investigation and preparation) as they are
incurred by RCI. Client also agrees to indemnify and hold RCI harmless against
any losses, claims, damages or liabilities, joint or several, as incurred, to
which RCI may become subject in connection with the services or matters which
are the subject of or arise out of the Agreement; provided, however, that Client
shall not be liable under the foregoing indemnity in respect of any loss, claim,
damage or liability to the extent that a court having jurisdiction shall have
determined by a final judgment that such loss, claim, damage or liability is a
consequence of intentional fraudulent acts committed by RCI without the
knowledge and/or consent of Client. In the event that the foregoing indemnity is
unavailable by operation of law, then Client shall contribute to amounts paid or
payable by RCI in respect of such losses, claims, damages and liabilities in the
proportion that Client's interest bears to RCI's interest in the matters
contemplated by the Agreement. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, or otherwise,
then Client shall contribute to such amount paid or payable by RCI in such
proportion as is appropriate to reflect not only such relative interests but
also the relative fault of Client on the one hand and RCI on the other hand in
connection with the matters as to which such losses, claims, damages or
liabilities relate and other equitable considerations.
Promptly after RCI' s receipt of notice of the commencement of any
action or of any claim, RCI will, if a claim in respect thereof is to be made
against Client under this Indemnity Agreement, notify Client of the commencement
thereof. In case any such action or claim is brought against RCI, Client will be
entitled to participate therein and, to the extent that Client may wish, to
assume the defense thereof, with counsel satisfactory to RCI. After notice from
Client to RCI of Client's election to so assume the defense thereof, Client will
not be liable to RCI for indemnification as provided in the preceding paragraph
for any legal fees, disbursements of counsel or other expenses subsequently
incurred by RCI in connection with the defense thereof other than reasonable
costs of investigation; provided that RCI shall have the right to employ
separate counsel if, in the reasonable judgment of RCI's counsel, it is
advisable for RCI to be represented by separate counsel or if in the reasonable
judgment of RCI's counsel, Client is not vigorously and actively defending
against any
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such claim or claims, and in either such event the reasonable legal fees and
disbursements of such separate counsel shall be paid by Client.
The foregoing agreements shall apply to any modification of the
Agreement, shall remain in full force and effect following the completion or
termination of RCI's engagement under the Agreement and shall be in addition to
any rights that RCI may have at common law or otherwise. The agreements in this
Indemnification Agreement shall extend to and inure to the benefit of each
person, if any, who may be deemed to control RCI, be controlled by RCI or be
under common control with RCI and to RCI' s, and to each such other person's
respective affiliates, directors, officers, employees and agents. This
Indemnification Agreement shall be binding on any successor of Client.
Client represents that the Indemnification Agreement contained herein
is the legal, valid, binding and enforceable obligation of Client, enforceable
against Client according to its terms.
This Indemnification Agreement shall be governed by, and construed in
accordance with, the laws of the State of Florida without regard to principles
of conflicts of law, and the forum for resolution of legal and interpretative
issues shall be the Federal District courts in the State of Florida.
The parties hereto by signing this Exhibit in the space provided below
signify their agreement to the indemnification provisions contained herein.
Client:
By: ____________________
,President
Company: Rainbow Communications, Inc.
By: ___________________
Kevin Price, President
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EXHIBIT E
ABATEMENT CLAUSE
The parties to this contract understand and agree that Client is under
a federal mandate to become fully reporting and approved for listing by the
Securities and Exchange commission by a time certain or be delisted from the
Electronic Bulletin Board.
The Client and RCI understand and agree that should the Company be
delisted from the Bulletin Board such an event would unduly interfere with RCI's
ability to fulfill its contractual obligations.
WHEREFORE, the Client and RCI hereby agree that should the Client be
delisted from the Electronic Bulletin Board for any reason, RCI's obligations
under this contract shall be abated until such time as the Client is relisted
and resume trading on the Electronic Bulletin Board.
Should the Client fail to gain relisting within one hundred twenty
(120) days of being delisted, RCI may treat that even as a material breach of
this contract. In such event, RCI may declare the contract void through breach
and retain whatever payments have been made as liquidated damages.
Client:
By: ____________________
,President
Company: Rainbow Communications, Inc.
By: ___________________
Kevin Price, President
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EXHIBIT F
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Registration Agreement") is
made and entered into as of ____, 19___ by and between Rainbow Communications,
Inc., a Florida corporation (RCI), and ________________________, a _________
corporation (the Client).
WHEREAS, RCI concurrently with the execution of this Registration
Agreement is acquiring shares of the Client's common stock, par value $_____ per
share ("Common Stock") and/or options to purchase shares of Common Stock; and
WHEREAS, as a condition to such acquisition, the parties are willing to
enter into the agreements contained herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. Definitions
"Affiliate" means, with respect to any Person, any other Person which,
directly or indirectly, controls, is controlled by or is under common control
with such Person.
"Agreement" means the Public Relations and Advertising
Agreement dated as of the date of this Registration Agreement between RCI and
Client.
"Client" is defined in the Preamble to this Registration
Agreement.
"Common Stock" is defined in the Recitals to this Registration
Agreement.
"RCI" is defined in the Preamble to this Registration
Agreement.
"Holder" is defined in Section 2.1 hereof.
"Lock-Up Period" is defined in Section 2.1 hereof.
"Options" mean the Options issuable, in certain circumstances,
pursuant to the Agreement, which are exercisable for Common Stock.
"Other Holders" is defined in Section 4.3 hereof.
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"Permitted Transfer" is defined in Section 2.2 hereof.
"Person" means an individual, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and government or any
department or agency thereof.
"Piggyback Notice" is defined in Section 4.1 hereof.
"Piggyback Registration" is defined in Section 4.1 hereof.
"Registrable Securities" means (i) the Common Stock issued to
RCI pursuant to the Agreement, (ii) any Common Stock issued to RCI pursuant to
the exercise of Options, and (iii) any securities issued or issuable with
respect to the Common Stock referred to in clauses (i) or (ii) by way of
replacement, share dividend, share split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
"Registration Agreement" is defined in the Preamble to this
Registration Agreement.
"Registration Expenses" is defined in Section 6.1 hereof.
"Restricted Securities" is defined in Section 2.1 hereof.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Transfer" is defined in Section 2.1 hereof.
Section 2. Restrictions on Transfer
2.1 Lock-Up Period. Without the express prior written consent
of the Client, RCI agrees that, except as set forth in Section 2.2 below, it
will not, directly or indirectly, offer, sell, contract to sell or otherwise
dispose of (or announce any offer, sale, contract of sale or other disposition
of) ("Transfer") any Registrable Securities or Options (collectively,
"Restricted Securities") prior to the first anniversary following the date of
this Registration Agreement.
2.2 Permitted Transfers. The restrictions contained in this
Section 2 will not apply with respect to any of the following transactions
(each, a "Permitted Transfer"):
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2.2.1 a natural person may Transfer Restricted
Securities to his or her spouse, siblings, parents or any natural or adopted
children or other descendants or to any personal trust in which such family
members or such transferee retains the entire beneficial interest;
2.2.2 RCI may (A) Transfer Restricted Securities to
one or more other entities that are wholly owned and
controlled, legally and beneficially, by RCI or an Affiliate, or (B) Transfer
Restricted Securities by distributing such Restricted Securities in a
liquidation, winding up or otherwise without consideration to the equity owners
of such corporation, partnership or business entity or to any other corporation,
partnership or business entity that is wholly owned by such equity owners; or
(C) Transfer Restricted Securities to a director, officer or key employee of RCI
or an Affiliate;
2.2.3 a transferee acquiring Restricted
Securities in a Permitted Transfer may Transfer Restricted Securities on his or
her death or mental incapacity to such Person's estate, executor, administrator
or personal representative or to such Person's beneficiaries pursuant to a
devise or bequest or by the laws of descent and distribution; or
2.2.4 RCI or any transferee acquiring
Restricted Securities in a Permitted Transfer may Transfer Restricted Securities
pursuant to an effective Registration Statement as provided herein or pursuant
to an exemption from the registration requirements of the Securities Act.
If any Person Transfers Restricted Securities as described in this Section 2.2,
such Restricted Securities shall remain subject to this Registration Agreement
and, as a condition of the validity of such Transfer, the transferee shall be
required to execute and deliver a counterpart of this Registration Agreement.
Thereafter, such transferee shall be deemed to be a Holder for purposes of this
Registration Agreement.
2.3 Rights of Subsequent Holder. Subject to the foregoing
restrictions, the Client and RCI hereby agree that any subsequent holder of
Registrable Securities shall be entitled to all benefits hereunder as a holder
of such securities.
Section 3. Demands for Registration.
3.1 Demand Period3.1 From the date hereof, until the date
which is four years from the date hereof (the "Demand Period"), subject to the
terms and conditions set forth herein, RCI and the Permitted Transferees will
have in the aggregate three opportunities, in addition to other rights
enumerated in this Registration Agreement, to request registration under the
Securities Act of all or part of its Registrable Securities (a "Demand
Registration"). The Holders of 50% or more of the Registrable Securities shall
have the right to exercise the registration rights under this Section 3.
3.2 Demand Procedure.
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3.2.1 Subject to Sections 3.2.2 and 3.2.4 below,
during the Demand Period any Holder or combination of
Holders (the "Demanding Shareholders") owning 50% or more of the Registrable
Securities may deliver to the Client a written request (a "Demand Registration
Request") that the Client register any or all of such Demanding Shareholders'
Registrable Shares.
3.2.2 Holders, in the aggregate, may only make one
Demand Registration Request in each six-month period
during the Demand Period (the "Interim Demand Periods"). The Client shall only
be required to file one registration statement (as distinguished from
supplements or pre-effective or post-effective amendments thereto) in response
to each Demand Registration Request.
3.2.3 A Demand Registration Request from Demanding
Shareholders shall (i) set forth the number of
Registrable Securities intended to be sold pursuant to the Demand Registration
Request (ii) disclose whether all or any portion of a distribution pursuant to
such registration will be sought by means of an underwriting, and (iii) identify
any managing underwriter or managing underwriters proposed for the underwritten
portion, if any, of such registration.
3.2.4 If during any Interim Demand Period, the
Client receives a Demand Registration Request from Demanding Shareholders for
the registration of Registrable Securities having an aggregate market value of
$100,000 or greater, as determined according to the closing price of the Common
Stock on the NASDAQ National Market, on the Bulletin Board or in the Pink Sheets
on the date of such Demand Registration Request, then the Client shall, subject
to the limitations in Sections 3.2.5 and 3.2.6 hereof, (i) use its reasonable
best efforts to prepare and file within 30 days of receipt of the Demand
registration request with the SEC a registration statement under the Securities
Act with respect to all the Registrable Securities that the Demanding
Shareholders requested to be registered in the Demand Registration Request, (ii)
use its reasonable best efforts to cause such registration statement to become
effective within 75 days of receipt of the Demand Registration Request, and
(iii) if such registration can be accomplished by means of a registration
statement on Form S-3, keep such registration statement effective until such
time as the Demanding Shareholders shall have sold or otherwise disposed of all
of their Registrable Securities included in the registration. If such
registration cannot be accomplished by means of a registration statement on Form
S-3, the Client shall use its reasonable best efforts to keep such registration
statement effective for at least 180 days.
3.2.5 It is anticipated that the registration
contemplated under this Section 3 will be accomplished by
means of the filing of a Form S-3, and that registration on such form will allow
for different means of distribution, including sales by means of an underwriting
as well as sales into the open market. If the Demanding Shareholders desire to
distribute all or part of the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Client in writing in their
initial Demand R,egistration Request as described in Section 3.2.3 above. A
determination of whether all or part of ~he distribution will be by means of an
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underwriting shall be made by Demanding Shareholders holding a majority of the
Registrable Securities to be included in the registration. If all or part of the
distribution is to be by means of an underwriting, all subsequent decisions
concerning the underwriting which are to be made by the Demanding Shareholders
pursuant to the terms of this Registration Agreement, which shall include the
selection of the underwriter or underwriters to be engaged and the
representative, if any, of the underwriters so engaged, shall be made by the
Demanding Shareholders who hold a majority of the Registrable Securities to be
included in the underwriting, subject to approval by the Board of Directors of
the Client.
3.2.6 Upon the receipt by the Client of a Demand
Registration Request in accordance with Section 3.2.4
hereof, the Client shall, within ten days following receipt of such Demand
Registration Request, give written notice of such request to all Holders. The
Client shall include in such notice information concerning whether all, part or
none of the distribution is expected to be made by means of an underwriting,
and, if more than one means of distribution is contemplated, may require Holders
to notify the Client of the means of distribution of their Registrable
Securities to be included in the registration. If any Holder who is not a
Demanding Shareholder desires to sell any Registrable Securities owned by such
Holder, such Holder may elect to have all or any portion of its Registrable
Securities included in the registration statement by notifying the Client in
writing (a "Supplemental Demand Registration Request") within 20 days of
receiving notice of the Demand Registration Request from the Client. The right
of any Holder to include all or any portion of its Registrable Securities in an
underwriting shall be conditioned upon the Client's having received a timely
written request for such inclusion by way of a Demand Registration Request or
Supplemental Demand Registration Request (which right shall be further
conditioned to the extent provided in this Registration Agreement). All Holders
proposing to distribute their Registrable Securities through an underwriting
shall enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting.
3.2.7 Notwithstanding any other provision of this
Section 3, if an underwriter advises the Client in
writing that marketing factors require a limitation on the number of shares to
be underwritten, then the number of shares of Registrable Securities that may be
included in the underwriting shall be allocated among the Holders in proportion
(as nearly as practicable) to the respective amounts of Registrable Securities
each Holder owns (or in such other proportion as they shall mutually agree).
Registrable Securities excluded or withdrawn from the underwriting in accordance
with this Section 3.2.7 shall be withdrawn from the registration.
3.3 Priority on Request Registration. The Client
will not include in any Demand Registration any
securities which are not Registrable Securities without the prior written
consent of the Holders of a majority of the shares of Registrable Securities
included in such registration. If a Demand Registration is an underwritten
offering and the managing underwriters advise the Client in writing that in
their opinion the number of Registrable Securities and, if permitted hereunder,
other securities requested to be included in such offering exceeds the number of
securities that can be sold in an or4erly manner in such offering within a price
range acceptable to the Holders of a majority of the shares Of Registrable
Securities initially requesting
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registration, the Client will include in such registration prior to the
inclusion of any securities which are not Registrable Securities the number of
shares of Registrable Securities requested to be included that in the opinion of
such underwriters can be sold in an orderly manner within such acceptable price
range, pro rata among the respective Holders thereof on the basis of the number
of shares of Registrable Securities owned by each such Holder.
Section 4. Piggyback Registrations
4.1 Right to Piggyback. If the Client proposes to undertake an
offering ofshares of Common Stock for its account or for the account of other
stockholders and the registration form to be used for such offering may be used
for the registration of Registrable Securities (a "Piggyback Registration"),
each such time the Client will give prompt written notice to all Holders of
Registrable Securities of its intention to effect such a registration (each, a
"Piggyback Notice") and, subject to Sections 4.3 and 4.4 hereof, the Client will
use its best efforts to cause to be included in such registration all
Registrable Securities with respect to which the Client has received written
requests for inclusion therein within 20 days after the date of sending the
Piggyback Notice.
4.2 Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Client,
and the managing underwriters advise the Client in writing that in their opinion
the number of securities requested to be included in such registration exceeds
the number that can be sold in an orderly manner within a price range acceptable
to the Client, the Client will include in such registration (a) first, the
securities the Client proposes to sell and (b) second, the Registrable
Securities requested to be included in such registration and any other
securities requested to be included in such registration that are held by
Persons other than the Holders of Registrable Securities pursuant to
registration rights, pro rata among the holders of Registrable Securities and
the holders of such other securities requesting such registration on the basis
of the number of shares of such securities owned by each such holder.
4.3 Priority on Secondary. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of the Client's
securities other than the Holders of Registrable Securities (the "Other
Holders"), and the managing underwriters advise the Client in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number that can be sold in an orderly manner in such
offering within a price range acceptable to the Other Holders requesting such
registration, the Client will include in such registration (a) first, the
securities requested to be included therein by the Other Holders requesting such
registration and (b) second, the Registrable Securities requested to be included
in such registration hereunder, pro rata among the Holders of Registrable
Securities requesting such registration on the basis of the number of shares of
such securities owned by each such Holder.
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<PAGE>
4.4 Selection of Underwriters4. In the case of an underwritten
Piggyback Registration, the Client will have the right to select the investment
banker(s) and manager(s) to administer the offering.
Section 5. Registration Procedures Section. Whenever the Holders of
Registrable Securities have requested that any Registrable Securities be sold
pursuant to this Registration Agreement, the Client will use its reasonable best
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended method of disposition thereof, and pursuant
thereto the Client will as expeditiously as possible:
5.1.1 Registration Statement. Prepare and file
with the SEC a registration statement with respect to such Registrable
Securities and use its reasonable best efforts to cause such registration
statement to become effective.
5.1.2 Amendments and Supplements. Promptly
prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for the period required
by the intended method of disposition and the terms of this Registration
Agreement and comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement.
5.1.3 Provision of Copies. Promptly furnish to
each seller of Registrable Securities the number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller.
5.1.4 Blue Sky Laws. Use its reasonable best
efforts to register or qualify such Registrable Securities under the securities
or blue sky laws of such jurisdictions as any seller reasonably requests and do
any and all other acts and things which may be reasonably necessary or advisable
to enable such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller, provided, that the Client will not
be required to (a) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 5.1.4, (b)
subject itself to taxation in any such jurisdiction or (c) consent to general
service of process in any such jurisdiction.
5.1.5 Anti-fraud Rules. Promptly notify each
seller of such Registrable Securities when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any material fact necessary to make the statements therein not misleading, and
in such event, at the request of any such seller, the Client will promptly
prepare a supplement or amendment to such prospectus so that, as
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thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading,
provided, that the Client will not take any action which causes the prospectus
included in such registration statement to contain an untrue statement of
material fact or omit any material fact necessary to make the statements therein
not misleading, except as permitted by Section 5.5.
5.1.6 Securities Exchange Listings. Use its
reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which securities of the
same class issued by the Client are then listed and use its reasonable best
efforts to qualify such Registrable Securities for trading on each system on
which securities of the same class issued by the Client are then qualified.
5.1.7 Underwriting Agreements. Enter into such
customary agreements (including underwriting agreements
in customary form) and take all such other actions as the holders of a majority
of the shares of Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities.
5.1.8 Due Diligence. Make available for
inspection by any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such underwriter, all financial and other records, pertinent corporate
documents and properties of the Client, and cause the Client's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such underwriter, attorney, accountant or agent in
connection with such registration statement.
5.1.9 Earning Statement. Otherwise use its best
efforts to comply with all applicable rules and
regulations of the SEC, and make available to its security holders, as soon as
reasonably practicable, an earning statement covering the period of at least
twelve months beginning with the first day of the Client's first full calendar
quarter after the effective date of the registration statement, which earning
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder.
5.1.10 Deemed Underwriters or Controlling Persons.
Permit any Holder of Registrable Securities which
Holder, in such Holder's reasonable judgment, might be deemed to be an
underwriter or a controlling person of the Client, to participate in the
preparation of such registration or comparable statement and to require the
insertion therein of material in form and substance satisfactory to such Holder
and to the Client and furnished to the Client in writing, which in the
reasonable judgment of such Holder and its counsel should be included.
5.1.11 Management Availability. In connection
with underwritten offerings, make available appropriate management personnel
for participation in the preparation
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and drafting of such registraiton or comparable statement, for due diligence
meetings and for "road show" meetings.
5.1.12 Stop Orders. Promptly notify Holders of
the Registrable Securities of the threat of issuance by
the SEC of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceeding for that purpose, and make every
reasonable effort to prevent the entry of any order suspending the effectiveness
of the registration statement. In the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any Registrable Securities included in such registration
statement for sale in any jurisdiction, the Client will use its reasonable best
efforts promptly to obtain the withdrawal of such order.
5.1.13 Opinions. At each closing of an
underwritten offering, request opinions of counsel to the Client and updates
thereof (which opinions and updates shall be reasonably satisfactory to the
underwriters of the Registrable Securities being sold) addressed to the
underwriters covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such Holders or their counsel.
5.1.14 Comfort Letter. Obtain a cold comfort
letter and related bring down letters from the Client's
independent public accountants addressed to the selling Holders of Registrable
Securities in customary form and covering such matters of the type customarily
covered by cold comfort letters as the Holders of a majority of the Registrable
Securities being sold reasonably request.
5.2 Further Information. The Client may require each Holder of
Registrable Securities to furnish to the Client in writing such information
regarding the proposed distribution by such Holder of such Registrable
Securities as the Client may from time to time reasonably request.
5.3 Notice to Suspend Offers and Sales. Each Investor severally agrees
that, upon receipt of any notice from the Client of the happening of any event
of the kind described in Sections 5.1.5 or 5.1.12 hereof, such Investor will
forthwith discontinue disposition of shares of Common Stock pursuant to a
registration hereunder until receipt of the copies of an appropriate supplement
or amendment to the prospectus under Section 5.1.5 or until the withdrawal of
such order under Section 5.1.12.
5.4 Reference to Holders. If any such registration or comparable
statement refers to any Holder by name or otherwise as the holder of any
securities of the Client and if, in the Holder's reasonable judgment, such
Holder is or might be deemed to be a controlling person of the Client, such
Holder shall have the right to require (a) the insertion therein of language in
form and substance satisfactory to such Holder and the Client and presented to
the Client in writing, to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation by such Holder of the
investment quality of the Client's securities covered
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thereby and that such holding does not imply that such Holder will assist in
meeting any future financial requirements of the Client, or (b) in the event
that such reference to such Holder by name or otherwise is not required by the
Securities Act or any similar Federal statute then in force, the deletion of the
reference to such Holder; provided that with respect to this clause (b) such
Holder shall furnish to the Client an opinion of counsel to such effect, which
opinion and counsel shall be reasonably satisfactory to the Client.
5.5 Client's Ability to Postpone. Notwithstanding anything to the
contrary contained herein, the Client shall have the right twice in any twelve
month period to postpone the filing of any registration statement under Sections
3 or 4 hereof or any amendment or supplement thereto for a reasonable period of
time (all such postponements not exceeding 90 days in the aggregate in any
twelve month period) if the Client furnishes the Holders of Registrable
Securities a certificate signed by the Chairman of the Board of Directors or the
President of the Client stating that, in its good faith judgment, the Client's
Board of Directors (or the executive committee thereof) has determined that
effecting the registration at such time would materially and adversely affect a
material financing, acquisition, disposition of assets or stock, merger or other
comparable transaction, or would require the Client to make public disclosure of
information the public disclosure of which would have a material adverse effect
upon the Client.
Section 6. Registration Expenses Section.
6.1 Expenses Borne by Client. Except as specifically otherwise
provided in Section 6.2 hereof, the Client will be responsible for payment of
all expenses incident to any registration hereunder, including, without
limitation, all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws, printing expenses, messenger and delivery
expenses, road show expenses, advertising expenses and fees and disbursements of
counsel for the Client and all independent certified public accountants and
other Persons retained by the Client in connection with such registration (all
such expenses borne by the Client being herein called the "Registration
Expenses").
6.2 Expenses Borne by Selling Securityholders. The selling
securityholders will be responsible for payment of their own legal fees (if they
retain legal counsel separate from that of the Client), underwriting fees and
brokerage discounts, commissions and other sales expenses incident to any
registration hereunder, with any such expenses which are common to the selling
securityholders divided among such securityholders (including the Client and
holders of the Client's securities other than Registrable Securities, to the
extent that securities are being registered on behalf of such Persons) pro rata
on the basis of the number of shares being registered on behalf of each such
securityholder, or as such securityholders may otherwise agree.
Section 7. Indemnification Section.
7.1 Indemnification by Client. The Client agrees to indemnify,
to the fullest extent permitted by law, each Holder of Registrable~ Securities
and each Person who controls
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(within the meaning of the Securities Act) such Holder against all losses,
claims, damages, liabilities and expenses in connection with defending against
any such losses, claims, damages and liabilities or in connection with any
investigation or inquiry, in each case caused by or based on any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading or arise out of any violation by the Client of any rules or
regulation promulgated under the Securities Act applicable to the Client and
relating to action or inaction required of the Client in connection with such
registration, except insofar as the same are (i) contained in any information
furnished in writing to the Client by such Holder expressly for use therein,
(ii) caused by such Holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto, or (iii)
caused by such Holder's failure to discontinue disposition of shares after
receiving notice from the Client pursuant to Section 5.3 hereof. In connection
with an underwritten offering, the Client will indemnify such underwriters,
their officers and directors and each Person who controls (within the meaning of
the Securities Act) such underwriters at least to the same extent as provided
above with respect to the indemnification of the Holders of Registrable
Securities.
7.2 Indemnification by Holder. In connection with any registration statement in
which a Holder of Registrable Securities is participating, each such Holder will
furnish to the Client in writing such information as the Client reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Client, its
directors and officers and each Person who controls (within the meaning of the
Securities Act) the Client against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder expressly for use in connection with such registration; provided
that the obligation to indemnify will be individual to each Holder and will be
limited to the net amount of proceeds received by such Holder from the sale of
Registrable Securities pursuant to such registration statement. In connection
with an underwritten offering, each such Holder will indemnify such
underwriters, their officers and directors and each Person who controls (within
the meaning of the Securities Act) such underwriters at least to the same extent
as provided above with respect to the indemnification of the Client.
7.3 Assumption of Defense by Indemnifying Party. Any Person
entitled to indemnification hereunder will (a) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (b) unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified an indemnifying parties may exist with respect
to such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
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the indemnifying party will not be subject to any liability for any settlement
made by the indenmified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
7.4 Binding Effect. The indemnification provided for under
this Registration Agreement will remain in full force and effect regardless of
any investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party and will survive the
transfer of securities. The Client also agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party in
the event the Client's indemnification is unavailable for any reason. Each
Holder of Registrable Securities also agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party in
the event such Holder's indemnification is unavailable for any reason.
Section 8. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
Section 9. Miscellaneous.
9.1 No Inconsistent Agreements. The Client will not hereafter
enter into any agreement with respect to its securities which violates the
rights granted to the Holders of Registrable Securities in this Registration
Agreement.
9.2 Remedies. Any Person having rights under any provision of
this Registration Agreement will be entitled to enforce such rights specifically
to recover damages caused by reason of any breach of any provision of this
Registration Agreement and to exercise all other rights granted by law. The
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Registration Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or other security) for specific
performance and for other injunctive relief in order to enforce or prevent
violation of the provisions of this Registration Agreement.
9.3 Term. Except for the provisions of Section 7 or as
specifically otherwise provided herein, the provisions of this Registration
Agreement shall apply until such time as all
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Registrable Securities have ceased to be Registrable Securities hereunder but in
no event later than three years from the date of this Registration Agreement.
9.4 Amendments and Waivers. Except as otherwise specifically
provided herein, this Registration Agreement may be amended or waived only upon
the prior written consent of the Client and of the Holders of a majority of the
then outstanding shares of Registrable Securities.
9.5 Successors and Assigns. Subject to Section 2 hereof, all
covenants and agreements in this Registration Agreement by or on behalf of any
of the parties hereto will bind and inure to the benefit of (i) the respective
successors and assigns of the parties hereto whether so expressed or not and
(ii) the persons referred to in clause (iv) of the definition of Registrable
Securities. In addition, whether or not any express assignment has been made but
subject in any case to Section 2 hereof, the provisions of this Registration
Agreement which are for the benefit of RCI or Holders of Registrable Securities
are also for the benefit of, and enforceable by, any subsequent holder of such
securities so long as such securities continue to be restricted securities, as
that term is defined in Securities Act Rule 144.
9.6 Severability. Whenever possible, each provision of this
Registration Agreement will be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Registration Agreement
is held to be prohibited by or invalid under applicable law, such provision will
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Registration Agreement.
9.7 Counterparts. This Registration Agreement may be executed
simultaneously in multiple counterparts, any one of which need not contain the
signatures of more than one party, but all such counterparts taken together will
constitute one and the same Registration Agreement.
9.8 Descriptive Headings. The descriptive headings of this
Registration Agreement are inserted for convenience only and do not constitute a
part of this Registration Agreement.
9.9 Governing Law. All questions concerning the construction,
validity and interpretation of this Registration Agreement will be governed by
and construed in accordance with the domestic laws of the State of Florida,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.
9.10 Entire Agreement. This Registration Agreement is intended
by the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto with respect of the subject matter contained
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herein. This Registration Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
9.11 Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Registration
Agreement shall be in writing and shall be deemed to have been given when
delivered personally to the recipient, sent to the recipient by facsimile
transmission, sent to the recipient by reputable express courier service
(charges prepaid) or three business days after being mailed to the recipient by
certified or registered mail, return receipt requested and postage prepaid. Such
notices, demands and other communications will be sent to each Holder at the
address indicated on the records of the Client and to the Client at the address
set forth in the Agreement or to such other address or to the attention of such
other person as the recipient party has specified by prior written notice to the
sending party.
9.12 Confidentiality. The Client shall hold in strict
confidence and shall not disclose information with respect to sales of Common
Stock by any Holder, including the fact of such sales, the amount of such sales
and the timing of such sales, except as such information shall become public
without violation of this Section 9.12, as may be required by applicable law,
rules or regulations or with the express written consent of such Investor.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Agreement as of the date first above written.
Client:
By: ____________________
,President
Company: Rainbow Communications, Inc.
By: ___________________
Kevin Price, President
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<PAGE>
Exhibit 10.17 Lease Agreement with Parkway Associates
<PAGE>
Exhibit 10.17 Lease Agreement with Parkway Associates
AGREEMENT OF LEASE, made this 13th day of March, 1998 by and
between PARKWAY ASSOCIATES, a New York State partnership, having offices at
54-65 48th Street, Maspeth, New York (hereinafter designated as "Landlord") and
STRATCOMM MEDIA, LTD., a Florida corporation having an office at 1947 Lee Road,
Winter Park, FL (hereinafter designated as "Tenant")
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord, in the building known as The Islandia Pavilion (hereinafter referred
to as the "Building"), and located on land (hereinafter referred to as the
"Land") at 1377 Long Island Motor Parkway, Islandia, Suffolk County, New York ,
containing approximately, without representation, 3650 rentable square feet
(subject to a 19% loss factor) on the third floor together with all fixtures and
equipment which at the commencement, or during the term of this Lease are
thereto attached (except items not deemed to be included constitute and are
hereby called "the demised premises"), Tenant shall have the non--exclusive
revocable use of all Common Areas as said term is hereinafter defined in Article
27.09, of the Land and Building (arid such other facilities as to which Tenant
is entitled pursuant to the terms hereof) approximately as shown on the plan or
plans or diagram or diagrams set forth on Exhibit "A" attached hereto and made a
part hereof (or incorporated by reference into this Lease as though physically
attached hereto); for a term of Five (5) years and one (1) month, commencing on
or about April 1, 1998 (the "Commencement Date") and ending on May 31, 2003 (the
"Termination Date") at an annual base rental rate as set forth on Schedule 1
annexed hereto and made a part hereof. Upon substantial completion of the
demised premises, Landlord and Tenant shall execute a commencement date
agreement (the "Commencement Date Agreement") setting forth the actual
Commencement Date of the term hereof, and the date Tenant shall commence paying
fixed annual. rent as specified in Article 50 hereof.
Tenant agrees to pay said fixed annual rent in lawful money
of the United-States, in equal monthly installments in advance on the first day
of each calendar month during said term, at the office of Landlord or such other
place in the United States of America as Lan~1ord may designate in writing,
without any setoff or deduction whatsoever. Should the obligation to pay rent
commence on any day other than the first day of a month, then the fixed rent f
or the unexpired portion of such month shall be adjusted and prorated on a per
diem basis.
The parties hereto, for themselves, their heirs, distributes,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
<PAGE>
ARTICLE 1
Rent
1.01. Tenant shall pay the fixed annual rent and additional
rent as above and as hereinafter provided, by good and sufficient check drawn on
a bank doing business in the State of New York which is a member of the New York
Clearing House or a successor thereto. All sums other than fixed annual rent
payable by Tenant hereunder shall be deemed additional rent and payable on
demand, unless other payment dates are hereinafter provided, and Landlord shall
have the same remedies with respect to a default in payment of any items of
additional rent as Landlord has with respect to a default in payment of fixed
rent. The first month's rent, irrespective of when the first (1st) month's rent
is due, shall be paid upon execution of the within Lease.
ARTICLE 2
Occupancy
2.01. Tenant may not use or occupy the demised premises as a
savings bank, state or Federal savings and loan association, commercial bank or
trust company, or any combination of uses incidental to the foregoing. Tenant
shall use and occupy the demised premises solely for general offices for Tenant,
its subsidiaries, related companies and divisions and permitted assignees and
subtenants, and for no other purpose.
ARTICLE 3
Alterations and Installations
3.01. Tenant shall make no alterations, installations,
additions or improvements in or to the demised premises without Landlord's prior
written consent, which consent in the case of non-structural changes, shall not
be. unreasonably withheld; all such work shall be done only by Landlord as
general contractor with contractors or mechanics approved by Landlord. All such
work, a1terations, installations, additions and improvements shall be done at
Tenant's sole expense and at such times and in such manner so as not to
unreasonably interfere with the peaceful enjoyment of the Building by other
tenants. Prior to commencement of such work, for all work over the sum of
$50,000, Tenant must obtain and file a Payment or Surety and Completion Bond
with Landlord, from a licensed surety company reasonably acceptable to Landlord.
3.02. Any mechanic's lien (a "Lien") filed against the demised premises or the
Building for work claimed to have been done for or materials claimed to have
been furnished to Tenant shall be discharged by Tenant at its expense within
thirty (30) days after <PAGE>
notice, by payment, filing of the bond required by law or otherwise. In the
event Tenant seeks to have the Lien discharged by bonding same, Tenant shall
make application within 15 clays after filing of the Lien to the Supreme Court
to remove the same and proceed thereafter with due., diligence to remove same.
In lieu of obtaining releases of the Lien, Tenant, at its option, may post with
Landlord a Payment Bond issued by a duly qualified bonding company as aforesaid
in a sum equal to 125% of the cost of the improvement.
303. All alterations, installations, additions and
improvements made and installed and paid for by Landlord shall become and be the
property of Landlord and shall remain upon and be surrendered with the demised
premises as a part thereof at the end of the term of this Lease, excluding
Tenant's modular work stations.
3.04. Al1 non--structural alterations, installations,
additions and improvements made and installed by Tenant, or at Tenant's expense,
upon or in the demised premises shall be removed at the end of the term of the
Lease at Tenant's expense and the demised premises restored by Tenant, and any
damages created thereby shall be repaired, all at Tenant's cost and expense.
3.05. Where furnished by or at the expense of Tenant all
furniture, furnishings and trade fixtures, including without limitation, murals,
business machines and equipment, counters, screens, grille work, special
panelled doors, cages, partitions, metal railings, closets, paneling, lighting
fixtures and equipment, drinking fountains, refrigerators, and any other movable
property shall remain the property of Tenant which Tenant may at its option
remove all or any part thereof at any time prior to the expiration of the term
of this Lease, provided all damage occasioned by such removal is repaired by
Tenant, at Tenant's sole cost and expense. In case Tenant shall decide not to
remove any part of such property, Tenant shall notify Landlord in writing not
less than three (3) months prior to the expiration of the term bf this Lease,
specifying the items of property which Tenant has decided not to remove, the
same shall be, deemed abandoned by Tenant and thereupon the same shall become
the property of Landlord, without payment or reimbursement to Tenant.
3.06. Tenant shall keep records of Tenant's alterations,
installations, additions and improvements, and the cost thereof. Tenant shall,
within 45 days after demand by Landlord, furnish to Landlord copies of such
records and cost if Landlord shall require same in connection with any
proceeding to reduce the assessed valuation of the Building, or in connection
with any proceeding instituted pursuant to Article 9 hereof.
3.07. During the
course of Tenant's alterations, Tenant (and all of its contractors and
subcontractors) will carry or cause to be carried adequate Worker's Compensation
Insurance, Builders Risk, Comprehensive General Liability and such other
insurance as may be required by law to be carried by Landlord or Tenant or
<PAGE>
required by Article 40 hereof in connection with such construction, and such
insurance (except the Worker's Compensation Insurance) shall name Landlord,
Landlord's managing agent, and all mortgagees and ground lessors and such other
parties as Landlord shall designate as additional insureds.
3.08. "Structural Changes" shall mean changes affecting the
"structural elements" of the Building, which are the foundation, floor plate,
exterior or load--bearing walls, curtain wall, roof and the Building-wide
plumbing, electrical and the heating, ventilation and air conditioning systems
(the "HVAC System"), and changes requiring a change in the Certificate of
Occupancy applicable to the Building unless same shall have been specifically
authorized by Landlord on the following terms and conditions (i) the character
or use of the Building shall not be affected; (ii) the structural strength of
the Building shall not be weakened; and (iii) no part of the Building outside of
the demised premises shall be physically affected except as to Tenant's changes
specifically authorized by Landlord pursuant to this Lease.
3.09. Notwithstanding anything contained, elsewhere in this
Lease, if Tenant makes any alterations, installations, additions or
improvements, Tenant will comply with all of the following at Tenant's sole cost
and expense:
a) Tenant shall furnish Landlord with the plans of the
planned alterations prior to construction.
b) Tenant must furnish Landlord with an "as-built" plan upon
the completion of any work.
C) Tenant will obtain all governmental permits and pay all
applicable government fees.
d) Tenant will file appropriate plans with governmental
authorities, where applicable.
e) Tenant will perform all alterations in a good and
workmanlike manner in accordance with standards at least equivalent to the
standards prevailing in the building of which the demised premises form a part.
f) Tenant accepts full responsibility for any changes in
sprinklers, passages, legal exits, et cetera, which may be necessitated by such
alterations and shall not do any work which shall adversely affect the remainder
of the building of which the demised premises form a part.
g) Tenant shall not make any installation on or through the
roof, nor shall Tenant or Tenant's agents enter upon
<PAGE>
the roof or place objects thereon without the specific written
permission of Landlord, who shall specify the time and Conditions under which
such entry may be obtained. Landlord may make such rules and regulations as they
reasonably deem appropriate to govern Tenant's use or access to the roof for any
purpose whatsoever.
ARTICLE 4
Repairs
4.01. Tenant shall, at its sole cost and expense and only
using Landlord as general contractor, make such repairs to the demised premises
and the fixtures and appurtenances therein necessitated by the act, omission,
occupancy, or negligence of Tenant (except fire or other casualty caused by
Tenant's negligence, if the fire or other casualty insurance policies insuring
Landlord are not invalidated by this provision) or by the use of the demised
premises in a manner contrary to the purposes for which same are leased to
Tenant, as and when needed to preserve them in good working order and condition.
Except as otherwise provided in Section 3.05 of this Lease, all damages or
injury to the demised premises and to its fixtures, appurtenances and equipment
or to the Building or to its fixtures, appurtenances and equipment caused by
Tenant moving property in or out of the Building or by installation or removal
of furniture, fixtures or other property, and for all of which aforesaid items,
Landlord has not been or will not be reimbursed by insurance, shall be repaired,
restored or replaced promptly by Tenant at its sole cost and expense, which
repairs restorations and replacements shall be in quality and class equal to the
original work or installations. If Tenant fails to make such repairs,
restorations or replacements, same may be made by Landlord at the expense of
Tenant and such expense shall be collectible as additional rent and shall be
paid by Tenant within 15 days after rendition of a bill therefor.
4.02. Tenant shall not place a load upon any floor of the
demised premises exceeding the floor load per square foot area which such floor
was designed to carry. and which is allowed by law.
4.03.Business machines and mechanical equipment belorigin5 to Tenant which cause
vibration, noise, cold or heat that may be transmitted to the Building structure
or to any leased space to such a degree as to be reasonably objectionable to
Landlord or to any other tenant in the Building shall be placed and maintained
by Tenant at its expense in settings of cork, rubber or spring-type vibration
eliminators sufficient to absorb and prevent such vibration or noise, cold or
heat. The parties hereto recognize that the operation of elevators, air <PAGE>
conditioning and heating equipment will cause some vibration, noise, heat or
cold which may be transmitted to other parts of the Building and demised
premises. Landlord shall be under no obligation to endeavor to reduce such
vibration, noise, heat or cold beyond what is customary in a first class office
such as the Building.
4.04. There shall be no allowance to Tenant for a diminution
of rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from the making of any
repairs, alterations, additions or improvements in or to any portion of the
Building or the demised premises or in or to fixtures, appurtenances or
equipment thereof.
4.05. Landlord, at its sole cost and expense, shall maintain
and make all necessary Structural Changes to the structural elements of (i) the
Building and the demised premises, and (ii) the Common Areas, hereinafter
defined in Section 27.11, except that: (a) Landlord shall not be responsible for
the maintenance, repair or replacement of any such systems including but not
limited to supplemental heating, ventilating and air conditioning, electric,
plumbing including bathrooms and kitchens which are located within the demised
premises and are supplemental or special to the Building standard systems,
whether installed pursuant to this Lease or otherwise; and (b) the cost of
performing any of said maintenance or repairs caused by the negligence of
Tenant, its employees, agents, servants, or invitees or the failure of Tenant to
perform its obligations under this Lease, shall be paid by Tenant, except to the
extent of insurance proceeds, if any, actually collected by Landlord with regard
to the damage necessitating such repairs; and (c) Landlord shall not be
responsible for the repair of any floor coverings located in the demised
premises. Landlord shall also not be responsible for the repair or maintenance
of any electric lighting (including but not limited to tubes, bulbs, ballasts)
and any wall finish or covering within the demised premises.
ARTICLE 5
Requirements of Law; Fire Insurance
5.01. Tenant, at its expense, shall comply with all law,
orders and regulations of Federal, State, County and Municipal authorities, and
with any direction of any public officer or officers, pursuant to law, which
shall impose any violation, order or duty upon Landlord or Tenant with respect
to the demised premises; or the use or occupation thereof.
5.02. Tenant shall not do or permit to be done any act or
thing upon the Building, which will invalidate or be in conflict with New York
Standard Fire insurance policies covering the Building, and fixtures and <PAGE>
property therein, or which would increase the rate of fire insurance applicable
to the Building to an amount higher than it otherwise would be; and Tenant shall
neither do nor permit to be done any act or thing upon the Land and Building
which shall or might subject Landlord to any liability or responsibility for
injury to any person or persons or to property
by reason of any business or operation being carried on upon
the Building; but nothing in this Section 5.02 shall prevent Tenant's use of the
demised premises for the purposes stated in Article 2 hereof.
5.03. If, as a result of any act or omission by Tenant or
violation of this Lease, the rate of fire insurance applicable to the Building
shall be increased to an amount higher than it otherwise would be, Tenant shall
reimburse Landlord for all increases of Landlord's fire insurance premiums so
caused; such reimbursement to be additional rent payable upon the first day of
the month following any outlay by Landlord for such increased fire insurance
premiums. In any action or proceeding wherein Landlord and Tenant are parties, a
schedule or "make up" of rates for the Building or demised premises issued by
the body making fire insurance rates, shall be presumptive evidence but not
conclusive of the facts therein stated and of the several items and charges in
the fire insurance rate than applicable to said Building.
5.04. Tenant shall not use or suffer the demised premises. to
be used in any manner so as to create an environmental violation or hazard, nor
shall Tenant cause or suffer to be caused any chemical contamination or
discharge of a substance of any nature which is noxious, offensive or harmful or
which under any law, rule or regulation of any governmental authority having
jurisdiction constitutes Hazardous Materials as hereinafter defined.
5.05. Tenant shall also immediately notify Landlord in
writing of any environmental concerns of which Tenant is or becomes aware and
which are raised by any private party or government agency with regard to
Tenant's business or the demised premises. Tenant shall also notify Landlord
immediately of any hazardous waste spills at the demised premises and of any
other Hazardous Materials of which Tenant becomes aware.
5.06. Not in limitation of the generality of the foregoing,
but as additional covenants, Tenant specifically agrees that (i) Tenant shall
not generate, manufacture, refine, transport, treat, store, handle, dispose or
otherwise deal with any hazardous substances or hazardous waste as now or
hereafter defined by applicable law; and (ii) Tenant shall defend, indemnify and
hold Landlord harmless against any liability, loss, cost or expense, including
reasonable attorneys' fees and costs (whether or not legal action has been
instituted) incurred by reason of the existence of or any failure by Tenant to
comply with any environmental law now or hereafter in effect.
<PAGE>
5.07. As used herein, the term "Hazardous Materials" means
and includes all potentially hazardous materials, including without limitation
radon, asbestos and asbestos containing materials.
5.08. Tenant covenants arid agrees that at any and all times during the term of
this Lease it shall be responsible for compliance with any federal, state,
county, local, or municipal law (including without limitation Local Law 76, as
same now exists or may hereafter be amended, if the Building is located in New
York City), statute, ordinance, code, regulation or administrative
recommendation pertaining to Hazardous Materials (including without limitation
any requirements pertaining to the cleanup, removal, and/or encapsulation of any
Hazardous Materials that may be in or at the demised premises or may have
emanated therefrom). Tenant shall, at its sole cost and expense, undertake any
and all steps which may be required for compliance as aforesaid regardless of
whether Tenant had installed said Hazardous Materials or that same existed at
the demised premises prior to Tenant's occupancy of same. In addition, Tenant
shall be solely responsible for restoring and repairing any damage to the
demised premises caused by or resulting from such compliance, e.g. the
replacement of any ceiling tiles or insulation with comparable products not
containing any Hazardous Materials.
5.09. Tenant shall indemnify and save harmless the Landlord, Landlord's agents,
servants, and employees, from and against all claims and demands whether for
injuries to persons or loss of life, or damage to property, related to or
arising in any manner whatsoever out of the clean-up, removal and/or
encapsulation of Hazardous Materials provided same is occasioned wholly or in
part by any act or omission of (or failure to comply with legal requirements by)
Tenant, its agents, contractors, employees, servants and licensees. In the event
Landlord shall, without fault on its part, be made a party to any litigation or
administrative proceedings commenced by or against Tenant, then Tenant shall
protect and hold Landlord harmless and shall pay all costs, expenses and
reasonable attorneys fees incurred or paid by Landlord in connection with such
litigation.
5.10. Notwithstanding anything herein to the contrary, Tenant shal1 file no
documents or take any other action under this Article without Landlord's prior
written approval thereof, and Landlord shall also have the right to file such
documents or take such action instead or on behalf of Tenant (but still at
Tenant's sole cost and expense),: and Tenant shall cooperate with Landlord in so
doing. Tenant shall also (i) furnish Landlord with copies of any documents filed
by Tenant pursuant to any environmental law; (ii) permit Landlord to be present
at any inspection, on or off site, and at any meetings and substances dealt with
by Tenant at the demised premises, as well as any additional information
available to Tenant for government filings or determinations as to whether there
has been compliance with an environmental law. <PAGE>
5.11. Landlord shall also have the right to enter the demised premises at any
time to conduct tests to discover the facts of any alleged or potential
environmental problem. In the event Tenant fails to comply as aforesaid with the
clean-up, removal, and/or encapsulation of Hazardous Materials when so required
within the period of time permitted or promulgated, then in such event Landlord
may undertake said work, but shall not be obligated to do so. Should Landlord
undertake said work required by Tenant as aforesaid, then in such event,
Landlord shall render a statement to Tenant for the cost and expenses of
undertaking said work plus a charge of twenty (20%) percent for administrative
costs and expenses, which statement shall be paid by Tenant as Additional Rent
within ten (10) days of receipt thereof. Failure of Tenant to undertake
compliance as aforesaid shall constitute a material default under this Lease for
which Landlord shall have all rights and remedies, including without limitation
the right to terminate this Lease and the right to hold Tenant responsible for
the entire cost of compliance as aforesaid and for all of Landlord's damages
resulting from Tenant's failure to so comply.
5.12. The provisions of this Article shall survive the
expiration or earlier termination of this Lease, and the Tenant shall require
any permitted assignee or sub--lessee of the demised premises to agree expressly
in writing to comply with all the provisions of this Article.
ARTICLE 6
Subordination
6.01. This Lease is subject and subordinate to all ground or
underlying leases and. to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises form a part, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
This clause shall be self-operative and no further instrument of subordination
shall be required by any mortgagee. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Landlord may reasonably
request.
ARTICLE 7
Loss, Damage, Reimbursement, Liability etc.
7.01. Landlord or its agents shall not be liable for any
injury or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water, rain or snow or leaks from any part of
the Building, or from the pipes, appliances or plumbing works or from the roof,
street or subsurface or from any other place or by dampness or by any other
cause of whatsoever nature, unless any of the foregoing shall be caused by or
due to the negligence, breach of guarantees, act or omissions of Landlord, its
agents, servants or employees.
7.02. Tenant shall reimburse Landlord for all expense, damages
or fines incurred or suffered by Landlord, and for which Landlord has not been
<PAGE>
or will not be reimbursed by insurance, by reason of any breach, violation or
nonperformance by Tenant, or its agents, servants or employees, of any covenant
or provision of this Lease, or by reason of damage to persons or property caused
by moving property of or for Tenant in or out of the Building, or by the Tenant
or by reason of or arising out of the carelessness, negligence or improper
conduct of Tenant, or its agents, servants or employees in the use or occupancy
of the demised premises.
7.03. Tenant shall give Landlord notice in case of fire or
accidents in the demised premises promptly after Tenant is aware of such event.
7.04. Tenant agrees to look solely to Landlord's estate and
interest the Land and Building, or the Lease of the Building, and the demised
premises, for the satisfaction of any right or remedy of Tenant for the
collection of a judgment (or other judicial process) requiring the payment of
money by Landlord, in the event of any liability by Landlord hereunder, and no
other property or assets of Landlord shall be subject to levy, execution,
attachment, or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this Lease, the relationship of Landlord and
Tenant hereunder, or Tenant's use and occupancy of the demised premises, or for
any other liability of Landlord to Tenant. In the event the Landlord shall sell
or transfer title to the Building and there is an outstanding claim by the
Tenant against the Landlord at the time of the transfer, the Tenant's existing
claim will follow the proceeds of the sale of the Building.
7.05. Each party hereby releases the other party (which term
as used in this paragraph includes the employees, agents, officers and directors
of the other party) from all liability whether for negligence or otherwise, in
connection with loss covered by any insurance policies which the releasor
carries with respect to the demised premises or any interest or property therein
or, thereon (whether or not such insurance is required to be carried under this
Lease), but only to the extent that such loss is collected under said insurance
policies. Such release is also conditioned upon the inclusion in the policy or
policies of a provision whereby any such release shall not adversely affect said
policies or prejudice any right of the releasor to recover thereunder. Each
party agrees that its insurance policies, aforesaid, will include such a
provision so long as the same shall be obtainable without extra cost, or if
extra cost shall be charged therefor, each party shall advise the other thereof
of the amount of the extra cost, and the other party, at its election, may pay
the same, but shall not be obligated to do so.
<PAGE>
ARTICLE 8
Destruction - Fire or Other Cause
8.01. If the demised premises or any part thereof shall be
damaged by fire or other casualty, Tenant shall give immediate notice thereof to
Landlord and this Lease shall continue in full force and effect except as
hereinafter set forth.
8.02. If the demised premises are partially damaged or
rendered partially unusable by fire or other casualty, the damages thereto shall
be repaired by and at the expense of Landlord and the rent, until such repair
shall be substantially completed, shall be apportioned from the day following
the casualty according to the part of the demised premises which is usable.
8.03. If the demised premises are totally damaged or rendered
wholly unusable by fire or other casualty, then the rent shall be
proportionately paid up to the time of the casualty and thenceforth shall cease
until the date when the demised premises shall have been repaired and restored
by Landlord, subject to Landlord's right to elect not to restore the same as
hereinafter provided.
8.04. If the demised premises are rendered wholly unusable or
(whether or not the demised premises are damaged in whole or part) if the
Building shall be so damaged that Landlord shall decide to demolish it or not to
rebuild it, then, in any of such events Landlord may elect to terminate this
Lease by written notice to Tenant, given within 90 days after such fire or
casualty, specifying a date for the expiration of this Lease, which date shall
not be more than 60 days after the giving of such notice, and upon the date
specified in such notice the term of this Lease shall expire as fully and
completely as if such date were the date set forth above for the termination of
this Lease and Tenant shall forthwith quit, surrender and vacate the demised
premises without prejudice however, to Landlord's rights and remedies against
Tenant under the Lease provisions in. effect prior to such termination, and any
rent owing shall be paid up to such date and any rent paid for periods
subsequent to such date shall be returned to Tenant.
Unless Landlord shall serve a termination notice as provided
for herein, Landlord shall make the repairs and restorations under the
conditions of 8.02 and 8.03 hereof, with all reasonable diligence, subject to
delays due to adjustment of insurance claims, labor troubles and causes beyond
Landlord's control. After any such casualty, Tenant shall cooperate with
Landlord's restoration by removing from the demised premises as promptly as
reasonably possible, all of the Tenant's salvageable inventory and movable
equipment, furniture, and other property. Tenant's liability for rent shall
resume five (5) days after written notice from Landlord that the demised
premises are substantially ready for Tenant's occupancy. o1
8.05. No damages, compensation or claim shall be payable by Landlord to Tenant
for inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the demised premises or of the Building.
<PAGE>
8.06. Nothing contained hereinabove shall relieve Tenant from liability that may
exist as a result of damage from fire or other casualty. Notwithstanding the
foregoing, each party shall look first to any insurance in its favor before
making any claim against the other party f or recovery for loss or damage
resulting from fire or other casualty, and to the extent that such insurance is
in force and collectible and to the extent permitted by law, Landlord and Tenant
hereby releases and waives all right of recovery against the other or anyone
claiming through or under each of them by way of subrogation or otherwise. The
foregoing release and waiver shall be in force only if both releasors' insurance
policies contain a clause providing that such a release or waiver shall not
invalidate the insurance. If, and to the extent, that such waiver can be
obtained only by the payment of additional premiums, then the party benefitting
from the waiver shall pay such premium within ten (10) days after written demand
or shall be deemed to have agreed that the party obtaining insurance coverage
shall be free of any further obligation under the provisions hereof with respect
to waiver of subrogation. Tenant acknowledges that Landlord will not carry
insurance on Tenant's furniture and/or furnishings or any fixtures or equipment,
improvements, or appurtenances removable by Tenant and agrees that Landlord will
not be obligated to repair any damage thereto or replace the same.
8.07. Tenant hereby waives the provisions of Section 227 of the Real Property
Law of the State of New York and agrees that the provisions of this Article
shall govern and control in lieu thereof.
ARTICLE 9
Eminent Domain
9.01. In the event that the whole of the demised premises
shall be lawfully condemned or taken in any manner for any public or
quasi--public use or purpose, this Lease and the term and estate hereby granted
shall forthwith cease and terminate as of the date of vesting of title
(hereinafter referred to as the "date of taking"), and Tenant shall have no
claim against Landlord for, or make any claim for, the value of any expired term
of this Lease, and the rent and additional rent shall be apportioned as of such
date.
9.02. In the event that any part of the demised premises shall be so condemned
or taken, then this Lease shall be and remain unaffected by such condemnation or
taking, except that the rent and additional rent allocable to the part so taken
shall be apportioned as of the date of taking, provided, however, that Tenant
may elect to cancel this Lease if any portion of the demised premises shall be
so condemned or taken, provided such notice of election is given by Tenant to
Landlord not later than thirty (30) days after the date when Landlord notifies
Tenant of the date that title shall vest or has vested in the condemning
authority. Upon the giving of such notice, this Lease shall terminate on the
thirtieth day following the date of such notice by Tenant. Upon such partial
taking and this Lease continuing in force as to any part of the demised
premises, the rent and additional rent shall be diminished by an amount
representing the part of said rent and additional rent properly applicable to
the portion or portions of the demised premises which may be condemned or taken.
<PAGE>
If as a result of the partial taking (and this Lease continuing in force as to
the part of the demised premises not so taken), any part of the demised premises
not taken is damaged, Landlord agrees with reasonable promptness to commence the
work necessary to restore the damaged portion to the condition existing
immediately prior to the taking, and prosecute the same with reasonable
diligence to its completion.
9.03. Nothing hereinabove provided shall preclude Tenant from
appearing, claiming, proving and receiving in the condemnation proceeding,
Tenant's moving expenses, and the value of Teniant1s fixtures, or Tenant's
alterations, installations and improvements which do not become part of the
Building or property of Landlord, provided such claims do not diminish
Landlord's award.
9.04. In the event that more than twenty-five (25%) per cent of the demised
premises shall be so taken and Tenant shall not have elected to cancel this
Lease as above provided, the entire award for partial taking shall be paid to
Landlord, and Landlord, at Landlord's own expense, shall to the extent of the
net proceeds (after deducting reasonable expenses including attorneys' and
appraisers' fees)of the award restore the unaffected part of the Building to
substantially the. same condition and tenantability as existed prior to the
taking. Until said unaffected portion is restored, Tenant shall be entitled to a
proportionate abatement of rent for that portion of the demised premises which
is being restored and is not usable until the completion of the restoration or
until the said portion of the demised premises is used by Tenant, whichever is
sooner. Said unaffected portion shall be restored within a reasonable time but
not more than six (6) months after the taking `provided, however, if Landlord is
delayed by strike, lockout, the elements, or other causes beyond Landlord's
control, the time for completion shall be extended for a period equivalent to
the delay. Should Landlord fail to complete the restoration within the said six
(6) months or the time as extended, Tenant may elect to cancel this, Lease and
the term hereby granted in the manner and with the same results as set forth in
the next two sentences of this Section 9.04. If such partial taking shall occur
in the last two years of the term hereby granted, either party, irrespective of
the area of the space remaining, may elect to cancel this Lease and the term
hereby granted, provided such party shall, within thirty (30) days after such
taking, give notice to that effect, and upon the giving of such notice, the rent
shall be apportioned and paid to the date of expiration of the term specified
and this Lease and the term hereby granted shall cease, expire and come to an
end upon the expiration of said thirty days specified in said notice. If either
party shall so elect to end this Lease and the term hereby granted, Landlord
need not restore any part of the demised premises and the entire award for
partial condemnation shall be paid to Landlord, and Tenant shall have no claim
to any part thereof, except as to the items set forth in Section 9.03 where same
are applicable.
<PAGE>
9.05. In the event all or any part of the demised premises
shall be'-taken for a temporary use or occupancy, (a) the Lease term shall not
be reduced or affected in any way except as provided in (d) below, (b) Tenant
shall continue to be responsible for all of its obligation hereunder and shall
continue to pay all rents and additional rents when due, (c) Tenant shall be
entitled to receive that portion of the award which represents reimbursement for
the cost of restoration of the demised premises, compensation for the use and
occupancy of the demised premises and for any taking of Tenant's property,
except that, if the temporary period of taking shall extend beyond the
expiration of the term of this Lease, the portion of the award representing
compensation for the use and occupancy of the demised premises shall be
apportioned between Landlord and Tenant as of said expiration date of said term
and Landlord shall receive that portion of the award which represents
reimbursements for the cost of restoration of the demised premises, and (d) if
the date of taking shall occur during the last three (3) years of the term of
this Lease, Tenant may elect to cancel this Lease by notice of election given by
Tenant to Landlord not later than thirty (30) days after the date when Landlord
notifies Tenant of the date that title shall vest or has vested in the
condemning authority. Upon the giving of such notice, this Lease shall terminate
on the thirtieth day following the date of such notice and the rent and
additional rent shall be apportioned as of such termination date, with Landlord,
and not Tenant, to receive the portion of the award which represents
reimbursement for the cost of restoration of the demised premises and the
portion of the award representing compensation for the use and occupancy of the
demised premises for the time subsequent to the cancellation date.
9.06. In the event more than one-third (1/3) of the parking
spaces shall be so condemned or taken which parking spaces formulate part of the
overall Land, and the Landlord is not able to provide on-premises parking equal
to two--thirds (2/3) of the original parking areas, then in that event the
Tenant may elect to cancel this Lease and the terms hereby granted in accordance
with
the provisions of Section 9.02 applicable to condemnation of more than
twenty--five (25%) percent of the demised premises. Landlord shall give notice
to Tenant within sixty (60) days of the date of such taking as to whether or not
Landlord will in fact restore sufficient parking facilities as herein set forth.
Neither Tenant nor Tenants' employees, agents, servants or visitors shall use
parking spaces reserved for other tenants. <PAGE>
ARTICLE 10
Assignment and Subletting
10.01. Tenant, for itself, its heirs, distributees,
executors, administrators, legal representatives, successors and assigns,
expressly covenants that it shall not assign, mortgage or encumber this Lease,
nor underlet, or suffer or permit the demised premises or any part thereof to be
used or occupied by others, without the prior written consent of Landlord in
each instance. If this Lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anyone other than Tenant, Landlord may, after
default by Tenant, collect rent from the assignee, undertenant or occupant, and
apply the net amount collected to the rent herein reserved, but no assignment,
underletting, occupancy or collection or the acceptance of the assignee,
undertenant or occupant as tenant, shall be deemed a waiver of the provisions
hereof or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. Tenant shall remain liable
under this Lease. The consent by Landlord to an assignment or underletting shall
not in any wise be construed to relieve Tenant from obtaining the express
consent in writing of Landlord to any further assignment or underletting. In no
event shall any permitted sublessee assign or encumber its sublease or further
sublet all or any portion of its sublet space, or otherwise suffer or permit the
sublet space or any part thereof to be used or occupied by others, without
Landlord's prior written consent in each instance.
10.02. If Tenant desires to assign this Lease or to sublet
all or any portion of the demised premises, it shall first submit in writing to
Landlord the description of the space and the terms for which Tenant intends to
assign or sublease and shall offer in writing, (i) With respect to a prospective
assignment, to assign this Lease. to Landlord without any payment of monies or
other consideration thereof or, or, (ii) with respect to prospective subletting,
to sublet to Landlord or its designee the portion of the demised premises
involved ("Leaseback Area") for the term intended by Tenant in its offer and at
the lower of (a) Tenant's proposed subrental or (b) at the same rate of fixed
rent and additional rent and otherwise on the same terms, covenants and
conditions (including provision relating to escalation rents), as are contained
herein and as are applicable to the portion of the demised premises to be
covered by such subletting. The offer shall specify the date when the Leaseback
Area will be made available to Landlord which date shall be in no event earlier
than sixty (60) days nor later than one hundred eighty (180) days following the
acceptance of the offer by the Landlord. If an offer of sublease is made, it
shall in addition specify the duration of the term of the proposed sublease as
fixed by Tenant, except that if the proposed sublease will result in all or
substantially all of the demised premises being sublet, then Landlord shall have
the option to extend the term of this sublease to the term of the underlying
Lease, less one day. Landlord shall have a period of fifteen (15) days from the
receipt of such offer to either accept or reject the same. If Landlord shall
accept such offer Tenant shall then execute and deliver to Landlord, or to
anyone designated or named by Landlord of reasonable credit standing, an
assignment or sublease, as the case may be, in either case in a form reasonably
satisfactory to Landlord's counsel. <PAGE>
If a sublease is so made to Landlord or its
designee, it shall expressly:
(a) permit Landlord to make further subleases of all or any
part of the Leaseback Area and (at no cost or expense to Tenant) to make and
authorize any and all changes, alterations, installations and improvements in
suoh space as Landlord may deem necessary for such subletting, at Landlord's
expense;
(b) provide that Tenant will at all times permit reasonably
appropriate means of ingress to and egress from the Leaseback Area;
(c) negate any intention that the estate created under such
sublease be merged with any other estate held by either of the parties;
(d) provide that Landlord shall accept the Leaseback Area
"as is" except that Landlord, at Tenant's-expense, shall perform all such work
physically to separate the Leaseback Area from the remainder of the demised
premises and to permit lawful occupancy, it being intended that Tenant shall
have no other cost or expense in connection with the subletting of the Leaseback
Area;
(e) provide that at the expiration or sooner termination of
the term of such sublease Tenant will accept the Leaseback Area~ in its then
existing condition, subject to the obligations of Landlord to make such repairs
thereto as may be necessary to preserve the Leaseback Area in good order and
condition, ordinary wear and tear expected.
Landlord shall indemnify,and save Tenant harmless from all
obligations under this Lease as to the Leaseback Area during
the period of time it is so sublet. For the purposes of this clause, Landlord
shall be deemed to be any successor or person or persons in interest.
Performance by Landlord, or its designee, under a sublease of the Leaseback Area
shall be deemed performance by Tenant of any similar obligation contained in
this Lease, and Tenant shall not be liable for any default under this Lease or
deemed to be in default hereunder if such default is occasioned by or arises
from any act or omission of the Tenant under such sublease or is occasioned by
or arises from any act or omission of any occupant holding under or pursuant to
any such sublease.
10.03. If Landlord shall not have accepted Tenant's offer, as
provided in Section 10.02, then Landlord will not unreasonably withhold or delay
its consent to Tenant's request for consent to such assignment or subletting.
Any such consent of Landlord shall be subject to the terms of this Article and
conditional upon there being no default by Tenant and Tenant shall not have
received any notice of default that is not cured, beyond any applicable grace
period, under anyof the terms, covenants and conditions of this'Lease at the
<PAGE>
time that Landlord's consent to any such subletting or assignment is~ requested
and on the date of the commencement of the term of any such proposed sublease or
the effective date of any such proposed assignment. In the event Tenant does not
successfully sublet or assign the space so designated in 10.02 within six (6)
months, then the Landlord's rights in 10.02 shall re-occur before Tenant may
sublet or assign such space.
10.04. If Tenant requests Landlord's consent to a specific
assignment or subletting, it shall submit in writing to Landlord (which writing
shall be in addition to the writing required pursuant to Section 10.02 hereof)
(1) the name and address of the proposed assignee or sublessee, (ii) a
counterpart of the proposed agreement or assignment or sublease, (iii)
reasonably satisfactory information as to the nature and character of the
business of the proposed assignee or sublessee, and as to the nature of its
proposed use of the space, and (iv) banking, financial or other credit
information relating to the proposed assignee or sublessee reasonably sufficient
to enable Landlord to determine the financial responsibility and character of
the proposed assignee or sublessee. The proposed sublessee must have a net worth
equal to or in excess of the net worth of Tenant.
10.05. Upon receiving Landlord's written consent, a duly
executed copy of the sublease or assignment shall be delivered to Landlord
within ten (10) days after execution thereof. Any such sublease shall provide
that the sublessee shall comply with all applicable terms and conditions of this
Lease to be performed by the Tenant hereunder. Any such assignment of Lease
shall contain an assumption by the assignee of all, of the terms, covenants and
conditions of this Lease to be performed by the Tenant.
notwithstanding
(a) Tenant shall not advertise (but may list with brokers)
its space for assignment or subletting at a rental rate lower than the rental
rate then being paid by Tenant to Landlord.
(b) The transfer of a majority of the issued and outstanding
capital stock of any corporate tenant or subtenant of this Lease or a majority
of the total interest in any partnership tenant or subtenant, however
accomplished, and whether in a single transaction or in a series of related or
unrelated transactions, shall be deemed an assignment of this Lease. The
transfer of outstanding capital stock of any corporate tenant, for purposes of
this Article, shall not include sale of such stock by persons other than those
deemed "insiders" within the meaning of the Securities Exchange Act of 1934 as
amended, and which sale is effected through "over-the-counter market" or through
any recognized stock exchange. In no event shall there be an assignment to a
"shell" corporation - said assignment must be to the operating entity. <PAGE>
(c) No assignments or subletting shall be made:
(1) To any person or entity which shall at that time be a
tenant, subtenant or other occupant of any part of the Building of which the
demised premises form a part, or any person or entity who has been dealing or
negotiating with (or has previously dealt or negotiated with) the Landlord or a
broker for space in the Building, or any person or entity with whom Landlord has
been in negotiations during the preceding one (1) year for any space in any
Building owned or managed by Landlord or its representatives.
(ii) By the legal representatives of Tenant or by any person
to whom Tenant's interest under this Lease passes by operation of law, except in
compliance with the provisions of this Article;
(iii) To any person or entity for the conduct of business
which is not in keeping with the standards and the general character of the
Building of which the demised premises form a part.
(iv) To any person or entity for the practice of medicine in
any field.
10.07. Tenant may, with Landlord's prior written consent, which consent shall
not be unreasonably withheld, assign or transfer its entire interest in this
Lease and the leasehold estate hereby created or sublet the whole of the demised
premises to a successor corporation of Tenant (as hereinafter defined);
provided, however, that (i) Tenant shall not be in default in any of the terms
of this Lease, (ii) the proposed occupancy shall not increase the office
cleaning requirements or impose an extra burden upon the building equipment or
building services and (iii) the proposed subtenant or assignee shall not be
entitled, directly or indirectly, to diplomatic or sovereign immunity and shall
be subject to the service of process in, and the jurisdiction of the courts of
New York State. A "successor corporation", as used in this Article 10 shall mean
(a) a corporation into which or with which Tenant, its corporate successors or
assigns, is merged or consolidated, in accordance with applicable statutory
provisions for the merger or consolidation of corporations, or (b) a corporation
acquiring this Lease and the term hereof and estate hereby granted, and the
goodwill and all or substantially all of the other property and assets (other
than capital stock of such acquiring corporation) of Tenant, its corporate
successors or assigns, and assuming all or substantially all of the liabilities
of Tenant, its corporate successors and assigns, or (c) any corporate successor
to a successor corporation becoming such by either of the methods described in
subdivisions (a) and (b) above; provided that, immediately after giving effect
<PAGE>
to any such merger or consolidation, or such acquisition and assumption, as the
case may be, the corporation surviving such merger or created by such
consolidation or acquiring such assets and assuming such liabilities, as the
case may be, shall have assets, capitalization and a net worth, as determined in
accordance with generally accepted accounting principles, at least equal to the
assets, capitalization and net worth, similarly determined, of Tenant, its
corporate successors or assigns, immediately prior to such merger or
consolidation or such acquisition and assumption, as the case may be. The
acquisition by Tenant, its corporate successors or assigns, of all or
substantially all of the assets, together with the assumption of all or
substantially all of the obligations and liabilities of any corporation, shall
be deemed to be a merger for the purposes of this Article.
10.08. In the event that Tenant sells, sublets, assigns or
transfers this Lease and at anytime receives periodic rent and/or other
consideration which exceeds that which Tenant would at that time be obligated to
pay to Landlord, Tenant shall pay to Landlord 50% of the gross increase,
exclusive of the costs of any improvements, in such rent as such rent is
received by Tenant and 50% of any other consideration received by Tenant for
such subtenant of any other consideration received by Tenant from such subtenant
in connection with such sublease or in the case of an assignment of this Lease
by Tenant, Landlord shall receive 50% of any consideration paid to Tenant by,
such assignee in connection with such assignment.
Access to Demised Premises
11.01. Tenant shall permit Landlord to erect, use and maintain pipes, ducts and
conduits in and through the demised premises, provided the same are installed
concealed behind walls and ceilings of the demised premises and are installed by
such methods and at such locations as will not materially interfere with or
impair Tenant's layout or use of the demised premises or damage the appearance
thereof. Landlord or its agents or designees shall have the right, upon
reasonable notice, but only upon request made to Tenant or any authorized
employee of Tenant at the demised premises to enter the demised premises, other
than vaults or other enclosures where money, securities or other valuables or
confidential documents are kept, at reasonable times during business hours, for
the making of such repairs or alterations as Landlord shall be required or shall
have the right to make by the provisions of this Lease or any other lease in the
Building and, subject to the foregoing, shall also have the right to enter the
demised premises for the purpose of inspecting them or exhibiting them to
prospective purchasers or lessees of the entire Building or to prospective
mortgagees of the fee or of the Landlord's interest in the property of which the
demised premises are a part or to prospective assignees of any such mortgages or
to the holder of any mortgage on the Landlord's interest in the property, its
agents or designees. Landlord shall be allowed to take all material into and
upon the demised premises that may be required for the repairs or alterations
above mentioned as the same is required for such purpose without the same
constituting an eviction of Tenant in whole or in part, and the rent reserved
shall in no wise abate, except as otherwise provided in this Lease, while said
repairs or alterations are being made, by reason of loss or interruption of the
business of Tenant because of the prosecution <PAGE>
of any such work, provided Landlord shall exercise reasonable
diligence so as to minimize the disturbance.
11.02. Landlord may, upon reasonable notice to the Tenant,
during the six (6) months prior to the expiration of the term of this Lease,
exhibit the demised premises to prospective tenants.
I1.03. If Tenant shall not be personally present to open and
permit an entry into the demised premises at any time when for any reason an
entry therein shall be urgently necessary by reason of fire or other emergency,
Landlord or Landlord's agents may forcibly enter the same without rendering
Landlord or such agents liable therefor (if during such entry Landlord or
Landlord's agents shall accord reasonable care to Tenant's property) and without
in any manner affecting the obligations and covenants of this Lease.
Certificates of Occupancy
12.01. Tenant will not at any time use or occupy the demised
premises in violation of the certificate of occupancy issued for the Building.
Landlord represents that the certificate of occupancy for the Building permits
the use of the demised premises for the purposes specified in this Lease.
Landlord will make no changes in the Building which would result in a change in
the certificate of occupancy which prevents Tenant from using the demised
premises for the purposes specified in this Lease.
ARTICLE 13
Bankruptcy
13.01. Subject to the provisions of Section 13.03 and the
applicable bankruptcy statutes, if at any time prior to the date herein fixed as
the commencement of the term of this Lease there shall be filed by or against
Tenant in any court pursuant to any statute either of the United States or of
any State a petition in bankruptcy or insolvency or for reorganization or for
the appointment of a receiver or a trustee of all or a portion of Tenant's
property, or if Tenant makes an assignment for the benefit of creditors, or
petitions for or enters into an arrangement with creditors, this Lease shall
ipso facto be cancelled and terminated, In which event neither Tenant nor any
person claiming through or under Tenant or by virtue of any statute or of an
order of any court shall be entitled to possession of the demised premises and
Landlord, in addition to the other rights and remedies given by Section 13.04
hereof and by virtue of any other provision herein or elsewhere in this Lease
contained or by virtue of any statute of rule of law, may retain as liquidated
damages any rent, security, deposit or monies received by it from Tenant or
others in behalf of Tenant upon the execution thereof. <PAGE>
13.02. Subject to the provisions of Section 13.03, if at the
date fixed as the commencement of the term of this Lease or if at any time
during the term hereby demised there shall be filed by or against Tenant in any
court pursuant to any statute either of the Unite1d States or of any State a
petition in bankruptcy or insolvency or for. reorganization of the appointment
of a receiver or trustee of all or a portion of Tenant's property, or if Tenant
makes an assignment for the benefit of creditors, or petitions for or enters
into an arrangement with creditors, Landlord may at Landlord's option, serve
upon Tenant or any such trustee, receiver, or assignee, a notice in writing
stating that this Lease and the term hereby granted shall cease and expire on
the date specified in said notice, which date shall be not less than ten (10)
days after the serving of said notice and this Lease and the term hereof shall
then expire on the date so specified as if that date had originally
been fixed in this Lease as the expiration date of the terra herein granted.
Thereupon, neither Tenant nor any person claiming through or under Tenant by
virtue of any statute or of an order of any court shall be entitled to
possession or to remain in possession of the demised premises but shall
forthwith quit and surrender the demised premises, and Landlord, in addition to
the other rights and remedies Landlord has by virtue of any other provision
herein or elsewhere in this Lease contained or by virtue of any statute or rule
of law, may retain as liquidated damages any rent, security, deposit or monies
received by it from Tenant or others in behalf of Tenant.
13.03. In the event that at any times mentioned in either
Sections 13.01 and 13.02 there shall be instituted against Tenant an involuntary
proceeding for bankruptcy, insolvency, reorganization or any other relief
described in Sections 13.01 or
13.02, Tenant shall have ninety (90) days in which to vacate
or stay the same before this Lease shall terminate or before Landlord shall have
any right to terminate this Lease, provided the rent and additional rent then in
arrears, if any, are paid within fifteen (15) days after the institution of such
proceeding, and further provided that the rent and additional rent which shall
thereafter become due and payable are paid when due, and Tenant shall not
otherwise be in default in the performance of the terms and covenants of this
Lease.
13.04. In the event of the termination of this Lease pursuant
to Sections 13.01, 13.02 or 13.03 hereof, Landlord shall forthwith,
notwithstanding any other provisions of this Lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the rent reserved hereunder for the unexpired portion of the
term demised and the then fair arid reasonable rental value of the demised
premises for the same period. If the demised premises or any part thereof be
re-let by Landlord for the unexpired term of this Lease, or any part thereof,
before presentation of proof of such liquidated damages to any court, commission
or tribunal, the amount of rent reserved upon such re-letting shall be prima
fade evidence of the fair and reasonable rental value for the part or the whole
<PAGE>
of the premises so re-let during the term of the reletting. Nothing herein
contained shall be limit or prejudice the right of...Landlord to prove for and
obtain as liquidated damages by reason of such termination, an amount equal to
the maximum allowed by any statute or rule of law in effect at the time, and
governing the proceedings +/-`n which such damages are to be proved, whether or
not such amount be greater, equal to, or less than the amount of the difference
referred to above.
Default
14.01. If Tenant defaults in fulfilling any of the covenants
of this Lease, including the payment of rent or additional rent, or if the
demised premises become vacant or deserted, then, in any one or more of such
events, upon Landlord serving a written five o(5) days' notice to cure the
default upon the expiration of said five (5) days, if Tenant shall have failed
to comply with or remedy such default, or if the said default or omission
complained of shall be of such a nature that the same cannot be completely cured
or remedied within said 5-day period and if Tenant shall not have diligently
commenced to take action towards curing such default within such 5-day period
and shall not thereafter with reasonable diligence and in good faith proceed to
remedy or cure such default, or if any execution or attachment shall be issued
against Tenant or any of Tenant's property whereupon the demised premises shall
be occupied by someone other than Tenant and such occupancy shall continue for a
period of fifteen (15) days after written notice from Landlord, then Landlord
may serve a written 5 days notice of cancellation of this Lease upon Tenant,
and, upon the expiration of said 5 days, this Lease and the term hereunder shall
end and expire as fully and completely as if the date of expiration of such
5-day period were the day herein definitely fixed for the end and expiration of
this Lease and the term hereof and Tenant shall then quit and surrender the
demised premises to Landlord but Tenant shall remain liable as hereinafter
provided. If Tenant shall at any time default hereunder, and if Landlord shall
institute an action or summary proceedings against Tenant based upon such
default, then Tenant will reimburse Landlord for the expense of reasonable
attorneys' fees and disbursements thereby incurred by Landlord.
14.02. If the notices provided for in Section 14.01 hereof
shall have been given, and the term shall expire as aforesaid, or if Tenant
shall default in the payment of the rent reserved herein or any item of
additional rent herein provided or any part of either or in making any other
payment herein provided for, then and in any of such events Landlord may,
without notice, re--enter the demised premises, and dispossess Tenant, the legal
representatives of Tenant or other occupant of the demised premises, by summary
proceedings and lawfully remove their effects and hold the premises as if this
Lease had not been made, and Tenant hereby waives the service of notice of
intention to re--enter or to institute legal proceedings to that end.
<PAGE>
14.03. Notwithstanding any expiration or termination prior to
the Lease expiration date as set forth in this Article 14, Tenant1s obligation
to pay any and all rent and additional rent under this Lease shall continue to
and over all periods up to the date provided in this Lease for the expiration of
the term hereof.
14.04. Notwithstanding the provisions of Section 14.01 hereof, Tenant, at its
own cost and expense, in its name and/or (wherever necessary) Landlord's name,
may contest, in any manner permitted by law (including appeals to a court, or
governmental department or authority having jurisdiction in the matter), the
validity or the enforcement of any governmental act, regulation or directive
with which Tenant is required to comply pursuant to this Lease, and may defer
compliance therewith provided that:
(a) such non--compliance shall not subject Landlord to
criminal prosecution or subject the Land and/or Building to lien or sale;
(b) such non--compliance shall not be in violation of any fee
mortgage, or of any ground or underlying lease or any mortgage thereon;
(c) Tenant shall first deliver to Landlord a surety bond
issued by a surety company of recognized responsibility, or other security
satisfactory to Landlord, indemnifying and protecting Landlord against any loss
or injury by reason of such non--compliance; and
(d) Tenant shall promptly and diligently prosecute such
contest.
Landlord, without expense or liability to it, shall cooperate
with Tenant and execute any documents or pleadings required for such purpose,
provided that Landlord shall reasonably be satisfied that the facts set forth in
any such documents or pleadings are accurate.
ARTICLE 15
Remedies of Landlord; Waiver of Redemption
15.01. In case of any such re-entry, expiration and/or dispossess by summary
proceedings or otherwise as set forth in Article 14 hereof (a) the rent shall
become due thereupon and be paid up to the time of such re-entry, dispossess
and/or expiration, together with such expenses as Landlord may incur for legal
expenses, reasonable attorneys' fees, brokerage, and/or putting the demised
premises in good order, or for preparing the same for re-- rental; (b) Land1o~d
may re-let the demised premises or any part or parts thereof, either in the name
of Landlord or otherwise, for a term or terms, which may at Landlord's option be
less than or exceed the period which would otherwise have constituted the
balance of the term of this Lease and may grant concessions or free rent; and/or
(C) Tenant shall also pay Landlord as liquidated damages for the failure of
Tenant to observe and perform said Tenant's covenants herein contained, any
deficiency between the <PAGE>
rent hereby reserved and/or covenanted to be paid and the net amount, if any, of
the rents collected on account of the lease or leases of the demised premises
for each month of the period which would otherwise have constituted the balance
of the term this Lease. The failure of Landlord to re-let the demised premises
or any part or parts thereof shall not release or affect Tenant's liability for
damages. In computing such liquidated damages there shall be added to the said
deficiency such expenses as Landlord may incur in connection with re--letting,
such as legal expenses, reasonable attorneys' fees, brokerage and for keeping
the demised premises in good order or for preparing the same for re-letting. Any
such liquidated damages shall be paid in monthly installments by Tenant on the
rent days specified in this Lease and any suit brought to collect the amount of
the deficiency for any month shall not prejudice in any way the rights of
Landlord to collect the deficiency for any subsequent month by a similar
proceeding. Landlord, at Landlord's option, may make such alterations, repairs,
replacements and/or decorations in the demised premises as Landlord, in
Landlord's sole judgment, considers advisable and necessary for the purpose of
re--letting the demised premises; and the making of such alterations and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Landlord shall in no event be liable, in any way
whatsoever for the failure or refusal to re--let the demised premises or any
parts thereof, or, in the event that the demised premises are re--let, for
failure to collect the rent thereof under such re--letting. In the event of a
breach by Tenant of any of the covenants or provisions hereof, Landlord shall
have the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention in
this Lease of any particular remedy, shall not preclude Landlord from any other
remedy, in law or in equity. Landlord shall take all reasonable steps to
mitigate damages in the event of default by Tenant.
15.02. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or dispossessed. for any cause, or in the event of Landlord
obtaining possession of demised premises, by reason of the violation by Tenant
of any of the covenants and conditions of this Lease or otherwise.
ARTICLE 16
Fees and Expenses; Interest
16.01. If Tenant shall default in the observance or
performance of any term or covenants on Tenant's part to be observed or
performed under or by virtue of any of the covenants, terms or provisions in any
Article of this Lease, (a) Landlord may remedy such default for the account of
Tenant, immediately and without notice in case of emergency, or in any other
case only <PAGE>
provided that Tenant shall fail to remedy such default with all reasonable
dispatch after Landlord shall have notified Tenant in writing of such default
and the applicable grace period for curing such default shall have expired; and
(b) if Landlord makes any expenditures or incurs any obligations for the payment
of money in connection with such default including, but not limited to,
reasonable attorneys' fees in instituting, prosecuting or defending any action
or proceeding, such sums paid or obligations incurred, with interest, shall be
deemed to be additional rent hereunder and shall be paid by Tenant to Landlord
upon rendition of a bill to Tenant therefor.
Except as otherwise specifically provided in this Lease,
including but not limited to Article 48, hereof, if Tenant is late in making any
payment other than the payment of fixed annual rent and/or additional rent due
to Landlord from Tenant under this Lease, then interest ("interest") calculated
at the rate of one and half percent (1--1/2%) per month shall become due and
owing to Landlord on such payment from the date when it was due (or such lesser
amount as may then be legally permitted by law)..
ARTICLE 17
No Representations by Landlord
17.01. Landlord or Landlord's agents have made no
representations or promises with respect to the Building or demised premises
except as herein expressly set forth.
ARTICLE 18
End of Term
18.01. Upon the expiration or other termination of the term,
Tenant shall quit and surrender to Landlord the demised premises, broom clean,
in good order and condition, ordinary wear and tear and damage for which-Tenant
is not responsible under the terms of this Lease excepted, Tenant's obligation
to observe or perform this covenant shall survive the expiration or sooner
termination of the term of this Lease. Tenant agrees to indemnify and save
Landlord harmless from all costs, claims, loss or liability resulting from delay
by Tenant in so surrendering the demised premises, including, without
limitation, any claims made by any succeeding tenant founded on such delay. If
the last day of the Term or any renewal thereof falls on Saturday or Sunday this
Lease shall expire on the business day immediately preceding. Tenant expressly
waives, for itself and for any person claiming through or under Tenant, any
rights which Tenant or any such person may have under the provisions of, Section
2201 of the New York City Practice Law and Rules and of any successor law of
like import then in force in connection with any holdover summary proceedings
which Landlord may institute to enforce the foregoing provisions of this <PAGE>
Article 18. In addition, the parties recognize and agree that the damage to
Landlord resulting from any failure by Tenant to timely surrender possession of
the demised premises as aforesaid will be substantial, will exceed the amount of
the monthly installments of the fixed annual rent theretofore payable hereunder,
and will be impossible to accurately measure. Tenant therefor agrees that if
possession of the demised premises is not surrendered to Landlord within
twenty-four (24) hours after the Expiration Date or a sooner termination of the
Term, in addition to any other rights or remedy Landlord may have hereunder or
at law Tenant shall pay to Landlord for each month and for each portion of any
month during which Tenant holds over in the demised premises after the
Expiration Date or sooner termination of this Lease, a sum equal to three (3)
times the aggregate of that portion of the fixed rent which was payable under
this Lease during the last month of the Term. Nothing herein contained shall be
deemed to permit Tenant to retain possession of the demised premises after the
Expiration Date or sooner termination `of this Lease and" no acceptance by
Landlord of payments from Tenant after the expiration or sooner termination of
the Lease shall be deemed to be other than on account of the amount to be paid
by Tenant in accordance with the provisions of this Article 18, which provisions
shall survive the expiration or sooner termination of this Lease.
ARTICLE 19
Quiet Enjoyment
19.01. Landlord covenants arid agrees with Tenant that upon
Tenant paying the rent and additional rent and observing and performing all the
terms, covenants and conditions, on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the premises hereby demised, subject
nevertheless, to the terms and conditions of this Lease, and to any ground
leases, underlying leases and mortgages hereinbefore mentioned to which this
Lease is subordinate.
ARTICLE 20
Definitions
20.01. The term "Landlord" as used in this Lease means only
the owner, or the mortgagee in possession, for the time being of the Land and
Building (or the owner of a lease of the Building or of the Land and Building),
so that in the event of any transfer of title to the Land and Building or said
lease, or in the event of a lease of the Building, or of the Land and Building,
upon notification to Tenant of such transfer or lease the said transferor
Landlord shall be and hereby is entirely freed and relieved of all existing or
future covenants, obligations and liabilities of Landlord hereunder, and it
shall be deemed and construed as a covenant running with the Land without
further agreement between the parties or their successors in interest, or
between the parties and the transferee of title to the Land and Building or said
lease, or the said lessee of the Building, or of the Land and Building, that the
transferee or the lessee has assumed arid agreed to carry out any and all such
covenants, obligations and liabilities of Landlord hereunder.
<PAGE>
20.02. The words "re--enter" and "re--entry" as used in this
Lease are not restricted to their technical legal meaning.
20.03. The term "business days" as used in this lease shall
exclude Saturdays, Sundays, New Year's Day, Memorial Day, Fourth of July, Labor
Day, Thanksgiving Day, and Christmas. For cleaning purposes, "business days" as
used in this, Lease shall exclude all Saturdays, Sundays, and holidays as set
forth in the agreement between Realty Advisory Board on Labor Relations, Inc. or
any successor thereto and Local 32B--32J of the Building Service Employees
International Union (AFL-CIO). The term "business hours" as used in this Lease
shall mean the hours between 8:00 am and 6:00 pm during business days.
20.04. The term "Tenant's Proportionate Share" as used in
this Lease shall mean 2.61%.
ARTICLE 21
Adjacent Excavation - Shoring
21.01. If an excavation shall be made upon land adjacent to
the demised premises, or shall be authorized to be made, Tenant shall afford to
the person causing or authorized to cause such excavation, license to enter upon
the demised premises for the purpose of doing such work as shall be necessary to
preserve the wall of or the Building of which the demised premises form a part
from injury or damage and to support the same by proper foundations without any
claim for damages or indemnity against Landlord, or diminution or abatement of
rent. If said excavation is conducted by the Landlord or by an authorized agent
of the Landlord and it is done in such fashion as to interrupt Tenant's normal
business, to the extent of said interruption the rent herein shall be abated
proportionately.
ARTICLE 22
Rules and Regulations
22.01. Tenant and Tenant's servants, employees and agents
shall observe faithfully and comply strictly with the Rules and Regulations set
forth in Exhibit B attached hereto and made part hereof entitled "Rules and
Regulations" and such other and further reasonable Rules and Regulations as
Landlord or Landlord's agents may from time to time adopt provided, however,
that in case of any conflict or inconsistency between the provisions or tins
Lease and of any of the Rules and Regulations as originally or as hereafter
adopted, the provisions of this Lease shall control. Reasonable written notice
of any additional Rules and Regulations shall be given to Tenant. Nothing in
this Lease contained shall be construed to impose upon Landlord any duty or
obligation to enforce the Rules and Regulations or the terms, covenants or
conditions in any other lease, against any other tenant of the Building, and
Landlord shall not be liable to Tenant for violation of the same by any other
tenant, its servants, employees, agents, visitors or licensees. Landlord will
uniformly enforce or not enforce the Rules and Regulations.
<PAGE>
ARTICLE 23
No Waiver
23.01. No agreement to accept a surrender of this Lease shall
be valid unless in writing signed by Landlord. No employee of Landlord or of
Landlord's agents shall have any power to accept the keys of the demised
premises prior to the termination of this Lease. The delivery of keys to any
employee of Landlord or of Landlord's agent shall not operate as a termination
of this Lease or a surrender of the premises. In the event of Tenant at any
times desiring to have Landlord sublet the demised premises for Tenant's
account, Landlord or Landlord's agents are authorized to receive said keys for
such purpose without releasing Tenant from any of the obligations under this
Lease. The failure of Landlord to seek redress for violation of or to insist
upon the strict performance of, any covenant or condition of this Lease or any
of the Rules and Regulations set forth herein, or hereafter adopted by Landlord,
shall not prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original violation. The
receipt by Landlord of rent with knowledge of the breach of any covenant of this
Lease shall not be deemed a waiver of such breach. The failure of Landlord to
enforce any of the Rules and Regulations set forth herein, or hereafter adopted,
against Tenant and/or any other tenant in the Building shall not be deemed a
waiver of any such Rules and regulations. No provision of this Lease shall be
deemed to have been waived by Landlord, unless such waiver be in writing signed
by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly rent herein stipulated shall be deemed to be other than on account
of the earliest stipulated rent, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment of rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy in this, Lease provided.
23.02. This Lease contains the entire agreement
between the parties, arid any executory agreement hereafter made shall be
ineffective to change, modify, discharge or effect an abandonment of it in whole
or in part unless such executory agreement is in writing and signed by the party
against whom enforcement of the change, modification, discharge or abandonment
is sought. <PAGE>
ARTICLE 24
Waiver of Trial by Jury
24.01. Landlord and Tenant do hereby waive trial by jury in
any action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the demised premises, and/or any other claims (except claims for
personal injury or. property damage), and any emergency statutory or any other
statutory remedy. It is further mutually agreed that in the event Landlord
commences a proceeding for non--payment of rent, Tenant will not interpose and
does hereby waive the rights to interpose any counterclaim of whatever nature or
description in any such proceeding except for compulsory counterclaims.
ARTICLE 25
Inability to Perform
25.01. If, by reason of (1) strike, (2) labor troubles, (3)
governmental pre--emption in connection with a national emergency, (4) any rule,
order or regulation of any governmental agency, (5) conditions of supply or
demand which are affected by war or other national, state or municipal
emergency, or (6) any cause beyond Landlord's control, Landlord shall be unable
to fulfill its obligations under this Lease or shall be unable to supply any
service which Landlord is obligated to supply, this Lease and Tenant's
obligation to pay rent hereunder shall In no way be affected, impaired or
excused. As Landlord shall learn of the happening of.. any of the foregoing
conditions, Landlord shall promptly notify Tenant of such event and, if
ascertainable, its estimated duration, and will proceed promptly and diligently
with the fulfillment of its obligations as soon as reasonably possible.
ARTICLE 26
Notices
26.01. Any notice or demand, consent, approval or disapproval
required to be given by the terms and provisions of this Lease, or by any law or
governmental regulation, either by Landlord to Tenant or by Tenant to Landlord,
shall be in writing. Unless otherwise required by such law or regulation, such
notice or demand shall be given, and shall be deemed to have been served and
given by Landlord and received by Tenant upon actual receipt by Tenant or first
refusal by Tenant, when Landlord shall have deposited such notice or demand by
registered or certified mail enclosed in a securely closed postpaid wrapper, in
a United States Government general or branch post office, or official depository
within the exclusive care and custody thereof, or by a receipted overnight
carrier package addressed to Tenant, at the address set forth after Tenant's
<PAGE>
name on page 1 of this lease. After Tenant shall occupy the demised premises, a
copy of all notices, demand, consents, approvals or disapprovals shall be sent
to Tenant at the demised premises. Such notice, demand, consent, approval or
disapproval shall be given, and shall be deemed to have been served and given by
Tenant and received by Landlord, when Tenant shall have deposited such notice or
demand by registered or certified mail enclosed in a securely closed postpaid
wrapper, in a United States Government general or branch post office or official
depository with the exclusive care and custody thereof, or by a receipted
overnight carrier package addressed to Landlord, 54--65 48th Street, P.O. Box
780007, Maspeth, New York 11378. Either party may, by notice as aforesaid,
designate a different address or addresses for notices, demands, consents,
approvals or disapprovals.
ARTICLE 27
Services
27.01. Landlord shall provide necessary elevator facilities
on business days from 8:00 A.M. to 6:00 P.M. and shall have sufficient elevators
available at all other times. At Landlord's option, the elevators shall be
operated by automatic control or by manual control, or by a combination of both
of such methods.
27.02. Landlord shall cause the space in the demised premises
to be kept clean in accordance with the standards set forth in Exhibit "C"
attached hereto and made a part hereof entitled "Cleaning Schedule", except that
if any areas shall be used for the preparation and consumption of food,
Landlord's responsibility shall be strictly limited to the "Cleaning Schedule"
set forth in Exhibit- "C", and Tenant shall be responsible for any and all other
cleaning in that space. Tenant may contract with Landlord's cleaning service to
clean these areas at Tenant's cost and expense.
27.03. (a) Landlord shall, through the HVAC system of the
Building, furnish to the demised premises, on an all year round basis, air
conditioning, ventilation and heating during the hours from 8:00 A.M. to 6:00
P.M. on business days.
(b) Landlord will maintain the HI/AC system in a manner
befitting a first class 1building and will use all reasonable care to keep the
same in proper and efficient operating condition. Landlord shall in no event be
responsible for the failure of the
HVAC system to meet the requirements hereinbefore specified if such failure
results from the occupancy of the demised premises with more than an average of
one person for each 100 square feet of usable area or if Tenant installs and
operates lighting, machines and appliances the total connected electrical load
of which exceeds 4--1/2 watts per square foot of usable area.
<PAGE>
(c) Except if the HVAC System is not working, Tenant agrees
to keep and cause to be kept closed all the windows in and the exterior doors to
the demised premises at all times, and Tenant agrees to cooperate fully with
Landlord and to abide by all the regulations and requirements which Landlord may
reasonably prescribe for the proper functioning and protection of the HVAC
System.
(d) Tenant acknowledges it has been advised that the Building
has sealed windows and that, therefore, the air in the demised premises can
become stale and even unbreathable when the HVAC system is not operating. Tenant
agrees that Landlord shall not be obligated to operate such HVAC System after or
before regular business hours as set forth in Section 27.03 (a).
27.04. Subject to the provisions of Section 25.01, Landlord
reserves the right to stop services on the HVAC System, elevator, plumbing and
electrical systems when necessary by reason of accident or emergency or for
repairs, alterations, replacements or improvements, provided that except in case
of emergency, Landlord will notify Tenant in advance, if possible, of any such
stoppage and, if ascertainable, its estimated duration, and will proceed
diligently with the work necessary to resume such service. as promptly as
possible and in a manner so as to minimize interference with the Tenant's use
and enjoyment of the demised premises.
27.05. In the event Tenant shall employ any contractor to do
in the demised premises any work permitted by Section 3.01 of this Lease, such
contractor and any subcontractor shall agree to employ only such labor as will
not result in jurisdictional disputes or strikes. Tenant will inform Landlord in
writing of the names of any contractor or subcontractor Tenant proposes to use
in the demised premises at least thirty (30) days prior to the beginning of work
by such contractor or subcontractor.
27.06. If Tenant is permitted hereunder to and does nave a
separate area for the preparation or consumption of food in the demised
premises, Tenant shall employ, on a regular basis, an exterminator to keep the
demised premises free from vermin; and the Tenant will provide garbage storage
areas to comply with local codes and specifications thereof to be approved by
Landlord, or other means of disposing of garbage reasonably satisfactory to
Landlord. Tenant is responsible for all exterminating in the demised premises.
27.07. Tenant agrees to employ such office maintenance
contractor as Landlord may approve and upon further provision that employment of
said contractor shall not create labor disputes for all waxing, polishing, lamp
replacement, cleaning and maintenance work in the demised premises. Nothing
herein contained shall prohibit Tenant from performing such work for itself by
use of its own regular employees. <PAGE>
27.08. Landlord will not be required to furnish any other
services, except as provided in this Article 27, and except that Landlord agrees
to provide on business days (not including Saturdays, Sundays and holidays) the
cleaning as set forth in Exhibit "C" hereof. Tenant shall pay to Landlord, on
demand, a reasonable charge for the removal from the demised premises of any
refuse and rubbish of Tenant as shall not be contained in the waste receptacles
described in Exhibit C hereof. Landlord, its cleaning contractor and their
employees shall have after--hours access to the demised premises and the use of
Tenant's light, power and water in the demised premises as may be reasonably
required for the purpose of cleaning the demised premises.
27.09. For the purposes of this Lease, "Common Areas" shall
mean all areas, improvements, space, equipment and special services provided by
Landlord for the common or joint use and benefit of tenants and invitees,
including access roads, driveways, entrances and exits, retaining walls,
landscaped areas, pedestrian walk--ways, walls, courtyards, concourses, stairs,
ramps, sidewalks, building wide washrooms, hallways, lobbies, elevators and
their housing rooms, common window areas, walls and ceiling in Common Areas, and
trash and rubbish areas.
27.l0. Landlord shall manage and maintain the Building and
the Common Areas as a first class office building. Tenant and its employees
shall occupy and use the demised premises in a manner befitting such building.
ARTICLE 28
Electricity
28.01. As an incident to this Lease, Landlord will furnish to Tenant, through
transmission facilities installed by it
in the Building, alternating electric current to be used by Tenant for the
lighting fixtures and electric current and electrical receptacles installed in
the demised premises, but Landlord shall not be liable in any way to Tenant for
any failure or defect in supply or character of electric current furnished to
the demised premises. Tenant shall pay Landlord to furnish and install all
lighting tubes, lamps, bulbs and ballasts used in the demised premises. Tenant
shall use said electric current for lighting and, insofar as Landlord's
facilities are not burdened thereby and applicable laws and insurance
regulations permit, for operation, during normal business hours, of such
equipment as is normally used for the purposes herein leased. Under no
circumstances shall Tenant, at any time during the term of this Lease, use or
permit the use of electric heaters or similar heating devices.
28.02. Tenant's use of electric current in the demised
premises shall not at any time exceed the capacity of any of the electrical
conductors and equipment in or otherwise serving the demised premises. Tenant
shall not make or perform or permit the making or performing of any alterations
<PAGE>
to wiring installation or other electrical facilities in or serving the demised
premises or any additions to the business machines, office equipment or other
appliances in the demised premises which utilize electrical energy without the
prior consent of Landlord in each instance (which shall not be unreasonably
withheld).
28.03. All electric energy which Tenant requires in the
demised premises shall be furnished by the local electric company.
28.04. Landlord hereby agrees to install a submeter, the cost
of which will be borne by Landlord. Should the submeter not be in place, for any
reason whatsoever, at the time this Lease commences, Tenant shall pay to
Landlord effective as of the Commencement Date, $2.00 per square foot per annum,
until such time that the submeter has been installed. If the appropriate parties
do not allow submetering in the Building, Tenant will be required to pay $2.00
per. square foot per annum (the "Electric Charge") for electric subject to (i)
any increases in the utility company's rates over and above those charged on the
Commencement Date of this Lease and (ii) subject to any material additions to
lighting fixtures, machinery, equipment or due to excess usage beyond business
hours.
28.05. Tenant shall pay for all energy used or consumed in
the demised premises. Tenant's electricity will be submetered and the amount of
electricity consumed shall be multiplied by the KWH rate which Landlord pays to
Long Island Lighting Company. At the end of each Long Island Lighting Company
billing period, when the Landlord receives the Long Island Lighting Company
bill, Landlord will multiply the amount of electricity consumed by the Tenant as
shown on the Tenant's submeter by the Long Island Lighting Company rate as shown
on the Long Island Lighting Company bill. For the purposes of this Section, the
per kilowatt hour cost shall be determined by dividing the total cost to the
Landlord as shown on the Long Island Lighting Company bill by the total
consumption of electricity as shown on that such bill.
28.06. Landlord, acting reasonably reserves the right to
discontinue furnishing electric energy to Tenant in the demised premises at any
time upon not less than thirty (30) days notice to Tenant. If Landlord exercises
such right of termination, this Lease shall continue in full force and effect
and shall be unaffected thereby except only that from and after the effective
date of such termination, Landlord shall not be obligated to furnish electric
service to the Building. Such electric energy may be furnished to Tenant by
means of the existing building system feeders, risers, and wiring to the extent
that the same are available, suitable and safe for such purposes. All meters and
additional panels, boards, feeders, risers, wiring and other conductors and
equipment which may be required to obtain electric energy directly from such
public utility company shall be installed by Tenant at Tenant's sole cost and
expense. <PAGE>
28.07. Landlord shall have the option at any time during the
term of this Lease to make application and install a separate electric meter,
said installation to be at the Landlord's sole cost and, expense, and which
shall include all work required by the Long Island Lighting Company and the New
York Board of Fire Underwriters for the installation of an electric meter. Upon
installation of same and acceptance by the Long Island Lighting Company, the
obligations of Tenant to pay to Landlord the electrical charges as set forth in
this Section shall terminate and thereafter Tenant shall make payment direct to
the Long Island Lighting Company for any bills for electric service.
28.08. Tenant agrees not to connect any additional electrical
equipment of any type to the Building electric distribution system, other than
typewriters, computers, fax machines, lamps and small office machines which
consume comparable amounts of electricity, without Landlord's prior written
consent, which consent shall not be unreasonably withheld. Any additional
risers, feeders, or other equipment proper or necessary to supply Tenant's
electrical requirements which are not present at the demised premises now, upon
written request of Tenant, will be installed~y Landlord, at the sole cost and
expense of Tenant, if, in Landlord's judgment the same are necessary and will
not cause permanent damage or injury to the Building or the demised premises or
cause or create a dangerous or hazardous condition or entail excessive or
unreasonable alterations, repairs or expense or interfere with or disturb other
tenants or occupants.
ARTICLE 29
Intentionally Omitted
ARTICLE 30
Escalation of Taxes
30.01. For the purposes of the provisions of Article 30 of
this Lease, the term "Lease Year" shall be the period of one (1) year's duration
commencing on the first day of the term of this Lease and each successive period
of one (1) year's duration, prorated on an annualized basis.
30.02. In the event that the amount of real estate taxes,
assessments, sewer rents, rates and charges, county and town taxes, school
taxes, village taxes, transit taxes, or any other Governmental charge, general,
- -specific, or ordinary or extraordinary, foreseen or unforeseen (hereinafter
collectively called "Taxes") which may now or hereafter be levied or assessed
against the land on which the Building stands and upon the Building (hereinafter
for this Article 30 only collectively called the "Real Property") attributable
to any Subsequent Tax Year, as hereinafter defined, shall be greater than the
amount of Taxes foi' the Base Tax Year, as hereinafter defined, for any or all
of the Town and County Tax, School Tax and/or Village Tax (the Town and County
Tax, the School Tax and the Village Tax are sometimes herein singly referred to
as "Local Tax" and collectively as "Local Taxes") then Tenant shall pay to
Landlord as additional rent, Tenant's Proportionate Share of the increase in
taxes for the particular Local Tax for such Subsequent Tax Year.
<PAGE>
For the purposes of the provisions of this Article, the term,
"Taxes for Base Tax Year", shall mean the sum of all taxes at the applicable
rate for the fiscal tax years commencing as set forth below multiplied by the
full assessment of the County of Suffolk of the Real Property.
The term "Base Tax Year" is hereby defined for the particular
Local Tax as follows:
The Town and County Tax rate for the year commencing December
1, 1997 and ending November 30, 1998.
The School Tax rate for the year commencing
December 1, 1997 and ending November 30, 1998.
The Village Tax rate for the year 1998.
The term "Subsequent Tax Year" shall mean the first full
fiscal year following the applicable Base Tax Year for the aforementioned Town
and County Tax, School Tax or Village Tax
To arrive at the amount owed by Tenant for any and all
Subsequent Tax Years, Landlord shall calculate each Local Tax increase
separately and then add the increases owed by Tenant from each to determine the
total amount of increases in Taxes and such total increase shall be then
multiplied by Tenant's Proportionate Share to determine the amount owed by
Tenant for each Subsequent Tax Year. If such calculation shall result in a
decrease for any Subsequent Tax Year, then Tenant shall receive an increase of
zero.
Landlord shall take the benefit of the provisions of any
statute or ordinance permitting any assessment to be paid over a period of time
and Tenant shall be obligated to pay only its proportionate share, determined as
aforesaid, of the installments of any such assessment as shall become due and
payable during the term of this Lease or any renewal hereof. Any amount due
Landlord under the provisions of this Article shall be paid semi-annually within
thirty (30) days after Landlord shall have submitted copies of all tax bills and
statements to Tenant showing in reasonable detail the computation of the amounts
due Landlord. Any such increase for less than a year shall be prorated and
apportioned.
In no event shall any rent adjustment result in a decrease in
the fixed annual rent payable hereunder.
<PAGE>
(i) In the event Tenant shall undertake to make installations
other than office installations and thereby cause extraordinary assessment to be
levied against the Real Property, Tenant shall pay all additional taxes
resulting from such extraordinary assessment.
(ii) Tenant shall pay to Landlord, within thirty (30) days
after the same shall be payable by Landlord and as additional rent for the Lease
Year in which the same shall be so payable, an amount equal to Tenant's
Proportionate Share of any assessment or installment thereof for public
betterments or improvements which may be levied upon the Real Property which is
not deductible from any condemnation award. Landlord shall take the benefit of
the provisions of any statute or ordinance permitting any such assessment to be
paid over a period of time and Tenant shall be obligate to pay only the said
percentage of the installments of any such assessments which shall become due
and payable during the term of this Lease.
(iii) In the event there shall be levied against the Landlord
during the term of this Lease an assessment for public improvements which is
payable in one reasonable sum, then in that event said assessment shall be
divided by the number of years equal to the term of this Lease and tenant's
responsibility shall be the sum equal to its Proportionate Share of said amount
times the number of unexpired years in the Lease; for example, if an assessment
is levied for $10,000.00, and the Lease term has a period of ten (10) years, the
annual installments will be deemed to be $1,000.00 per year and in the event
Tenant's share is seventy five (75%) per cent, Tenant will owe $750.00 times the
number of years remaining under this Lease as of the date of its assessment.
30.03. In the event the first or final lease year shall
contain less than twelve (12) calendar months the additional rent payable under
Section 30 for such lease year shall be adjusted and prorated by the fraction
(a) the numerator over which is the number of months in either the first or
final year and (b) the denominator of which is the number twelve (12).
30.04. Landlord's obligation to make the adjustments referred
to in this Article shall survive any expiration or termination of this Lease.
Tenant shall have a period of sixty (60) days after receipt of the billing to
notify Landlord of any discrepancy with the billing. Tenant will not be
permitted at any later date to dispute the billing.
30.05. Any delay or failure of Landlord in billing any Real
Estate Taxes shall not constitute a waiver of or in any way impair any
continuing obligation of Tenant to pay such Real Estate Taxes hereunder.
<PAGE>
ARTICLE 31.
Condition of Premises
31.01. Tenant expressly acknowledges that it has inspected
the demised premises and is fully familiar with the physical condition thereof.
Tenant agrees to accept the demised premises in its "as is" condition as of the
date hereof and subject to any work to be performed by Landlord (except for any
surviving punch list items as set forth on Exhibit D annexed hereto and made a
part hereof). Tenant acknowledges that Landlord shall have no obligation to. do
any work in and to the demised premises in order to make them suitable and ready
for occupancy and use by Tenant except as set forth on said Exhibit D.
ARTICLE 32
OMITTED
ARTICLE 33
Indemnity
33.01. 33.01 Tenant shall indemnify and save Landlord harmless from and against
any liability or expense arising from the use or occupation of the demised
premises by Tenant or any one on the Demised premises with the Tenant's
permission, or from any breach of this Lease.
ARTICLE 34
INTENTIONALLY OMITTED
ARTICLE 35
Name of Building
35.01. Landlord shall have the full right at any time to name
and change the name of the Building and to change the designated address of the
Building. The Building may be named after any person, firm, or otherwise,
whether or not such name is, or resembles, the name of a tenant of the Building.
ARTICLE 36
Invalidity of Any Provision
If any term, covenant, condition or provision of this Lease or the application
thereof to any circumstances or to any person, firm or corporation shall be
invalid or unenforceable to any extent, the remaining terms, covenants,
conditions and provisions of this Lease or the application thereof to any
circumstances or to any person, firm, or corporation other than those as to
which any term, covenant, condition and provision of this Lease shall be valid
and shall be enforceable to <PAGE>
SCHEDULE ~
47
36.01 the fullest extent permitted by law.
ARTICLE 37
Captions
37.01. The captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this
lease nor the intent of any provision thereof.
ARTICLE 38
Certificate of Tenant
38.01. Tenant shall, without charge, at any time and from time
to time, within five (5) days after request by Landlord, certify by written
instrument, duly executed, acknowledged and delivered, to any mortgagee,
assignee of any mortgage or purchaser, or any proposed mortgagee, assignee of
any mortgage or purchaser, or any other person, firm or corporation specified by
Landlord:
(a) That this Lease is unmodified and in full force and
effect (or, if there has been modification, that the same is in full force and
effect as modified and stating the modifications);
(b) Whether or not there are then existing any set--offs or
defenses against the enforcement of any of the agreements, terms, covenants, or
conditions hereof upon the part of Tenant to be performed or complied with (and,
if so, specifying the same); and
(c) The dates, if any, to which the rental and other charges
hereunder have been paid in advance.
38.02. Tenant agrees that, except for the first month's rent
hereunder, it will pay no rent under this Lease more than thirty (30) days in
advance of its due date, and, in the event of any act or omission by Landlord,
Tenant will not exercise any right to terminate this Lease or to remedy the
default and deduct the cost thereof from rent due hereunder until Tenant shall
have given written notice of such act or omission to the holder of any first
mortgage who shall have furnished in writing such holder's last address to
Tenant, and until a reasonable time for remedying such act or omission shall
have elapsed following the giving of such notices, during which time such
mortgage holder shall have the right, but shall not be obligated, to remedy or
cause to be remedies such act or omission.
38.03. Anything in this Lease contained to the contrary
notwithstanding, under no circumstances shall the holder of any institutional
mortgage who shall have succeeded to the interests of the Landlord under this
Lease, be subject to or liable for any offsets or deductions from rent, claims
or defenses which the Tenant might have against any prior landlord under this
Lease. <PAGE>
ARTICLE 39
Successors and Assigns
39.01. The covenants, conditions and agreements contained in
this Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective heirs, distributees, executors, administrators, successors, and,
except as otherwise provided in this Lease, their assigns.
ARTICLE 40
Liability Insurance by Tenant
40.01. Tenant shall, at Tenant's sole cost and expense,
procure and obtain comprehensive general public liability insurance with broad
form extension and contractual liability endorsement protecting against any and
all claims for damages to person or property or for loss of life or property
occurring upon, in, or about the demised premises or the sidewalks adjacent
thereto, such insurance to afford immediate protection in such amounts as
Landlord shall require. Such policies shall name Landlord as additional insured.
As of the Commencement Date, the minimum coverage for combined single limit
bodily injury and property damage shall not be less than $3,000,000.00 per
occurrence. The policy shall also be extended to include the following
endorsements:
1. Knowledge of Occurrence;
2. Notice of Occurrence;
3. Unintentional Errors or Omissions;
4. An endorsement to the effect that rio statement,
declaration or representation made by Tenant to its insurer or act of Tenant
shall invalidate the policy as to Landlord or prejudice any of Landlord's rights
thereunder, including, without limitation, defense and indemnity;
5. Contractual Liability on a blanket basis and specifically
scheduling this Lease, without limiting the form of coverage.
Such policies covering Landlord and Tenant, as their
respective interests may appear, shall be deemed in compliance with the
provisions of this covenant, all said policies shall be obtained by Tenant and
certificates thereof delivered to Landlord upon the commencement of the term
hereof with evidence of stamping or otherwise of the payment of the premiums
thereon and shall be taken in such amounts and in such companies authorized to
do business in the State of New York. <PAGE>
ARTICLE 41
Automobile Parking
41.01. Landlord herein is providing onsite parking facilities
which will be used by Tenant in conjunction with other tenants of the Building
together with the employees, guests and possible associates. However, said
parking facilities, except where restricted, shall be available to Tenant and
its employees, invitees and guests. There will be no charge to the Tenant for
the inside or outside parking area. It is agreed however, that Landlord shall
have rio obligation to police the parking area.
Landlord shall clean and maintain the parking fields.
Notwithstanding the foregoing, Landlord shall assign Tenant two (2) designated
parking spaces.
ARTICLE 42
Consents and Approval
42.01. The parties agree that where ever written consents or
approvals are required to be given under the provisions of this Lease, such
consents and approvals shall not be unreasonably withheld or delayed.
ARTICLE 43
Recording
43. 01. The parties hereto agree that neither Landlord `nor
Tenant shall record this Lease but that either party may record a Memorandum of
Lease. The party desiring to record the Memorandum shall prepare same for
signature and it shall be signed by both parties.
ARTICLE 44
INTENTIONALLY OMITTED
ARTICLE 45
INTENTIONALLY OMITTED
<PAGE>
ARTICLE 46
Security
46.01. Tenant has deposited with Landlord the sum of
$13,991.66 as security for the faithful performance and observance by Tenant of
the terms, provisions and conditions of this Lease. It is agreed that in the
event Tenant defaults in respect of any of the terms, provisions, and conditions
of this Lease, including, but not limited to, the payment of rent and additional
rent, Landlord may use, apply or retain the whole or any part of the security as
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default or for any sum which Landlord
may expend or may be required to expend by reason of Tenant's default in respect
to any of the terms, covenants, and conditions of this Lease, including but not
limited to, any damages or deficiency in the subletting of the demised premises,
whether such damages or deficiency accrues before or after summary proceedings
or other re-entry by Landlord. In the event that Tenant shall fully and
faithfully comply with all of the terms, provisions, covenants and conditions of
this Lease, the security shall be returned to Tenant after the date fixed as of
the end of this Lease and after delivery of the entire possession of the demised
premises to Landlord. In the event of a sale of the Land and Building or leasing
of the Building of which the demised premises form a part, Landlord shall have
the right to transfer the security to the vendee or lessee and Landlord shall
thereupon be released by Tenant from all liability for the return of such
security and Tenant agrees to look to the new landlord solely for the return of
said security; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new landlord. Tenant further
covenants that it will not assign or encumber or attempt to assign or encumber
the monies deposited herein as security and that neither Landlord nor its
successors' or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
ARTICLE 47
Broker
47.01. Tenant represents and warrants that it has dealt with
NO BROKER in connection with this Lease and Tenant does hereby agree to
indemnify and hold Landlord harmless of and from any and all loss, costs, damage
or expense (including, without limitation, attorneys' fees and disbursements)
incurred by Landlord by reason of any claim to have dealt with Tenant in
connection with this Lease. The provision of this Article 47 shall survive the
expiration or earlier termination of this Lease.
<PAGE>
ARTICLE 48
Late Rent Clause
48.01. Tenant recognizes that late payment of any rent or
other sum due hereunder will result in administrative expense to Landlord the
extent of which additional expense is extremely difficult and economically
impractical to ascertain. Tenant therefore agrees that if rent or any other sum
is due and payable pursuant to this Lease, and when such amount remains due and
unpaid ten (10) days after said amount is due, such amount shall be increased by
a late charge in an amount equal to five (5%) per cent of the unpaid rent or
other payment. The amount of late charge to be paid by Tenant shall be
1reassessed and added to Tenant's obligation for each successive monthly period
until paid. The provisions of this Article in no way relieve Tenant of the
obligation to pay rent or other payments on or before the date on which they are
due, nor do the terms of this Article in any way affect Landlord's remedies
pursuant to any other Article of this Lease in the event said rent or other
payment is unpaid after the date due.
ARTICLE 49
Directory Listing
49.01. Landlord, at its expense, and on Tenant's request,
shall maintain listings on the Building directory of the name of Tenant provided
that the names so listed shall not take up more than Tenant's Proportionate
Share of the space on the Building's directory.
ARTICLE 50
Concession to Tenant
50.01. Landlord does hereby agree to deliver the demised
premises to Tenant on or before April 1, 1998. Tenant may occupy the demised
premises from April 1, 1998 to April 30, 1998 without payment of the fixed
annual rent only. Tenant shall in all other particulars be bound by the terms
and conditions of this Lease as of the date of taking possession of the demised
premises, including the payment of all additional rent as provided herein.
Tenant shall commence payment of rent on the 1st day of May, 1998, as
hereinbefore set forth. In the event Landlord fails to deliver the demised
premises on April 1, 1998 as herein provided, then the concession period shall
commence as of the date of delivery and the commencement of payment of rent
shall be one (1) month after the date of delivery.
ARTICLE 51
Health Club
51.01. Landlord shall provide Tenant with one (1) access card
to the Building's health club for the term of this Lease subject however, to
Tenant's and Tenant's employees executing Landlord's release forms with respect
to the use of said health club. Tenant shall allow the access card to be used as
a pass for one employee to use at a time. Landlord is not responsible for the
cost of replacement f or such card. <PAGE>
ARTICLE 52
Jurisdiction and Venue
52.01. Tenant agrees that in personam jurisdiction in
connection with any action arising out of a default in any obligation of Tenant
under this Lease shall be obtained upon the mailing of a summons to Tenant by
certified mail to the Building. All summonses, pleadings or other notices to
Tenant arising from a default in any of its obligations under this Lease may be
mailed by certified mail to the address set forth above and shall have the same
effect as if served personally upon Tenant.
Tenant irrevocably and unconditionally (a) agrees that any
suit, action, or other legal proceeding arising out of this Lease may be
commenced in any court of the State of New York situated in Suffolk County and
that any such court shall have in personam jurisdiction of Tenant in any such
suit, action or other legal proceeding upon service as described above; (b)
consents to the jurisdiction of each such court in any suit, action or other
legal proceeding; and (c) waives any objection which Tenant may have to the
laying of venue of any such suit, action or proceeding in any such court.
ARTICLE 53
MISCELLANEOUS
53.01. Tenant shall not at any time prior to or during the
term hereof, either directly or indirectly, use any contractors or labor or
materials whose use in Landlord's reasonable judgment would create or creates
any difficulty with other contractors or labor employed by Tenant or Landlord or
others in construction, maintenance or operation of the demised premises or the
Building.
53.02. As of the Commencement Date, this Lease supersedes all
prior leases between Landlord and Tenant with respect to any of the space
included within the Demised Premises.
53.03. This Lease may not be extended, renewed, terminated or
otherwise modified except by an instrument in writing signed by the .party
against whom enforcement of any such modification is sought, unless such
instrument provides that it shall not be binding until signed by both parties,
in which event it shall not be binding until so signed.
<PAGE>
53.04. If Tenant shall request Landlord's approval or consent
and Landlord shall fail or refuse to give such consent or approval, Tenant shall
not be entitled to any damages for any withholding or delay of such approval or
consent by Landlord, it being intended that Tenant's sole remedy shall be an
action for injunction or specific performance and that such remedy shall be
available only in those cases where Landlord shall have expressly agreed in
writing not to unreasonably withhold its consent or approval or where as a
matter of law Landlord may not unreasonably withhold its consent or approval.
The provisions of this Section 53.04 shall not apply if Landlord shall
capriciously, or arbitrarily or in bad faith withhold or delay its consent or
53.05. Wherever in this Lease it is provided that either
party shall not unreasonably withhold consent or approval or shall exercise its
judgment reasonably, and if no specific time period is given, such consent or
approval or exercise of judgment shall also not be unreasonably delayed.
53.06. This Lease is offered to Tenant for signature with the
understanding that it shall not be binding upon Landlord unless and until
Landlord shall have executed a copy of this Lease.
53.07. Irrespective of the place of execution or performance,
this Lease shall be governed by and construed in accordance with the laws of the
State of New York. If any provision of this Lease or the application thereof to
any person or circumstance shall, for any reason and to any extent, be invalid
or unenforceable, the remainder of this Lease and the application of that
provision to other persons or circumstances shall not be affected but rather
shall be enforced to the extent permitted by law. This Lease shall be construed
without regard to any presumption or other rule requiring construction against
the party causing this Lease to be drafted. Each covenant, agreement, obligation
or other provision of this Lease on Tenant's part to be performed, shall be
deemed and construed as a separate and independent covenant of Tenant, not
dependent on any provision of this Lease. All terms and words used in this
Lease, regardless of the number or gender in which they are used, shall be
deemed to include any other number and any other gender as the context may
require.
53.08. Notwithstanding any provision of this Lease to the
contrary, all sums of money, other than the fixed rent, as shall become due from
and payable by Tenant to Landlord under this Lease shall be deemed to be
additional rent.
53.09. If Tenant is in arrears in the payment of fixed rent
or additional rent, Tenant waives its right, if any, to designate the items in
arrears against which any payments made by Tenant are to be credited and
Landlord may apply any of such payments to any such items in arrears as
Landlord, it its sole discretion, shall determine, irrespective of any
designation or request by Tenant as to the items against which any such payments
shall be credited.
<PAGE>
53.10. If Tenant is a corporation, each person executing this
Lease on behalf of Tenant hereby covenants, represents and warrants that Tenant
is a duly incorporated or duly qualified (if foreign) corporation and is
authorized to do business in the State of New York (a copy of evidence thereof
to be supplied to Landlord upon request); and that each person executing this
Lease on behalf of Tenant is an officer of Tenant and that he is duly authorized
to execute, acknowledge and deliver this Lease to Landlord (a copy of a
resolution to that effect to be supplied to Landlord upon request).
IN WITNESS WHEREQF, the parties hereto have set their
respective hands and seals the day and year first above written.
PARKWAY ASSOCIATES
BY: ____________________
Print Name: Joseph S. Parisi
Title: Partner
STRATCOMM MEDIA, LTD.
BY:_______signed by Paul Serluco
Print Name: Paul Serluco
Title: Chief Financial Officer
<PAGE>
GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an
inducement to Owner making the within lease with Tenant, the undersigned
guarantees Owner and owner's successors and assigns, in connection with the full
performance and observance of all the covenants, conditions, and agreements,
therein provided to be performed and observed by Tenant, including the "Rules
and Regulations" as therein provided, without requiring any notice of
non--payment, non--performance, or non--observance, or proof, or notice, or
demand, whereby to charge the undersigned thereof or, all of which the
undersigned hereby expressly waives and expressly `agrees that the validity of
this agreement and the obligations of the guarantor hereunder shall in no wise
be terminated, affected or impaired by reason of the assertion by Owner against
Tenant of any of the rights or remedies reserved to Owner pursuant to the
provisions of the within lease.
The undersigned further covenants and agrees that this
guaranty shall remain and, continue in full force and effect as to any renewal,
modification or extension of this lease and during any period when Tenant is
occupying the premises as a "statutory tenant".
As further inducement to Owner to make this lease and in
consideration thereof, Owner and the undersigned covenant and agree that in any
action of proceeding brought by either Owner or the undersigned against the
other on any matters whatsoever arising out of, under, or by virtue of the terms
of this lease or of this guaranty that Owner and the undersigned shall and do
hereby waive trial by jury.
Dated: , New York
1995
WITNESS: GUARANTOR:
____________ _________ __________________ (L.S.)
Witness Print Name: Guarantor Print Name:
Address: Home Address:
STATE OF NEW YORK ) ss.:
COUNTY OF . )
On this _____ day of __________, 1998, before me personally came
_____________________________ , to me known and known to me to be the individual
described in, and who executed the foregoing Guaranty and acknowledged to me
that he executed the same.
NOTARY PUBLIC
<PAGE>
53
SCHEDULE 1
Year Rent Period Per Annum Rent Monthly Rent
1 4/1/98-4/30/98 $ 0.00 $ 0.00
2 5/1/98-3/31/99 $ 80,300.00 $6,691.67
3 4/1/99-3/31/00 $ 86,888.25 $7,240.69
4 4/1/01-3/31/02 $ 93,076.86 $7,756.40
5 4/1/02-3/31/03 $ 96,334.55 $8,027.88
<PAGE>
EXHIBIT "A"
EXHIBIT "B"
Rules and Regulations
1. The sidewalks, and public portions of the Building, such
as entrances, passages, courts, elevators, vestibules, stairways, corridors or
halls shall not be obstructed or encumbered by a tenant or used for any purpose
other than ingress and egress to and from the demised premises.
2. No awnings or other projections shall be attached to the
outside walls of the Building. No curtains, blinds, shades, louvered openings or
screens shall be attached to or hung in, or used in connection with, any window
or door of the demised premises, without the prior written consent of Landlord,
unless installed by Landlord,
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any tenant or any part of the
outside of the demised premises or Building or on corridor walls. Signs on
entrance door or doors shall conform to building standard signs, samples of
which are on display in Landlord's rental office. Signs on doors shall, at the
tenant's expense, be inscribed, painted or affixed for each tenant by sign
makers approved by Landlord. In the event of the violation of the foregoing by
any tenant, Landlord may remove same without any liability, and may charge the
expense incurred by such removal to the tenant or tenants violating this rule.
4. The sashes, sash doors, skylights, windows, ventilating
and air conditioning vents and doors that reflect or admit light and air into
the halls, passageways or other public places in the Building shall not be
covered or obstructed by any tenant, nor shall any bottles, parcels or other
articles be placed on the window sills.
5. No show cases or other articles shall be put in front of
or affixed to any part of the exterior of the Building, nor placed in the public
halls, corridors or vestibules without the prior written consent of Landlord.
6. Whenever Tenant shall submit to Landlord any plan
agreement or other document for Landlord's consent or approval, Tenant agrees to
pay Landlord as additional rent, on demand, a processing fee in a sum equal to
the reasonable fee of any architect, engineer or attorney employed by Landlord
to review said plan, agreement or document.
7. The water and wash closets and other plumbing fixtures
shall not be used for any purposes other than those for which they were
constructed, and no sweepings, rubbish rags, or other substances shall be thrown
therein. All damages resulting
<PAGE>
from any misuse of the fixtures shall be borne by the Tenant who, or house
servants, employees, agents, visitors or licensees, shall have caused the same.
8. No tenant shall in any way deface any part of the demised
premises or the Building of which they form a part. No tenant shall lay
linoleum, or other similar floor covering, so that the same shall come in direct
contact with the floor of the demised premises, and, if linoleum or other
similar floor covering is desired to be used, an interlining of builder's
deadening felt shall be first affixed to the floor, by a paste or other
material, soluble in water, the use of cement or other similar adhesive material
being expressly prohibited.
9. No bicycles, vehicles or animals of any kind shall be
brought into or kept in or about the premises. No cooking shall be done or
permitted by any Tenant on said premises except in conformity to law and then
only in the utility kitchen, if any, as set forth in Tenant's layout, which is
to be primarily used by Tenant's employees for. heating beverages and light
snacks. No tenant shall cause or permit any unusual or objectionable odors to be
produced upon or permeate from the demised premises.
10. No space in the Building shall be used for manufacturing,
distribution, or for the storage of merchandise or for the sale of merchandise,
goods or property of any kind at auction.
11. No tenant shall make, or permit to be made, any unseemly
or disturbing noises or disturb or interfere with, occupants of the Building or
neighboring buildings or premises or those having business with them, whether by
the use of any musical instrument, radio, talking machine, unmusical noise,
whistling, singing, or in any other way. No tenant shall throw anything out of
the doors, windows, or skylights or down the passageways.
12. No tenant, nor any of the tenant's servants, employees,
agents, visitors or licensees, shall at any time bring or keep upon the demised
premises any inflammable, combustible or explosive fluid, or chemical substance,
other than reasonable amounts of cleaning fluids and solvents required in the
normal operation of tenant's business offices.
13. No additional locks or bolts of any kind shall be placed
upon any of the exterior doors or windows by any tenant, nor shall any changes
be made in existing locks or the mechanism thereof, without the prior written
approval of the Landlord. Each tenant must, upon the termination of his tenancy,
restore to the Landlord all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such tenant, and in the event of the
loss of any keys, so furnished, such tenant shall pay to Landlord the cost
thereof.
<PAGE>
14. All removals, or the carrying in or out of any safes, freight, furniture or
bulky matter of any description, must take place during the hours and pursuant
to such procedures as Landlord or its agent may determine from time to time.
Landlord reserves the right to inspect all freight to be brought into the
Building and to exclude from the Building all freight which violates any of
these Rules and Regulations or the Lease of which these Rules and Regulations
are a part.
15. No tenant shall occupy or permit any portion of the premises demised to it
to be occupied as an office for a public stenographer or typist, `or for the
possession, storage, manufacture or sale of liquor, narcotics, dope, tobacco in
any form, or as a barber or manicure shop or as a public employment bureau or
agency, or for a public finance (personal loan) business. No tenant shall engage
or pay any employees on the demised premises, except those actually working for
such tenant on said premises, nor advertise for laborers giving an address at
said premises.
16. Tenant agrees to employ such contractors as Landlord may from time to time
designate, for waxing, polishing and other maintenance work of the demised
premises and of the Tenant's furniture, fixtures and equipment, provided that
the prices charged by other contractors are comparable to the prices charged by
other contractors for the same work. Tenant agrees that it shall not employ any
other cleaning and maintenance contractor, nor any individual, firm or
organization for such purpose without Landlord's prior written consent. If
Landlord and Tenant shall each obtain two bona fide bids for such work from
reputable contractors, and the average of the four bids thus obtained shall be
the standard of comparison.
17. Landlord shall have the right to prohibit any advertising by any tenant,
mentioning the Building, which, in Landlord's reasonable opinion, tends to
impair the reputation of the Building or its desirability as a building for
offices, and upon written notice from Landlord, tenants shall refrain from or
discontinue such advertising. The foregoing is not intended to prohibit mere
mention of Tenant's address as being the Building address.
18. Landlord reserves the right to exclude from the Building between the hours
of 6:00 P.M. and 8:00 A.M. and at all hours on Sundays arid legal holidays all
persons who do not present a pass to the Building signed by a tenant. Each
tenant shall be responsible for all persons for whom such a pass is issued and
shall be liable to Landlord for all acts of such persons.
19. The premises shall not be used for lodging or sleeping or for any immoral or
il1ega1 purpose.
<PAGE>
20. The requirements of tenants will be attended to only upon
application at the office of the Building. Building employees shall not perform
any work or do anything outside of their regular duties, unless under special
instructions from the office of Landlord.
21. Canvassing, soliciting and peddling in the Building are
prohibited and each tenant shall cooperate to prevent the same.
22. There shall not be used in any space, or in the public
halls of any building, either by any tenant or by jobbers or others, in the
delivery or receipt of merchandise, any hand trucks, except those equipped with
rubber tires and side guards. No hand trucks shall be used in passenger
elevators.
23. Tenants, in order to obtain maximum effectiveness of the
cooling system, shall lower and/or close venetian or vertical blinds or drapes
when sun's rays fall directly on windows of demised premises.
<PAGE>
EXHIBIT "C"
Cleaning Schedule
General
All linoleum, rubber, asphalt tile and
other similar types of hard--surfaced flooring to be swept
nightly, using approved dust--check type of mop.
All carpeting and rugs to be vacuum-cleaned
nightly.
Hand dust and wipe clean all furniture,
fixtures and window sills nightly; wash sills when necessary.
Empty and clean all waste receptacles nightly and remove
waste paper and waste materials.
Empty and clean all ash trays and screen
all sand urns nightly.
Dust interior of all waste disposal cans
and baskets nightly; damp-dust as necessary.
Wash clean all water fountains and coolers
nightly.
Dust all telephones as necessary.
Sweep all private stairway structures nightly.
Lavatories in the Core
Sweep and wash all lavatory floors nightly
using proper disinfectants. Wash and polish all mirrors,
powder shelves, bright work and enameled surfaces in all
lavatories nightly.
Scour, wash and disinfect all basins, bowls
and urinals throughout all lavatories, nightly.
<PAGE>
Wash all toilet seats, nightly.
Empty paper towel receptacles and transport
waste paper to designated area in basement, nightly (towels,
soap and receptacles to be furnished by Tenant).
Fill toilet tissue holders nightly (tissue
and receptacles to be furnished by Landlord).
Empty sanitary disposal receptacles,
nightly. Thoroughly wash and polish all wall tile and stall
<PAGE>
Exhibit 10.18 Mortgage Agreement with 1st Naitonal Bank of Central Florida
<PAGE>
Exhibit 10.18 Mortgage Agreement with 1st Naitonal Bank of Central Florida
SCHEDULE OF DOCUMENTS RELATING TO THE
$650,000.00 MORTGAGE LOAN
FROM
IST NATIONAL BANK OF CENTRAL FLORIDA ("Lender")
IN FAVOR OF
STRATCOMM MEDIA, U.S.A., INC. and
STRATCOMM MEDIA, LTD. (collectively the "Borrower")
DATED: February 1, 1999
15444/88683
1. Mortgage Note in the principal sum of $650,000.00, payable by Borrower in
favor Of Lender, dated February 1, 1 999;
2. Mortgage, Assignment of Rents and Security Agreement executed by Stratcomm
Media, U.S..A., Inc. ("USA") in favor of Lender, dated February 1, 1999 and
recorded February 4, 1999 in Official Records Book 5674, Page 3959, Public
Records of' Orange County, Florida;
3. UCC-1 Financing Statement executed by USA, as Debtor, in favor of Lender, as
Secured Party, and recorded February 4, 1999 in Official Records Book 5674,
Page 3974, Public, Records of Orange County, Florida;
4. UCC-1 Financing Statement executed by USA, as Debtor, in favor of Lender, as
Secured Party, and filed with the Florida Secretary of State on February 8,
1999, under File No. 99-0000028024;
5. Real Estate Loan and Security Agreement dated February 1, 1999 executed by
and between the Borrower and the Lender;
6. Americans With Disabilities Act Compliance and Indemnification Agreement
executed by and between the Borrower and the Lender, dated February 1, 1999;
7. Hazard Insurance and Title Insurance Anti-Coercion Statement executed by USA,
dated February 1999;
8. Flood Hazard Insurance Agreement executed by the Borrower, dated February 1,
1999;
9. Notice to Borrower of Special Flood Hazard Area, dated February 1, 1999;
10.Affidavit of Commercial Loan Purpose executed by the Borrower, dated
February 1, 1999;
11.Owner's Affidavit of the Borrower, dated February 1, 1999; 12.Post
Closing/Further Assurance Agreement executed by the Borrower dated
February 1, 1999.
OR176028;1
<PAGE>
SCHEDULE OF DOCUMENTS RELATING TO S650,000.00 MORTGAGE LOAN FROM
IST NATIONAL BANK OF CENTRAL FLORIDA
IN FAVOR OF STRATCOMM MEDIA, U.S.A., INC. AND STRATCOMM MEDIA, LTD.
DATED December 29,1998
13. Corporate Certificate of USA dated February 1, 1999, with attached Articles
of Incorporation, Certificate of Good Standing and Resolutions of
Directors;
14. Corporate Certificate of Stratcomm Media, Ltd. dated February 1, 1999,
with attached Articles of Incorporation, Bylaws and Minutes of the
Meeting of the Board of Directors;
15. Loan Closing Statement by and between the Borrower and Lender, dated
December 29, 1998;
16. First American Title Insurance Company Loan Title Policy Number
FA-36-209205; and Survey prepared by Shannon Surveying dated January 21,
1999.
OR176028;1
<PAGE>
MORTGAGE NOTE
DATE OF NOTE: February 1, 1999,
AMOUNT OF NOTE: $630,000.00.
INTEREST RATE: During the initial four (4) year period commencing on the
date of this Note (the "Initial Period"), interest shall
accrue out the outstanding principal balance
thereof at a rate equal to 7.75% per annum, fixed;
thereafter until the Maturity Date (the "Remaining Period"),
commencing upon the conclusion of the Initial Period and
again upon the seventh (7th) anniversary of the closing of
the Loan, respectively (each, a "Change Date"), Interest
Rate shall be fixed at the rate of interest, per annum,
equal to the then highest (determined two (2) business
days prior to each Change Date, for the period commending
from that date until either the next Change Date or the
Maturity Date, as the case may be; provided, however, the
applicable "Interest Rate" shall not exceed the maximum
rate of interest permitted by law. All interest accruing
under this Note shall be computed on a 360 day basis (i.e.,
interest for each day during which the Amount of Note is
outstanding shall be computed at are Interest Rate divided
by 360, for the actual number of days elapsed).
PAYMENT: Initial Period. During the Initial Period, Borrower shall
make to Lender consecutive monthly payments of principal
and interest (at the Interest Rate), each in the amount of
$6,118.29 commencing on the First installment Payment Date
and continuing on the same day of each month thereafter,
based on a fifteen (15) year amortization.
Remaining Period. After the conclusion of the Initial
Period, and during the Remaining Period, Borrower shall make
consecutive monthly payments of principal and interest, at
the applicable Interest Rate, to Bank recalculated on each
Change Date in conjunction with the adjustment of the
Interest Rate, all based on a fifteen (15) year
amortization, each on the same day of each month as was made
during the Initial Period. A final payment of all
outstanding principal and accrued but unpaid interest shall
be payable on the Maturity Date.
FIRST INSTALLMENT
PAYMENT DATE: March 1, 1999.
MATURITY DATE- February 1, 2009.
PREPAYMENT: This Note may be prepaid in full or in part without penalty.
Any such prepayment shall include, but not be limited to,
the outstanding principal, together with all accrued and
unpaid interest, late payment charges and any other unpaid
sums hereunder and under the Mortgage.
SECURITY FOR NOTE: Payment of this Note is secured by, inter alia a
Mortgage, Assignment of Rents and Security Agreement of even
date herewith, from STRATCOMM MEDIA, U.S.A., INC., a Florida
corporation to Lender (the "Mortgage") to be
contemporaneously recorded in the Public Records of Orange
County, Florida, each creating a security interest in.
captain collateral described therein.
<PAGE>
FOR VALUE RECEIVED, STRATCOMM MEDIA, U.S.A., INC., a Florida
corporation, having an address of 1947 Lee Road, Winter Park, Florida 32789 and
STRATCOMM MEDIA, LTD., an entity organized under the laws of the Yukon
Territory, Canada, having an address of 1984 Lee Road, Winter Park, Florida
32789, (collectively, the "Borrower") promise to pay to the order of IST
NATIONAL BANK OF CENTRAL FLORIDA, a national banking association, whose address
is 2160 State Road 434 West, P.O. box 913900, Longwood, Florida 32779-3900,
Attention: Commercial Loan Administration Department (the "Lender"), its
successors and assigns, the Amount of Note or so much thereof as shall be
advanced pursuant to the terms hereof and the Mortgage, at the above address of
the Lender or such other place that Lender may designate in writing to Borrower
from time to time, in lawful money of the United States of America at the time
of payment, together with interest, at the Interest Rate, on the terms set forth
herein. TIME IS OF THE ESSENCE OF THIS NOTE.
This Note is subject to all of the agreements, conditions, covenants,
provisions and stipulations contained in the mortgage and the other loan
documents executed in connection therewith and herewith (together with the
Mortgage, collectively, the "Loan Documents"), and Borrower covenants and agrees
to keep and perform them, or cause them to be kept and performed, strictly in
accordance with their terms. Any default by Borrower under any of the Loan
Documents may, at Lender's option, be treated as an event of default hereunder.
If any installment of interest or principal and interest or any other
payment is not paid within ten (10) calendar days of the due date applicable
thereto under the terms of this Note, or of the other Loan Documents, then there
shall also be immediately due and payable a late charge at the rate of five
cents ($0.05) for each dollar of such delinquent payment.
It is further understood, however, that should any default be made in
the payment of any installment of principal or interest on the date on which it
shall fall due, or in the performance of any of the agreements, conditions,
covenants, provisions or stipulations contained in this Note or any of the other
Loan Documents, then Lender, at its option and without notice to Borrower unless
expressly required elsewhere herein, may declare immediately due and payable the
entire unpaid balance of principal with interest accrued thereon at the then
otherwise applicable rate specified herein above to the date of default and
thereafter at the Maximum Legal Rate (as defined herein) of interest chargeable
to Borrower ("Default Rate") and all other sums due by Borrower hereunder or
under the Loan Documents, anything herein or in the Loan Documents to the
contrary notwithstanding and payment thereof may be enforced and recovered in
whole or in part at any time by one or more of the remedies provided to Lender
in this Note, the Mortgage or the other Loan Documents. In such case, Lender may
also recover all costs of suit and other expenses in connection therewith,
together with a reasonable attorney's fee for collection, together with
interest, at the Default Rate, on any judgment obtained by Lender from and after
the date of any execution, judicial or foreclosure sale until actual payment is
made to Lender of the full amount due Lender.
The failure of the Lender to exercise such option to accelerate the
indebtedness evidenced hereby shall not constitute a waiver of the right to
exercise such option at any other time so long as such event of default remains
outstanding and uncured.
The remedies of Lender as provided herein, or in the other Loan
Documents, and the warrants contained herein or attached hereto or contained in
the other Loan Documents, shall be cumulative and concurrent, and may be pursued
singly, successively or together at the sole discretion of Lender, and may be
exercised as often as occasion therefor shall occur; and the failure to exercise
any such right or remedy shall in no event be construed as a waiver or release
thereof.
Borrower hereby waives and releases all errors, defects and
imperfections in any proceedings instituted by Lender under the terms of this
Note or of the other Loan Documents, as well as all benefit that might accrue to
Borrower by virtue of any present or future laws exempting the collateral
described in the Mortgage, or any other property, real or personal, or any part
of the proceeds arising from any sale of any such property, from attachment,
levy or sale under execution, or providing for any stay of execution to be
issued on any judgment recovered on this Note or in any action to seek its
remedies under the Mortgage, exemption from civil process, or extension of time
for payment; and Borrower agrees that any real estate that may be levied upon
pursuant to OR145628;1 2
<PAGE>
a judgment obtained by virtue hereof, on any writ of execution issued thereon,
may be sold upon any such writ in whole or in part in any order desired by
Lender.
Borrower and all endorsers, sureties and guarantors hereby jointly and
severally waive presentment for payment, demand, notice of demand, notice of
nonpayment or dishonor, protest and notice of protest of this Note, and all
other notices in connection with the delivery, acceptance, performance, default,
or enforcement of the payment of this Note, and they agree that the liability of
each of them shall be unconditional, joint and several, without regard to the
liability of any other party, and shall not be affected in any manner by any
indulgence, extension of time, renewal, waiver or modification granted or
consented to by Lender. Borrower and all endorsers, sureties and guarantors
consent to any and all extensions of time, renewals, waivers or modifications
that may be granted by Lender with respect to the payment or other provisions of
this Note, and to the release of the collateral or any part thereof, with or
without substitution, and agree that additional makers, endorsers, guarantors or
sureties may become parties hereto without notice to them of affecting their
liability hereunder.
If any provision of this Note is held to be invalid or unenforceable by
a court of competent jurisdiction, the other provisions of this Note shall
remain in full force and effect and shall be liberally construed in favor of
Lender in order to effect the provisions of this Note. In addition, in no event
shall the rate of interest payable hereunder exceed the maximum rate of interest
permitted to be charged by applicable law (including the choice of law rules)
(hereinafter the "Maximum Legal Rate") and any interest paid in excess of the
permitted rate shall be refunded to Borrower. Such refund shall be made by
application of the excessive amount of interest paid against any sums
outstanding and shall be applied in such order as Lender may determine. If the
excessive amount of interest paid exceeds the sums outstanding, the portion
exceeding the said sums outstanding shall be refunded in cash by Lender. Any
such crediting or refund shall not cure or waive any default by Borrower
hereunder. Borrower agrees, however, that in determining whether or not any
interest payable under this Note exceeds the highest rate permitted by law, any
non-principal payment, including, without limitation, prepayment fees and late
charges, shall be deemed to the extent permitted by law, to be an expense, fee,
premium or penalty rather than as interest.
In determining whether or not the interest paid or payable under any
specific contingency exceeds the ,Maximum Legal Rate, Lender shall, to the
maximum extent permitted under applicable law: (a) exclude voluntary prepayments
and the effects thereof; and (b) amortize, prorate, allocate and spread, in
equal parts, the total amount of interest throughout the entire contemplated
term of this Note so that the interest rate is uniform throughout the entire
term of this Note; provided, that if this Note is paid and performed in full
prior to the end of the full contemplated term hereof, and if the interest
received for the actual period of existence thereof exceeds the Maximum Legal
Rate, Lender shall refund to Borrower the amount of such excess, and in such
event, no holder shall be subject to any penalties provided by any laws for
contracting for, charging or receiving interest in excess of the Maximum Legal
Rate.
Lender shall not be deemed, by any act of omission or commission, to
have waived any of its rights or remedies hereunder unless such waiver is in
writing and signed by Lender, and then only to the extent specifically set forth
in the writing. A waiver on one event shall not be construed as continuing or as
a bar to or waiver of any right or remedy to a subsequent event.
This instrument shall be governed by and construed according to the
laws of the State of Florida. Borrower consents to the exclusive jurisdiction of
the courts of the State of Florida in any and all actions and proceedings,
whether arising hereunder or under any of the Loan Documents.
Whenever used, the singular number shall include the plural, the plural
the singular, the use of any gender shall be applicable to all genders, and the
words "Lender" and "Borrower" shall be deemed to include the respective heirs,
personal representatives, successors and assigns of Lender and Borrower.
This Note may not be amended or modified, nor shall any waiver of any
provision hereof be effective, except by an instrument in writing executed by
Borrower and Lender. OR145628;1 3
<PAGE>
Borrower irrevocably and unconditionally (a) agrees that any suit,
action, or other legal proceeding arising out of or relating to this Note may be
brought, at the option of the Lender, in a court of record, of competent
jurisdiction in the State of Florida in Orange County; (b) consents to the
jurisdiction of each such court in any such suit, action, or proceeding; (c)
waives any objection which it may have to the laying of venue of any such suit,
action, or proceeding in any of such courts; and (d) agrees that service of any
court paper may be effected on Borrower by mail, addressed and mailed as
provided herein or in such other manner as may be provided under applicable laws
or court rules in said State.
BORROWER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY
WAIVES THE RIGHT IT HAS TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION, WHETHER
IN CONTRACT OR TORT, AT LAW OR IN EQUITY, BASED HEREON, OR ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS NOTE AND ANY OTHER DOCUMENT OR INSTRUMENT
CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO EXTEND
CREDIT TO OR OTHERWISE BECOME OR REMAIN A CREDITOR OF BORROWER AND BORROWER
SHALL NOT SEEK TO CONSOLIDATE ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED
WITH ANY ACTION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. FURTHER,
BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER, NOR THE
LENDER'S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT,
IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY
TRIAL PROVISION. NO REPRESENTATIVE OR AGENT OF THE LENDER, NOR LENDER'S COUNSEL
HAS THE AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION.
Borrower, intending to be legally bound hereby, has caused this Note to
be executed as of the day and year first above written. This Note consists of
FOUR (4) pages.
BORROWER:
STRATCOMM MEDIA, U.S.A., INC.,
a Florida Corporation
By: _______________________________
ROBERTO E. VEITIA, President
STRATCOMM MEDIA, LTD.,
an entity organized under the Yukon Territory, Canada
By:._______________________________
ROBERTO E. VEITIA, President
OR145628;1
4
<PAGE>
THIS DOCUMENT WAS PREPARED BY AND SHOULD HE RETURNED TO:
C. YANKI SOKMENSUER, Esquire
AKERMAN, SENTERFITT St EIDSON, P.A.
P.O. Box 231
Orlando, FL 32802-0231
(407) 843-7860
[GRAPHIC OMITTED][GRAPHIC OMITTED]
FOR CLERK'S USE ONLY
MORTGAGF- ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
THIS MORTGAGE, made this 1st day of February, 1999, by STRATCOMM MEDIA,
U.S.A., INC., a Florida corporation, with an address of 1947 Lee Road, Winter
Park, Florida 32789 (hereinafter called "MORTGAGOR"), in favor of IST NATIONAL
BANK OF CENTRAL FLORIDA, a national banking association, with an address of 2160
State Road 434 West, P.O. Box 913900, Longwood, Florida 32791- 3900, Attention:
Commercial Loan Administration Department (hereinafter "MORTGAGEE").
PRELIMINARY STATEMENT:
WHEREAS, MORTGAGOR and STRATCOMM MEDIA, LTD., an entity formed under
the laws of the Yukon Territory of Canada (hereinafter called "STRATCOMM
HOLDING") (MORTGAGEE and STRATCOMM HOLDING are hereinafter collectively referred
to as the "BORROWERS") have applied to the MORTGAGEE for a mortgage loan (the
"Loan") in the principal amount of $650,000.00, to be evidenced by a Mortgage
Note executed by the MORTGAGOR and STRATCOMM HOLDING, in favor of MORTGAGEE in
such amount, dated of even date herewith;
WHEREAS, MORTGAGOR is a wholly owned subsidiary of STR.ATCOMM HOLDING;
WHEREAS, it is in the best interests of the BORROWERS that they obtain
the Loan and the MORTGAGOR encumber the Property herein below described, to
secure the Loan and the other Obligations; and
WHEREAS, MORTGAGEE has agreed to make the Loan to the BORROWERS,
provided the MORTGAGOR grants to MORTGAGEE, inter alia a mortgage lien upon and
security interest in the hereinafter described Property owned by the MORTGAGOR
to secure the Loan and the other Obligations (as hereinafter defined).
NOW, THEREFORE, IN CONSIDERATION OF the premises and in order to secure
the payment of both the principal, interest and any other sums payable on the
Note (as hereinafter defined), this Mortgage, and any other Loan Documents (as
hereinafter defined) and the performance and observance of all of the provisions
hereof and of said Note, this Mortgage and the Loan Documents, MORTGAGOR HEREBY
MORTGAGES, GRANTS AND CONVEYS TO MORTGAGEE, and to its successors and assigns,
all of the MORTGAGOR'S right, title, and interest in, to and under all of that
real property described in Exhibit "A attached hereto.
<PAGE>
TOGETHER WITH, all fixtures, and equipment used in connection with the
real property and all Personal property now or hereafter affixed to, attached
to, placed upon or used in any way in connection with the Complete and
comfortable use, occupancy or operation of the said real property, all rents,
issues, profits, royalties, Income and other benefits derived from the real
property, all leases or subleases covering the real property or any portion
thereof, now or hereafter existing or entered into, and all right, title and
interest of MORTGAGOR thereunder; all interests, estates or other claims, both
in law and in equity, which MORTGAGOR now have or may hereafter acquire in the
real property, all easements, rights-of-way, tenements, hereditaments and
appurtenances thereof and thereto; all oil, gas and mineral rights and profits,
water rights and water stock of MORTGAGOR (including any consumptive use,
surface water management or general permits), all right, title and interest of
MORTGAGOR, now owned or hereafter acquired, in and to any land lying within the
right-of-way of any street or highway adjoining the real property; and any and
all buildings, fixtures, improvements, and appurtenances now or hereafter
erected thereon or belonging thereto, (herein referred to as "Improvement" or
"Improvements"); all of MORTGAGOR'S right, title and interest in and to any
judgments, awards of damages, condemnation payments an and settlements,
including interest thereon, and the right to receive the same, which may be made
with respect to the Property as a result of the exercise of the right of eminent
domain, the alteration of the side of any street, any other injury or a decrease
in the value of the Property, or proceeds of insurance awards; all deposits made
with, or other security given to, utility companies by MORTGAGOR or any partner
of MORTGAGOR with respect to the Property; all of MORTGAGOR'S rights relating to
the Property or the operation thereof, or used in connection therewith,
including, without limitation, the non-exclusive right to use trade names,
service marks and trademarks; all rights to other permits, authorizations and
approvals granted the MORTGAGOR in regard to the Property such as, but not
limited to, all building permits, certificates of occupancy, etc.; all rights of
the MORTGAGOR to any contracts relating to the Property such as, but not limited
to, all contracts with any general contractors with regard to improvements to be
constructed on the Property, engineer contracts, architects contracts, etc.; all
monies, accounts, balances, credits, deposits, collections, drafts, bills,
notes, securities and any other property of every kind and nature (whether
tangible or intangible) no owned or hereafter acquired by the MORTGAGOR and at
any time in the actual or constructive possession of (or in transit to) the
MORTGAGEE or its correspondents or agents in any capacity or for any purpose;
and, together with all proceeds thereof. All of the foregoing property and
interests are herein collectively referred to as the "Property".
MORTGAGOR hereby grants to MORTGAGEE a security interest in the
foregoing described tangible and intangible personal property. This Mortgage
shall be construed as a mortgage of both real and personal property and shall
also constitute a "security agreement" within the meaning of, and shall create a
security interest under the Uniform Commercial Code, as adopted by the State of
Florida, with respect to the personal property and fixtures referred to above.
This MORTGAGE is given to secure:
ONE: Payment of the indebtedness evidenced by a certain promissory note
executed by the BORROWER, dated of even date herewith in the principal sum of
SIX HUNDRED FIFTY THOUSAND DOLLARS and NO/100 DOLLARS ($650,000.00) (hereinafter
referred to as the "Note") and interest thereon according to the terms of the
Note with any and all extensions, renewals, modifications or substitutions
thereof and each and every debt, liability and obligation of every type and
description, including guarantees or accommodations, which BORROWERS may now or
at any time hereafter owe or be obligated to MORTGAGEE whether such debt,
liability or obligation now exists, is direct or indirect, due or to become due,
absolute or contingent, primary or secondary, liquidated or unliquidated, or
joint, several, or joint and several.
TWO: Payment of all other moneys herein agreed or provided to be paid
by BDRROWEPS including sums advanced or expended by MORTGAGEE, and interest
thereon, purs4nt to the provisions hereof, and including specifically, without
limitation, sums advanced or expended by MORTGAGEE for the protection of the
Property or for the protection of the interest of MORTGAGEE in the Property.
OR145627:1
2
<PAGE>
THREE: Performance and discharge of each and every obligation, promise
and agreement of BORROWERS herein contained or incorporated herein by reference,
including without limitation each and every obligation, promise and agreement of
BORROWERS contained in any and all security agreements, supplemental agreements,
assignments of lessor's interest in leases, or other instruments of security
executed by BORROWERS as of even date herewith or at any time subsequent to the
date hereof for the purpose of further securing any indebtedness hereby secured,
or any part thereof, or any further advancements or further or additional loans
of any sums hereafter made by MORTGAGEF to BORROWERS during the continuance of
this mortgage and secured hereby, or for the purpose of supplementing or
amending this Mortgage or any instrument secured hereby, (hereinafter
collectively referred to as the "Loan Documents").
The Note and all such debts, liabilities, and obligations referred to
in Paragraphs One, Two and Three above, are all collectively hereinafter
referred to as "Obligations".
BORROWERS warrant, covenant and agree as follows:
1. PAYMENT AND PERFORMANCE: BORROWERS shall pay and perform the
Obligations when due.
2. WARRANTY OF TITLE: MORTGAGOR is lawfully seized and possessed of
good and indefeasible title to its interests in the Property as noted
hereinabove, and MORTGAGOR hereby warrants the Property to be free and clear of
all liens and encumbrances not set out in the mortgagee title insurance policy
insuring MORTGAGEE'S lien granted by this mortgage (the "Permitted Exceptions"),
and MORTGAGOR will defend the title against any claims by any party at any time
during the term of this Mortgage. MORTGAGOR has full power and lawful authority
to mortgage the Property in the manner and form herein done or intended
hereafter to be done. MORTGAGOR will preserve such title and will forever
warrant and defend the same to MORTGAGEE and will forever warrant and defend the
validity and priority of the lien hereof against the claims of all persons and
parties whomsoever.
3. FULL FORCE AND EFFECT: The provisions of this Mortgage shall remain
in full force and effect through any extension of time for payment of the
Obligations, and until the Property is reconveyed or released of record.
4. To protect the security, MORTGAGOR and, to the extent applicable,
BORROWERS, jointly and severally shall:
(a) TAXES AND OTHER CHARGES: Pay before the same become
delinquent all taxes, assessments, liens, claims and other charges
against the Property, whether superior or inferior to this Mortgage,
and in default or delinquency thereof, MORTGAGEE may pay the same at
the cost of MORTGAGOR. MORTGAGOR shall produce receipts therefrom upon
demand.
(b) PRESERVATION, REPAIR AND USE OF PROPERTY- Not commit
waste, or authorize the repair or removal of any of the structures,
fixtures, or Improvements on the Property, or do or permit any act that
would result in the creation of a lien upon the land or the structures,
fixtures or Improvements thereon without first obtaining prior written
consent of MORTGAGEE, and otherwise to maintain the Property in as good
condition as at present. Upon any failure to maintain, MORTGAGEE, at
its option, may cause reasonable repair and maintenance work to be
performed at the cost of MORTGAGOR.
( c) OBLIGATIONS OF MORTGAGOR: Comply with all laws,
ordinances, regulations, covenants, conditions and restrictions
affecting the Property, or requiring alterations or improvements to be
made thereon, and no MORTGAGOR shall suffer or permit any act to be
done in or upon the Property in violation thereof. MORTGAGOR represents
and warrants that prior use of the Property has been in compliance with
all applicable laws and regulations.
<PAGE>
(d) HAZARDOUS WASTE: Warrant, and does hereby warrant that
there has not been, since the date MORTGAGOR acquired title to the
Property any "release" (as defined in 42 U.S.C., Sec. 9601 (22)) or
threat of a "release" of any "hazardous substances" (as defined in 42
U.S.C., Sec. 9601 (14)), petroleum, including without limitation, crude
oil or any fraction thereof, or natural gas liquids, liquefied natural
gas, or synthetic gas on, upon or into the Property and, MORTGAGOR has
no knowledge of any such releases on, upon or into the Property nor on,
upon or into any real property adjoining or in the vicinity of the
Property which could have come to be located upon the Property or the
water or groundwater or thereunder. MORTGAGOR has no knowledge of any
underground storage tanks of any kind or character, whether empty or
containing substances of any nature located within the Property, except
to the extent set forth in writing to MORTGAGEE; and from the dates of
acquisition by MORTGAGOR, the Property and the use thereof, including
the use of any and all such underground storage tanks, has been and is
in compliance with all applicable laws, statutes, ordinances, rules and
regulations of all governmental and quasi-governmental authorities,
specifically including without limitation, all laws, statutes,
ordinances, rules and regulations relating to environmental protection,
toxic waste, underground storage tanks, and hazardous substance
handling, treatment, storage and disposal. The representations and
warranties contained in this paragraph shall, insofar as they relate to
the Property, be deemed to be continuing and shall remain true and
correct in all material respects until the Note secured by this
Mortgage has been paid in full. In that regard, MORTGAGOR further
agrees as follows:
(i) NOTICE OF HAZARDOUS SUBSTANCES. MORTGAGOR agrees
to provide MORTGAGEE with copies of any notification of
releases of oil or hazardous materials or substances or of any
environmental hazards or potential hazards which are given by
or on behalf of MORTGAGOR to any federal, state or local
agencies or authorities or which are received by MORTGAGOR
from any federal, state or local agencies or authorities with
respect to the Property secured by this mortgage. Such copies
shall be sent to MORTGAGEE concurrently with their being
Mailed or delivered to the governmental agencies or
authorities or within ten (10) days after they are received by
MORTGAGOR.
(ii) NOTICE OF CHEMICAL DISCLOSURES. MORTGAGOR agrees
to provide MORTGAGEE with copies of all emergency and
hazardous chemical inventory forms (hereinafter "Notices")
previously given by MORTGAGOR, as of the date hereof, to any
federal, state or local governmental authority or agency
including those required pursuant to the Emergency Planning
and Community Right-to-Know Act of 1986, 42 U.S.C., Section I
101 1 et. seq., and to provide MORTGAGEE with copies of all
such Notices subsequently sent to any such governmental
authority or agency including those required pursuant to the
Emergency Planning and Community Right-to-Know Act of 1986.
Such copies of subsequent Notices shall be sent to MORTGAGEE
concurrently with their being mailed to any such governmental
authority or agency.
(iii) INDEMNITY. BORROWERS hereby covenant and agree
to indemnify, protect and hold harmless MORTGAGEE from and
against any and all claims, demands, liabilities and costs,
including attorney's fees, arising from (a) any "release" (as
defined in Section 4(d) above) or threat of a "release",
actual or alleged, or any "hazardous substances" (as defined
in Section 4(d) above) upon or about the Property, regardless
of whether such release or threat of release or alleged
release or threat of release has occurred prior to the date
hereof or hereafter occurs and regardless of whether such
release occurs as a result of the negligence or misconduct of
MORTGAGOR or any third party or otherwise, (b) any violation,
actual or alleged, of or any other liability under or in
connection with any law, statute, ordinance, rule or
regulation of any governmental authority or quasi-governmental
authority, specifically including without limitation the
Resource Conservation and Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), the Emergency Planning and Commun4
Right-to-Know Act of 1 986, or any other environmental
protection or toxic waste or hazardous substance handling,
treatment, storage or disposal laws, statutes, ordinances,
rules or regulations, relating to the Property or respecting
any products or materials previously, now or hereafter located
upon, delivered to or in try, sit to or from the Property, as
same may be amended, regardless of whether such violation or
alleged, violation or other liability has occurred or arisen
prior to the date hereof or hereafter occurs or arises and
regai8less of whether such
OR145627;1
<PAGE>
violation or alleged violation or other liability occurs or
arises as the result of the negligence or misconduct of
MORTGAGOR or any third party or otherwise. This indemnity
shall survive any foreclosure or satisfaction of this Mortgage
as to any such release or threat of release or any such
violation, alleged violation or other liability occurring or
arising prior to such foreclosure.
5. DEPOSITS FOR TAXES AND INSURANCE PREMIUMS-. MORTGAGEE may, at its
option, require MORTGAGOR to deposit with MORTGAGEE on the first day of each
month, in addition to making payments of regular investments of principal and
interest, until the Note is fully paid, an amount equal to one- twelfth (1/1 2)
of the yearly taxes, assessments and other similar charges and/or of the yearly
premiums for all insurance as estimated by MORTGAGEE in order to accumulate with
MORTGAGEE sufficient funds to pay such amounts thirty (30) days prior to their
due dates. Such deposits shall not be, nor be deemed to be, trust funds, but may
be commingled with the general funds of MORTGAGEE, and no interest shall be
payable in respect thereof. Upon demand by MORTGAGEE, MORTGAGOR shall deliver to
MORTGAGEE such additional monies as are necessary to make up any deficiencies in
the amounts necessary to enable MORTGAGEE to pay such premiums when due. In the
event of a default under any of the terms, covenants and conditions' in the
Note, this Mortgage or any of the other Loan Documents, MORTGAGEE may apply to
the reduction of the sums secured hereby in such order, priority and proportions
as MORTGAGEE shall determine in its sole and absolute discretion, any amount
under this paragraph remaining on account of such deposits and any return
premium received from cancellation of any insurance policy by MORTGAGEE upon
foreclosure of this Mortgage. Upon an assignment of this Mortgage by MORTGAGEE
and upon assumption by the assignee thereof, of the obligations of MORTGAGEE as
escrow holder, MORTGAGEE shall have the right to pay over the balance of such
deposits in its possession to the assignee. MORTGAGEE shall thereupon be
completely released from all liability with respect to such deposits, and
BORROWERS shall look solely to the assignee or transferee with respect thereto,
except as otherwise provided by applicable law. This provision shall apply to
every transfer of such deposits to a new assignee.
6. PROTECTION OF SECURITY-. MORTGAGEE may appear in and defend any
action or Proceeding purporting to affect the security hereof, and BORROWERS
shall pay all costs and expenses, including costs of evidence of title and
attorney's fees in a reasonable sum as may be allowed by the court, in such
action or proceeding in which MORTGAGEE may appear.
7. ASSIGNMENT OF RENTS AND PROFITS: MORTGAGEE shall have the right,
power and authority during the continuance of this Mortgage to collect the
rents, income, issues and profits of the Property and of any personal property
located thereon with or without taking possession of the Property affected
hereby, and MORTGAGOR hereby absolutely and unconditionally assigns all such
rents, income, issues and profits to MORTGAGEE. MORTGAGEE, however, hereby
consents to MORTGAGOR'S collection and retention of such rents, income, issues
and profits as they accrue and become payable so long as MORTGAGOR is not, at
such times, in default as defined herein. MORTGAGOR will not (i) execute an
assignment of any of its right, title or interest in the tenant leases or rents
and profits, or (ii) except where the lessee is in default thereunder, terminate
or consent to the cancellation or surrender of any lease of the Property or of
any part thereof, now existing or hereafter to be made, or (iii) modify any
lease of the Property or any part thereof so as to shorten the unexpired term
thereof or so as to decrease the amount of the rent payable thereunder, or (iv)
accept prepayments of any installments of rent to become due under any of said
leases in excess of one (1) month rental or prepayments in the nature of
security for the performance of the lessee'5 obligations thereunder in excess of
any amount equal to one (1) month rental, or (v) in any other manner impair the
value of the Property or the security of this Mortgage.
Upon any default as defined in this Mortgage, MORTGAGEE may at any
time, either in person, by agent, or by a receiver to be appointed by a court,
without notice and without regard to the adequacy of any security for the
indebtedness hereby secured: (a) enter upon and take possession of toe Property
or any part thereof, and in its own name sue for or otherwise collect such
rents, income, issues and profits, including those past due and unpaid, and
apply the same, less costs and expenses of operation and collection, including
OR145627;1
<PAGE>
reasonable attorney's fees, upon any indebtedness secured hereby, and in such
order and priority as MORTGAGEE may determine; (b) perform such acts of repair
or protection as may be necessary or proper to conserve the value of the
Property; and (c) lease the same or any part thereof for such rental, term and
upon such conditions as its judgment may dictate, or terminate or adjust the
terms and conditions of existing leases. In addition, and not as an election of
remedies, upon the occurrence of an Event of Default, MORTGAGEE may apply for a
court order requiring MORTGAGOR to deposit all Rents and Profits in the court
registry pursuant to ss.697.07, Florida Statutes, as amended. MORTGAGOR hereby
consents to the entry of such an order upon the sworn, ex parte motion of
MORTGAGEE that an Event of Default has occurred hereunder. Unless MORTGAGOR and
MORTGAGEE agree otherwise in writing, any application of rents, income, issues
or profits to any indebtedness secured hereby shall not extend or postpone the
due date of the installment payments as provided in said Note or change the
amount of such installments. The entering upon, the taking possession of the
Property, the collection of such rents, income, issues and profits, and the
application thereof as described herein, shall not waive or cure any default or
notice of default hereunder, or invalidate any act done pursuant to such notice.
MORTGAGOR also assigns to MORTGAGEE, as further security for the performance of
the Obligations secured hereby, all prepaid rents and all monies which may have
been or may hereafter be deposited with MORTGAGOR by a lease of the Property, to
secure the payment of any rent, and upon default in the performance of any of
the provisions hereof, MORTGAGOR agrees to deliver such rents and deposits to
MORTGAGEE. Delivery of written notice of MORTGAGEE'S exercise of rights granted
herein, to any tenant occupying said premises shall be sufficient to require
said tenant to pay said rent to MORTGAGEE until further notice.
8. CONDEMNATION: Any award of damages, settlement, or compensation in
connection with any eminent domain action for public use of or an injury to the
Property, or any part thereof, is hereby assigned by MORTGAGOR to MORTGAGEE, and
all money received by MORTGAGEE may be applied to the indebtedness secured by
this Mortgage, or released by it in the same manner and with the same effect as
herein provided for the disposition of the proceeds of insurance. Neither the
application nor the release of any such sums shall cure or waive any default or
notice of default hereunder or invalidate any act done pursuant to such notice,
nor shall anything in the section affect the liability of BORROWERS for payment
of the entire balance of the Obligations secured hereby.
9. INSURANCE, CASUALTY, GENERAL LIABILITY AND RESTORATION: MORTGAGOR
shall keep the Improvements and other fixtures upon the premises insured against
such hazards and in such amounts as may be required by MORTGAGEE. After the
happening of any casualty to the Property or any part thereof, MORTGAGOR shall
give prompt written notice thereof to MORTGAGEE. MORTGAGOR shall further
maintain insurance against general liability with respect to damages or injuries
arising from use or occupation of the Property and against such risks or hazards
as MORTGAGEE from time to time reasonably may designate, in form and amounts (in
no event less than the amount of the Loan) satisfactory to MORTGAGEE. In the
event of any damage to or destruction of the Improvements, MORTGAGEE shall have
the option, in its sole discretion, of applying all or part of the insurance
proceeds: a) to the Obligations, in such order, priority and proportion as
MORTGAGEE may determine in its sole and absolute discretion; b) to the
restoration of the Improvements; or c) to MORTGAGOR. In the event of such loss
or damage, all proceeds of insurance shall be payable to MORTGAGEE, and
MORTGAGOR hereby assigns said proceeds to MORTGAGEE, and authorizes and directs
any affected insurance company to make payment of such proceeds directly to
MORTGAGEE. MORTGAGEE is hereby authorized and empowered by MORTGAGOR to settle,
adjust or compromise any claims for loss, damage or destruction under any policy
or policies of insurance. Except to the extent that insurance proceeds are
received by MORTGAGEE and applied to the Obligations, nothing herein contained
shall be deemed to excuse MORTGAGOR from repairing or maintaining the Prop" as
provided in this Mortgage or restoring all damage or destruction on to the
Property, regardless of whether or not there are insurance proceeds available or
whether any such proceeds are sufficient in amount, and the application or
release by MORTGAGEE of any insurance proceeds shall not cure or waive any
default or notice of default under this Mortgage or invalidate any act done
pursuant to such notice. All insurance policies required shall be written with
companies satisfactory to MORTGAGEE, shall
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contain non-contributory standard mortgagee clauses, shall name MORTGAGEE as an
additional insured, shall be maintained, throughout the term of the loan without
cost to MORTGAGEE, and shall contain such provisions as MORTGAGEE deems
necessary or desirable to protect its interest including, without limitation, a
provision for thirty (30) days prior written notice to MORTGAGEE of cancellation
of or any change in the risk or coverages insured. Whenever required by
MORTGAGEE, certified copies of such policies of insurance shall be delivered
immediately to and held by MORTGAGEE.
10. PARTIAL PAYMENT: Acceptance by MORTGAGEE of any sum in payment or
part payment of any portion of the Obligations after the same is due shall not
constitute a waiver of MORTGAGEE'S right to require prompt payment when due of
the remainder of the Obligations, nor shall such acceptance cure or waive any
remaining default or waive any subsequent default or prejudice any of the rights
of MORTGAGEE under this Mortgage.
11. ACTIONS BY MORTGAGEE: Without affecting the personal liability of
any person, including MORTGAGOR or any guarantor (other than any person released
pursuant hereto), for the payment of the Obligations, and without affecting the
lien of this Mortgage for the full amount of the Obligations remaining unpaid
upon any property conveyed pursuant hereto, MORTGAGEE is authorized and
empowered at any time and from time to time, either before or after the maturity
of the Note, and without notice, to: (a) release any person liable for the
payment of any of the Obligations, (b) make any agreement extending the time or
otherwise modifying the terms of payment of any of the Obligations, (c) accept
additional security therefor of any kind or (d) release any property, real or
personal, securing the Obligations.
12. FINANCIAL STATEMENTSIDEPOSITORY ACCOUNT. During the term of the
Obligations, BORROWERS shall furnish MORTGAGEE with (i) within thirty (30) days
after the end of each fiscal quarter, internally prepared quarterly financial
statements of each of the BORROWERS, certified to MORTGAGEE, as being true and
correct by President of the BORROWERS, respectively; (ii) within one hundred
twenty (I 20) days after the end of each fiscal year, annual, unqualified,
audited financial statements of the each of the BORROWERS, with said financial
statements prepared and audited by independent certified public accountants
acceptable to the MORTGAGEE; (iii) within sixty (60) days of the end of each
calendar year, a statement, certified true and accurate by the President of each
of the BORROWERS, of all outstanding or threatened litigation, governmental
investigation or arbitration affecting either or both of the BORROWER5, the
status of each such matter and the amount in controversy during the term any
Obligations are outstanding, (iv) federal income tax returns (and, with respect
to STRATCOMM HOLDING, the Canadian equivalent) annually during the term any
Obligations are outstanding, within thirty (30) days of the filing I'@- same
with the Internal Revenue Service and (v) within sixty (60) days of the end of
each calendar year, a rent roll, in form and substance satisfactory to the
MORTGAGEE, specifying the name of each tenant in occupancy, the term of the
lease of each tenant, the number of square feet leased by each tenant and the
per square foot annual rental of each tenant, all in reasonable detail and
certified by the Mortgagor or Maker to be correct. Statements shall include
financial information on any and all related entities obligated under this Loan
and shall be in a format substantially similar to the statements submitted at
the time of application for this Loan, or statements which have been prepared
with generally accepted accounting principles. BORROWERS also agrees to submit,
any and all other financial information as may be reasonably requested by
MORTGAGCE from time to time. The MORTGAGOR shall maintain banking/depository
relationships with the MORTGAGEE in a manner satisfactory to the MORTGAGEE.
13. TRANSFER OR ENCUMBRANCE OF PROPERTY: Except with respect to
Permitted Encumbrances, for the purposes of protecting MORTGAGEE'S security,
keeping the Property free from subordinate financing liens, and/or allowing
MORTGAGEE to raise the interest rate and to collect assumption fees, MORTGAGOR
agrees that any sale, conveyance, further encumbrance, or other transfer of
legal, equitable or beneficial title to the Property, or any interest therein
(whether voluntarily or by operation of law), without MORTGAGEE'S prior written
consent, shall be an Event of Default hereunder. In the event MORTGAGOR, without
the prior written consent of MORTGAGEE, shall sell, convoy, alienate, transfer,
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mortgage, grant a security interest in, or encumber the Property described
herein or any part thereof, or any interest therein, whether legal, equitable or
beneficial, or shall be divested of its title or any interest therein, in any
manner or way, whether voluntary or involuntary, the entire balance of the
Obligation shall become immediately due and payable at the option of MORTGAGEE.
14. ERISA: MORTGAGOR covenants and agrees that (a) it is not, nor has
it any plan or other agreement subject to the terms of the Employee Retirement
Income Security Act of 1974, as amended ('ERISA') and (b) during the term of the
loan secured hereby, unless MORTGAGEE shall have previously consented in
writing, it will take no action which would cause it to be subject to any laws,
rules or regulations pertaining to ERISA. MORTGAGOR further covenants and agrees
to protect, defend, indemnify and hold MORTGAGEE harmless from and against all
loss, cost, damage and expense (including without limitation, all attorneys'
fees and excise taxes, costs of correcting any prohibited transaction or
obtaining an appropriate exemption) which MORTGAGEE may incur as a result of
MORTGAGOR'S breach of this covenant. This indemnity shall survive the
extinguishment of the lien of the Mortgage by foreclosure or action in lieu
thereof, and this covenant shall survive such extinguishment; furthermore, the
foregoing indemnity shall supersede any limitations on MORTGAGOR'S liability
under the Note, the Mortgage, or any of the other Loan Documents.
15. EVENTS OF DEFAULT-. Any of the following events shall be deemed an
Event of Default hereunder: (a) if BORROWERS shall fail to pay the principal or
interest of the Obligations when due; (b) if BORROWERS seek relief pursuant to
bankruptcy laws, Title I I U.S. Code, or is made a defendant in a bankruptcy or
receivership proceeding; (c) if a writ of execution or attachment or any similar
process shall be entered against BORROWERS (or either one of them) which shall
become a lien on the Property, or any portion thereof or interest therein and
such execution, attachment or similar process of judgment is not released,
banded, satisfied, vacated or stayed within ninety (90) days after its entry or
levy; (d) if there has occurred a breach of or default under any term, covenant,
agreement, condition, provision, representation or warranty contained herein or
in the Note or any of the other Loan Documents; (e) if BORROWERS (or either one
of them) fail to perform any terms, conditions, covenants or agreements which
are part of this Mortgage or any other document or agreement which secures all
or any part of the Obligations. (O if any representation or warranty made in
writing by or on behalf of BORROWERS (or either one of them), guarantor, or
obligor of the Note and this Mortgage in any report, certificate, financial
statement or other instrument furnished by or on behalf of BORROWERS (or either
one of them), guarantor, or obligor is incorrect in any material respect on the
date when made or reaffirmed; (g) if BORROWERS (or either one of them),
guarantor, or any obligor conceal, remove, or permit to be concealed or removed,
any part of his or its properties, with intent to hinder, delay or defraud his
or its creditors or any of them, or makes or suffers a transfer of any of his or
its properties which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law, or makes any transfer of his or its properties to or
for the benefit of a creditor at a time when other creditors similarly situated
have not been paid, or suffers or permits, while insolvent, any creditor to
obtain a lien upon any of his or its properties through legal proceedings or
distraint which is not vacated within thirty (30) days from the date thereof;
(h) if any guarantor, or obligor seeks to cancel, for whatever reason, any
guaranty of the Note or the Mortgage, or breaches any of the covenants and
agreements contained therein; (i) if any final judgment, order or decree be
entered against BORROWERS (or either one of them), guarantor, or obligor for the
payment of money in excess-of $5,000.00 not covered by insurance, which is not
discharged or the execution of which is not stayed within thirty (30) days from
the date the judgment becomes final; (j) if any guarantor, or obligor,
voluntarily or involuntarily dissolves or takes any affirmative action seeking
to terminate its existence; (k) if BORROWERS (or either one of them), any
guarantor, or obligor, dies, become incapacitated, has a guardian appointed for
him; or (1) if BORROWERS shall be in default under the terms of any loan
obligation, or other material agreement to which it is subject.
16. ACCELERATION, REMEDIES: Upon the occurrence of an Event of
1,Default as defined herein, MORTGAGEE may require immediate payment in full of
all sums secured by this Mortgage without further demand, and/or immediately
foreclose this Mortgage or pursue any other available regal remedy. In the event
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of any action by MORTGAGEE to enforce collection of any of the Obligations,
BORROWERS agree that any expense incurred in connection therewith or incurred to
procure or extend an abstract of title or a policy of title insurance shall,
when incurred or paid by MORTGAGEE, become a part of the Obligations and shall
be paid by BORROWERS together with all of the costs of such action. In the event
any action is brought to foreclose this Mortgage, MORTGAGEE shall be entitled to
immediate and exclusive possession of the Property, and the court may appoint
and MORTGAGOR hereby consents to the appointment of a receiver to take
possession of the Property to collect and receive the rents, income, issues and
profits arising therefrom; and from any moneys so collected, to pay taxes,
provide insurance, make needed repairs to improvements upon the Property, and
make any other expenditures authorized by the court, and apply any sum remaining
after the payment of such authorized expenditures to the Obligations. Prior to
foreclosure, MORTGAGEE may at its option and-at BORROWERS' sole expense,
contract for a "Phase I" environmental inspection report prepared and certified
by an environmental consultant satisfactory to MORTGAGEE to determine whether
the Mortgaged Premises complies with federal, state and local laws, rules,
regulations or orders respecting environmental matters. MORTGAGEE may, at its
option and at the sole expense of MORTGAGOR, at intervals of not less than one
year, or more frequently if MORTGAGEE reasonably believes that a hazardous
material or substance or other environmental condition violates or threatens to
violate any federal, state and local laws, rules, regulations or orders
respecting environmental matters (collectively "Environmental Requirements"),
cause an environmental audit of the Mortgaged Premises or portions thereof to be
conducted to confirm MORTGAGOR'S compliance with such Environmental
Requirements, and MORTGAGOR shall cooperate in all reasonable ways, with
MORTGAGEE in connection with any such audit. If, based on the Phase I
environmental audit, MORTGAGEE determines that additional testing or
investigation should be performed on the Mortgaged Premises, such testing shall
be performed at MORTGAGOP,'S sole expense. If this Mortgage is foreclosed, or if
MORTGAGOR tenders a deed or assignment in lieu of foreclosure that is accepted
by MORTGAGEE, MORTGAGOR shall deliver the Mortgaged Premises to the purchaser at
foreclosure or to MORTGAGEE, its nominee or designee, as the case may be, in a
condition that complies in all respects with all Environmental Requirements.
17. PREPAYMENT: Upon any default by BORROWERS hereunder and the
acceleration of maturity in the manner allowed herein, any tender of payment of
the amount necessary to satisfy the debt evidenced by the Note made by
BORROWERS, BORROWERS' successors or assigns, or by anyone on behalf of
BORROWERS, or on behalf of BORROWERS' successors or assigns, or by any holder of
a subordinate or superior interest in the Property shall constitute a
"prepayment", as that term is used in the Note, and shall be deemed a voluntary
prepayment hereunder. In the event of any prepayment as defined in the Note, the
amount due shall include any applicable premium which is thereupon due under the
prepayment privileged provisions of the Note.
18. REMEDIES NOT EXCLUSIVE: MORTGAGEE shall be entitled to enforce
payment and performance of any indebtedness or Obligations and to exercise all
rights and powers under this Mortgage or under the Note and other Loan Documents
or any other agreement executed in connection herewith or any laws now or
hereafter in force, notwithstanding some or all of the such indebtedness and
Obligations may now or hereafter be otherwise secured, whether by mortgage, deed
of trust, pledge, lien, assignment or otherwise. Neither the acceptance of this
Mortgage nor its enforcement, whether by court action or other powers herein
contained, shall prejudice or in any manner affect MORTGAGEE'S right to realize
upon or enforce any other security now or hereafter held by MORTGAGEE, it being
agreed that MORTGAGEE shall be entitled to enforce this Mortgage and any other
security now or hereafter held by MORTGAGEE in such order and manner as
MORTGAGEE may in its sole and absolute discretion determine. No remedy herein
conferred upon or reserved to MORTGAGEE is intended to be exclusive of any other
remedy herein or by law provided or permitted, but shall be cumulative and shall
be in addition to every other remedy gives hereunder or now or hereafter
existing at law or in equity or by statute. Every power or remedy provided under
this Mortgage to MORTGAGEE or to which it may be otherwise entitled, may be
exercised, concurrer7aly or independently, from time to time land as often as
may be deemed expedient by MORTGAGEE and, MORTGAGEE may pursue
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inconsistent remedies. Nothing herein shall be construed as prohibiting
MORTGAGEE from seeking a deficiency judgment against BORROWERS to the extent
such action is permitted by law.
19. NO IMPLIED WAIVER: The failure of MORTGAGEE promptly to exercise
any right, power or remedy provided herein or at law or in equity shall not
constitute a waiver of the same, nor shall MORTGAGEE be stopped from later
exercising such right, power or remedy.
20. NOTICE: The mailing addresses of the parties are as set forth in
the preamble hereof. Except for any notices, demands, requests or other
communications required under applicable law to be given in another manner,
whenever BORROWERS or MORTGAGEE give or serve any notice, demands, requests or
other communication with respect to this Mortgage, each such notice, demand,
request or other communication shall be in writing and shall be effective only
if the same is delivered by personal service or is mailed by regular mail,
postage prepaid, addressed as set forth hereinabove. Any party may at any time
change its address for such notices by delivering or mailing to the other party
hereto, as aforesaid, a notice of such change. Any notice hereunder shall be
deemed to have been given to BORROWERS or MORTGAGEE, when given in the manner
designated herein.
21. PRESERVATION, REPAIR AND USE OF PROPERTY. MORTGAGOR shall
constantly maintain and shall not diminish the value of any of the Property
during the existence of the Mortgage. MORTGAGOR shall not erect, destroy, remove
or sell any buildings, structures or improvements of any kind located on the
Property without the prior written consent of the MORTGAGEE.
22. INSPECTION: MORTGAGOR agrees to permit MORTGAGEE and/or its agents,
to enter upon and inspect the Property and inspect MORTGAGOR'S books and records
and property described herein for the purpose of determining whether MORTGAGOR
is in compliance with the provisions of the Note and of this Mortgage and the
other Loan Documents. Any reasonable costs or expenses incurred in connection
with this inspection shall be borne by MORTGAGOR as provided for in Paragraph
Two hereof.
23. ATTORNEY'S FEES: Except where prohibited by law, if MORTGAGEE
refers this Mortgage to an attorney or seeks legal advice following default
alleged in good faith, or MORTGAGEE is the prevailing party in any action
instituted on this Mortgage, the Note or the other Loan Documents or if any
judicial or non-judicial action, suit, declaratory action, or proceeding is
instituted by MORTGAGEE or if MORTGAGEE is required to appear in any such action
or proceeding, or to reclaim, seek relief from a judicial or statutory stay,
sequester, protect, preserve or enforce interest in this Mortgage (including but
not limited to proceedings under federal bankruptcy law, in eminent domain,
under probate proceedings, or in connection with any state or federal tax lien)
then in such event, BORROWERS promise to pay reasonable attorney's fees and
reasonable costs and expenses incurred by MORTGAGEE or its attorney in
connection with the above mentioned events.
24. ACTIONS BY MORTGAGEE TO PRESERVE THE PROPERTY: If BORROWERS fail to
make any payment required under this Mortgage, the Note or other Loan Documents,
whether for real estate taxes, insurance premiums, attorney's fees, or
otherwise, or fails to do any act as may be required hereunder, MORTGAGEE may,
at the discretion of MORTGAGEE, without obligation to do so and without
releasing BORROWERS from any obligation, make or do the same in such manner and
such event as MORTGAGEE shall deem necessary to protect the Property. Without
notice to BORROWERS, MORTGAGEE may either add such payments and expenses
("Advancements") to the principal to accrue interest at the default rate
provided in the Note until maturity of the loan or bill BORROWERS for such
Advancements plus interest at the default rate provided in the Note from the
date of advancement until repaid.
25. FUTURE ADVANCES: This Mortgage shall secure not only existing
indebtedness of the BORROWERS, but also such future advances, whether such
advances are obligatory or to be made at the option of MORTGAGEE or otherwise,
as are made within twenty (20) years from the date hereof, to the same
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extent as if such future advances were made on the date of the execution of this
Mortgage, but such secured indebtedness shall not exceed at any time the maximum
principal amount of two times (2X) the face amount of the Note, plus interest
thereon, and any disbursements made for the payment of taxes, levies or
insurance on the Property with interest on such disbursements. Any such future
advances, whether obligatory or to be made at the option of the MORTGAGEE or
otherwise, may be made either prior to or after the due date of the Note or any
other notes secured by this Mortgage. This Mortgage is given for the specific
purpose of securing any and all indebtedness by the BORROWERS to MORTGAGEE, made
pursuant to the Loan Documents, in whatever manner this indebtedness may be
evidenced or represented until this Mortgage is satisfied of record. All
covenants and agreements contained in this Mortgage shall be applicable to all
further advances made by MORTGAGEE to BORROWERS under this future advance
clause.
26. ENTIRE AGREEMENT: This instrument, together with the Note and other
Loan Documents, constitutes and sets forth the entire understanding and
agreement between the parties, and no party hereto has relied upon any
representations, agreements or understandings, verbal or written, not set forth
herein or in the Note and such 'other Loan Documents, whether made by any party
hereto or by any agent, employee or representative of any party hereto.
Specifically, without limiting the generality of the foregoing, the parties
agree that MORTGAGEE has made no agreement to extend or renew any of the
Obligations, and no such agreement will be binding upon MORTGAGEE unless made in
writing, subsequent to the date hereof, and executed by a duly authorized
representative of MORTGAGEE.
27. BINDING AGREEMENT: This Mortgage inures to the benefit of, and
binds all parties hereto, their heirs, legal representatives, successors and
assigns. The term MORTGAGEE shall mean the owner and holder of the Note
described above, whether or not named as MORTGAGEE herein.
28. MORTGAGOR NOT RELEASED- Extension of the time for payment or
modification of amortization of the sums secured by this Mortgage granted by
MORTGAGEE to any successor in interest of BORROWERS shall not operate to
release, in any manner, the liability of the any original BORROWERS or
BORROWERS' successor in interest. MORTGAGEE shall not be required to commence
proceedings against such successor or extend time for payment or otherwise
modify amortization of the sums secured by this Mortgage by reason of any demand
made by any original BORROWERS and successors in interest to BORROWERS.
29. GOVERNING LAW/STIPULATION OF JURISDICTION: This Mortgage and each
instrument securing it shall be governed by and construed according to the laws
of the State of Florida. The parties 01" hereby irrevocably and unconditionally
stipulate and agree that the Federal Courts in the State of Florida or the
Circuit Court of the State of Florida in and for Orange County, Florida, shall
have exclusive jurisdiction to hear and finally determine any dispute, claim or
controversy or action arising out of or connected (directly or indirectly) with
this Mortgage, the Note and the other Loan Documents.
30. SEVERABILIT'Y: In the event any one or more of the provisions
contained in this Mortgage, or the Note or any other Loan Documents shall for
any reason be held to be invalid, illegal or unenforceable in any respect, which
invalidity, illegality or unenforceability shall, at the option of MORTGAGEE,
not affect any other provision of this Mortgage or such other Loan Documents,
but same shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein or therein. If the lien of this
Mortgage is invalid or unenforceable as to any part of the Obligations, or if
the lien is invalid or unenforceable as to any part of the Property, the
unsecured or partially secured portion of the Obligations shall be completely
paid prior to the payment of the remaining and secured or partially secured
portion of the Obligations, and all payments made on the Obligations, whether
voluntary or under foreclosure or other enforcement action or procedure, shall
be considered to have been first paid on and applied to the full payment of that
portion of the Obligations which is not secured or not fully secured the lien of
this Mortgage.
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3i. CONSENT NOT REQUIRED OF MORTGAGEE: Any consent by MORTGAGEE in any
single instance shall not be deemed or construed to be MORTGAGEE'S consent in
any like matter arising at a subsequent date and the failure of MORTGAGEE to
promptly exercise any right, power, remedy, consent or approval provided herein
or at law or in equity shall not constitute or be construed as a waiver of the
same nor shall MORTGAGEE be estopped from exercising such right, power, remedy,
consent or approval at a later date. Any consent or approval requested of and
granted by MORTGAGEE pursuant hereto shall be narrowly construed to be
applicable only to BORROWERS and the matter identified in such consent or
approval and no third party shall claim any benefit by reason thereof, and any
such consent or approval shall not be deemed to constitute MORTGAGEE a Ventura
or partner with BORROWERS (or any of them, if more than one) nor shall privacy
of contract be 'resumed to have been established with any such third party. If
MORTGAGEE deems it to be in its best interest to retain the assistance of
persons, firms or corporations (including, but not limited to, attorneys,
appraisers, engineers, consultants and surveyors) with respect to a request for
consent or approval, BORROWERS shall reimburse MORTGAGEE for all costs incurred
in connection with the employment of such persons, firms or corporations.
32. COSTS- BORROWERS will pay all costs and expenses reasonably
incurred by MORTGAGEE in the preparation and recording of this Mortgage and all
ancillary documents executed in connection therewith, or with the loan evidenced
by the Note, including without limitation, any intangible tax, documentary stamp
tax, recording and filing fees and premiums for any required mortgagee title
insurance policy, cost of any required survey, as well as the attorney's fees
for Mortgagee's counsel.
32. COMMERCIAL LOAN PURPOSE: The loan contemplated hereby and by the
Note and the other Loan Documents is primarily for a commercial, corporate,
business, agricultural, or other income producing purpose, and not primarily for
a personal, family, or household purpose. The BORROWERS acknowledge and agree
that the purpose of this representation has been made to induce MORTGAGEE to
rely in good faith on the above stated loan purpose in its effort to comply with
all applicable laws and regulations.
33. RELINQUISHMENT OF RIGHTS: To the fullest extent permitted by
applicable law, MORTGAGOR will not at any time insist upon, or plead, or in any
manner whatsoever claim or take any benefit or advantage of any stay or
extension or moratorium law or law pertaining to the marshaling of assets, the
administration of estates of decedents, any exemption from execution or sale of
the Mortgaged Property or any part thereof, including exemption of homestead,
wherever enacted, now or at any time hereafter in force, which may affect the
covenants and terms of performance of this Mortgage, nor claim, take or insist
upon any benefit or advantage of any law now or hereafter in force providing for
the valuation or appraisal of the #' Mortgaged Property, or for any part
thereof, prior to any sale or sales thereof which may be made pursuant to any
provision herein, or pursuant to the decree, judgment or order of any court of
competent jurisdiction; nor after any such sale or sales, claim or exercise any
right under any statute heretofore or hereafter enacted to redeem the property
so sold or any part thereof, and MORTGAGOR hereby, to the extent permitted by
applicable law, expressly waives all benefit or advantage of any such law or
laws, and covenants not to hinder, delay or impede the execution of any power
herein granted or delegated to MORTGAGEE, but to suffer and permit the execution
of every power as though no such law or laws had been made or enacted.
MORTGAGOR, for itself and all who claim under it, hereby waives, to the extent
that it lawfully may, all right to have the Mortgaged Property marshaled upon
any sale or foreclosure hereunder.
34. MAXIMUM RATE OF INTEREST: In no event shall all charges in the
nature of interest charged or taken on this Mortgage or the Note exceed the
maximum allowed by law and in the event such charges cause the interest to
exceed said maximum allowed by law, such interest shall be recalculated, and
such excess shall be credited to principal, it being the intent of the parties
that under no circumstances shall the MORTGAGOR be required to pay any charges
in the nature of interest in excess of the maximum rate allowed by law.
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35. WAIVER OF JURY TRIAL. BORROWERS HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY, AFTER CAREFUL CONSIDERATION AND AN OPPORTUNITY TO SEEK LEGAL
ADVICE, WAIVES ITS RIGHT TO HAVE A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
ARISING OUT OF OR IN ANY WAY CONNECTED WITH ANY OF THE PROVISIONS OF THIS
MORTGAGE, THE NOTE OR ANY OTHER DOCUMENTS E)(ECUTED IN CONJUNCTION WITH THE LOAN
SECURED BY THIS MORTGAGE.
36. HEADINGS: Headings are for convenience only and are not intended as
a limitation on the content of the paragraph following nor as an aid to the
construction thereof.
37. COMMITMENT LETTEIZ: The terms and provisions of that certain
Commitment Letter dated December 30, 1998, and executed by BORROWERS and
MORTGAGEE (the "Commitment Letter") are hereby acknowledged and are incorporated
herein by reference. However, to the extent of any ambiguity or inconsistency
between this Mortgage and the Commitment Letter, the terms, provisions and
conditions contained in this Mortgage shall prevail.
IN WITNESS WHEREOF, BORROWER5 have duly executed this mortgage as of
the date first above written.
WITNESSES: MORTGAGOR:
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__________________________ EIN:______________________________
ACKNOWLEDGED AND AGREED WITH RESPECT TO THE PROVISIONS
RELATING STRATCOMM MEDIA, LTD.:
ATTEST Stratcomm Media, LTD.,
- -------------------------- ------------------------------------
[CORPORATE SEAL]
STATE OF FLORIDA
COUNTY OF ORANGE
BEFORE ME, the undersigned authority, the foregoing instrument was
acknowledged this I St day of February, 1999 by Roberto E. Veitia, as President
of Stratcomm Media, U.S.A., Inc., a Florida corporation, each of whom [ ]
produced drivers license, as identification [ ] is personally known to me.
1 3
<PAGE>
STATE OF FLORIDA
COUNT'Y OF ORANGE
BEFORE ME, the undersigned authority, the foregoing instrument was
acknowledged this 1 St day of February, 1999, by Roberto E. Veitia, as President
and Pamela Bathurst-Philpolt, as Secretary, respectively, of Stratcomm Media,
Ltd., an entity organized under the laws of the Yukon Territory, Canada, each of
whom [ ] produced DRIVERS LICENSE as identification [__] is personally known to
me.
------------------------------------------
Notary Public
<PAGE>
EXHIBIT "A"
Parcel One:
Begin at point 675 feet east of the west line of section 1, township 22
south, range 29 east, ad 30 feet north of the center line of lee road,
thence run north 279.20 feet; thence run east 100 feet, thence run
south 279.20 feet; thence run west 100 feet to the point of beginning,
being a part of lots 2 and 3, PLAN OF WEST WINTER PARK (also known as
Holden Brothers Subdivision of West Winter Park), according to the plat
thereof as recorded in plat book A, page 62 of the public records of
orange county, Florida, LESS road right of way.
Parcel Two:
North 1/2 of lot 12, block "D", Albert Lee Ridge, According to the plat
thereof recorded in the plat book "T", page 147, public record of
Orange County, Florida.
Also Known As:
Part of lot 2 plan of West Winter Park as recorded in plat book A, page
62, Public record of Orange County, Florida described as follows:
Beginning at the northeast corner of lot 11, Block D, Albert Lee Ridge,
as recorded on plat book T, page 147 of the public records of orange
county, Florida; RUN S 88'57'31' W 100.00 feet along the south lines of
lots 4 & 10 block D of aforesaid plat to the northeast corner of lot 3,
Block D of said plat; Thence run s 02' 04'29 E 254.25 feet along the
east lines of lots 1, 2, & 3 block D to the north Right of way line of
Lee road; thence run along the north right of way line N 88'36'12' E
100.00 feet; thence run N 02'04'29 W 253.63 feet along the west line of
lots 11, 12 & 14 block D to the point of beginning.
TOGETHER WITH:
The north half of lot 12, Block D of Albert Lee Ridge, According to
plat thereof as recorded in plat book T,. page 147, of the public
records of orange county, Florida.
Subject to and together with all rights under and by virtue of that
certain easement agreement dates august 7, 1988, recorded in official
records book 3814, page 4277, public records of orange county Florida.
<PAGE>
STATE OF FLORIDA/ORANGE COUNTY
UNIFORM COMMERCIAL CODE FINANCING STATEMENT FORM UCC-1/158 (REV 1993) This
financing statement is presented to a filing officer of the filing
pursuant to the uniform commercial code:
1. Debtor (last name first if an
individual):_________________________________________ 1a.
DOB/FEI#:_________________ 1b. Mailing
Address:___________________________________________________________ 1c. City,
State:___________________________ 1d. Zip Code:__________________ 2. Additional
Debtor (last name first if an individual):________________________________ 2a.
DOB/FEI#:_________________ 2b. Mailing
Address:____________________________________________________________ 2c. City,
State:____________________________ 2d. Zip Code:__________________ 3. Secured
Party:______________________________________________________________ 3a. Mailing
Adress:_____________________________________________________________ 3b. City,
State:_____________________________ 3c. Zip Code:___________________ 4. Assignee
of secured party (first name first):________________________________________ 4a.
Mailing Address:_____________________________________________________________
4b. City, State:______________________________ 4c. Zip Code:___________________
5. This financing statement covers the following types or items or property
(include description of real property on which located and owner of record
when required.
SEE ATTACHED EXHIBIT `A' FOR A DESCRIPTION OF THE REAL ESTATE WHERE THE
COLLATERAL IS OR MAY BE LOCATED AND THE ATTACHED EXHIBIT `B' ATTACHED
HERETO FOR A DESCRIPTION OF THE COLLATERAL.
THE REAL PROPERTY IS OWNED BY THE DEBTOR.
6. Check if applicable: [ ] Products of collateral are also covered
[ ] Proceeds of collateral are also covered
[ ] Debtor is transmitting utility
7. Check Appropriate Box: [ ] All documentary stamp taxes due and
payable or to become due and payable to 201.22
F.S., have been paid.
[ ] Florida documentary stamp tax not
required
8. In accordance with 679.402(2), F.S., this statement is filed without the
debtor's signature to perfect a security Interest in collateral: [ ] already
subject to a security interest in another jurisdiction when it was brought into
this state
or debtor's location changed to this state.
[ ] which is proceeds of the original collateral described
above in which a security interest was perfected [ ] as to
which the filing has lapsed. Date filed
____________________ and previous UCC-1 file number
-----------------------------.
[ ] acquired after a change of name, identity, or
corporate structure of the debtor.
9. Number of additional sheets presented._________
10. Signature of debtor___________________________________________________
11. Signature of
secured party or
if assigned, by
assignee
-------------------------------------------
<PAGE>
EXHIBIT "A"
Parcel One:
Begin at point 675 feet east of the west line of section 1, township 22
south, range 29 east, ad 30 feet north of the center line of lee road,
thence run north 279.20 feet; thence run east 100 feet, thence run
south 279.20 feet; thence run west 100 feet to the point of beginning,
being a part of lots 2 and 3, PLAN OF WEST WINTER PARK (also known as
Holden Brothers Subdivision of West Winter Park), according to the plat
thereof as recorded in plat book A, page 62 of the public records of
orange county, Florida, LESS road right of way.
Parcel Two:
North 1/2 of lot 12, block "D", Albert Lee Ridge, According to the plat
thereof recorded in the plat book "T", page 147, public record of
Orange County, Florida.
Also Known As:
Part of lot 2 plan of West Winter Park as recorded in plat book A, page
62, Public record of Orange County, Florida described as follows:
Beginning at the northeast corner of lot 11, Block D, Albert Lee Ridge,
as recorded on plat book T, page 147 of the public records of orange
county, Florida; RUN S 88'57'31' W 100.00 feet along the south lines of
lots 4 & 10 block D of aforesaid plat to the northeast corner of lot 3,
Block D of said plat; Thence run s 02' 04'29 E 254.25 feet along the
east lines of lots 1, 2, & 3 block D to the north Right of way line of
Lee road; thence run along the north right of way line N 88'36'12' E
100.00 feet; thence run N 02'04'29 W 253.63 feet along the west line of
lots 11, 12 & 14 block D to the point of beginning.
TOGETHER WITH:
The north half of lot 12, Block D of Albert Lee Ridge, According to
plat thereof as recorded in plat book T,. page 147, of the public
records of orange county, Florida.
Subject to and together with all rights under and by virtue of that
certain easement agreement dates august 7, 1988, recorded in official
records book 3814, page 4277, public records of orange county Florida.
<PAGE>
DEBTOR: STRATCOMM MEDIA, USA, INC., a Florida corporation
SECURED PARTY: IST NATIONAL BANK OF CENTRAL FLORIDA
REAL PROPERTY- SEE THE ATTACHED EXHIBIT "A"
COLLATERAL. All the following described property
[GRAPHIC OMITTED][GRAPHIC OMITTED]
All fixtures, and equipment used in connection with the real property and all
personal property now or hereafter affixed to, attached to, placed upon or used
in any way in connection with the complete and comfortable use, occupancy or
operation of the said Real Property, all rents, issues, profits, royalties,
income and other benefits derived from the Real Property, all leases or
subleases covering the real property or any portion thereof, now or hereafter
existing or entered into, and all right, title and interest of DEBTOR
thereunder; all interests, estates or other claims, both in law and in equity,
which DEBTOR now has or may hereafter acquire in the Real Property, all
easements, rights-of-way, tenements, hereditaments and appurtenances thereof and
thereto; all oil, gas and mineral rights and profits, water rights and water
stock of DEBTOR (including any consumptive use, surface water management or
general permits), all right, title and interest of DEBTOR, now owned or
hereafter acquired, in and to any land lying within the right-of-way of any
street or highway adjoining the Real Property; and any and all buildings,
fixtures, improvements, and appurtenances now or hereafter erected thereon or
belonging thereto; all of DEBTOR'S right, title and interest in and to any
judgments, awards of damages, condemnation payments an and settlements,
including interest thereon, and the right to receive the same, which may be made
with respect to the Real Property as a result of the exercise of the right of
eminent domain, the alteration of the side of any street, any other injury or a
decrease in the value of the Real Property, or proceeds of insurance awards; all
deposits made with, or other security given to, utility companies by DEBTOR or
any partner of DEBTOR with respect to the Real Property; all of DEBTOR'S rights
relating to the Real Property or the operation thereof, or used in connection
therewith, including, without limitation, the non-exclusive right to use trade
names, service marks and trademarks; all rights to other permits, authorizations
and approvals granted the DEBTOR in regard to the Real Property such as, but not
limited to, all building permits, certificates of occupancy, etc.; all rights of
the DEBTOR to any contracts relating to the Real Property such as, but not
limited to, all contracts with any general contractors with regard to
improvements to be constructed on the Real Property, engineer contracts,
architects contracts, etc.; all monies, accounts, balances, credits, deposits,
collections, drafts, bills, notes, securities and any other property of every
kind and nature (whether tangible or intangible) no owned or hereafter acquired
by the DEBTOR and at any time in the actual or constructive possession of (or in
transit to) the SECURED PARTY or its correspondents or agents, their successors
and/or assigns, in any capacity or for any purpose; and, together with all
proceeds thereof. All of the foregoing property and interests are herein
collectively referred to as the "Collateral".
Acknowledged Bid agreed:
STRATCOMM MEDIA, USA, INC.,
A Florida corporation
By:______________________________________________________
Robert E. Veita, Presiden
<PAGE>
STATE OF FLORIDA/ORANGE COUNTY
UNIFORM COMMERCIAL CODE FINANCING STATEMENT FORM UCC-1/158 (REV 1993) This
financing statement is presented to a filing officer of the filing
pursuant to the uniform commercial code:
6. Debtor (last name first if an
individual):_________________________________________ 1a.
DOB/FEI#:_________________ 1b. Mailing
Address:___________________________________________________________ 1c. City,
State:___________________________ 1d. Zip Code:__________________ 7. Additional
Debtor (last name first if an individual):________________________________ 2a.
DOB/FEI#:_________________ 2b. Mailing
Address:____________________________________________________________ 2c. City,
State:____________________________ 2d. Zip Code:__________________ 8. Secured
Party:______________________________________________________________ 3a. Mailing
Adress:_____________________________________________________________ 3b. City,
State:_____________________________ 3c. Zip Code:___________________ 9. Assignee
of secured party (first name first):________________________________________ 4a.
Mailing Address:_____________________________________________________________
4b. City, State:______________________________ 4c. Zip Code:___________________
10. This financing statement covers the following types or items or property
(include description of real property on which located and owner of record
when required.
SEE ATTACHED EXHIBIT `A' FOR A DESCRIPTION OF THE REAL ESTATE WHERE THE
COLLATERAL IS OR MAY BE LOCATED AND THE ATTACHED EXHIBIT `B' ATTACHED
HERETO FOR A DESCRIPTION OF THE COLLATERAL.
THE REAL PROPERTY IS OWNED BY THE DEBTOR.
6. Check if applicable: [ ] Products of collateral are also covered
[ ] Proceeds of collateral are also covered
[ ] Debtor is transmitting utility
7. Check Appropriate Box: [ ] All documentary stamp taxes due and payable
or to become due and payable to 201.22 F.S.,
have been paid.
[ ] Florida documentary stamp tax not required
8. In accordance with 679.402(2), F.S., this statement is filed without the
debtor's signature to perfect a security Interest in collateral: [ ] already
subject to a security interest in another jurisdiction when it was brought into
this state
or debtor's location changed to this state.
[ ] which is proceeds of the original collateral described
above in which a security interest was perfected [ ] as to
which the filing has lapsed. Date filed
____________________ and previous UCC-1 file number
-----------------------------.
[ ] acquired after a change of name, identity, or
corporate structure of the debtor.
9. Number of additional sheets presented._________
10. Signature of debtor___________________________________________________
11. Signature of secured party or if assigned, by assignee ________________
<PAGE>
EXHIBIT "A"
Parcel One:
Begin at point 675 feet east of the west line of section 1, township 22
south, range 29 east, ad 30 feet north of the center line of lee road,
thence run north 279.20 feet; thence run east 100 feet, thence run
south 279.20 feet; thence run west 100 feet to the point of beginning,
being a part of lots 2 and 3, PLAN OF WEST WINTER PARK (also known as
Holden Brothers Subdivision of West Winter Park), according to the plat
thereof as recorded in plat book A, page 62 of the public records of
orange county, Florida, LESS road right of way.
Parcel Two:
North 1/2 of lot 12, block "D", Albert Lee Ridge, According to the plat
thereof recorded in the plat book "T", page 147, public record of
Orange County, Florida.
Also Known As:
Part of lot 2 plan of West Winter Park as recorded in plat book A, page
62, Public record of Orange County, Florida described as follows:
Beginning at the northeast corner of lot 11, Block D, Albert Lee Ridge,
as recorded on plat book T, page 147 of the public records of orange
county, Florida; RUN S 88'57'31' W 100.00 feet along the south lines of
lots 4 & 10 block D of aforesaid plat to the northeast corner of lot 3,
Block D of said plat; Thence run s 02' 04'29 E 254.25 feet along the
east lines of lots 1, 2, & 3 block D to the north Right of way line of
Lee road; thence run along the north right of way line N 88'36'12' E
100.00 feet; thence run N 02'04'29 W 253.63 feet along the west line of
lots 11, 12 & 14 block D to the point of beginning.
TOGETHER WITH:
The north half of lot 12, Block D of Albert Lee Ridge, According to
plat thereof as recorded in plat book T,. page 147, of the public
records of orange county, Florida.
Subject to and together with all rights under and by virtue of that
certain easement agreement dates august 7, 1988, recorded in official
records book 3814, page 4277, public records of orange county Florida.
<PAGE>
DEBTOR: STRATCOMM MEDIA, USA, INC., a Florida corporation
SECURED PARTY- IST NATIONAL BANK OF CENTRAL FLORIDA
REAL PROPERTY: SEE THE ATTACHED EXHIBIT "A
COLLATERAL: All the following described property:
[GRAPHIC OMITTED][GRAPHIC OMITTED]
All fixtures, and equipment used in connection with the real property and all
personal property now or hereafter affixed to, attached to, placed upon or used
in any way in connection with the complete and comfortable use, occupancy or
operation of the said Real Property, all rents, issues, profits, royalties,
income and other benefits derived from the Real Property, all leases or
subleases covering the real property or any portion thereof, now or hereafter
existing or entered into, and all right, title and interest of DEBTOR
thereunder; all interests, estates or other claims, both in law and in equity,
which DEBTOR now has or may hereafter acquire in the Real Property, all
easements, rights-of-way, tenements, hereditaments and appurtenances thereof and
thereto; all oil, gas and mineral rights and profits, water rights and water
stock of DEBTOR (including any consumptive use, surface water management or
general permits), all right, title and @Merest of DEBTOR, now owned or hereafter
acquired, in and to any land lying within the right-of-way of any street or
highway adjoining the Real Property; and any and all buildings, fixtures,
improvements, and appurtenances now or hereafter erected thereon or belonging
thereto; all of DEBTOR'S right, title and interest in and to any judgments,
awards of damages, condemnation payments an and settlements, including interest
thereon, and the right to receive the same, which may be made with respect to
the Real Property as a result of the exercise of the right of eminent domain,
the alteration of the side of any street, any other injury or a decrease in the
value of the Real Property, or proceeds of insurance awards; all deposits made
with, or other. security given to, utility companies by DEBTOR or any partner of
DEBTOR with respect to the Real Property; all of DEBTOR'S rights relating to the
Real Property or the operation thereof, or used in connection therewith,
including, without limitation, the non-exclusive right to use trade names,
service marks and trademarks; all rights to other permits, authorizations and
approvals granted the DEBTOR in regard to the Real Property such as, but not
limited to, all building permits, certificates of occupancy, etc.; all rights of
the DEBTOR to any contracts relating to the Real Property such as, but not
limited to, all contract with any general contractors with regard to
improvements to be constructed on the Real Property, engineer contracts,
architects contracts, etc.; all monies, accounts, balances, credits, deposits,
collections, drafts, bills, notes, securities and any other property of every
kind and nature (whether tangible or intangible) no owned or hereafter acquired
by the DEBTOR and at any time in the actual or constructive possession of (or in
transit to) the SECURED PARTY or its correspondents or agents, their successors
and/or assigns, in any capacity or for any purpose; and, together with all
proceeds thereof. All of the foregoing property and interests are herein
collectively referred to as the "Collateral".
Acknowledged and agreed:
STRATCOMM MEDIA, USA, INC.,
A Florida corporation
By _______________________________________
Robert E. Veitia, President
<PAGE>
REAL ESTATE LOAN AND SECURITY AGREEMENT
THIS REAL ESTATE LOAN AND SECURITY AGREEMENT (the "Agreement") is
executed and entered into as of February 1, 1999, by and between STRATCOMM
MEDIA, U.S.A., INC.. a Florida corporation (the "Mortgagor") and STRATCOMM
MEDIA, LTD., an entity formed under the laws of the Yukon Territory of Canada
(the "Holding Company"), (the Mortgagee and Holding Company are hereinafter,
collectively, the "Borrower"), and IST NATIONAL BANK OF CENTRAL FLORIDA,
national bank in a association, (the "Lender").
PREAMBLE
The Mortgagor owns, or contemporaneously with the execution hereof,
will acquire, the real property situated in Orange County, Florida, which is
more particularly described on Exhibit A hereto (the "Land"), together with the
improvements, fixtures and personal property now or hereafter situated
thereupon, used or intended to be used in connection therewith or otherwise
relating thereto or arising therefrom (as used herein, the term "Property" is
used to mean and refer to the Land and any improvements, fixtures and personal
property now or hereafter situated upon, used or intended to be used in
connection with. or otherwise relating to or arising from the Land). The
Borrower has requested that Lender make available to Borrower the Loan described
in Section 1.01 hereof to be secured by the Property or other collateral
described in Section 2.01 hereof Lender has agreed to make such Loan in its
commitment letter dated December 30, 1998.
AGREEMENT
NOW, THEREFORE. in consideration of the premises, the mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lender and the Borrower. intending
to be legally bound hereby, agree as follows:
I. AMOUNT AND TERMS OF LOAN
Section 1.01 Loan to Borrower. Borrower shall accept and Lender shall
make available to the Borrower. upon the terms and subject to the conditions
herein set forth, a secured term loan (the "Loan"), in the principal amount of
SIX HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($650,000-00). The aggregate
principal amount of the Loan shall be disbursed by Lender to Borrower, as and
when all conditions precedent to Lender's obligation to make each advance have
been fully satisfied and as requested by Borrower.
Section 1.02 Note. The Loan shall be evidenced by a promissory note (a
"Note") in a form satisfactory to the Lender, executed by the Borrower. The Note
shall bear interest and be payable as set forth therein.
Section 1.03 Use of Proceeds of Loan. The proceeds of the Loan shall be
used for the financing of the property described on Exhibit A.
II. SECURITY FOR LOAN
Section 2.01 Security for Loan: "Liabilities" Defined. As security for
repayment of the Loan, and for any and all other indebtedness and liabilities
(collectively, the "Liabilities") of the Borrower to Lender, Lender shall have.
in addition to all other collateral now or hereafter granted to Lender, title to
and a security interest in, the Collateral described below. "Liabilities" shall
include, but shall not be limited to, all liabilities and obligations of the
Borrower to Lender, however arising, whether now in existence or incurred by the
Borrower from time to time hereafter, and whether such indebtedness is absolute
or contingent, joint or several, matured or unmatured, direct or indirect, and
whether the Borrower is liable to Lender for such indebtedness as principal,
surety, endorser, Guarantor, or otherwise. "Liabilities" also shall mean and
include obligations to perform acts and refrain from taking action, as well as
obligations to pay money. As security for the payment and performance of the
Loan and all other Liabilities of Borrower to Lender, Lender shall receive, and
with respect to property now owned or hereafter acquired by Borrower, Borrower
hereby grants to Lender title to and a continuing security interest in the
following collateral (collectively, the "Collateral"):
<PAGE>
2.01.1 a mortgage on or a valid and perfected security interest in, as the
case may be, the Property, both real and personal, as described in that certain
Mortgage, Assignment of Rents and Leases and Security agreement executed by the
Borrower contemporaneously herewith (the "Mortgage"), subject only to such
exceptions, liens, mortgages and encumbrances, if any, approved by Lender and
described on Exhibit A hereto, all as more particularly described in each
Mortgage:
2.01.2 an assignment of rents and leases related to the Property as
described in the Mortgage: and
2.01.3 proceeds of all of the foregoing, including insurance and tort
claims, and all other collateral now or hereafter securing the loan.
Section 2.02 Delivery of Documentation. Lender's obligation to make the
Loan and each advance hereunder is subject to
the conditions precedent described in Article VI hereof, including without
limitation, that the Borrower shall have delivered to Lender such documentation
in form satisfactory to Lender as is required by Lender in connection with the
Loan. Such documentation shall include without limitation, the following:
2.02.1 an accurate survey of the Land, showing the locations of all
improvements, setback lines. boundaries, rights-of-way, and easements, together
with flood zone certificate and, if located in a designated flood zone, a policy
of insurance protecting the Lender's interest against loss from flooding or
water damage;
2.02.2 Borrower's Affidavit in the form of Exhibit B hereto-, 2.02.3
documents establishing that all utilities are available to the Land;
2.02.4 such certificates or other evidence satisfactory to Lender that
the development and current use of the Land conform with all federal, state and
municipal laws, restrictions and requirements, including applicable zoning
regulations:
2.02.5 title binder acceptable to Lender covering the Property; 2.02.6
copy of the plat maps containing the Land; 2.02.7 copies of all
documents and instruments creating any prior
mortgages or encumbrances on the Property or the other Collateral, and all
leases now in effect, or coming into existence during the term of the Loan with
respect to any of the foregoing,
2.02.8 the properly executed originals of this Agreement, the Note, the
Mortgage and UCC Financing, Statements cove the fixtures and personal property
situated upon or relating to the Land and all other Loan Documents (as defined
herein), all of which shall have been approved by Lender and its counsel;
2.02.9 and appraisal of the Land, prepared by Beaumont and
Marthes and dated _____________.
2.02.10 Phase I environmental assessment on the Land;
2.02.11 copy of (i) the executed lease between Borrower and any Tenant,
(ii) a tenant estopped certificate, and (iii) tenant subordination,
non-disturbance and attornment agreement executed by the Tenant and Borrower.
2.02.12 such other and further documents and opinions as Lender may
request.
Section 2.03 Set Off. Lender is hereby given a continuing lien as
additional security for all Liabilities of Borrower to Lender upon any and all
moneys, securities and other property of the Borrower. and the proceeds thereof,
now or hereafter held or received by or in transit to Lender from or for the
Borrower, whether for safekeeping, custody, pledge, transmission. collection or
otherwise, and also upon any and all deposit balances (general or special) and
credit of the Borrower with, and any and all claims of the Borrower against,
Lender at any time existing, and upon an Event of Default hereunder (as defined
in Article VI hereof), Lender may apply or set off the same against the
indebtedness and other Liabilities secured hereby.
Ill. REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement and to make the Loan, the
Borrower represents and warrants to Lender that:
Section 3.01 Organization; Authority. The Mortgagor is a Florida
corporation and the Holding Company is an entity organized under the laws of the
Yukon Territory of Canada, both of which are duly organized, validly existing
and in good standing in their jurisdictions of organization and are qualified
and in good standing in all jurisdictions where qualification is necessary. The
Borrower and Holding Company have all requisite corporate, association, or other
power and authority and have taken or caused to be taken all necessary
corporate, association, or other action (including any necessary shareholder,
partner, or member action) necessary to execute, deliver, enter into and perform
in accordance with this Agreement, the Note, the Mortgage and the other Loan
Documents. Upon execution and delivery thereof, this Agreement, the Note, the
Mortgage and the other Loan Documents will constitute valid and binding
obligations of the Mortgagee and/or the Holding Company, as the case may be, and
the other parties thereto, enforceable in accordance with their respective
terms, and the Note will be entitled to the benefits of this Agreement and the
other Loan Documents.
Section 3.02 Financial Information. All financial statements presented
to Lender in connection with the Loan present fairly and accurately the
financial position of the person or entity reported on therein for the periods
covered thereby, in conformity with Generally accepted accounting principles
applied on a consistent basis throughout the periods involved.
<PAGE>
Section 3.03 Adverse Change. There has been no material adverse chan2e in
the business, properties. or condition (financial or otherwise) of borrower, and
guarantor, or any of the Collateral since the date of the last financial
statements furnished to Lender.
Section 3.04 Litigation. Except for any litigation or claims
specifically described on Exhibit C hereto. there is no action, suit or
proceeding at law or in equity or by or before any governmental instrumentality
or other agency now pending, or, to the knowledge of the Borrower, threatened or
in prospect against or affecting the Borrower or any properties or rights of the
Borrower which, if adversely determined, would materially or adversely affect
the business, properties, or financial condition of the Borrower or any of the
Collateral. The Borrower is currently not affected by any strike or other labor
disturbance, or in default in any respect under any judgment, order, injunction,
rule, ruling or regulation of any court or Governmental commission agency or
instrumentality.
Section 3.05 Payment of Taxes. The Borrower has filed or caused to be
filed all federal, state and local tax returns which are required to be filed,
and has paid or caused to be paid all taxes as shown on said returns or on any
assessment received by it. to the extent that such taxes have become due, except
as otherwise permitted by the provisions hereof. The Borrower has no reason to
believe that any additional taxes are due for prior calendar tax years that have
not been audited by the respective tax authorities beyond the amounts provided
in the financial statements heretofore furnished to Lender.
Section 3.06 No Violations. Neither the execution nor delivery of this
Agreement, the Note, the Mortgage or any of the other Loan Documents, nor the
consummation of the transactions contemplated hereby and thereby. nor compliance
with the terms and provisions hereof and thereof, will conflict with, violate or
result in a breach of or default under, or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever on any of the assets
of the Borrower pursuant to the 14e'rms of any provision of any contract or
agreement, charter, bylaw, or other corporate restriction, any law, ordinance,
rule, order, certificate, license, regulation or decree of the United States or
any state, territory or political subdivision thereof. or any court, a2encv or
other tribunal under which the Borrower or any of its assets are subject. The
Borrower is not in default with respect to the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
of the foregoing which are material to their respective financial conditions.
Section 3.07 Title to Collateral. Except for the mortgage and security
interests conveyed to Lender pursuant to the Mortgage and by the other Loan
Documents, and except as otherwise set forth in Exhibit A hereto, the Borrower
is the owner of the Collateral, free from any mortgage, lien, security interest
or encumbrance, and the Borrower shall defend the same against all claims and
demands of all persons at any time claiming the same or any interest therein
adverse to Lender.
Section 3.08 Location of Records. Upon request by lender, the borrower
shall give to lender written notice of each office of the borrower at which
records of the borrower pertaining to the collateral are kept. Except as such
notice is given, all records of the borrower pertaining to the collateral are
and shall be kept at the address stated in section 8.01.
Section 3.09 Leases. No lease relating to the Property has been
modified or terminated and each of such leases remains in full force and effect
as of the date hereof. No lease relating to the Property, nor any of the rents
accrued, accruing, or to accrue thereunder, is subject to any prior assignment,
security interest, defense, or setoff.
Section 3.10 Permits, Government, and Other Approvals. The Borrower
possesses such licenses and permits as are required for the conduct of their
respective businesses. No approval, consent, or authorization of any
governmental authority which has not heretofore been obtained is necessary for
the execution or delivery by the Borrower of this Agreement, the Note, the
Mortgage-or the other Loan Documents or for the performance by the Borrower of
any of the terms or conditions hereof or thereof.
Section 3.11 Environmental Matters. Borrower represents and warrants as follows:
None of the Property does or shall while any part of the indebtedness secured by
the Mortgage is unpaid contain (a) asbestos in any form, (b) urea formal-dehyde
foam insulation; or (c) any other chemical, material, or substance the exposure
to which is prohibited, limited or regulated bv any federal, state, county,
regional or local authority or which, even if not so regulated, may pose a
hazard to the health and safety of the
<PAGE>
occupants of the Property or the owners of property adjacent thereto.
Borrower further warrants that (i) all of the Property complies in all respects
with applicable environmental laws, regulations, and court or administrative
orders; (ii) there are no pending claims or threats of claims by private or
governmental or administrative authorities relating to environmental impairment
or regulatory requirements; and (iii) there are no areas on the Property where
hazardous substances have been disposed of, released or found. Borrower shall
give immediate oral and written notice to Lender of its receipt of any notice of
a violation of any law, standard or regulation covered by this Section.
Borrower hereby agrees to indemnify and hold Lender harmless from all
loss. cost, dama2e, claim and expense incurred by Lender on account of the
violation of any representation or warranty set forth in this Section 3.1 1, or
of Borrower's failure to perform any obligations of this Section, or to fully
comply with all environmental laws, rules and regulations.
IV. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that from the date hereof and until payment in
full of the principal of and interest on the Loan and payment of all other
Liabilities of the Borrower to Lender, unless Lender shall otherwise consent in
writing:
Section 4.01 Financial Information, Compliance Certificates. During the
term of the Loan, Borrower shall furnish Lender with (i) within thirty (30) days
after the end of each fiscal quarter, internally prepared quarterly financial
statements of the Borrower, certified to Lender, as being true and correct by
President of the Borrower, (ii) within one hundred twenty (120)days after the
end of each fiscal year, annual, unqualified, audited financial statements of
the Borrower, with said financial statements prepared and audited by independent
certified public accountants acceptable to the Lender; (iii) within sixty (60)
days of the end of each calendar year, a statement, certified true and accurate
by the President of the Borrower, of ail outstanding or threatened litigation,
governmental investigation or arbitration affecting the Borrower, the status of
each such matter and the amount in controversy during the term any Loan is
outstanding, (iv) federal income tax returns (and, with respect to STRATCOMM
HOLDRNG, the Canadian equivalent) annually during the term any Loan is
outstanding, within thirty (30) days of the Filing of same with the Internal
Revenue Service and (v) within sixty (60) days of the end of each calendar year.
a rent roll. in form and substance satisfactory to the Lender, specifying the
name of each tenant in occupancy, the term of the lease of each tenant'4he
number of square feet leased by each tenant and the per square foot annual
rental of each tenant, all in reasonable detail and certified by the Borrower to
be correct. Statements shall include financial information on any and all
related entities obligated under this Loan and shall be in a format
substantially similar to the statements submitted at the time of application for
this Loan. or statements which have been prepared with Generally accepted
accounting principles. Borrower also agrees to submit, any and all other
financial information as may be reasonably requested by Lender from time to
time.
Section 4.02 Inspection. The Borrower shall permit Lender and any of
its authorized representatives. and shall cause such persons and entities to be
permitted: (a) to visit, examine, inspect and make extracts from books and
records of the Borrower and shall discuss with Lender or its representatives the
affairs, finances and accounts of the Borrower; and (b) to inspect all
Collateral securing the Loan, all at such reasonable times and as often as may
be reasonably requested. All such inspections. discussions and examinations
shall be for the sole benefit and information of Lender and shall not be relied
upon in any way by the Borrower or any third party.
Section 4.03 Existence, Properties, etc. The Borrower shall: (a) do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence, rights, and franchises and comply with all laws applicable
to it. (b) continue the business of Borrower substantially as conducted and
operated during the present and preceding calendar year; (c) at all times
maintain, preserve, and protect or cause to be maintained, preserved, and
protected all franchises and trade names and preserve all the remainder of its
property used or useful in the conduct of their respective businesses and keep
or cause to be kept the same in good repair, working order, and condition, and
from time to time make, or cause to be made, all needed and proper repairs,
renewals, replacements, betterment's, and improvements thereto so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; (d) at all times keep and cause to be kept its insurable
properties adequately insured and maintain (i) bond coverage's and insurance to
such extent and against such risks, including fire, as is customary with
companies in the same or similar business, (ii) necessary workmen's compensation
insurance, and (iii) such other insurance as may be required by law or as may be
reasonably required in writing by Lender.
Section 4.04 Payment of Indebtedness, Taxes, etc. The Borrower shall:
(a) pay or cause to be paid all of its indebtedness and obligations promptly and
in accordance with normal terms and (b) pay and discharge or cause to be paid
and discharged promptly all taxes, assessments, and governmental charges or
levies imposed upon it, or upon any of Borrower's income and profits,
properties, real, personal, or mixed, or upon any part thereof, before the same
shall become in default, as well as all lawful claims for labor, materials, and
supplies or otherwise which, if unpaid, might become a lien or charge upon such
properties or any part thereof.
Section 4.05 Maintenance of Proper Accounts. The Borrower shall maintain a
system of accounting and proper books of record and account, in accordance with
generally accepted accounting principles, and will set aside on its books all
proper and adequate reserves for taxes, depreciation. depletion, obsolescence,
loan losses, amortization. contract cancellations. defaults, or other breaches
of contract and otherwise as may be appropriate in accordance with said
principles.
<PAGE>
Section 4.06 Further Assurances. The Borrower shall do, make, execute,
record and deliver. or shall cause to be done, made, Executed, recorded, and
delivered. all such additional and further acts, things, deeds, assurances and
instruments as Lender may, require more completely to vest in and assure to
Lender its rights under this Agreement. the Note, the Mort-a2e, the other Loan
Documents, or in the Collateral.
Section 4.07 Lease Payments. At all times during the term hereof, of the
Note and/or Mortgage, the monthly rental payments under the Lease shall exceed
1.2 times the amount sufficient to pay all taxes, insurance and the monthly debt
service I on the Property.
V. CONDITIONS.
Lender's obligation to make the Loan or any advance hereunder are subject to
Borrower's full satisfaction of the following conditions precedent:
Section 5.01 Documentation. Lender and its counsel shall have received and
approved all documents and instruments required by Section 2.02 hereof.
Section 5.02 Recording. Lender shall have received and approved a copy of
the recorded Mortgage and Financing, Statements. reflecting the date of
recording and other pertinent recording information.
Section 5.03 Lien on Collateral. Lender shall have been provided with
evidence satisfactory to it that the Mortgage and security interests granted to
Lender pursuant to the Mortgage and the other Loan Documents, are valid and
enforceable liens on the Collateral described therein, subject only to such
liens, encumbrances and mortgages, if any, approved by Lender and described on
Exhibit A hereto.
VI. EVENTS OF DEFAULT
Section 6.01 Events of Default. Upon the occurrence of any one
or more of the following events (herein called "Events of Default"):
6.01.1 any representation or warranty made herein, in any other Loan
Document, or in connection herewith or with the Loan shall prove to be, or have
been, false or misleading in any material respect;
6.01.2 any report, certificate, financial statement or other instrument
furnished in connection with or pursuant to the Loan or this Agreement shall
prove to be false or misleading in any material respect;
6.01.3 default in the payment of the principal of or any interest on
(together with premium thereon, if any) the Loan, or any of the other
Liabilities of the Borrower to Lender, as and when due and payable;
6.01.4 default with respect to any indebtedness or liability of the
Borrower evidenced by note, bonds, debentures or similar obligations (other than
the Loan) when due or the performance of any other obligation incurred in
connection with any indebtedness for borrowed money of the Borrower, if the
effect of such default is to accelerate the maturity of such indebtedness or to
permit the holder thereof to cause such indebtedness to become due prior to its
stated maturity or if any such indebtedness shall not be paid when due;
6.01.5 the occurrence of any Event of Default or default under, or any
default in the due observance or performance of any other term, covenant,
condition or agreement on the part of the Borrower, or any other Person to be
observed or performed pursuant to the provisions of this Agreement, the Note,
the Mortgage, the other Loan Documents, or any other agreement between the
Borrower and Lender;
6.01.6 if the Borrower shall (i) apply for or consent to the
appointment of a receiver, trustee or liquidator of the Borrower or any of their
respective properties or assets, (ii) admit in writing his, her, or its
inability to pay his, her, or its debts. as they mature, (iii) make a general
assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or
insolvent, or (v) file a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization or an arrangement with creditors or to take
advantage of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting the material
allegations of a petition filed against the Borrower in any proceeding under any
such law or if any action whatsoever shall be taken for the purpose of effecting
any of the foregoing;
6.01.7 if an order, judgment or decree shall be entered without the
application, approval or consent of the debtor by any court of competent
jurisdiction, approving a petition seeking reorganization or liquidation of the
Borrower or of all or any part of their respective properties or assets. or
appointing a receiver, trustee or liquidator of the Borrower:
<PAGE>
6.01.8 if Final judgment for the payment of money shall be rendered
against the Borrower and the same shall remain undischarged for a period of
thirty (30) days during which execution shall not be effectively staved: 6.01.9
the occurrence of such a material chance or such a combination of otherwise
immaterial changes in the condition or affairs (financial or otherwise) of the
Borrower. as in the opinion of Lender, impairs Lender's security or increases
its risk-:
6.01.10 if Borrower is an individual, if Borrower or any Guarantor
shall die,
6.01.11 if any action shall be taken or if there shall be any
occurrence which could or does have the effect of terminating, dissolving, or
winding-up the business of Borrower, or
6.01.12 the occurrence of any default or event of default under any
Security Document or Loan Document (as those terms are defined in any loan or
other agreement between the Borrower and Lender);
then, or at any time thereafter during the continuance of any such Event of
Default. Lender may, without notice to the Borrower or any other Person, declare
the Loan and any and all other indebtedness and Liabilities of the Borrower to
Lender to be forthwith due and payable, whereupon such Loan. Liabilities and
indebtedness shall become forthwith due and payable, both as to principal and
interest, without presentment, demand, protest, or other notice of any kind, all
of which are hereby expressly waived by the Borrower. any guarantor, and any
other party obligated under the Note or on the Liabilities, anything contained
or implied herein or in the other Loan Documents to the contrary
notwithstanding. Lender shall not, in any event, be obligated to provide the
Borrower, any guarantor, or any other Person with any presentment, demand,
protest, or other notice of any kind as a condition to Lender's acceleration of
the Loan upon the occurrence of any Event of Default.
VII. DEFINITIONS
For the purposes hereof-.
Section 7.01 Accounting Terms. Each accounting term not defined
herein shall have the meaning given to it under Generally accepted accounting
principles.
Section 7.02 Person shall include natural persons, corporations
(which shall be deemed to include business trusts). associations. partnerships,
and all such similar entities.
Section 7.03 Loan Documents or Securi!3@ Documents shall mean any
document heretofore. contemporaneously herewith, or hereafter executed or
delivered in connection with or evidencing, securing, guaranteeing or relating
to the Loan or any other Liabilities or indebtedness of the Borrower to Lender,
including without limitation, this Agreement, the Note. the Mortgage and the
Financing Statements.
VIII. MISCELLANEOUS
Section 8.01 Notices. Any notice shall be conclusively deemed to have
been received by a party hereto and be effective upon being personally
delivered, or on the third business day after being deposited in the United
States mail, postage prepaid, certified with return receipt requested, to the
other party or parties at the address of such other party or parties set forth
below for at such other address as such party shall specify to the other party
in writing provided, however. that the time period in which a response to any
such notice must be given shall commence on the date of receipt thereof. Any
such notice shall be addressed as follows:
IF TO LENDER: 1st National Bank of Central Florida
2160 State Road 434 West P.O. Box 913900
Longwood, Florida 32791-3900
Attn: Commercial Loan Administration Department
IF TO BORROWER: Stratcomm Media, U.S.A., Inc.
1947 Lee Road
Winter Park, Florida 32789
Attn: Roberto E. Veitia, President
And.
<PAGE>
Stratcomm Media, Ltd.
1984 Lee Road
Winter Park, Florida 32789
Attn: Roberto E. Veitia. President
Section 8.02 Survival of Representations and Warranties. All covenants,
agreements, representations and warranties made herein or irr connection
herewith shall survive the execution and delivery hereof and shall continue in
full force and effect so long as the Loan or other Liabilities, indebtedness or
other obligations to Lender are outstanding and unpaid. and each representation
and warranty shall be deemed to have been reaffirmed at the time each advance is
made hereunder. Whenever in this Agreement reference is made to any Person or
the parties hereto, such reference shall be deemed to include the heirs,
executors, estates, representatives, successors and assigns of such party, and
all covenants. promises and agreements contained in this Agreement. the Note, or
in any of the other Loan Documents shall be binding upon and shall inure to the
benefit of the respective heirs, executors, estates, representatives, successors
and assigns of the parties hereto.
Section 8.03 Costs and Expenses. The Borrower shall pay on demand all
out-of-pocket expenses incurred by Lender in connection with the preparation,
amendment, or modification of this Agreement, the Note, and the other Loan
Documents, including without limitation, the following:
8.03.1 fees and expenses of counsel to Lender;
8.03.2 fees for recording and perfecting any mortgage or security
interests granted or conveyed under the Mortgage or any other Loan Documents
including all filing taxes and fees and other such costs; and
8.03.3 all out-of-pocket expenses incurred by Lender in connection with
the enforcement of the rights of Lender in connection with this Agreement and
the other Loan Documents, the Loan, or any other Liabilities of the Borrower,
including without limitation, the fees and disbursements of counsel to Lender.
Section 8.04 Governing Law. This Agreement, the Note, and the other
Loan Documents, and the rights and obligations of the parties hereunder and
thereunder shall be governed by and be construed in accordance with the laws of
the State of Florida. Borrower acknowledges that the negotiation of the
provisions of this Agreement, the Note, and the other Loan Documents took place
in the State of Florida: that all such documents were executed in Orange County,
Florida. or if executed elsewhere. will become effective only upon Lender's
receipt and acceptance thereof in said county and state (provided, however. that
Lender shall have no obligation to give, nor shall Borrower be entitled to
receive, notice of such receipt and acceptance in order for said Loan Documents
to become effective and valid and binding obligations of the Borrower); and that
all of such documents were or will be executed and delivered to Lender to induce
Lender to make the Loan to Borrower. To the extent allowed by applicable law,
Borrower hereby submits itself to jurisdiction in the State of Florida for any
action or cause of action arising out of or in connection with the Loan
Documents, agrees that venue for any such action shall be in Orange County,
Florida, and waives any and all rights under the law of any state to object to
jurisdiction or venue within Orange County, Florida. Notwithstanding the
foregoing, nothing contained in this Section 8.04 shall prevent Lender from
bringing any action or exercising any right in any other county, state or
jurisdiction against Borrower, any security for the Loan, any Collateral or any
of Borrower's properties. Initiating, such action or proceeding or taking any
such action in any other state shall in no event constitute a waiver by Lender
of any of the foregoing.
Section 8.05 No Waiver, Cumulative Remedies. Neither any failure nor
any delay on the pall of Lender in exercising any right, power or privilege
hereunder, under the Note, or under any of the other Loan Documents, nor any
course of dealing between the Borrower and Lender shall operate as a waiver
thereof, nor shall a single or partial exercise of any right, power, or
privilege preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law or of any remedies provided by any
other document executed in connection herewith.
Section 8.06. Business Day. The term "business day" shall mean any day
not a Saturday, Sunday or legal holiday in the State of Florida
Section 8.07 Modification. No modification, amendment or waiver of any
provision of this Agreement, the Note, or the other Loan Documents, nor consent
to any departure by the Borrower therefrom shall in any event by effective
unless the same shall be in writing and signed by Lender, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given. No notice to or demand upon the Borrower in any case shall
entitle the Borrower to any other or further notice or demand in the same,
similar or other circumstances.
<PAGE>
Section 8.08 No Conflict. No provision of this Agreemnt, the Note, or any
of the other Loan Documents shall be deemed in conflict with any other provision
hereof or therof, an dthe Borrower acknoledges that no such provisions or any
interpretation thereof shall be deemed to dimiish the rights of Lender, any
assignee or the holder of the Note under the terms and conditions or any other
provisions thereof. Lender may at its option exhaust its remedies hereunder,
under the Note and under the other Loan Documents, either concurrently or
independently, and in such order as it may determine.
Section 8.09 No Partnership of Joint Venture. Notwithstanding anything to
the contrary contained or implied herein or in the other Loan Documents, Lender,
whether by this Agreement or any other Loan Document, by any action pursuant
therto or hereto or otherwise, shall not be deemed a partner, joint venturer or
participant in the venture with the Borrower, any guarantor or any other party
to this Agreement or the other Loan Documents and the Borrower herby indemnifies
and agrees to defend and hold Lender harmless (including the payment of
reasonable attorneys' fees) from any and all damages resulting from such a
construction of the parties' relationship. the requirement herein, and the
restrictions imposed in this Agreement, aare for the sole protection and benefit
of Lender.
Section 8.10 Headings: Execution in Counterparts: Under Sel; Entire
Agreement. Article and section headings in this Agreement are included herein
for convenience of reference only and shall neither constitute a part of this
Agreement, be considered in construing the meaning of any of the provisions
hereof, nor be used for any other purpose. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original, but when taken
together shall constitute but one agreement. This Agreement is intended to be
under the seal of all parties hereto and to have the effect of a sealed
instrument in accordance with the law. This Agreement, together with the Note
and the other Loan Documents, constitutes and embodies the entire agreement and
understanding between the parties, supersedes all prior agreements and
understandings related to the subject matter hereof or thereof, and may not be
modified or amended except by a written agreement executed by the Borrower and
Lender. No oral promise, agreement, representation or statement may be relied
upon by, or create any rights or liabilities of Lender and shall not be binding
or have any effect whatsoever unless reduced to writieng and executed by the
party against whom such statement is to be enforced. There are no third party
beneficiaries of this Agreement.
Section 8.11 Severability. In case any one or more of the provisions
contained in this Agreement, in the Note, or in any other Loan Document should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceablity of the remaining provisions contained herein or therein shall not
in any wasy be affected or impaired therby.
Section 8.12 Indemnification. Borrower shall indemnify and hold harmless
Lender from and against any and all claims charges, losses, expenses and costs,
including attorneys' fees, asserted directly or indirectly by any thired aprty
resulting from any claims, actions or proceedings in connection with the
execution, delivery and performance of this Agreement, the Note, or any other
Loan Documents. The indemnification provided in this section shall survive the
payment in full of the Loan.
IN WITNESS WHEROF, the parties have caused this Agreement to be duly
executed all as of the day and year first above written.
WITNESSES: LENDER:
1ST NATIONAL BANK OF CENTRAL FLORIDA,
a national banking association
- ---------------------------- By:---------------------------------
Name:----------------------- Brett S. Bryant, Assistant Vice President
- ----------------------------
Name------------------------
<PAGE>
WITNESSES: BORROWER:
STRATCOMM MEDIA, USA, INC.,
A Florida Corporation, as mortgagor
and borrower
- -------------------------------------
Name ________________________________ by:________________________________
____________________________________ Roberto E. Veitia, President
Name _______________________________ EIN: ________________________
____________________________________ [CORPORATE SEAL]
Name _______________________________
____________________________________ STRATCOMM MEDIA, LTD.,
an entity organized under the laws
of the
Name _______________________________ Yukon Territory, Canada
____________________________________ by:_______________________________
Roberto E. Veitia, President
<PAGE>
EXHIBIT "A"
Parcel One:
Begin at point 675 feet east of the west line of section 1, township 22
south, range 29 east, ad 30 feet north opf the center line of lee road,
thence run north 279.20 feet; thence run east 100 feet, thence run
south 279.20 feet; thence run west 100 feet to the point of beginning,
being a part of lots 2 and 3, PLAN OF WEST WINTER PARK (also known as
Holden Brothers Subdivision of West Winter Park), according to the plat
thereof as recorded in plat book A, page 62 of the public records of
orange county, Florida, LESS road right of way.
Parcel Two:
North 1/2 of lot 12, block "D", Albert Lee Ridge, According to the plat
thereof recorded in the plat book "T", page 147, public record of
Orange County, Florida.
Also Known As:
Part of lot 2 plan of West Winter Park as recorded in plat book A, page
62, Public record of Orange County, Florida described as follows:
Beginning at the northeast corner of lot 11, Block D, Albert Lee Ridge,
as recorded on plat book T, page 147 of the public records of orange
county, Florida; RUN S 88'57'31' W 100.00 feet along the south lines of
lots 4 & 10 block D of aforesaid plat to the northeast corner of lot 3,
Block D of said plat; Thence run s 02' 04'29 E 254.25 feet along the
east lines of lots 1, 2, & 3 block D to the north Right of way line of
Lee road; thence run along the north right of way line N 88'36'12' E
100.00 feet; thence run N 02'04'29 W 253.63 feet along the west line of
lots 11, 12 & 14 block D to the point of beginning.
TOGETHER WITH:
The north half of lot 12, Block D of Albert Lee Ridge, According to
plat thereof as recorded in plat book T,. page 147, of the public
records of orange county, Florida.
Subject to and together with all rights under and by virtue of that
certain easement agreement dates august 7, 1988, recorded in official
records book 3814, page 4277, public records of orange county Florida.
<PAGE>
EXHIBIT B
Form of Borrowers Affidavit
<PAGE>
EXHIBIT "B"
OWNER'S AFFIDAVIT
STATE OF FLORIDA
COUNTY OF ORANGE
T O: 1ST NATIONAL BANK OF CENTRAL FLORIDA
STRATCOMM MEDIA, U.S.A., INC., a Florida corporation (the "Borrower')
has executed a mortgage, Assignment of Rents and Security Agreement in favor of
IST NATIONAL BANK OF CENTRAL FLORIDA, a national banking association ("Lender"),
upon premises located in Orange County, Florida and more particularly described
on Exhibit `A' attached hereto and by this reference made a part hereof
("Property"),
It is hereby certified by the undersigned, having been duly sworn,
that:
1. The Property is owned by Borrower, in fee simple, and Borrower has full
power, right, title and authority to execute said mortgage.
2. Borrower is in sole and exclusive possession of the Property, excepting only,
for the following persons who hold as lessees by, through and under the
undersigned:
SEE ATTACHED EXHIBIT "B"
No lessee has an option to purchase, or other interest legally or equitably in
and to the Property, except as lessees for the number of years indicated, nor do
said leases contain an option to renew, except as indicated above.
3. The improvements and business, if any, to be constructed and operated upon
the Property, are not and will not be in violation of any zoning ordinance, or
of any setback requirement, or of any other city, .county or state governmental
regulation or directive.
4. There are no outstanding unrecorded documents affecting the title to the
Property, nor does any third person have any claim of right or interest therein.
5. No labor or services have been performed upon, nor any materials furnished to
the Property during the ninety (90) day period immediately preceding the date
hereof.
6. No contractor, subcontractor, materialman, laborer, architect, landscape
architect or engineer has any lien or right to lien against the Property, or any
part thereof, for any work, labor or materials furnished by any such party to
the Property.
7. The Property is not encumbered by the lien of any judgment, mortgage, writ of
attachment or income tax lien to any party other than the Lender.
8. This affidavit is made for the purpose of inducing Lender to disburse the
proceeds of the loan secured by the aforedescribed mortgage and for the further
purpose of disclosing unto Lender any and all claims which may adversely affect
or be prior to the lien of said mortgage.
9. The purpose of this loan is primarily for business or commercial purposes.
10. There are no matters whatsoever pending against the Borrower that could give
rise to a lien that would attach to the Property, except as shown as exceptions
on the title insurance commitment of the Lender, issued by the title agent in
connection herewith.
11. There are no taxes or assessments levied or outstanding against the Property
or Borrower and the Property is free and clear of tax liens except for current
real property taxes not yet due and payable.
<PAGE>
12. No lien for unpaid income or any other taxes has been filed or is
outstanding against the Property or borrower
13. The Borrower has not suffered any judgment or decree in any court which has
not been paid in full and satisfied and no judgment lien has ever attached
against the Property during the Borrower's ownership thereof which has not been
paid in full and satisfied.
14. There are no easements or claims of easements on the Property not shown on
the Public Records of Orange County, Florida.
15. Affiant has not and will not execute any instrument that would adversely
affect the title to the property or the interest of the Lender therein.
16. This Affidavit is being made to induce (i) the Lender to extend credit to
the Borrower and STR-ATCOMM MEDIA, LTD., an entity organized under the laws of
the Yukon Territory, Canada, in the amount of $650,000-00 to be secured by a
first mortgage lien on the Property and (ii) AKERMAN, SENTERFITT & EIDSON, P.A.,
as agent, of First American Title Insurance Company to issue a Mortgagee's Title
Insurance Policy insuring the Lender's mortgage lien, and, if applicable, to
eliminate certain exceptions from said title insurance policy and it is made
with the intent and understanding that each statement contained herein shall be
relied on.
DATED as of the 1st day of February, 1999.
STRATCOMM MEDIAS, USA, INC.,
A Florida Corporation
_____________________________ By: _____________________________
name ________________________ ROBERTO E. VEITIA, President
- -----------------------------
name ________________________
STATE OF FLORIDA
COUNTY OF OR.ANGE
BEFORE ME, the undersigned authority, the foregoing instrument was acknowledged
this 1st day of February, 1999, by Roberto E. Veitia, as President of Stratcomm
Media, U.S.A., Inc., a Florida corporation, who [ ] produced a _drivers license
as identification [_] is personally known to me.
Notary Public
State of Florida - My Commission Expires:
<PAGE>
LEASES
EXHIBIT "B"
<PAGE>
EXHIBIT C
List of pending Litigation, Etc.
<PAGE>
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
STRATCOMM MEDIA, LTD.
Notes to Consolidated Financial
(Expressed In US Dollars)
- --------------------------------------------------------------------------------
Rental expense was approximately $198,000 and $157,000 for the years ended March
31, 1998 and 1997. respectively.
Litigation
Various lawsuits have been filed against various of the Company's wholly- owned
subsidiaries during the year ended March 31, 1997. The first lawsuit was filed
in New York against Corporate Relations Group, Inc. ("CRG') and alleges that CRO
breached its marketing contract and made fraudulent representations prior to
entering the contract. Damages of S7,400,000 were being sought in the lawsuit.
This lawsuit was dismissed due to a lack of jurisdiction in New York and has not
been refiled. Management intends to vigorously defend itself against this
lawsuit if refiled.
The second lawsuit was filed against CRG, three of its officers and Gulf
Atlantic Publishing, Inc. and also alleges that there was a breach of its
marketing contract and that fraudulent inducements were made to enter the
contract. Damages of $4,400,000 are being sought in this case. Management feels
that there is no merit to this case and intends to vigorously defend itself
against this lawsuit.
In November 1997, CRO was named in a Civil action lawsuit which alleged that the
Company failed to disclose certain information in one of its publications in
1996 and was therefore in violation of various securities laws and the
California Civil Code. Compensatory damages of approximately S67,000 and
unspecified punitive damages are being sought in case. In March 1998, part of
the complaint was dismissed. In April 1998, CRO answered the complaint, denying
all allegations and iiuci4s to vigorously defend itself against this lawsuit.
In April 1998, CRG was named in another lawsuit which alleges that it made
material misstatements in one of its publications in 1995. The lawsuit seeks
punitive and compensatory damages of $150,000. Management intends to vigorously
defend itself against this lawsuit.
<PAGE>
STRATCOMM MEDIA, LTD.
Stratcomm Media, Ltd.
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
Notes to Consolidated Financial
(Expressed In US Dollars)
- -----------------------------------------------------------------------------
CRG was also named in a lawsuit by an individual who claims he is owed an
undermined amount for services performed for CRG. Management intends to
vigorously defend itself against this lawsuit.
Other
A regulatory authority has subpoenaed one of the Company's directors, an
employee, a former employee and Corporate Relations Group, a wholly owned
subsidiary, requesting certain documentation in connection with two Orders
directing private investigations for actions in violation of Section 10(b) of
the Securities Exchange Act of 1934 and Rule lOb-5 thereunder The investigators
are continuing, and whether the regulatory authority will initiate any
proceedings unknown. As of March 31, 1998, the Company has insured approximately
S600,000 in legal fm on behalf of the former employee relating to this matter.
Management of the Company believes that it is unlikely that the outcomes of
these investigations will have material impacts on the operations or financial
condition of the Company.
The Company is a party to various other legal and administrative proceedings and
claims of vinous types, the outcome of which is not determinable. While any
litigation contains an element of uncertainty, management, based Won the opinion
of legal counsel, believes that the outcome of the proceedings, if any, will not
have a material adverse effect on the Company.
<PAGE>
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, NY 1004-1490
Telephone: 212-858-1000
Telefax: 212-858-1800
BDO Seldman, LLP
201 S. Orange Avenue
Suite 950
Orlando, FL 32801
RE: Stratcom Media, Ltd. and Corporate Relations Group, Inc.
Genetlemen:
We are in receipt of a letter from Joseph H. Landis, President of
Stratcomm Media, Ltd. asking us to provide ceratin information to you in
connection with your audit of its consolidated financial statements as of March
31, 1998 and for the year then ended.
Please be advised that we do not reglarly or currenlty perform services
for Stratcomm Media, Ltd. or any of its subsidiaries. We did represent Corporate
Relations Group, Inc.(CRG"), which you have advised us is a subsidiary of
Stratcomm Media, Ltd., in a litigation in the Supreme Court of the State of New
York, County of New York brought against it by information Management
Technologies Corporation ("IMTC"). IMTC alleged that CRG had breached an
agreement dated July 31, 1995 pursuant to which CRG was to provide IMTC with
certain corporaate relations services.
<PAGE>
BDO Seldman, LLP
June 16, 1998
We were successful in obtaining a dismissal of the action on the ground
that, under the provisions of the contract in question, IMTC was obligated to
bring suit against CRG in the Circuit Court in Orange County, Florida, and thus
was not in a position to pursue its claim in the New York courts. We do not know
whether IMTC, following the dismissal of the New York action, in fact pursued
the claim in Florida.
There are no amounts owed to us by CRG for services performed.
Very truly yours,
Stephen A. Weiner
cc: Mr. Joseph H. Landis
<PAGE>
LAW OFFICES OF
HORWITZ & FUSSELL
A PROFESSIONAL ASSOCIATION
17 EAST PINE STREET
ORLANDO, FLORIDA 38801
(407) 843-7733
TELECOPIER (407) 848-1381
June 16, 1998
BDO Seidman, LLP
201 South Orange Avenue
Suite 950
Orlando, Florida 32901
Re: Stratcomm Media Ltd.
To Whom It May Concern:
The President of Stratcomm Media, Lid,, Joe Landis, has requested that
our office provide you with with information concerning litigation which
Stratcomm Media Ltd., or any of its subsidiaries has been involved in through
March 31, 1998. Additionally we have been requested to provide an update on any
litigation through today.
It is Our understanding that Corporate Relations Group, Inc. and Gulf
Atlantic Publishing, Inc. are wholly owned subsidiaries of Stratcomm Media Ltd.
This law firm has been retained by CRG to represent the company in seven cues.
Furthermore this firm, is representing Gulf Atlantic Publishing, Inc. as a
co-defendant in one case and Stratcomm Media Ltd. as a co-plaintiff in another.
The seven cases which were pending as of March
31, 1998 are as follows:
1. Corporate Relations Group, Inc- and Stratcomm Media Ltd.,
Inc. v. Kirk Bradach, Case No.:CI97-7309, Division 39,
In the Circuit Court of the Ninth Judicial Circuit in and
for Orange County, Florida; DCA Case No.: 98-212, District
Court of Appeal Fifth District,
2. Golf Ventures, Inc. v. Corporate Relations Group, Inc.,
Gulf Atlantic Publishing, Inc., Roberto E. Veitia,
individually, James W. Sprat, L7, individually, and
James D. Skalko, individually; Case No.- C197-2441,
Division 34, In the Circuit Court of the Ninth Judicial
Circuit in and for Orange County, Florida,.
3. Corporate, Relations Group, Inc. v. Mickey Hobby, Case No.:
CI97-7308, Division 34, In the Circuit Court of the Ninth
Judicial Court in and for Orange County, Florida.
<PAGE>
BDO Seidman, LLP
June 16,1998
page 2
4. Corporate Relations Group, Inc. v. Heredia; Case No.:
CI96-6574, Division 37, In the Circuit Court of the
Ninth Judicial Circuit in and for Orange County, Florida.
5. Robert Horton v. Corporate Relations Group, Inc., Case No.:
97-27976-CA06, In the Circuit Court of the Eleventh
Judicial Circuit in and for Orange County, Florida.
6. Information Management Technologies Corporation v.
Corporate Relations Group, Inc., Index No. 605378/96,
Supreme Court of the State of New York, County of New York.
7. Corporate Relations Group, Inc. v. Paul J. Winkle, Case
No.: CI97-7310, Div 33, In the Circuit Court of the
Ninth Judicial Circuit in and for Orange County, Florida.
Four of the above seven cases (items 1, 3, 4 and 7), involve actions by
CRG and/or Stratcomm against former employees, seeking the enforcement of
non-compete and confidentiality agreements. The cases against Mickey Hobbie and
Paul Winkle have reached and amicable settlement and should be dismissed
shortly.
Additionally, in the case against David Heredia, CRG was able to obtain
an injunction against Mr. Heredia restricting him from soliciting employees of
CRG to misappropriate CRG trade secret information.
In the case against Kirk Bradach, CRG and Stratcomm were denied a
temporary injunction by the Circuit Court. This decision has been appealed to
the Fifth District Court of Appeals. A ruling on this appeal should be
forthcoming. Regardless of the results of the appeal both CRG and Stratcomm will
continue to seek an injunction against Kirk Bradach to prevent the
misappropriation of trade secret information and the enforcement of non-compete
agreement.
In the second suit against Golf Ventures, Inc. has alleged that CRG,
Gulf Atlantic Publishing, Inc. and three individuals have breached it's contract
with Golf Ventures, Inc. Additionally, Golf Ventures has claimed that they were
fraudulently induced into entering contracts with the defendants in this suit.
The total of the claims against CRG and Gulf Atlantic Publishing, Inc. is in
excess of $4,400,00.
While any litigation contains certain risks, this suit is apparently
without merit. CRG and Gulf Atlantic Publishing intend to vigorously contest
these claims. At this time there has been no action taken in this case by
plaintiff hired new counsel on January 5, 1998
In the Fifth case, Robert Horton has claimed he is owed an undetermined
amount of money as a finder's fee from CRG for his work involving the Chicken
Kitchen Corporation.
<PAGE>
BDO Seidman, LLP
June 16,1998
page 3
CRG intends to vigorously defend this suit as Mr. Horton is not entitled to any
compensation under his contract in relation to Chicken Kitchen Corporation. AG
the initial phases of discovery are just concerning it is too early to determine
whether a settlement offer should be entertained.
In addition to his claims against CRG, noted in the proceeds paragraph, Mr.
Horton has indicated that he believe that he Is owed a Ender's fee on accounts
received by Gulf Atlantic Publishing, Inc. and Arrow Marketing, Inc. from
Chicken Kitchen Corporation. There is no apparent basis which substantiates Mr.
Horton's claim to any amount received by Gulf Atlantic Publishing, Inc. and
Arrow Marketing, Inc.
The sixth case, Information Management Technologies, (hereinafter,
"IMTECH") alleged that CRG breached its marketing contract with IMTECH causing
actual and consequential damages in the amount of $7,400,000. This suit was
dismissed due to jurisdictional reasons and could be refilled in Orange County,
Florida. More than one year has passed since the case was dismissed, therefore
it appears that IMTECH has little desire to pursue this more than seven million
dollar claim. It is the position of CRG that the claim was frivolous, The
failure to refile the case by IMTECH is consistent with the belief that the
claim has no merit.
There have been no unasserted claims for the period through March 31,
1997 or through the date of this letter of which I have been informed.
As of the audit date CRG had a credit balance in their trust account
with our firm and did not owe any funds for costs or services.
Please call my office if you have any questions regarding any of these issues.
Sincerely,
MA.RK L. HORWTTZ
<PAGE>
Arent Fox
ATTORNEYS AT LAW
Arent Fox Xinter, Plotkip & Kahn, PLLC
1050 Connecticut Avenue, NW Washington, DC 20036-5339
Phone 202/857-6000 Fax 202/857-6395 www.arentfox.com
June 15, 1998
BDO Seidman, LLP 201 S Orange Avenue Suite 950 Orlando, Florida 32801
Re: Stratcomm Media, Ltd.
Ladies and Gentlemen:
By letter dated April 29, 1998, Joseph H. Landis, president, Stratcomm
Media, Ltd. (the "Company"), requested that we furnish you with certain
information in connection with your examination of the accounts of the Company
for the period ended March 31, 1998.
The firm was retained by Corporate Relations Group, Inc. ("CRG"), which
we understand is wholly-owned subsidiary of the Company, in early 1996
principally to represent CRG in connection with certain of the matters referred
to below.
Except, to the regard to the following matters, and subject to the last
paragraph of this letter, we advise you that we have not rendered substantive
attention to, nor represented the Company or CRG in connection with, loss
contingencies coming within the scope of the clause (a) of paragraph 5 of the
Statement referred to in the last paragraph of this letter.
The Securities and Exchange Commission ("Commission") issued an order
directing a Private Investigation on December 27, 1995 (the "order") regarding
trading in the shares of common stock of the Tracker Corporation of America, a
Delaware corporation with principal executive offices in Toronto, Ontario,
Canada ("Tracker").
The commission's order states that the staff reported information to
the commission which indicates that beginning on January 1, 1994, or earlier,
certain persons or entities may have engaged in actions in violation of section
10(b) of the Securities Exchange Act of 1934 (the "Act") and Rule 10b-5
thereunder.
<PAGE>
Arent Fox
BDO Seidman, LLP
June 15, 1998
Page 2
We understand that the staff of the commission has, pursuant to the
order, subpoenaed a significant number of people requiring the production of
documents and/or testimony. As a part of the investigation, subpoenas were
served on Robert Veitia, Leonard Aranoff, and a number of former office or
employees of CRG and on CRG based on CRG's business relationship with Tracker.
The subpoenas also require information regarding approximately 50 additional
companies with which CRG had, or continues to have, a business relationship.
The subpoenas served on CRG, Mr. Veitia and Mr. Aronoff required the
production of a substantial number of documents, and such persons have delivered
the documents requested to the staff in responses to the subpoenas.
Although the investigation has been in progress for more than two
years, neither we nor the company in a position to advise you whether the
commission will institute any proceedings, the scope of any such proceedings
should they be instituted, the likelihood of any adverse decision should
proceedings be instituted, or the extent of any penalties that could be sought
in any such proceedings.
The Northeast regional Offices of the Securities Exchange Commission
("NYRO") obtained an order from the commission on March 25, 1997 directing a
private investigation regarding the trading in the securities of unspecified
companies ("the NYRO Order").
The NYRO Order states that the staff reported information to the
commission which indicates that certain persons or entities may have engaged in
actions in violation of Section 10(b) of the Act or Rule 10b-5 thereunder.
On March 25, 1997, the NYRO served a subpoena on the Company requiring
the production of a significant number of documents regarding Golf Ventures,
Inc., a former client of CRG ("GVI"), and Leasing Technologies, Inc., ("LTP").
CRG responded to the NYRO subpoena and delivered responsive documents
regarding GVI. It advises the NYRO that it had no information regarding LTI and
thus had no documents to deliver in response to the subpoena. Since delivery of
the documents to the NYRO in response to the subpoena, neither we nor CRG have
had any further contact with the NYRO.
Neither we nor the Company are in a position to advise you whether the
commission will institute any proceedings in the NYRO matter or the scope of any
such proceedings should they be instituted.
I note that GVI filed lawsuit against CRG in March 1997 and suggest
that you discuss this matter with the Company and with counsel representing the
Company in such proceedings.
<PAGE>
HAZARD INSURANCE AND TITLE INSURANCE ANTI-COERCION STATEMENT
THIS STATEMENT is made as required under Rule 4-3-.002 of the Rules and
Regulations of the insurance Commission Regarding Anti-Coercion.
LENDER: 1ST NATIONAL BANK OF CENTRAL FLORIDA a national banking association
MORTGAGOR: STRATCOMM h4EDIA, U.S.A., INC., a Florida corporation
LOAN AMOUNT: $650,000-00
CLOSING DATE: February 1, 1 999
- ------------------------------------------------------------------------------
Statement
To secure the Loan, Mortgagor has executed a Mortgage, Assignment of
Rents and Security Agreement (the "Mortgage") in favor of Lender on the real
property and described in said Mortgage.
The Insurance Laws of Florida provide that the Lender may not require
the Mortgagor to obtain insurance from any particular agent or company to
protect the property mortgaged to Lender. Subject to the rules adopted by the
Insurance Commissioner, the Mortgagor has the right to place insurance on such
property with insurance agents or companies of his choice. The Lender may,
however, prescribe reasonable requirements regarding the type of insurance
company providing coverage, the adequacy of such coverage and the financial
structure and stability of the insurance agency or company providing such
coverage. These requirements are:
1. Policy must be written through a company with a minimum Best's Guide
rating of B- (conventional loans - BBB +).
2. Policy must have Fire Extended Coverage and Special Form and must be
in the amount of the mortgage loan.
3. We must have the original policy, plus one (1) copy in our office
prior to our closing.
In the event the renewal of the existing fire insurance policy on the
subject property and in the event that a fire insurance policy with a company
and with terms and in an amount acceptable to you as Lender or property is not
in your office on or before thirty (30) days prior to the existing policy's
expiration date, the undersigned hereby authorizes you to procure the same or
similar coverage in a company and with an insurance agent and in an amount and
with the terms acceptable to you and the then owner on this subject property.
Acknowledgment of Mortgagor
Borrower has read the foregoing statement, or the rules of the
Insurance Commissioner in regard thereto, and understand our rights and
privileges and those of the Lender concerning the placement of insurance on the
mortgaged property.
Borrower has selected Gentry Insurance Agency, Inc. located at P.O. Box
2046, Apopka, Florida 32704, to provide the liability, hazard and other hazard
insurance on the mortgaged property.
<PAGE>
The undersigned Borrower has selected First American Title Insurance
Company to provide title insurance on the Loan to the Lender.
BORROWER:
STRATCOMM MEDIA U.S.A., INC.,
A Florida Corporation
- ----------------------------------------------------------------------------
ROBERTO E. VEITIA, President
(CORPORATE SEAL)
STATE OF FLORIDA
COUNTY OF ORANGE
BEFORE ME, the undersigned authority, the foregoing instrument was
acknowledged this 1St day of February, 1999, by Roberto E. Veitia, as President
of Stratcomm Media, U.S.A., Inc., a Florida corporation, each of whom [ ]
produced______________________ as identification[ ] is personally known to me.
---------------------------------------------------------------
Notary Public
State of Florida - My Commission Expires:
Kathleen M Wood
My commission cc782345
Expires October 11, 2002
<PAGE>
FLOOD HAZARD INSURANCE AGREEMENT
BORROWER: STRATCOMM MEDIA, U.S.A., INC., a Florida corporation and
STRATCOMM MEDIA, LTD., an entity organized under the laws of the
Yukon Territory, Canada
LENDER: IST NATIONAL BANK OF CENTRAL FLORIDA
LOAN AMOUNT: $650,000.00
MORTGAGED PROPERTY- SEE ATTACHED EXHIBIT "A
- ------------------------------------------------------------------------------
In order to induce Lender to make disbursements under the above loan
(herein "Loan") to the Borrower, the undersigned represents, warrants and agrees
as follows:
1. That Federal Flood Insurance is not presently required.
2. That if at any time during the life of the loan, undersigned's
community is designated as a flood prone area, and the Federal
Insurance Administration map shows that the Mortgaged
Property, real and personal, is located within a special
hazard area, and Federal Flood insurance can be purchased, the
Borrower shall purchase and maintain flood insurance in the
amount of the lesser of the following:
a. the amount of the insurance available;
b. or the insurable value of the property;
c. or the Loan Amount
3. The undersigned further agrees that the Lender will be made the loss
payee of such coverage.
Dated this 1st day of February, 1999.
"BORROWER"
STRATCOMM MEDIA, USA, INC.
A Florida corporation
----------------------------------
ROBERTO E VEITIA, President
[CORPORATE SEAL]
ATTEST STRATCOMM MEDIA, LTD.,
An entity organized under laws of
the Yukon territory, Canada
- ---------------------------------- ------------------------------------
PAMELA BATHURST_PHILPOLT, secretary ROBERTO E VEITIA, President
[CORPORATE SEAL]
<PAGE>
EXHIBIT "A"
Parcel One:
Begin at point 675 feet east of the west line of section 1, township 22
south, range 29 east, ad 30 feet north of the center line of lee road,
thence run north 279.20 feet; thence run east 100 feet, thence run
south 279.20 feet; thence run west 100 feet to the point of beginning,
being a part of lots 2 and 3, PLAN OF WEST WINTER PARK (also known as
Holden Brothers Subdivision of West Winter Park), according to the plat
thereof as recorded in plat book A, page 62 of the public records of
orange county, Florida, LESS road right of way.
Parcel Two:
North 1/2 of lot 12, block "D", Albert Lee Ridge, According to the plat
thereof recorded in the plat book "T", page 147, public record of
Orange County, Florida.
Also Known As:
Part of lot 2 plan of West Winter Park as recorded in plat book A, page
62, Public record of Orange County, Florida described as follows:
Beginning at the northeast corner of lot 11, Block D, Albert Lee Ridge,
as recorded on plat book T, page 147 of the public records of orange
county, Florida; RUN S 88'57'31' W 100.00 feet along the south lines of
lots 4 & 10 block D of aforesaid plat to the northeast corner of lot 3,
Block D of said plat; Thence run s 02' 04'29 E 254.25 feet along the
east lines of lots 1, 2, & 3 block D to the north Right of way line of
Lee road; thence run along the north right of way line N 88'36'12' E
100.00 feet; thence run N 02'04'29 W 253.63 feet along the west line of
lots 11, 12 & 14 block D to the point of beginning.
TOGETHER WITH:
The north half of lot 12, Block D of Albert Lee Ridge, According to
plat thereof as recorded in plat book T,. page 147, of the public
records of orange county, Florida.
Subject to and together with all rights under and by virtue of that
certain easement agreement dates august 7, 1988, recorded in official
records book 3814, page 4277, public records of orange county Florida.
<PAGE>
1ST NATIONAL BANK OF CENTRAL FLORIDA a national banking association
Date: February 1, 1999
NOTICE TO BORROWER OF SPECIAL FLOOD HAZARD AREA
STRATCOMM MEDIA, U.5.A., INC., a Florida corporation
- -----------------------------------------------------------------------------
Notice is hereby given that the improved real estate or mobile home described is
or will be located in an area described by the Director of the Federal Emergency
management Agency as a special flood hazard area.
(if this section applies, you must also check pan A or B, whichever is
appropriate.)
NOTICE TO BORROWER ABOUT FEDERAL DISASTER RELIEF
A. Notice in Participating Communities. You must maintain flood insurance
for the term of this loan. The improved real estate or mobile home
securing your loan is or will be located in a community that is now
federally declared disaster, Federal disaster relief assistance may be
available. However, such assistance will be unavailable if the
community has been identified for at least one year as a flood hazard
area and is not participating in the National Flood insurance Program
at the time the assistance would be approved. This assistance, usually
in the form of a loan with a favorable interest rate, may be available
for damages incurred in excess of your flood insurance
IMPORTANT - BANK POLICY REGARDING PREMIUMS
We can assist You in obtaining the first year's coverage or we must
have proof of coverage before disbursing proceeds of the loan. You will
be notified each year by the National Flood Insurance Program when the
flood insurance premiums are due. If you do not pay these premiums
promptly, a second notice will be sent to the Bank indicating that the
premiums have not been paid. Our experience has indicated that the Bank
has not had sufficient time. after receiving the second notice, to
contact you prior to the insurance expiration date. Therefore,
immediately upon receipt of the second notice the Bank will pay the
premium due for the flood insurance policy. Premiums advanced, plus
interest, will be added to you loan balance. If, in the meantime, you
have also paid the premium, it will be your responsibility to request a
refund of the duplicate payment.
B. Notice In nonparticipating Communities. The improved real estate or
mobile home securing your loan is or will be located in a community
that is not participating in the National Flood Insurance Program. This
means that such property is not eligible for Federal flood insurance.
In the event the property is damaged by flooding in a federally
declared disaster, Federal disaster relief assistance for the property
will be unavailable if the community has been identified for at least
one year as a flood hazard area. Such assistance may be available only
if, at the time the assistance would be approved, the community is
participating in the National Flood Insurance Program of has been
identified as a flood hazard area for less that one year.
XX The improved real estate or mobile home described above has been
determined as not being located in a special flood hazard area by the
Flood Insurance Administration per FIRM Panel No. dated____________
Please sign the Acknowledgment below. Furthermore. if you desire that we
purchase Flood Insurance on your behalf, it is necessary that you ,sign the
Authorization.
ACKNOWLEDGMENT
I (We) have read and understand the above notice and acknowledge receiving a
copy of this notice.
STRATCOMM MEDIA, USA, INC.,
A Florida corporation
By____________________________________________
ROBERTO E. VEITIA, President
[CORPORATE SEAL]
OR14567
<PAGE>
1ST NATIONAL BANK OF CENTRAL FLORIDA
a national banking association
AFFIDAVIT OF COMMERCIAL LOAN PURPOSE
STATE OF FLORIDA
COUNTY OF ORANGE
BEFORE ME, the undersigned authority, personally appeared ROBERTO E.
VEITIA, as President of STRATCOMM MEDIA, U.S.A., INC., a Florida corporation and
STRATCOMM MEDIA, LTD., an entity organized under the laws of the Yukon
Territory" Canada, respectively, who being first duly sworn, deposes and says:
1 . 1ST NATIONAL BANK OF CENTRAL FLORIDA, a national banking
association ("Lender") is making a loan or other credit accommodation
as evidenced by certain instruments executed by Affiant and others in
favor of Lender of even date herewith.
2. The loan is primarily for a commercial, corporate, business,
agricultural, or other income producing purpose, and not primarily for
a personal, family, or household purpose, and that the Loan constitutes
a business loan, which is exempted from the disclosure requirements of
Regulation Z - Truth in Lending of the Board of Governors of the
Federal Reserve System.
3. The purpose of this Affidavit is to induce Lender to rely in good
faith on the above stated loan purpose in its effort to comply with all
applicable laws and regulations.
DATED this 1st day of February, 1 999.
STRATCOMM MEDIA, USA, INC.,
A Florida corporation
-------------------------------------
ROBERTO E. VEITIA, President
[CORPORATE SEAL)
ATTEST STRATCOMM MEDIA, LTD.,
An entity organized under the laws of
the Yukon Territory, Canada
- ----------------------------- ------------------------------------------
PAMELABATHURSY-PHIPOLT, Secretary ROBERTO E. VEITIA, President
[CORPORATE SEAL]
OR]45625,
<PAGE>
STATE-OF FLORIDA
COUNTY OF ORANGE
BEFORE ME the undersigned authority, the foregoing instrument was
acknowledged this 1st day of February, 1999, by Roberto E, Veitia, as President
of Stratcomm Media, USA, Inc., a Florida corporation, each of whom [ ] produced
_________________________ as identification [ ] is personally known to me.
-------------------------------------------
Notary Public
State of Florida
Kathleen M Wood
Expires October 11, 2002
My Commission CC7823A5
STATE OF FLORIDA
COUNTY OF ORANGE
BEFORE ME, the undersigned authority, the foregoing instrument was
acknowledged this 1st day of February, 1999, by Roberto E. Vietia, as President
and Pamela Bathurst-Philpolt, as Secretary, Respectively, of Stratcomm Media,
Ltd., an entity organized under the laws of the Yukon Territory, Canada, each of
whom [ ] produced _________________________ as identification [ ] is personally
known to me,
-------------------------------------------
Notary Public
State of Florida
Kathleen M Wood
My Commission CC782345
Expires: October 11, 2002
<PAGE>
OWNER'S AFFIDAVIT
STATE OF FLORIDA
COUNTY OF ORANGE
TO: 1ST NATIONAL BANK OF CENTRAL FLORIDA
STRATCOMM MEDIA, U.S.A., INC., a Florida corporation (the "Borrower")
has executed a Mortgage, Assignment of Rents and Security Agreement in favor of
IST NATIONAL BANK OF CENTRAL FLORIDA, a national banking association ("Lender's,
upon premises located in Orange County, Florida and more particularly described
on Exhibit A' attached hereto and by this reference made a part hereof
("Property").
It is hereby certified by the undersigned, having been duly sworn,
that:
1 . The Property is owned by Borrower, in fee simple, and Borrower has
full power, right, title and authority to execute said mortgage.
2. Borrower is in sole and exclusive possession of the Property,
excepting only, for the following persons who hold as lessees by, through and
under the undersigned:
SEE ATTACHED EXHIBIT "8'.
No lessee has an option to purchase, or other interest legally or equitably in
and to the Property, except as lessees for the number of years indicated, nor do
said leases contain an option to renew, except as indicated above.
3. The improvements and business, if any, to be constructed and
operated upon the Property, are not and will not be in violation of any zoning
ordinance, or of any setback requirement, or of any other city, 'county or state
governmental regulation or directive.
4. There are no outstanding unrecorded documents affecting the title to
the Property, nor does any third person have any claim of right or interest
therein.
5. No labor or services have been performed upon, nor any materials
furnished to the Property during the ninety (90) day period immediately
preceding the date hereof.
6. No contractor, subcontractor, material man, laborer, architect,
landscape architect or engineer has any lien or right to lien against the
Property, or any part thereof, for any work, labor or materials furnished by any
such party to the Property.
7. The Property is not encumbered by the lien of any judgment,
mortgage, writ of attachment or income tax lien to any party other than the
Lender.
8. This affidavit is made for the purpose of inducing Lender to
disburse the proceeds of the loan secured by the aforedescribed mortgage and for
the further purpose of disclosing unto Lender any and all claims which may
adversely affect or be prior to the lien of said mortgage.
9. The purpose of this loan is primarily for business or commercial
purposes.
10. There are no matters whatsoever pending against the Borrower that
could give rise to a lien that would attach to the Property, except as shown as
exceptions on the title insurance commitment of the Lender, issued by the title
agent in connection herewith.
11. There are no taxes or assessments levied or outstanding against the
Property or Borrower and the Property is free and clear of tax liens except for
current real property taxes not yet due and payable.
<PAGE>
12. No lien for unpaid income or any other taxes has been filed or is
outstanding against the Property or Borrower.
13. The Borrower has not suffered any judgement or decree in any court
in which has not been paid in full and satisfied and no judgment lien has ever
attached against the Property during the Borrower's ownership thereof which has
not been paid in full and satisfied.
14. There are no easements or claims of easements on the Property not
shown on the Public Records of Orange County, Florida.
15. Affiant has not and will not execute any instrument that would
adversely affect the title to the property or the interest of the Lender
therein.
16. This Affidavit is being made to induce (i) the Lender to extend
credit to the Borrower and STRATCOMMM MEDIA, LTD., an entity organized under the
laws of the Yukon Territory, Canada, in the amount of $650,000.00 to be secured
by a first mortgage lien on the Property and (ii) AKERMAN, SENTERFITT & EIDSON,
P.A., as agent, of First American Title Insurance Company to issue a Mortgagee's
Title Insurance Policy insuring the Lender's mortgage lien, and, if applicable,
to eliminate certain exceptions from said title insurance policy and it is made
with the intent and understanding that each statement contained herein shall be
relied on.
DATED as of the 1st day of February, 1 999.
STRATCOMM MEDIA, U.S.A., INC.,
A Florida corporation
- ---------------------------- ---------------------------------------------
NAME_________________________ Roberto E Vietia, President
- ----------------------------------------------------------
NAME:____________________________________________________
STATE OF FLORIDA
COUNTY OF ORANGE
BEFORE ME, the undersigned authority, the foregoing instrument was acknowledged
this St day of February, 1999, by Roberto E. Veitia, as President of Stratcomm
Media, U.S.A., Inc., a Florida corporation, who [ ] produced _________________
as identification [ ] is personally known to me.
- ---------------------------------------------
Notary Public
State of Florida -
<PAGE>
EXHIBIT "A"
Parcel One:
Begin at point 675 feet east of the west line of section 1, township 22
south, range 29 east, ad 30 feet north of the center line of lee road,
thence run north 279.20 feet; thence run east 100 feet, thence run
south 279.20 feet; thence run west 100 feet to the point of beginning,
being a part of lots 2 and 3, PLAN OF WEST WINTER PARK (also known as
Holden Brothers Subdivision of West Winter Park), according to the plat
thereof as recorded in plat book A, page 62 of the public records of
orange county, Florida, LESS road right of way.
Parcel Two:
North 1/2 of lot 12, block "D", Albert Lee Ridge, According to the plat
thereof recorded in the plat book "T", page 147, public record of
Orange County, Florida.
Also Known As:
Part of lot 2 plan of West Winter Park as recorded in plat book A, page
62, Public record of Orange County, Florida described as follows:
Beginning at the northeast corner of lot 11, Block D, Albert Lee Ridge,
as recorded on plat book T, page 147 of the public records of orange
county, Florida; RUN S 88'57'31' W 100.00 feet along the south lines of
lots 4 & 10 block D of aforesaid plat to the northeast corner of lot 3,
Block D of said plat; Thence run s 02' 04'29 E 254.25 feet along the
east lines of lots 1, 2, & 3 block D to the north Right of way line of
Lee road; thence run along the north right of way line N 88'36'12' E
100.00 feet; thence run N 02'04'29 W 253.63 feet along the west line of
lots 11, 12 & 14 block D to the point of beginning.
TOGETHER WITH:
The north half of lot 12, Block D of Albert Lee Ridge, According to
plat thereof as recorded in plat book T,. page 147, of the public
records of orange county, Florida.
Subject to and together with all rights under and by virtue of that
certain easement agreement dates august 7, 1988, recorded in official
records book 3814, page 4277, public records of orange county Florida.
<PAGE>
LEASES
NONE
EXHIBIT "B"
<PAGE>
IST NATIONAL BANK OF CENTRAL FLORIDA,
a national banking association
MORTGAGOR: STRATCOMM MEDIA, U.S.A., INC., a Florida corporation
LENDER: IST NATIONAL BANK OF CENTRAL FLORIDA
LOAN AMOUNT: $650,000.00
MORTGAGED PROPERTY: SEE ATTACHED EXHIBIT "A"
- -------------------------------------------------------------------------------
POST CLOSING/FURTHER ASSURANCE AGREEMENT
The undersigned, for and in consideration of the above-referenced
Lender this date making mortgage loan principal amount of $650,000.00 to
STRATCOMM MEDIA, U.S.A., INC., a Florida corporation, and STRATCOMM MEDIA, LTD.,
an entity organized under the laws of the Yukon Territory, Canada, agree, if
requested by Lender or their closing agent, to fully cooperate, adjust, initial,
re-execute and re-deliver any and closing documents if deemed necessary or
desirable in the reasonable discretion of Lender. It is the intention or the
undersigned that all documentation for this transaction and all payments or
disbursements made thereunder shall be an accurate reflection of the parties'
agreement; that each party should pay all costs and expenses contemplated by
their agreement and/or dictated by custom and U.S.A.ge in this area; and, that
the Lender's closing agent shall be relieved of the burdens of Section 697.10,
Florida Statutes, by this Agreement.
The undersigned do hereby so agree and covenant in order to assure
Lender that the loan documentation executed this date will conform and be
acceptable in the market place in the instance of transfer, sale or .conveyance
by Lender of its interest in and to said loan documentation, and to assist
Lender in complying with all regulatory and underwriting requirements applicable
to commercial loans of this type.
DATED as of the 1st day of February, 1999.
STRATCOMM MEDIA, USA, INC.,
A Florida corporation
-------------------------------------
ROBERTO E. VEITIA, President
[CORPORATE SEAL)
ATTEST STRATCOMM MEDIA, LTD.,
An entity organized under the laws of
the Yukon Territory, Canada
- ---------------------------------- --------------------------------------
PAMELABATHURSY-PHIPOLT, Secretary ROBERTO E. VEITIA, President
[CORPORATE SEAL]
<PAGE>
EXHIBIT "A"
Parcel One:
Begin at point 675 feet east of the west line of section 1, township 22
south, range 29 east, ad 30 feet north of the center line of lee road,
thence run north 279.20 feet; thence run east 100 feet, thence run
south 279.20 feet; thence run west 100 feet to the point of beginning,
being a part of lots 2 and 3, PLAN OF WEST WINTER PARK (also known as
Holden Brothers Subdivision of West Winter Park), according to the plat
thereof as recorded in plat book A, page 62 of the public records of
orange county, Florida, LESS road right of way.
Parcel Two:
North 1/2 of lot 12, block "D", Albert Lee Ridge, According to the plat
thereof recorded in the plat book "T", page 147, public record of
Orange County, Florida.
Also Known As:
Part of lot 2 plan of West Winter Park as recorded in plat book A, page
62, Public record of Orange County, Florida described as follows:
Beginning at the northeast corner of lot 11, Block D, Albert Lee Ridge,
as recorded on plat book T, page 147 of the public records of orange
county, Florida; RUN S 88'57'31' W 100.00 feet along the south lines of
lots 4 & 10 block D of aforesaid plat to the northeast corner of lot 3,
Block D of said plat; Thence run s 02' 04'29 E 254.25 feet along the
east lines of lots 1, 2, & 3 block D to the north Right of way line of
Lee road; thence run along the north right of way line N 88'36'12' E
100.00 feet; thence run N 02'04'29 W 253.63 feet along the west line of
lots 11, 12 & 14 block D to the point of beginning.
TOGETHER WITH:
The north half of lot 12, Block D of Albert Lee Ridge, According to
plat thereof as recorded in plat book T,. page 147, of the public
records of orange county, Florida.
Subject to and together with all rights under and by virtue of that
certain easement agreement dates august 7, 1988, recorded in official
records book 3814, page 4277, public records of orange county Florida.
<PAGE>
FOR COPY OF CORPORATE CERTIFICATE
OF BORROWER AND
ATTACHMENTS, SEE BANK'S FILE
<PAGE>
CORPORATE CERTIFICATE
I, ROBERTO E. V.EITIA, Chief Executive Officer of STRATCOMM MEDIA, LTD,
an entity organized under the laws of the Yukon Territory, Canada (the
'Company') hereby certify that:
1 . Attached hereto as Exhibit 'A is a true, correct and complete copy of the
Company's Articles of incorporation as in L4fect on the date of this
Certificate.
2. There have been no amendments or other documents affecting or altering the
Company's Articles of Incorporation since the date of this Certificate, and the
Company has remained in good standing under the laws of the State of Florida.
3. No suit or proceeding for the dissolution or liquidation of the Company been
instituted or is now threatened.
4. Attached hereto as Exhibit 'S is a true, correct and complete copy of the
Bylaws of the Company as the same were in effect immediately prior to the
adoption of the resolutions referred to in item 6 hereof, and such Bylaws have
not been altered or amended and have been in full force and effect at all times
since the adoption of such resolutions through the date hereof.
5. Attached hereto as Exhibit 'C is a true, correct and complete copy of
resolutions of the Board of Directors of the Company (the 'Resolutions') adopted
by unanimous written consent on February 1, 1 999 and said corporate action As
been since adopted and is now in full force and effect, and has not been
modified in any respect.
6. The Resolutions authorize the Company and the officers of the Company
referred to therein to execute and deliver, and to do all things necessary or
appropriate for the performance of all the Company's obligations under that
certain mortgage Note in the principal amount of $650,000.00 (the 'Note'),
executed by the Company in favor of Ist NATIONAL BANK OF CENTRAL FLORIDA, a
national banking association ('Lender'), and under all documents or agreements
evidencing, securing or relating to the indebtedness represented by the Note.
7. The following persons have been duly elected, have duly. Warifield, and on
The-Az(ate hereof are officers of the Company, holding the respective offices
set opposite their names, and the signatures set opposite their names are their
respective genuine signatures:
Name Title Signature
Roberto E. Veitia President ___________________________
Flarnela Bathurst-Philpolt Secretary ___________________________
9. This Certificate is made and delivered for the benefit of Lender,
and Lender is entitled to rely on the warranties, representations and facts set
forth herein in making a loan in the principal amount of $650,000.00 to
Stratcomm Media, U.S.A., Inc., a Florida corporation and STRATCOMM MEDIA, LTID.,
an entity organized under the laws of Canada.
IN WITNESS WHEREOF, I have signed this Certificate and affixed hereto the seal
of the Company, this 1st day of February, 1999.
STRATCOMM MEDIA, LTD.,
An entity organized under the laws of the Yukon
Territory, Canada
By:______________________________________________
Roberto E. Veitia, Chief Executive Officer
<PAGE>
ARTICLES OF INCORPORATIQN
Exhibit 'A'
<PAGE>
notarially certified copy thereof, shall be deposited at the registered office
of the Company, or at such other place as is Specified for the purpose in the
notice convening the meeting or in the information circular, relating thereto,
not less than forty-eight (48) hours, excluding Saturdays and holidays, before
the time of the meeting.
8.12 Except as otherwise provided by law or these Articles, a proxy may
be in any form the Directors cx- the chairman of the meeting approve.
8.13 A vote given in accordance with the terms of a proxy shall be
valid notwithstanding the previous death or incapacity of the member giving the
proxy or the revocation of the proxy or of the authority under which the form of
proxy was executed or. the transfer of the share in respect of which the proxy
is given, provided That no notification in writing of such death, incapacity,
revocation cc transfer shall have been received at the registered office of the
Company or by the chairman of the meeting or adjourned meeting for which the
proxy was given before the vote is taken.
PART 9
DIRECTORS
9.1 The members, except as otherwise restricted by the Memorandum or
Articles, shall be entitled to elect Directors at the annual general meetings,
but the number to be elected shall be determined by the Directors. Failing such
determination, the number to be elected shall be the same as the number of
Directors whose terms expire at the meeting.
9.2 The directors may from time to time appoint additional directors.
9.3 A casual vacancy occur-ring in the Board of directors may be filled
by the remaining Directors or Director.
9.4 A Director's term of office shall expire on the date fixed at the
time of his appointment or election but, in the absence thereof, it shall expire
on the date of the Company's annual general meeting next following his
appointment or election or on the date of the consent in writing in lieu of such
meeting, as the case may be.
9.5 A retiring Director shall be eligible for re-election.
9.6 Any Director may by written notice to the Company appoint any
person to be his alternate to act in his place at meetings of the Directors at
which he is not present or by these Articles deemed to be present unless the
Directors shall have reasonably disapproved the appointment of such person and
given notice to that effect to the director within a reasonable time. Every
alternate shall be entitled to attend and vote at meetings at which the person
who appointed him is not present or deemed to be present, and, if he Is a
director, to have a separate vote on behalf of the Director he is representing
in addition to his own vote. A Director may at any time by written notice to the
Company revoke the appointment of an alternate appointed by him. The
remuneration payable to such an alternate shall be payable out of the
remuneration of the Director appointing him.
<PAGE>
9.7 The directors may remove from office a Director who is convicted of
an indictable offence.
9.8 The remuneration of the Directors as such may from time to time be
determined by the Directors. Such remuneration may be in addition to any salary
or other remuneration paid to any officer or employee of the Company who is a
Director. The Directors shall be repaid such reasonable travelling, hotel and
other expenses as they incur in and about the business of the Company and if any
Director shall perform any professional or other services for the Company that
in the opinion of the Directors are out side the ordinary duties of a Director
or shall otherwise be specially occupied in or about the Company's business, he
may be paid a remuneration to be fixed by the Board, or, at the option of such
Director, by resolution of the members and such remuneration may be either in
addition to, or in substitution for, any other remuneration that he may be
entitled to receive. The Directors may pay a gratuity or pension or allowance on
retirement to any Director who has any salaried office or- place of profit with
the Company or to his spouse or dependents and may make contributions to any
fund and pay premiums for the purchase or provision of any such gratuity,
pension or allowance.
PART 10
POWERS AND DUTIES OFDIRECTORS
10.1 The powers of the Company shall be exercised only by the
directors, except those which, by the Company Act or these articles are required
to be exercised by a resolution of the members and those referred to the members
by the Directors.
1.2 The Directors may from -time to time on behalf of the Company:
(i) borrow money In such manner and amount, on such security, from
such sources and u;>on such terms and conditions as they think
fit,
(ii) issue bonds, debentures, and other debt obligations either
outright or as security for any liability or obligation of the
Company or any other person, and
(iii) mortgage or charge, whether by way of specific or floating
charge, or give other security on the undertaking, or on the whole or
any part of the property and assets, of the Company, both present and
future.
10.3 The Directors may from time to time by power of attorney or- other
instrument appoint any person to be the attorney of the Company for such
purposes, and with such powers, authorities and discretions (not exceeding those
vested in or exercisable by the Directors under these Articles and excepting the
powers of the Directors relating to the constitution of the Board and of any of
its committees and tile appointment or removal of officers and the power to
declare dividends) and for such
<PAGE>
period, with such remuneration and subject to such conditions as the Directors
may think fit and any such power of Attorney may contain such provisions for the
protection or convenience of persons dealing with such attorney as the Directors
think fit. Any such attorney may be authorized by the Directors to 5ub-delegate
all or any of the powers, authorities and discretions for the time being vested
in him.
PART 11
DISCLOSURE OF INTEREST OF DIRECTORS
11.1 A Director shall disclose his interest in and not vote in respect
of any proposed contract or transaction with the Company in which he is, in any
way, directly interested but such Director shall be counted in the quorum at the
meeting of the Directors at which the proposed contract or transaction is
approved. A directors resolution consented to in writing, or otherwise as herein
provided, by all the directors, shall not be deemed to be a vote in respect
thereof for the purposes of this paragraph. Where a contract is 4nade between
the Company and a Director, a reference to the Director's name in such
resolution shall be deemed to be adequate disclosure of his interest therein.
11.2 A Director may hold any office or place of profit with the Company
in addition to his office of Director for such period and on such terms (as to
remuneration or otherwise) as the-Directors may determine and no Director or
intended Director shall be disqualified by his office from contracting with the
Company either with regard to his tenure of any such other office cc place of
profit or as vendor, purchaser or otherwise, and no contract or transaction
entered into by or on behalf of the Company in which a Director is in any way
interested shall be voided by reason thereof.
11.3 A Director or his firm may act in a professional capacity for the
Company and he or his firm shall be entitled to remuneration for professional
services as if he were not a Director.
11.4 A Director may be or become a director, officer or employee of, or
otherwise interested in, any corporation or firm in which the Company may be
interested as a shareholder or otherwise, and such Director shall not, except as
provided by the Company Act or these Articles, be accountable to the Company for
any remuneration or other benefit received by him as director, officer or
employee of, or from his interest in, such other corporation or firm, unless the
Directors otherwise direct.
PART 12
PROCEEDINGS OF DIRECTORS
12.1 Unless otherwise determined by the Directors the President shall
be the Chairman of the Board.
<PAGE>
12.2 A Director may, and the Secretary shall on the request of a
Director, call a meeting of the Directors.
12.3 The Chairman of the Board, or in his absence, the President, shall
preside as chairman at every meeting of the Directors, or if there is no
Chairman of the Board or neither the Chairman of the Board nor the President is
present within fifteen minutes of the time appointed for holding the meeting or
is willing to act as chairman, or if the Chairman of the Board and the President
have advised the Secretary that they will not be present at the meeting, the
Directors present shall choose one of their number to be chairman of the
meeting.
12.4 The Directors may meet together for the dispatch of business,
,Adjourn and otherwise regulate their meetings a.9 they think fit. Question3
arising at any meeting shall be decided by a majority of votes. In case of an
equality of votes the chairman shall have a second or casting vote.
12-5 A Director may participate in a meeting of the Board or of any
committee of the Directors by means of conference telephones or other
communications facilities if all Directors participating in the meeting can hear
each other and provided that ail such Directors agree to such participation. A
Director participating in a meeting in accordance with this Article shall be
deemed to be present at the meeting and to have so agreed and shall be counted
in the quorum therefor and be entitled to speak and vote thereat-
12.6 The quorum necessary for the transaction of the business of the
Directors may be fixed by the Directors and If not so fixed shall be two
Directors or, if the number of Directors is fixed at one, shall be one Director.
12.7 The Directors may, if there is a quorum, act notwithstanding any
vacancy.
12.8 Every act of a Director is valid not-withstanding any defect that
may afterwards be discovered in his election or appointment.
12.9 Any resolution of the Directors or of a committee thereof may be
passed with the consent in writing to the resolution of all the Directors or the
members of that committee. The consent may be in counterparts.
PART 13
EXECUTIVE AND OTHER COMMITTEES
1 3.1 The Directors may appoint an Executive Committee to consist of
such member or members Of the Board as they think fit, which Committee shall
have and may exercise, subject to such restrictions as the Directors may decide
from time to time, all the powers vested in the Board except the power to fill
vacancies in the Board, in the said Committee or any other committee of the
Board.
<PAGE>
13.2 The Directors may appoint one or more committees consisting of
such member or members of the Board as they think fit and may delegate to any
such committee such powers of the Board (except the power to fill vacancies in
the Board and the power to change the membership of or fill vacancies in any
committee of the [3oard) as may be prescribed.
13.3 All committees may meet and adjourn as they think fit.. Questions
arising at any meeting shall be determined by a majority of votes of the members
of the committee present, and in case of an equality of votes, the chairman
shall have a second or ca5ting.vote.
13.4 All commit-tees shall keep regular minutes of their actions and
shall ,cause them to be recorded in books kept for that purpose and shall report
the same to the Board of Directors at such times as the Board of Directors may
from time to time require. The Directors shall also have power at any time to
revoke or override any authority given to or acts to be done by any such
committees except as to acts done before such revocation or overriding and to
terminate the appointment or change the membership of a committee and to fill
vacancies in it. Committees may make rules for the conduct of their business and
may appoint such assistants as they may deem necessary. A majority of the
members of a committee, if more than one, shall constitute a quorum thereof.
PART 14
OFFICERS
14.1 The Directors may decide what functions and duties each officer
shall perform and may entrust to and confer upon him any of the powers
exercisable by them upon such terms and conditions and with such restrictions as
they think fit and may from time to time revoke, withdraw, alter or vary all or
any of such functions, duties and powers.
PART 15
INDEMNITY AND PROTECTION OF DIRECTORS, OFFICERS AND EMPLOYEES,
15.1 Subject to the provisions of the Company Act, the Company shall
indemnify a Director or former Director of the Company and the Company may
indemnify a Director or former Director of a corporation of which the Company is
or was a shareholder and the heirs and personal representatives of any such
person, against all costs, charges and expenses, including an amount paid to
settle an action or satisfy a judgment, actually and reasonably incurred by him
or them, including an amount paid to settle an action or satisfy a judgment in a
civil, criminal or administrative action or proceeding to which he is or they
are made a party, by reason of his being or having been a Director of the
Company or a director of such corporation, including any action brought by the
Company or any such corporation. Each Director of the Company on being elected
or appointed shall be deemed to have contracted with the Company an the terms of
the foregoing indemnity.
<PAGE>
15.2 Subject to the provisions of the Company Act, the Directors may
cause the Company to indemnify any officer, employee or agent of the Company, or
of a corporation of which the Comp-any is or was a shareholder (notwithstanding
that he may also be a Director) and his heirs and personal representatives,
against all costs, charges and expensc5 whatsoever incurred by him or them and
resulting from his acting as an officer, employee or agent of the Company or
such corporation. In addition, the Company shall indemnify the Secretary and any
Assistant Secretary of the Company if he is not a full-time employee of the
Company and notwithstanding that he may also be a Director and his respective
heirs and legal representatives, against all costs, charges and expen5es
whatsoever incurred by him or them and arising out of the functions assigned to
the Secretary by the Company Act or these Articles and each such Secretary and
Assistant Secretary on being appointed, be deemed to have contracted with the
Company on the terms of the foregoing indemnity.
15.3 The failure of a Director or officer of the Company to comply with
the provisions of the Company Ac-t or of the Memorandum or these Articles shall
not invalidate any indemnity to which he is entitled under this Part.
15.4 The Directors may cause the Company to purchase and maintain
insurance for the benefit of any person who is or was serving as a Director,
officer,- employee or agent of the Company or as a director, officer, employee
or agent of any corporation of which the Company is or was a shareholder and his
heirs or personal representatives against any liability incurred by him as such
Director, director, officers employee or agent. -
PART 16
DIVIDENDS AND RESERVE
16-1 The Directors from time to time declare and authorize payment of
such dividends, if any, as they may deem advisable and need not give notice of
such declaration to any member. No dividend shall be paid otherwise than out of
funds or assets properly available for the payment of dividends and a
declaration by the Directors as to the amount of such funds or assets available
for dividends shall be conclusive. Any dividend may be paid wholly or in part by
the distribution of specific assets and in particular, by paid up shares, bonds,
debentures or other securities of the Company or any other corporation or in any
one or more such ways as may be authorized by the Directors Where any difficulty
arises with regard to such a distribution the Directors may settle the same as
they see fit, and in particular, may fix the value for distribution of such
specific assets or any part thereof, and may determine that cash payment in
substitution for all or any part of the specific assets to which any members are
entitled shall be made to any members on the basis of the value so fixed in
order to adjust the rights of all parties and may vest any specific assets in
trustees for the persons entitled to the dividend.
<PAGE>
16.2 Any dividend declared on shares of -Any class by the Directors may
be made payable on such date as is fixed by the Directors.
16.3 If persons are registered as joint holders of any share, any one
of them may give an effective receipt for any dividend, bonuse5 or other monies
payable in respect of the share.
16.4 Unless otherwise determined by the Directors, no dividend shall be
paid on any share which has been purchased or redeemed by the Company while the
share is held by the Company.
16.5 Any dividend, bonus or other monies payable in cash in respect of
shares may be paid by cheque. Every such cheque shall be made payable to the
order of the person to whom it is sent. The mailing of such cheque shall, to the
extent of the sum represented thereby (plus the amount of any tax required by
law to be deducted) discharge all liability for the dividend unless such cheque
is not paid on presentation or the amount of tax so deducted is not paid to the
appropriate taxing authority.
16.6 Notwithstanding anything contained in these Articles, the Directors may
from time to time capitalize any undistributed surplus on hand of the Company
and may from time to time issue shares, bonds, debentures or debt obligations of
the Company as a dividend representing such undistributed surplus on hand or any
part thereof.
PART 17
DOCUMENTS, RECORDS AND REPORTS
17.1 No member of the Company shall be entitled to inspect the
accounting records of the Company unless the Directors determine otherwise.
PART 18
NOTICES
18.1 Any notice required to be given by these Articles or the Company
Act, unless the form is otherwise specified, may be given orally or in writing.
18.2 A notice in writing, statement, report or other document shall
have been effectively sent or given if posted, delivered, telexed, telegraphed
or cabled to the person entitled thereto at his address recorded on a register
maintained by the Company; and a certificate signed by the Secretary or other
officer of the Company, or of any other corporation acting on behalf of the
Company, that the notice, statement, report or other document was so sent or
given, shall be conclusive evidence thereof.
18.3 A notice, statement, report or other document may be given by the
company to the joint holders of a share by giving it to any of them.
<PAGE>
18.4 A notice, statement, report other document may be given by the
Company to the persons entitled to a share in consequence of the death,
bankruptcy or incapacity of a member in the same manner as the same might have
been given if the death, bankruptcy or incapacity had not occurred.
18.5 Notice of each Directors' meeting, except a Directors, meeting
held immediately following an annual general meeting of which no notice shall be
required, shall be given to every Director and alternate Director except a
Director or alternate Director who has waived notice or is absent from the
Province of British Columbia.
18.6 The accidental omission to give notice of a meeting to, or the
non-receipt thereof by, any person entitled to receive notice shall not
invalidate the proceedings at that meeting.
18.7 Every notice of meeting shall specify the place, day and time of
the meeting and if for a general meeting the general nature of all special
business intended to be conducted thereat, unless specified In an information
circular relating thereto.
18.8 An entry in the minute book of the waiver or reduction of the
period of notice of a general meeting shall be sufficient evidence of the due
convening of the meeting.
18.9 A Director may waive his entitlement to receive a notice of any
past, present or future meeting or meetings of Directors and may at any time
withdraw such waiver. After the waiver Is received by the Company and until It
Is withdrawn no notice need be given to such Director or, unless the Director
otherwise requires In writing to the Company, to his alternate director. All
meetings held without such notice being given shall not have been improperly
called by reason thereof.
18.10 Not less then two (2) hours notice of a Directors' meeting
requiring notice shall be given.
18.11 Where in these Articles any period of time dating from a given
day, act or event is prescribed, the time shall be reckoned exclusive of such
day, act or event.
PART 19
SEAL
19.1 If the seal of the Company is affixed and accompanied by the
signature of at least one of the Chairman of the Board, the President, a
Vice-President, the Secretary, or the Treasurer, or a Director or as directed by
resolution of the Directors in respect Of such existing documents as are therein
specified, that shall constitute effective execution.
19.2 The Company may have an official sea] for use in any other*
province, state, territory or country.
<PAGE>
19.3 The seal of the Company. may if directed by the Board of
Directors, be reproduced on any document by any means and in any form other than
an impression thereof.
PART 20
PROHIBITIONS
20.1 If the Company is, or becomes, a company which is not a reporting
company, then no shares shall be transferred without the previous consent of the
Directors expressed by a resolution of the Board and the Directors shall not be
required to give any reason for refusing to consent to any such proposed
transfer.
<PAGE>
[GRAPHIC OMITTED][GRAPHIC OMITTED]
Canada Number
Province of Bristish Columbis 274754
Provice of Bristish Columbia
Ministry of Finance and Corporate Relations
Registrar of Companies
Company Act
CERTIFICATE
I HEREBY CERTIFY THAT
STRATEGIC COMMUNICAATIONS LTD.
HAS THIS DAY CHANGED ITS NAME TO THE NAME
STRATCOMM MEDIA LTD.
GIVEN, UNDER MY HAND AND SEAL OF OFFICE
AT VICTORIA, BRISTISH COLUMBIA
THIS 5TH DAY OF JULY, 1991
DAVID W. BOYD
REGISTTRAR OF COMPANIES
<PAGE>
SCBEDULE"A"
ALTERED MEMORANDUM
OF
STRATCOMM MEDIA LTD.
(as altered by Special Resolution passed, September 28, 1990)
1. The name of the Company is STRATCOMM MEEDIA LTD.
2. The authorized capital of the Company consists of FIFTY MILLION
(50,000,000) common shares without par value.
6736G
<PAGE>
Province of British Columbia
ASSISTANT DEPUTY REGISTRAR OF COMPANIES FOR THE PROVINCE OF BRITISH COLUMBIA
Form 21 (Section 371)
COMPANY ACT
SPECIAL RESOLUTION
Certificate of Incorporation No. 274754
The following special resolution was passed by the undermentioned Company on the
date stated:
Name of Company: STRATEGIC COMMUNICATIONS LTD.
Date resolution passed: September 28. 1990
Resolution:
"RESOLVED, AS A SPECIAL RESOLUTION, that:
(a) The authorized and issued share capital of the Company be altered by
consolidating all of its 25,000,000 common shares without par value
into 5,000,000 common shares without par value, with every five (5) of
such common shares before consolidation being consolidated into one (1)
common share.
(b) Paragraph two of the memorandum of the Company be altered by deleting
it in its entirety and substituting the following therefor:
"2. The authorized capital of the Company consists of FIVE MILLION
(5,000,000) common shares without par value."
(c) The memorandum of the Company be altered by increasing the authorized
capital of the Company from 5,000,000 post-consolidation common shares
without par value to 50,000,000 post-consolidation common shares
without par value, all shares issued and unissued ranking pari passu.
(d) Paragraph two of the memorandum of the Company be altered by deleting
it in its entirety and substituting the following therefor:
"2 The authorized capital of the Company consists of F= MILLION
(50,000,000) common shares without par value."
<PAGE>
RESOLVED, AS A SPECIAL RESOLUI'ION, that:
(a) The name of the Company be changed from "Strategic
Communications Ltd." to "Stratcomm Media Ltd." or
such other name as may be approved by the board of
directors of the Company and the regulatory
authorities.
(b) The memorandum of the Company be altered by deleting
paragraph 1 in its entirety and substituting the following
therefor:
1" The altered name of the Company is STRATCOMM
MEDIA LTD."
The altered memorandum is attached hereto as Schedule "A".
"Certified a true copy the ___ 21_____day of June, 1991.
-------------------------
Gregg J Sedun
solicitor
<PAGE>
FORM 21
(Section 371)
PROVINCE OF BRITISH COLUMBIA
COMPANY ACT
SPECIAL RESOLUTION
Certificate of Incorporation No. 274754
The following special resolution was passed by the undermentioned. Company on
the date stated:
Name of Company: STRATCOMM MEDIA LTD.
Date resolution passed: September 30, 1992
Resolution:
"UPON" MOTION IT WAS RESOLVED AS A SPECIAL RESOLUTION, that paragraph 8.9 of the
Company's articles be amended to read as follows:
A member holding one or more shares in respect of which he is entitled
to vote shall be entitled to appoint one or more proxyholders to attend, act and
vote for him on the same occasion. If such member should appoint more than one
proxyholder for the same occasion he shall specify the number of shares each
proxyholder shall be entitled to vote. A member may also appoint one or more
alternative proxyholders to act in the place and stead of the absent
proxyholder."
CERTIFIED a true copy this ________ day of _________, 1993
------------------------------
relationship: solicitor
<PAGE>
[GRAPHIC OMITTED]
Filing Fee $35.00
Page 1 of 2
(A) Company Name and (B) Registered Office Address
(C) Certificate of
Incorporation No.274754
(D) Date of Incorporation
1984 FEBRUARY 24
Stratcomm Media Ltd. (E) Is this a Reporting Company
2200 -885 West Georgia Street YES
Vancouver, BC V6C 3E8 (F) Date of Annual Report
P.O. Box 48800 1997 FEBRUARY 24
2100 - 1111 West Georgia Street filed and registered stamp
Vancouver, BC V7X 1K9
(G) Has there been a change of registered or records office address? If YES, a
Form 4 must be filed. See instructions on reverse. [ YES ]
(H) Has there been a change of directors? If YES, a form 10/11 must be filed.
See Instructions on reverse. [ NO ]
(I) DIRECTORS
surname given names address postal code
GOWEN CHARLES N. 11-9515 WOODBINE STREET
CHILLIWACK, BC V2P7T2
RUTHENBECK KURT 8432 LITTLELEAF COURT
OWN IN ERROR ORLANDO, FLORIDA 32835-2559
TANEDA KAZEDUI 308 - 650 LEXINGTON DRIVE
KELOWNA, BC V1W3B6
VEITIA ROBERTO 5051 JAMAICA CIRCLE
ORLANDO, FLORIDA 32808
(J) OFFICERS
ARONOFF LEN 101 EAST LAUSEN COURT
- -SECRETARY FERNPARK, FLORIDA 32730
(J) OFFICERS CONTINUED
<PAGE>
VEITIA ROBERTO 5051 JAMAICA CIRCLE
- -PRESDENT ORLANDO, FLORIDA 32808
LANDIS JOESPH 651 LAKE TRIVOLI BLVD APT E
- -CHIEF FINACIAL OFFICER KISSIMMEE, FLORIDA 34741
CERTIFIED CORRECT -Signature of a current Director, Officer, Or company
Solicitor
Date signed 03/21/97
- --------------------------------------------------------------------------------
<PAGE>
DOMINION OF CANADA IN THE MATTER OF
YUKON TERRITORY STRATCOMM MEDIA LTD.
TO WIT: (the "Corporation")
I, Joanne Davignon, a Notary Public in and for the Yukon Territory,
duly appointed, commissioned and sworn at Whitehorse, Yukon Territory, do hereby
certify that the attached documents are true copies of the Articles of
Continuance, Notice of Directors and Officers and Notice of Address all filed
with the Yukon Registrar of Corporations on November 12, 1997, and the
Certificate of Continuance issued by the Yukon Registrar of Corporations on
November 12, 1997, the said copies having been compared by me with the original
documents.
In testimony whereof, I have hereunto subscribed my n3me and affixed my
official notarial seal at the City of Whitehorse, in the Yukon Territory, this
19th day of November, 1997.
- ---------------------------------------
A Notary Public in and for the Yukon, Territory My commission expires August 21,
2001.
<PAGE>
YUKON
BUSINESS CORPORATIONS ACT
(Section 190)
Form 3-01
ARTICLES OF CONTINUANCE
1. Name of Corporation:
STRATCOMM*MEDIA LTD.
2. The classes and any maximum number of shares that the
Corporation is authorized to issue: The attached Schedule "A"
is incorporated into and form. s part of these Articles of
Continuance.
3. Restrictions, if any, on share transfers: There are no
restrictions on the share transfers.
4. Number (or minimum and maximum number) of Directors: Not less
than three (3), nor more than fifteen (15)
5. Restrictions, if any, on business the Corporation may carry
on: The Corporation is restricted from carrying on the
business of a railway, steamship, air transport, canal,
telegraph, telephone or irrigation company.
6. If change of name effected, previous name:
NOT APPLICABLE
<PAGE>
7. Details of incorporation:
Certificate of Incorporation and Memorandum of Contender
Resources Ltd., filed on February 24, 1984 under the
British Columbia Company Act;
Certificate of 14arne Change and Special Resolution
authorizing the change of name from Contender Resources Ltd.
to Strategic Communications Ltd. dated August 29th, 1986;
Special Resolution authorizing new Articles of the Company,
dated October 29th, 1987; Certificate of Name Change and
Special Resolution authorizing the change of name Strategic
Communications Ltd., to Stratcomm. Media Ltd. and changing,
the number of common shares, dated July 5th, 1991;
Special Resolution amending paragraph 8.9 of the Articles
(Proxies), dated September 7th, 1993.
8. Other provisions, if any:
The Attached Schedule "B" is incorporated into and forms part
of these Articles Continuance.
Date: /0 -8-97
Signature:_____________________________ Title: President
<PAGE>
SCHEDULE "A"
The classes and any maximum number of shares that the Corporation is authorized
to issue:
The Corporation is authorized to issue 50,000,000 shares without nominal or par
value and the authorized capital of the Corporation is to be divided into:
1. Common shares which shall have attached thereto the following preferences,
rights, conditions, restrictions, limitations, or prohibitions:
(a) Voting
Holders of Common s' hares shall be entitled to vote at any meeting of
the shareholders of the Corporation and have one vote in respect of
each Common share held by them.
(b) Dividends
Holders of Common shares shall be entitled to receive, out of all
profits or surplus available for dividends, any dividend declared by
the Corporation on the Common shares.
(c) Participation in Assets on Dissolution
In the event of liquidation, dissolution or winding, up of the Corporation,
whether voluntary or involuntary, holders of Common shares shall be entitled to
receive the remaining property of the Corporation.
<PAGE>
0111 I
SCHEDULE "B"
Other provisions, if any:
1. A meeting of the shareholders of the Corporation may, in the Directors'
unfettered discretion, be held at any location in North America specified by the
Directors in the Notice of such meeting.
2. The Directors may, between annual general meetings, appoint one or more
additional Directors of the Corporation to serve until the next annual general
meeting, but the number of additional Directors shall not at any time exceed one
third of the number of Directors who held office at the expiration of the last
annual general meeting of the Corporation, provided that the total number of
directors shall not exceed the maximum number of directors fixed pursuant to the
Articles.
<PAGE>
BYLAWS
Exhibit "B"
<PAGE>
BYLAW NO. 1
FOR
STRATCOMM MEDIA LTD,
A Bylaw relating generally to the transaction of the business and
affairs of (the " Corporation")
SECTION ONE - INTERPRETATION
1.1 Interpretation. Words and expressions defined in the Business Corporations
Act, Revised Statutes of the Yukon 1986, Chapter 15 as amended from time to
time, and any Statute that may be substituted therefor, as amended from time to
time (the "Art") have the same meanings when used in the Bylaws. Words importing
the singular number include the plural and vice versa and words importing gender
include masculine, feminine and neuter senders as required by the context.
1.2 Conflict with Act or Articles, The Bylaws are subject to the provisions of
the Act and the articles of the Corporation and in the event of conflict between
the provisions of any Bylaws and the provisions of the Act or the articles, the
provisions of the Act or the articles shall prevail over the Bylaws,
1.3 Headings. The headings and indices used in the Bylaws are inserted for
convenience of reference only and do not affect the interpretation of the Bylaws
or any part thereof.
SECTTON TWO - BUSINESS OF THE CORPORATION
2.1 Corporate Seal. The Board of Directors of the Corporation (the "Board") may
adopt and change a corporate seal which shall contain the name of the
Corporation and the Board may cause to be created as many duplicates thereof as
the Board shall determine.
2.2 Execution of Instruments, The Board may from time to time direct the manner
in which, and the person or persons by whom, any particular document or class of
documents may or shall be signed and delivered. In the absence of a directors'
resolution concerning the execution of any particular documents, documents shall
be signed and delivered on behalf of the Corporation by two persons, one of whom
holds the office of Chairman of the Board, President, Managing Director,
Vice-President or director and the other of whom holds one of the said offices
or the office of Secretary, Treasurer, Assistant-Secretary or
Assistant-Treasurer or any other office created by bylaw or by resolution of the
Board, including affixing the corporate seal to all such documents as may
require the same.
<PAGE>
2.3 Banking and Financial Arrangements. The banking and financial business of
the I Corporation including, without limitation, the borrowing of money and the
giving of security therefor, shall @e- transacted with such banks, trust
companies or other bodies corporate or organizations as may from time to time be
designated by or under the authority of the Board. Such banking and financial
business or any part thereof shall be transacted under such agreements,
instructions and delegations of powers as the Board may from time to time
prescribe or authorize.
2.4 Voting Rights in other Bodies Corporate, The signing officers of the
Corporation may execute and deliver proxies and arrange for the issuance of
voting certificates or other evidence of the right to exercise the voting rights
attaching to any securities held by the Corporation. Such instruments,
certificates or other evidence shall be in favor of such person or persons as
may be determined by the officers executing such proxies or arranging for the
issuance of voting certificates or such other evidence of the right to exercise
such voting rights. In addition, the Board may from time to time direct the
manner in which and the person or persons by whom any particular voting rights
or class of voting rights may or shall be exercised.
2.5 Withholding Information from Shareholders. Subject to the provisions of the
Act, no shareholder shall be entitled to discovery of any information respecting
any details or conduct of the Corporation's business which, in the opinion of
the Board, it would be inexpedient in the interests of the shareholders or the
Corporation to communicate to the public, The Board may from time to time
determine whether and to what extent and at what time and place and under what
conditions or regulations the accounts, records and documents of the Corporation
shall be open to the inspection of shareholders and no shareholder shall have
any right of inspection of any account, record or document of the Corporation
except as conferred by the Act or authorized by the Board or by resolution
passed at a general meeting of shareholders,
SECTION THREE - DIRECTORS AND BOARD
3.1 Calling of Meeting. Meetings of the Board shall be held from time to time
and at such place as the Board, the Chairman of the Board, the Managing
Director, the President or any two directors may determine.
3.2 Notice of Meetings. Notice of the time and place of Board meetings shall be
given to each director in the manner provided in Section 10. 1 not less than 48
hours before the time of the meeting.
3.3 Telecommunication. A director may participate in a Board meeting or a
meeting of a committee of directors by means of telephone or other communication
facilities that permit all directors participating in the meeting to hear each
other.
<PAGE>
3.4 Quorum. A quorum for Board meetings shall be a majority (or set number or
fraction greater or less, than 50%) of the directors present in person or by
telecommunication. If a quorum is not Present within 15 minutes of the time
fixed for the holding of the meeting, the meeting shall be adjourned for not
less than 72 hours and notice of the time and place of the adjourned meeting
shall be give to each director not less than 48 hours before the time of the
adjourned meeting. If a quorum is not present with in 13 minutes of the time
fixed for the holding of the adjourned meeting, those directors present in
person or by telecommunication shall constitute a quorum for the purpose of the
adjourned meeting.
3.5 First Meeting of New Board. Provided a quorum of directors is present, each
newly elected Board may, without notice, hold its first meeting immediately
following the meeting of shareholders at which such Board is elected.
3.6 Regular Meetings. The Board may appoint a day or days in any month Or months
and ,W a place and hour for regular meetings of the Board. A copy of any
resolution of the Board fixing the day or days, the place and time of such
regular meetings shall be sent to each director forthwith after being passed,
but no other notice shall be required for any such regular meeting except where
the Act requires the purpose thereof or the business to be transacted thereat to
be specified.
3.7 Casting Vote. At all Board meetings, each director shall have one vote and
every question shall be decided by a majority of Votes cast on each question. In
the case of an equality of votes, the chairman of the meeting shall not be
entitled to a second or casting vote in addition to the vote to which he may be
entitled as a director.
3.8 Chairman. The chairman of any meeting of the Board shall be the first
mentioned of such of the following officers as have been appointed and who is
present at the meeting:
a) the Chairman of the Board; or
b) the President; or
C) any Vice-President (and where more than one Vice-President is
present at the meeting, then the priority to act as chairman
as between them shall be in order of their appointment to the
office of Vice-.President).
If no such officer is present within 15 minutes from the time fixed for the
holding of the meeting of the Board, the persons present shall choose one of
their member then present to be chairman of that meeting.
3.9 Committees of Directors. Unless otherwise ordered by the Board each
committee of directors shall have power to fix its quorum at not less than a
majority of its members, to elect its chairman and to regulate its procedure.
<PAGE>
3.10 Remuneration and Expenses. The directors shall be paid such remuneration
for their services as the board may from time to time determine. The directors
shall also be entitled to be reimbursed for travel expenses and other expenses
properly incurred by them in attending meetings of the Board or any committee
thereof. Nothing herein contained shall preclude any director from serving the
Corporation in any other capacity and receiving remuneration therefor.
SECTION FOUR - OFFICERS
4.1 Appointment. The Board May from time to time appoint a Chairman of the
Board, a President, one or more Vice-Presidents (to which title may be added
words indicating seniority or function), a Secretary, a Treasurer and such other
officers as the Board may determine, including one or more assistants to any of
the officers so appointed. Subject to those powers and authority which pursuant
to the Act may only be exercised by the directors, the officers of 4he
Corporation may exercise, respectively, such powers and authority and shall
perform such 'duties, in addition to those specified in the Bylaws, as may from
time to time be prescribed by the Board. Except for the Chairman of the Board,
if appointed, and the Managing Director, if appointed, an officer may, but need
not be, a director.
4.2 Delegation. In case of the absence of any officer or employee of the
Corporation or for any other reason that the Board may deem sufficient, the
Board may delegate for the time being the powers and authority of such officer
or employee to any other officer or employee or to any director of the
Corporation.
4.3 Chairman of the Board. The Chairman of the Board, if appointed, shall be a
director of the Corporation and shall be the Chief executive officer of the
Corporation The Chairman of the Board shall preside at all meetings of the Board
and may exercise such other powers and authority and shall perform the duties
which the directors may from time to time prescribe. During the absence or
disability of the Chairman of the Board, his or her duties shall be performed
and his or her powers exercised by the Managing Director, if any, or if no
Managing Director, by the President.
4.4 Managing Director. The Managing Director, if appointed, shall be a director
of the Corporation, shall manage the operations of the Corporation generally,
and may exercise such other powers and authority and shall perform such other
duties as may from time to time be prescribed by the Board. During the absence
or disability of the Chairman of the Board and/or the President, or if no
Chairman of the Board and/or President have been appointed, the Managing
Director shall also have the power and duties of the Chairman of the Board
and/or the President.
<PAGE>
4.5 President. The President shall, subject to the authority of the Board, be
responsible for the general supervision of the business and affairs of the
Corporation and shall have such other powers and duties as the Board may
specify. During the absence or disability of the Chairman of the Board and/or
the Managing Director, or if no Chairman of the Board and/or Managing Director
have been appointed, the President shall also have the powers and duties of the
Chairman of the Board and/or the Managing Director.
4.6 Vice-President. The Vice-President, or if more than one Vice-President has
been appointed, the Vice-Presidents, may exercise such powers and authority and
shall perform such duties as may from time to time be prescribed by the Board.
Subject to Sections 4.3 and 4.4, one of the Vice-Presidents, being a shareholder
and/or director, as the case may be, where required by the Act or these Bylaws,
may exercise the powers and perform the duties of the Chairman of the Board
and/or the Managing Director and/or the President.
.4.7 Secretary. Except as may be otherwise determined from time to time by the
Board, the Secretary shall attend and be the secretary to all meetings of the
Board, shareholders and committees of the Board and shall enter or cause to be
entered in records kept for that purpose minutes of all proceedings at such
meetings. The Secretary shall give or cause to be given as and when instructed
all notices to shareholders, directors, officers, auditors and members of
committees of the Board. The Secretary shall be the custodian of the corporate
seal, if any, of the Corporation and shall have charge of all books, papers,
reports, Certificates, records, documents, registers and instruments belonging
to the Corporation, except when some other officer or agent has been appointed
for that purpose and may exercise such other powers and authority and shall
perform such other duties as may from time to time be prescribed by the Board or
by the President.
4.8 Treasurer. The Treasurer shall be responsible for the keeping of proper
accounting records in compliance with the Act and shall be responsible for the
deposit of monies and other valuable effects of the Corporation in the name and
to the credit of the Corporation in such banks or other depositories as the
Board may from time to time designate and shall be responsible for the
disbursement of the funds of the Corporation. The Treasurer shall render to the
Board whenever so directed an account of all financial transactions and of the
financial position of the Corporation. The Treasurer may exercise such other
duties as may from time to time be prescribed by the Board or by the President.
4.9 Other Officers. The powers and duties of all other officers shall be those
prescribed by the Board from time to d=. Any of the powers and duties of an
officer to whom an assistant has been appointed may be exercised and performed
by such assistant, unless the Board or the President otherwise direct.
4.10 Variation of the Powers and Duties. The Board may from time to time vary,
add to or limit the powers, authority and duties of any officer.
<PAGE>
4.11 Removal and Discharge. The Board may remove any officer of the Corporation,
with or without cause, at any meeting called for that purpose and may elect or
appoint others in their place or places. Any officer or employee of the
Corporation, not being a member of the Board, may also be removed and
discharged, either with or without cause, by the Chairman of the Board or the
President. If, however, there be a contract with an officer or employee
derogating from the provisions of this Section, such removal or discharge shall,
be subject to the provisions of such contract.
4.12 Term of Office. Each officer appointed by the Board shall hold office until
a successor is appointed, or until his earlier resignation or removal by the
Board.
4.13 Terms of Employment and Remuneration, The terms of employment and the
remuneration of officers appointed by the Board shall be settled by the Board
from time to time.
4.14 Agents and Attorneys. The Board, the Chairman of the Board or the President
may also "from time to time appoint other agents, attorneys, officers and
employees of the Corporation within or without Canada, may be given such titles
and who may exercise such powers and authority (including the power of
subdelegation) and shall perform such duties of management or otherwise, as the
Board may from time to time prescribe.
4.15 Fidelity Bonds. The Board, the Chairman of the Board or the President may
require such officers, employees and agents of the Corporation as the Board
deems advisable to furnish bonds for the faithful performance of their powers
and duties, in such form and with such surety as the Board may from time to time
determine.
SECTION FIVE - INDE.MNMCATION
5.1 Indemnification, of Directors and Officers against actions by Third Parties.
Except in respect of an action by or on behalf of the Corporation or body
corporate to procure a judgment in its favour, the Corporation shall indemnify a
director or officer of the Corporation, a former director or officer of the
Corporation or a person who acts or acted at the Corporation's request as a
director or officer of a body corporate of which the Corporation is or was a
shareholder or creditor, or a person who undertakes or has undertaken any
liability on behalf of the Corporation or any such body corporate, and his heirs
and legal representatives, against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, reasonably incurred by
him in respect of any civil, criminal or administrative action or proceeding to
which he is made a party by reason of being or having been a director or officer
of that Corporation or body corporate, if:
a) He acted honestly and in good faith with a view to the best
interests of the Corporation; and
<PAGE>
b) In the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds for believing
that his conduct was lawful.
5.2 Indemnification of Directors and Officers against actions by the
Corporation. The Corporation may with the approval of the Supreme Court of the
Yukon Territory indemnify a person referred to in paragraph 5.1 in respect of an
action by or on behalf of the Corporation or body corporate to procure a
judgment in its favour, to which he is made a party by reason of being or having
been a director or an officer of the Corporation or body corporate, against all
costs, charges and expenses reasonably incurred by him in connection with the
action if he fullfills the conditions set out in subparagraphs 5. I(a) and (b) -
5.3 Right of Indemnity not Exclusive. The provisions for indemnification
contained in the Bylaws shall not be deemed exclusive of any other rights to
which a person seeking indemnification may be entitled under any Bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to an action in his official capacity and as to an action in any other rapacity
while holding such office. This section shall also apply to a person who has
ceased to be a director or officer, and shall enure to the benefit of the heirs
and legal representatives of such person.
5.4 Insurance. Subject to the limitations contained in the Act, the Corporation
may purchase and maintain such insurance for the benefit of its directors and
officers as the Board may from time to time determine.
SECTION SIX - SHARES
6.1 Options. The Board =y from time to time grant options to purchase the whole
or any part of the authorized and unissued shares of the Corporation at such
times and to such persons and for such consideration as the Board shall
determine, provided that no share shall be issued until it is fully paid as
provided in the Act.
6.2 Non-recognition of Trusts. The Corporation shall treat as absolute owner of
any share the person in whose name the share is registered in the securities
register as if that person had full legal capacity and authority to exercise a
right of ownership, irrespective of any indication to the contrary through
knowledge or notice or description in the Corporation's records or on the share
certificate.
6.3 Joint Shareholder. If two or more persons are registered as joint holders of
any share, any one of such persons may give effectual receipts for the
certificate issued in respect thereof or for any dividend, bonus, return of
capital or other money payable or warrant issuable in respect of such share.
<PAGE>
SECTION SEVEN - DIVIDENDS AIND RIGHTS
7.1 Dividend Cheques. A dividend payable in cash shall be paid by cheque drawn
on the Corporation's bankers Or One of them to the order of each registered
bolder of shares of the class or series in respect of which a dividend has been
declared, and mailed by prepaid ordinary mail to such registered holder at the
address shown in the records of the Corporation, unless such holder otherwise
directs. The mailing of such cheque as aforesaid, unless the same is not paid on
due presentation, shall satisfy and discharge the liability for the dividend to
the extent of the sum represented thereby plus the amount of any tax which the
Corporation is required to and does withhold.
7.2 Joint Shareholders. In the case of joint holders, a cheque for payment of
dividends, bonuses, returns of capital or other money payable, shall, unless
such joint holders otherwise direct, be made payable TO the order of all of such
joint holders and mailed to them at the .address shown in the records of the
Corporation.
7.3 Non-Receipt of Cheques. In the event of non-receipt of any dividend cheque
by the person to whom it is s= as aforesaid, the Corporation shall issue to such
person a replacement cheque for a like amount on such terms as to indemnity,
reimbursement of expenses and evidence of non-receipt and of title as the Board
may from time to time prescribe, whether generally or in any particular case,
7.4 Unclaimed Dividends. Any dividend unclaimed after a period of six (6) years
from the date on which the same has been declared to be payable shall be
forfeited and shall revert to the Corporation.
SECTION EIGHT - MEETINGS OF SHAREHOLDERS
8.1 Annual Meetings. The annual meeting of shareholders shall be held at such
time in each year and, subject to the articles of the Corporation, at such place
as the Board, or failing it, the Chairman of the Board, the Managing Director or
the President, may from time to time determine.
8.2 Time for Deposit of Proxies. The Board may specify in a notice calling a
meeting of shareholders a time, preceding the time of such meeting by not more
than 48 hours exclusive of non-business days, before which proxies to be used at
such meeting mast be deposited. A proxy shall be acted upon only if, prior to
the time so specified, it shall have been deposited with the Corporation or an
agent thereof specified in such notice, or if no such time is specified in such
notice, unless it has been received by the Secretary of the Corporation or by
the chairman of the meeting or any adjournment thereof prior to the time of
voting.
<PAGE>
01/1 I
8.3 Persons Entitled to be Present. The only persons entitled to be present at a
meeting of the shareholder Shall be those persons entitled to vote thereat, the
directors and auditor (if any) of the Corporation and others who, although not
entitled to vote, axe entitled or required under any provision of the Act or the
articles or Bylaws to be present at the meeting. Any other persons may be
admitted only on the invitation of the chairman of tile meeting or with the
consent of the meeting.
8.4 Quorum. A quorum of shareholders is present at a meeting of shareholders,
irrespective of the number of persons actually present at the meeting, if the
holder or holders of five percent (3 %) of the shares entitled to vote at the
meeting are present in person or represented by proxy. No business shall be
transacted at any meeting unless the requisite quorum is present at the time of
the transaction of such business.
8.5 Adjournment. Should a quorum not be present at any meeting of shareholders,
those present in person or by proxy and entitled to vote shall have power to
adjourn the meeting for, a period of not more than 30 days without notice other
than announcement at the meeting. At any such adjourned meeting, provided a
quorum is present, any business may be transacted which might have been
transacted at the meeting adjourned. Notice of meetings adjourned for more than
30 days and for more than 90 days shall be given as required by the Act,
8.6 Chairman. The chairman of any meeting of the shareholders shall be the first
mentioned of such of the following officers as have been appointed and who is
present at the meeting:
a) the Chairman of the Board;
b) the President;
c) any Vice-President (and where more than one Vice-President is
present at the meeting, then the priority to act as chairman
as between them shall be in order of their appointment to the
office of Vice- President).
If no such officer is present within 15 minutes from the time fixed for the
holding of the meeting of the shareholders, the persons present and entitled to
vote shall choose one of their number then present to be chairman of that
meeting.
8.7 Secretary of Meeting. If the Secretary of the Corporation is absent, the
chairman of a meeting of shareholders shall appoint some person, who need not be
a shareholder, to act as secretary of the meeting.
8.8 Motions. No motion proposed at a general meeting need be seconded and the
chairman may propose or second a motion.
<PAGE>
8.9 Chairman's tasting Vote. At any meeting of shareholders every question shall
be determined by the majority of the votes cast on the question. In the case of
an equality of votes at a meeting of shareholders, the chairman of the meeting
shall not be entitled to a second or casting vote in addition to the vote or
votes to which he may be entitled as a shareholder,
8.10 Chairman's Declaration. At any meeting of shareholders, unless a ballot is
demanded, a declaration by the chairman of the meeting that a resolution has
been carried or carried unanimously or by a particular majority or lost or not
carried by a particular majority shall be conclusive evidence of the fact
without proof of the number or proportion of votes recorded in favour of or
against the Motion.
8.11 Voting by Ballot. If a ballot is demanded by a shareholder or proxy holder
entitled to vote at a shareholder's meeting and the demand is not withdrawn, the
ballot upon the motion shall be taken in such manner as the chairman of the
meeting shall direct. Upon a ballot each shareholder who is present in person or
represented by proxy shall be entitled, in respect of the shares which he is
entitled to vote at the meeting upon the question, to that number of votes
provided by the Act or the articles. The declaration by the Chairman of the
meeting that the vote upon the question has been carried, or carried unanimously
or by a particular majority, or lost or nor carried by a particular majority and
an entry in the minutes of the meeting shall be prima facie evidence of the fact
without proof of the number or proportion of 'votes recorded in favour of or
against any resolution or question.
8.12 Scrutineers. The chairman or the secretary at any meeting of the
shareholders or the shareholders then present may appoint one or more
scrutineers, who need not be shareholders, to count and report upon the results
of the voting which is done by ballot.
SECTION TEN - NOTICES
9.1 Notices. In addition to any other method of service permitted by the Act,
any notice or document required by the Act, the regulations, the articles or the
Bylaws may be sent to any person entitled to receive same in the mann6r set out
in the Act for service upon a shareholder or director and by any mean of
telecommunication with respect to which a written record is made. A notice sent
by means of telecommunication shall be deemed to have been given on the first
business day after the date upon which the written record is made.
9.2 Notice to Joint Shareholders. If two or more persons hold shares jointly,
notice may be given to one of such persons and such notice shall be sufficient
notice to all of them
9.3 Change of Address. The Secretary or Assistant Secretary may change or cause
to be changed the address in the records of the Corporation of any shareholder,
director, officer, auditor or member of a committee of the Board in accordance
with any information believed by him to be reliable.
<PAGE>
9.4 Signature on Notice. The signature on any notice to be given by the
Corporation may be lithographed, written, printed or otherwise mechanically
reproduced.
SECTION ELEVEN - EFFECTIVE DATE AND AMENDMENT
10. 1 Effective Date. This Bylaw is effective from the date of the resolution of
the Board adopting same and shall continue to be effective, unless amended by
the Board, until the next meeting of shareholders of the Corporation, whereupon
if same is confirmed or confirmed as amended, this Bylaw shall continue in
effect in the form in which it was so confirmed.
10.2 Amending Bylaw. The Board may by resolution amend or repeal this Bylaw and
such amendment or repeal shall have force and effect unless rejected by ordinary
resolution of the shareholders entitled to vote at an annual general meeting.
<PAGE>
RESOLUTIONS OF BOARD OF DIRECTORS
Exhibit "C"
<PAGE>
MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS
OF
STRATCOMM MEDIA, LTD.,
an entity organized under the laws of the Yukon Territory of Canada
February 1, 1999
A special meeting of the Board of Directors of STRATCOMM MEDIA, LTD.,
an entity organized under the laws of the Yukon Territory of Canada (this
"Corporation"), was held on February 1999, pursuant to applicable law and
Section 3.3 of the Bylaws of this Corporation, at which a quorum was present.
The Chairman called the meeting to order and directed the Secretary Of the
Corporation to read the following resolutions:
WHEREAS, STRATCOMM MEDIA U.S.A., INC., a Florida corporation, (the
"Borrower") and STRATCOMM MEDIA, LTD., an entity formed under the laws of the
Yukon Territory of Canada (the "Corporation") have applied to the 1st NATIONAL
BANK OF CENTRAL FLORIDA, a national banking association ("Lender"), for a loan
in the amount of $650.000.00 (the "Loan") to be evidenced by a Mortgage
Note in the original principal amount of $650.000.00 (the "Note"), to be
executed by the BORROWER and this Corporation in favor of Lender in such amount,
dated of even date herewith;
WHEREAS, the Borrower is a wholly owned subsidiary of this Corporation;
WHEREAS, it is in the best interest of the Borrower and this
Corporation obtain the Loan and the Borrower encumber the Property hereinbelow
described, to secure the Loan; and
WHEREAS, Lender has agreed to make the Loan to the Borrower; and
NOW, THEREFORE,
BE IT RESOLVED, by the Board of Directors of this Corporation, that this
Corporation be authorized to make, enter into and execute and deliver unto the
Lender, inter alia the Note in favor of Lender evidencing the Loan and such
other instruments or documents which may be requested or required by the Lender
in connection with the Loan; all on such terms as shall be mutually agreed upon
by and between this Corporation and the Lender.
BE IT FURTHER RESOLVED, that the President, any Vice-President, the Treasurer,
the Secretary or any other officer of this Corporation be and they are hereby
each and all authorized, empowered and directed in the name and on behalf of
this Corporation and under. its corporate seal, to make, enter into, execute and
deliver with and to the Lender, the
<PAGE>
Note and any other instruments or documents which may be requested or required
by the Lender in connection with the Loan; and
BE IT FURTHUR RESOLVED, that any one of the President, any Vice-President, the
Treasurer, the Secretary 1@r any other officer of this Corporation be and they
are hereby each and all authorized, and directed in the name and on behalf of
this Corporation to carry out and fulfill the purposes and intent of the
Resolutions contained herein including, but not limited to, the documents and
instruments set forth in these Resolutions and the Lender shall be indemnified
and saved harmless by this Corporation from any and all claims, demands,
expenses, costs and damages resulting from or growing out of honoring or relying
on the signature or other authority (whether or not properly used) of any
officer whose name and signature was so certified, or refusing to honor any
signature or authority not so certified; and
BE IT FURTHER RESOLVED, that the Secretary of this Corporation be and hereby is
authorized and directed to furnish to Lender, a copy of the foregoing
Resolutions and to certify the same, and to certify that the provisions of said
Resolution are in conformity with the Charter and the By-Laws of this
Corporation, and that said Resolutions shall remain in full force and effect
until notice of its amendment or recession has been delivered to and received by
Lender.
- ---------------------------------- -----------------------------------
Sky Robert Anderson, Director G. Paul Abernethy, Director
- ---------------------------------- ------------------------------------
Charles Cowe@. Director Van K. Koinis, Director
- ---------------------------------
Roberto E. Veitia, Director
<PAGE>
Policy No. FA-36-209205
POLICY OF TITLE INSURANCE
First American issued by
First American Title Insurance Company
SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED
IN SCHEDULE B AND THE CONDITIONS AND STIPULATIONS, FIRST AMERICAN TITLE
INSURANCE COMPANY, A California corporation, herein called the Company, insures,
as of Date of Policy shown in Schedule A, against loss or damage, not exceeding
the Amount of In surance stated in Schedule A, sustained or incurred by the
insured by reason of:
1. Title to the estate or interest described in Schedule A being vested
other than as stated therein;
2. Any defect in or lien or encumbrance on the title;
3. Unmarketability of the title;
4. Lack of a right of access to and from the land;
5. The invalidity or unenforceability of the lien of the insured mortgage
upon the title;
6. The priority of any lien or encumbrance over the lien of the insured
mortgage;
7. Lack of priority of the lien of the insured mortgage over any statutory
lien for services, labor oir material:
(a) arising from an improvement or work related to the land which is
contracted for or commenced prior to Date of Policy; or
(b) arising from an improvment or work related to the land which is
contracted for or commenced subsequent to Date of Policy and which
is financed in whole or in part by proceeds of the indebtedness
secured by the insured mortgage which at Date of Policy the insured
has advance or is obligated to advance;
8. The invalidity or unenforceability of any assignment of the insured mortgage,
provided the assignment is shown in Schedule A, or the failure of the assignment
shov\wn in Schedule A to vest title to the insured mortgae in the named insured
assignee free and clear of all liens.
The Company will also pay the costs, attorneys' fees and expenses incurred in
defense of the title or the lien of the insured mortgage, as insured, but only
to the extent provided in the Conditions and Stipulations.
IN WITNESS WHEREOF, First American Title Insurance Company has caused its
corporate seal to be herunto affixed and these presents to be signed in
facsimile under authority of its By-Laws.
First American Title Insurance Company
BY: PRESIDENT:
ATTEST: SECRETARY:
<PAGE>
FIRST AMERICAN TITLE INSURANCE COMPANY
SCHEDULE A
Agent's File No.: 15444/88683
Policy No: FA-36-209205
Date of Policy: February 4, 1999 at 12:44:06p.m
Amount of Insurance: $650,000.00
1. Name of Insured:
1ST NATIONAL BANK OF CENTRAL FLORIDA, it successors and assigns, as
their interests may appear
2. The estate or interest in the land which is encumbered by the insured
mortgage is: fee simple.
3. Title to the estate or interest in the land is vested in:
Stratcomm Media U.S.A., Inc., by virtue of instrument recorded in
Official Records Book 5244 Page 2993, Public Records of Orange County,
Florida.
4. The insured mortgage and assignments thereof, if any, are described as
follows:
That certain Mortgage, Assignment of Rents and Security Agreement dated
February 1, 1999 and recorded February 4, 1999 in Official Records Book
5674, Page 3959, Public Records of Orange County, Florida, in the
principal amount of $650,000.00.
5. The land referred to in this Policy is in the State of and described
as follows: County of ORANGE and described as follows:
See Exhibit "A" attached hereto
AKERMAN, SENTERFITT & EIDSON, P.A.
By ___________________________________
Authorized Signatory
<PAGE>
FIRST AMERICAN TITLE INSURANCE COMPANY
SCHEDULE B PART I
Agent's File No.: 15444/88683 Policy No. FA-36-209205
This policy does not insure against loss or damage (and the Company will not pay
costs, attorneys' fees or expenses) which arise by reason of:
1 . DELETED
2. DELETED
3. DELETED
4. DELETED
5. DELETED
6. Taxes or special assessments which are not shown as existing liens by the
public records.
NOTE: Exceptions Numbered 1, 4 and 5 Above are Hereby Deleted.
7. Taxes and assessments for the year 1999, and subsequent years, which are not
yet due and payable as to Parcel ID #01-22-29-0060-04121 and Parcel ID
#01-22-29-9180-00012. Taxes for the -year 1998 in the amount of $14,896.72 are
due as to Parcel ID #01-22-29-9180-OQA12.
8. Easement Agreement recorded August 26, 1986 in Official Records Book 3814,
Page 4277, Public Records of Orange County, Florida.
<PAGE>
FIRST AMERICAN TITLE INSURANCE COMPANY
SCHEDULE B, PART 11
(Subordinate Matters)
Agent's File No.: 15444/88683 Policy No. FA-36-209205
In addition to the matters set forth in Part I of this Schedule, the title to
the estate or interest in the land described or referred to in Schedule A is
subject to the following matters, if any be shown, but the Company insures that
such matters -are subordinate to the lien or charge of the insured mortgage upon
said estate or interest:
1. UCC Financing Statement executed by Stratcomm Media USA, Inc. in favor
of 1st National Bank of Central Florida and recorded February 4, 1999
in Official Records Book 5674, Page 3974, Public Records of Orange
County, Florida.
NOTE: There is hereby attached to and made a part of this Policy the following
endorsements:
a . Florida Form No.
<PAGE>
Addendum to Policy
In accordance with
Florida Statutes Section 627.4131
FIRST AMERICAN TITLE INSURANCE COMPANY
Agent's File No.: 15444/88683 Policy No. FA-36-209205
SERVICE QUALITY AND AVAILABILITY
First American Title Insurance Company cares about its customers and their
ability to obtain information and service on a convenient, timely and accurate
basis. A qualified staff of service representatives is dedicated to serving you.
A toll-free number is available for your convenience in obtaining information
about coverage and to provide assistance in resolving complaints:
1-800-929-7186.
Office hours will be from 8:30 a.m. through 5:30 p.m., Monday through Friday.
<PAGE>
EXHIBIT "A"
Parcel One:
Begin at point 675 feet east of the west line of section 1, township 22
south, range 29 east, ad 30 feet north of the center line of lee road,
thence run north 279.20 feet; thence run east 100 feet, thence run
south 279.20 feet; thence run west 100 feet to the point of beginning,
being a part of lots 2 and 3, PLAN OF WEST WINTER PARK (also known as
Holden Brothers Subdivision of West Winter Park), according to the plat
thereof as recorded in plat book A, page 62 of the public records of
orange county, Florida, LESS road right of way.
Parcel Two:
North 1/2 of lot 12, block "D", Albert Lee Ridge, According to the plat
thereof recorded in the plat book "T", page 147, public record of
Orange County, Florida.
Also Known As:
Part of lot 2 plan of West Winter Park as recorded in plat book A, page
62, Public record of Orange County, Florida described as follows:
Beginning at the northeast corner of lot 11, Block D, Albert Lee Ridge,
as recorded on plat book T, page 147 of the public records of orange
county, Florida; RUN S 88'57'31' W 100.00 feet along the south lines of
lots 4 & 10 block D of aforesaid plat to the northeast corner of lot 3,
Block D of said plat; Thence run s 02' 04'29 E 254.25 feet along the
east lines of lots 1, 2, & 3 block D to the north Right of way line of
Lee road; thence run along the north right of way line N 88'36'12' E
100.00 feet; thence run N 02'04'29 W 253.63 feet along the west line of
lots 11, 12 & 14 block D to the point of beginning.
TOGETHER WITH:
The north half of lot 12, Block D of Albert Lee Ridge, According to
plat thereof as recorded in plat book T,. page 147, of the public
records of orange county, Florida.
Subject to and together with all rights under and by virtue of that
certain easement agreement dates august 7, 1988, recorded in official
records book 3814, page 4277, public records of orange county Florida.
<PAGE>
FLORIDA FORM 9 ENDORSEMENT
ISSUED BY
[GRAPHIC OMITTED]
Issuing Office File No.: 15444/88683 Attached to Policy No.: FA- 36-209205
The Company insures the owner of the indebtedness secured by the insured
mortgage against loss or damage sustained by reason of 1. Any incorrectness in
the assurance that, at Date of Policy:
(a) There are no covenants, conditions or restrictions under which the
lien of the mortgage referred to in Schedule A can be divested,
subordinated or extinguished, or its validity, priority or
enforceability impaired.
(b) Unless expressly excepted in Schedule B:
(1) There are no present violations on @he land of any
enforceable covenants, conditions or restrictions nor do any
existing improvements on the land violate building setback
lines shown on a plat of subdivision recorded or filed in the
public records. (2) Any instrument referred to in Schedule B
as containing covenants, conditions or restrictions on the
land does not, in addition, (i) establish an easement on the
land, (ii) provide a lien for liquidated damages; (iii)
provide for a private charge or assessment; (iv) provide for
an option to purchase, a right of first refusal or the prior
approval of a future purchaser or occupant. (3) There is no
encroachment of existing improvements located on the land onto
adjoining land, nor any encroachment onto the land of existing
improvements located on adjoining land. (4) There is no
encroachment of existing improvements located on the land onto
that portion of the land subject to any easement excepted in
Schedule B. (5) There are no notices of violation of
covenants, conditions, and restrictions relating to
environmental protection recorded or filed in the public
records.
2. Any future violation on the land of an existing covenant, condition or
restriction occurring prior to the acquisition of title to the estate or
interest in the land, provided the violation results in:
(a) Invalidity, loss of priority, or unenforceability of the lien of
the insured mortgage; or, (b) Loss of title to the estate or interest
in the land if the insured shall acquire title in satisfaction of the
indebtedness secured by the insured mortgage.
3. Damage to existing improvements (excluding lawns, shrubbery or trees):
(a) Which are located on or encroach upon that portion of the land
subject to any easement excepted in Schedule B, which damage results
from the exercise of the right to maintain the easement for the purpose
for which it was granted or reserved. (b) Which results from the future
exercise of any right to use the surface of the land for the extraction
or development of minerals excepted from the description of the land or
excepted in Schedule B.
4. Any final court order or judgment requiring the removal from any land
adjoining the land of any encroachment excepted in Schedule B. 5. Any final
court order or judgment denying the right to maintain any existing improvement
on the land because of any violation of covenants, conditions or restrictions or
building setback lines shown on a plat of subdivision recorded or filed in the
public records.
Wherever in this endorsement the words "covenants, conditions or restrictions"
appear, they shall not be deemed to refer to or include the terms, covenants,
conditions or limitations contained in an instrument creating a lease.
As used in paragraphs 1. (b) (1) and 5. the phrase "covenants, conditions, or
restrictions" shall not be deemed to refer to or include any covenants,
conditions or restrictions relating to environmental protection.
This endorsement is made a part of the policy and is subject to all of the terms
and provisions thereof and any prior endorsements thereto. Except to the extent
expressly stated, it neither modifies any of the terms and provisions of the
policy and any prior endorsements, nor does it extend the effective date of the
policy and any prior endorsements, nor does it increase the face amount thereof.
This endorsement shall not be valid or binding unless signed by either a duly
authorized officer or agent of the Company.
Issue Date : FEBRUARY 4, 1999
Akerman, Senterfitt & Eidson, P.A. First American Title Insuranc CO.
- ------------------------------------ By:____________________________
President
By:_________________________________ Attest:________________________
Secretaary
<PAGE>
EXCLUSIONS FROM COVERAGE
The following matters are expressly excluded from the cove I this Policy and the
Company will not pay loss or damage. costs, attorneys' fees or expemses which
arise by reason of:
1. (a) Any law. ordinance or governmental regulation (inclurding but not
limited to building and zoning laws. ordinances, or regulations) restricting,
regulating. prohibiting of relating to (i)the occupancy, use. or enjoyment of
the land: (ii)the character. dimensions or location of any improvement now or
hereafter erected on the land: (iii) a separation in ownership or a change in
the dimensions or area of the land of any parcel of which the land is or was a
part: or (iv) environmental protection. or the effect at any violation at these
laws ordinances or governeriental regulations. except to the extent that a
notice of the enforcement thereof or a notice of a defect. lien or encumbrance
resulting from a violation or alleged violation affecting the land has been
recorded in the public records at Date of Policy.
(b) Any governmental police power not excluded by (a) above. except to the
extent that a notice of the exercise thereof or a notice of a defect. lien or
encumbrance resulting from a violation or alleged violation affectung the
land has been recorded in the public records to Date of Policy.
2 Rights of eminent domain unless notice at the exercise thereof has Men
recorded in the public records at Date of Policy. but not excluding from
coverage any taking which has occurred prior to Date of Policy which would be
binding on the rights of a purchaser for value withou knowledge.
3. Detects. liens. encumbrances. adverse daims or other matters:
(a) created, suffered. assumed or agreed to by the insured claimant
(b) not known to the Comoany, not recorded in the public records at Date of
Policy, but known to the insured claimant and not disclosed in writing to the
Company by the insured claimant prior to the date the insured claimant became an
insured under this policy.
(c) resulting in no loss or damage to the insured claimant:
(d) attaching or created subsequent to Date of Policy (except to the extent
that this policy insures the priority of the lien of the insured mortgage
over any statutory lien for services, labor or material or the extent insurance
is afforded herein as to assessments for street improvements. construction
or completed at Date of Policy); or
(e) resulting in loss of damage which would not have been sustained if the
insured claimant had paid value for the insured mortgage.
4. Unenforceability of the lien of the insured mortgage because of the inability
or failure of the insured at Date of Policy, or the inability or failure of any
subsequent owner of the indebtedness, to comply with applicable doing business
laws of the state in which the land is situated.
5. Invalidity or unenforceability of the lien of the insured mortgage, or claim
thereof, which arises out of the transaction evidenced by the insured mortgage
and is based upon usury or any consumer credit protection of truth in lending
law.
6. Any statutory lien for services, labot or materials (or the claim or priority
of any statutory lien for services, labot or materials over the lien of the
einsured mortgage) arising from an improvement or work related to the land which
is contracted for and commenced subsequent to Date of Policy and is not financed
in whole or in part by proceeds of the indebtedness secured by the insured
mortgage which at Date of Policy the insured has advanced or is obligated to
advance.
7. Any claim, which arises out of the transaction creating the interest of the
mortgagee insured by this policy, by reason of the operation of federal
bankruptcy, state insolvency, or similar creditors' rights laws that is based
on:
(i) the transaction creating the interest of the insured mortgagee being
deemed a fraudulent conveyance or fradulent transfer: or
(ii) the subordinationof the interest of the insured mortgagee as a result
of the application of the doctricne of equitable subordination: or
(iii)the transaction creating the interest of the insured mortgagee being
deemed a preferential transfer except where the preferential transfer
results from the failure:
(a) to timely record the instrument of tranfer: or
(b) of such recordation to impart notice to a purchaser for value or a
judgment or lien creditor.
CONDITIONS AND STIPULATIONS
<PAGE>
First American
First American Title Insurance Company
Policy of Title Insurance
<PAGE>
LOAN CLOSING STATEMENT
LENDER: 1ST NATIONAL BANK OF CENTRAL FLORIDA
BORROWER: STRATCOMM MEDIA, U.S.A., INC., a Florida corporation and
STRATCOMM MEDIA, LTD., an entity organized under
the laws of the Yukon Territory, Canada
CLOSING DATE: February 1, 1999
PROPERTY: SEE ATTACHED EXHIBIT "A"
LOAN AMOUNT: $650,000-00
- -----------------------------------------------------------------------------
LOAN COSTS/DISBURSEMENTS:
1. Documentary Stamps on Note (Orange County) 2,275.00
2. Intangible Tax on mortgage (Orange County) 1,300.00
3. Recording Mortgage (Orange County) 69.00
4. Recording Satisfaction (Orange County) 10.50
5. Filing UCC-1 (Florida Secretary of State) 31.00
6. Recording UCC-1 58 (Orange County) 15.00
7. Lender's Loan Fee (1/2 of 1%- 1/2 already paid) 1,625.00
8. Loan Costs 175.00
9. Title Search Fee (Fidelity) 150.00
10. Title Premium (Loan Policy) 3,325.00
Form 9 Endorsement (10% of full policy amount) 332.50
11. Attorney's Fee/Costs 1,475.00
12. Survey (Shannon Surveying) 1,800.00
13. Appraisal (Beaumont & Matthes) 1,000.00
14. Corporate/UCC Search Fees 172.50
15. Tax Service Fee (Lender) 75.00
16. Flood Service Fee (Lender) Disbursement TOTAL: 16.50
Disbursement TOTAL: $13,847.00
DISBURSEMENTS FROM LOAN PROCEEDS:
Orange County Comptroller (Record ing/7axes) - 3,659.00
Secretary of State (UCC-1) - 31.00
Akerman, Senterfitt & Eidson, P.A. (Lender's Counsel's Fees/
Costs/Title Insurance) 4,393.25
Shannon Surveying (Survey) 1,800.00
Beaumont & Matthes (Appraisal) 1,000.00
Fidelity Title Insurance Company (Title Search) 150.00
Fidelity Title InTurance Company (Title Premium) 1,097.25
Loan Payoff to BankFirst (Loan #722002758 - See Attached
Exhibit "B" 500,570.87
Disbursement of Loan Proceeds to Borrower - 135,582.13
1st National Bank (Loan fee, Flood and Tax Service Fee) - 1,716.50
TOTAL DISBURSEMENTS: 650,000.00
<PAGE>
LENDER: BORROWER:
CLOSINC DATE: LOAN AMOUNT: PACE -2-
IST NATIONAL BANK OF CENTRAL FLORIDA
STRATCOMM MEDIA, USA, INC.. a Florida corporation and STRATCOMMMEDIA, LTD., an
entity organized under the laws of Canada February 1, 1999 $650.000.00
- -------------------------------------------------------------------------------
By execution of this Loan Closing Statement, Borrower certifies it to be correct
and agrees and consents to payment of the indicated fees, costs and expenses.
Borrower further acknowledges and agrees to fulfill its obligation to pay and
reasonable further or additional fees, costs or expenses incurred by Lender or
its counsel in connection with any post-closing matters.
- ------------------------------------------------------------------------------
Approved this 1st day of February, 1999.
"LENDER" "BORROWER"
1ST NATIONAL BANK OF CENTRAL FLORIDA, STRATCOMM MEDIA, U.S.A., INC.,
a national banking association a Florida corporation
- --------------------------------------- ------------------------------
BRETT S. BRYAN-V, Assistant Vice President ROBERTO E. VEITIA, President
STRATCOMM MEDIA LTD.,
an entity organized under the
laws of the Yukon Territory,
Canada
-------------------------------
ROBERTO E. VEITIA, President
<PAGE>
EXHIBIT "A"
Parcel One:
Begin at point 675 feet east of the west line of section 1, township 22
south, range 29 east, ad 30 feet north opf the center line of lee road,
thence run north 279.20 feet; thence run east 100 feet, thence run
south 279.20 feet; thence run west 100 feet to the point of beginning,
being a part of lots 2 and 3, PLAN OF WEST WINTER PARK (also known as
Holden Brothers Subdivision of West Winter Park), according to the plat
thereof as recorded in plat book A, page 62 of the public records of
orange county, Florida, LESS road right of way.
Parcel Two:
North 1/2 of lot 12, block "D", Albert Lee Ridge, According to the plat
thereof recorded in the plat book "T", page 147, public record of
Orange County, Florida.
Also Known As:
Part of lot 2 plan of West Winter Park as recorded in plat book A, page
62, Public record of Orange County, Florida described as follows:
Beginning at the northeast corner of lot 11, Block D, Albert Lee Ridge,
as recorded oin plat book T, page 147 of the public records of orange
county, Florida; RUN S 88'57'31' W 100.00 feet along the south lines of
lots 4 & 10 block D of aforesaid plat to the northeast corner of lot 3,
Block D of said plat; Thence run s 02' 04'29 E 254.25 feet along the
east lines of lots 1, 2, & 3 block D to the north Right of way line of
Lee road; thence run along the north right of way line N 88'36'12' E
100.00 feet; thence run N 02'04'29 W 253.63 feet along the west line of
lots 11, 12 & 14 block D to the point of beginning.
TOGETHER WITH:
The north half of lot 12, Block D of Albert Lee Ridge, According to
plat thereof as recorded in plat book T,. page 147, of the public
records of orange county, Florida.
Subject to and together with all rights under and by virtue of that
certain easement agreement dates august 7, 1988, recorded in official
records book 3814, page 4277, public records of orange county Florida.
<PAGE>
AMERICANS WITH DISABILITIES ACT COMPLIANCE AND INDEMNIFICATION AGREEMENT
THIS AMERICANS WITH DISABILITIES ACT COMPLIANCE AND INDEMNIFICATION
AGREEMENT (the "Agreement") made and entered into as of this 1st day of
February, 1999 by STRATCOMM MEDIA, U.S.A., INC., a Florida corporation, of 1947
Lee Road, Winter Park, Florida 32789 (the "Mortgagor") and STRATCOMM MEDIA,
LTD., an entity organized under the laws of the Yukon Territory, Canada, of 1984
Lee Road, Winter Park, Florida 32789 (hereinafter collectively called
"Borrowers"), in favor of 1ST NATIONAL BANK OF CENTRAL FLORIDA, a national
banking association, with an address of 2160 State Road 434 West, P.O. Box
913900, Longwood, Florida 32791-3900, Attention:
commercial Loan Administration Department (hereinafter called "Lender").
PRELIMINARY STATEMENT:
WHEREAS, the Borrowers, an entity organized under the laws of the Yukon
Territory, Canada have applied to the Lender for a mortgage loan (the "Loan") in
the principal amount of $650.000.00, as evidenced by a Mortgage Note executed by
the Borrowers in favor of Lender in such amount, dated of even date herewith and
which Loan is to be secured by a Mortgage, Assignment of Rents and Security
Agreement (the "Mortgage"), executed by the Mortgagor, in favor of the Lender,
creating a mortgage lien on certain real property (the "Mortgaged Property")
described in said Mortgage; and
WHEREAS, one of the conditions for the extension of the Loan is the
specific agreement by the Borrowers:
A. To comply with all federal, state and local statutes, laws, rules,
regulations and ordinances now or hereafter in force or effect and relating to
the Mortgaged Property or the use thereof, including, but not by limitation, (i)
the Americans With Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq), as
'amended (ii) the Florida Americans with Disabilities Act (ss.ss.553.501-.513,
Florida Statutel) as amended and (iii) all regulations promulgated thereunder,
as such acts and regulations thereunder may from time to time be amended or
modified and any other laws relating to access of handicapped or disabled
persons; and
B. To indemnify and hold Lender harmless from and against all
liability, claims, demands, damages, expenses, fees, fines, penalties, suits,
proceedings, actions and costs of actions of any kind and nature, including
attorney's fees, and all other obligations which the Lender may incur as a
result of arising or growing out of or connected with the Mortgagor's
obligations hereunder; and
WHEREAS, the Lender is unwilling to extend the Loan unless the
Borrowers execute and deliver this Agreement to the Lender.
NOW, THEREFORE, in consideration and mutual premises herein contained,
the parties do hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES. The Mortgagor specifically
represents and warrants the following:
(a) That the use and operation of the Mortgaged Property complies with
all Applicable Laws (as defined herein). For purposes of this Agreement,
Applicable Laws shall mean and include:
(i) the Americans With Disabilities Act of 1990 (42 'U.S.C.
Section 12101 et seq) and all regulations promulgated thereunder,
assuch Act and regulations may from time to time be amended or modified
and Any other
<PAGE>
laws relating to access of handicapped or disabled persons (the "ADA")
(ii) the Florida Americans With Disabilities Act
(ss.ss.553.301-.513, Florida Statutes) and all regulations promulgated
thereunder, as such Act and regulations may from time to time be
amended or modified and any other laws relating to access of
handicapped or disabled persons (the "FLADA").
(b) Mortgagor and the Mortgaged Property, and all tenants and
occupants of the Mortgaged Property, are in full compliance with
Applicable Laws and the Mortgagor and the Mortgaged Property, and all
tenants and occupants of the Mortgaged Property shall continue to
comply therewith at all times;
(c) Mortgagor has received no notices, whether written or
oral, from any individual, organization or entity, or from the
Department of justice or any other governmental or q uas i-govern
mental agency or authority, asserting or stating: (i) that the
Mortgaged Property, the Mortgagor, or any entity or person in
possession of any portion of any improvements on the Mortgaged
Property, is in violation of the ADA or the FLADA; or (ii) that the
sender or giver of the notice intends to or may file a complaint,
lawsuit, action, or proceeding of any type whatsoever asserting that
such a violation exists. If Mortgagor should receive any such notice at
any time during the term of the Loan, Mortgagor shall furnish Lender
with a copy thereof on or within ten (10) days after receipt.
2. INDEMNIFICATION BY BORROWERS. The Borrowers (if more than one,
jointly and severally) do hereby indemnify and agree to hold the Lender harmless
from and against all liability, claims, demands, damages, expenses, fees, fines,
penalties, suits, proceedings, actions and costs of actions of anv kind and
nature, including attorney's fees, and all other obligations which the Lender
may incur or be exposed to as a result of arising or growing out of or connected
with any one or more of the following:
(a) The breach of any representation contained in this
Agreement.
(b) The breach by the Borrowers of any of its obligations
under paragraph 2 hereof to comply with, or cause the Mortgaged
Property to comply with, the ADA, the FLADA and all other Applicable
Laws.
(c) Any actual or asserted violation, nonperformance, or
failure to abide by any requirement imposed upon mortgagor, the
Mortgaged Property or any occupant or tenant of the Mortgaged Property
under the ADA, the FLADA or any other Applicable Law.
3. COVENANTS WITH REGARD TO ADA/FLADA. If Borrowers make, or allow or
authorize any other person or entity (including tenants) to make, any
alterations, modifications, improvements or renovations to the Mortgaged
Property or any portion thereof or any improvements thereon during the term of
the Loan, mortgagor shall ensure that all such alterations, modifications,
improvements, or renovations are planned, designed and completed in strict
compliance with all Applicable Laws, and that no changes in the plans for such
improvements shall be made or allowed that might cause the improvements to fail
to comply with any Applicable Law. If any such alterations, modifications,
improvements or renovations fail to comply with such laws, rules, regulations or
ordinances, Borrowers shall, at its sole expense, promptly take any action that
may be necessary in order to bring the improvements into compliance with all
laws, rules, regulations and ordinances.
4. NOTICES RECEIVED BY BORROWERS. If Borrowers shall receive any notice
of:
The Mortgaged Property, the Mortgagor, or any entity or person in
possession, of any portion of any improvements on the Mortgaged
Property, being in violation of the ADA, the FLADA or any other
Applicable Laws; or that the sender or giver of the notice intends to
or may file a
<PAGE>
complaint, lawsuit, action, or proceeding of any type whatsoever asserting
that such a violation exists,
then Mortgagor shall immediately notify Lender orally and in writing Of said
notice. In the event it is determined that any action must be taken with regard
to any violation occurring on or with respect to the Mortgaged Property with
regard to the ADA, the FLADA or any other Applicable Law, the Borrowers covenant
and agree to take all such actions necessary to promptly bring the Mortgaged
Property into compliance with all Applicable Laws, regardless of whether or not
the Borrowers caused said matters.
5. LENDER'S RESERVED RIGHTS. Lender shall have the right, but not the
obligation (and without limitation of Lender's rights under the Mortgage), at
all reasonable times and upon prior written or oral notice, to enter onto the
Mortgaged Property or to take such other actions as it shall deem necessary or
advisable to cause the Mortgaged Property to comply with the ADA, the FLADA or
other Applicable Laws. If necessary, the Borrowers, upon Lender's request, shall
accompany the Lender, its agents or representatives on to the Mortgaged Property
for the purpose of conducting any such inspection thereof.
All reasonable costs and expenses incurred by the Lender in the
exercise of any rights as described in this Paragraph shall be secured by this
Mortgage and shall be payable by the Borrowers upon demand.
6. DEFAULT UNDER LOAN DOCUMENTS. The (i) breach of any of the
representations or warranties contained in this Agreement, or (ii) failure of
the Borrowers to comply with any of the terms or conditions contained in this
Agreement, shall each be and constitute a default under each and all of the Loan
Documents (as such term is defined in the Mortgage). In such event, the Lender
shall be entitled at its option to immediately accelerate and declare the Loan
as being due and owing in full, and the Lender shall be entitled to exercise any
and all rights available to the Lender under all Loan Documents and applicable
law.
7. SURVIVAL OF AGREEMENT. This Agreement is separate and apart from
each and every other Loan Document relating to the Loan, and the provisions of
this Agreement and the obligations of the Borrowers .hereunder, shall survive W
the payment of the Loan, 00 any action which the Lender may take in regard to
the Mortgaged Property such as, but not limited to, any foreclosure action or
any acceptance by Lender of any deed in lieu of foreclosure (provided, however,
nothing contained herein shall obligate the Lender to accept any deed of lieu of
foreclosure), and (iii) any other term or provisions of the Loan.
8.- IOINT AND SEVERAL LIABILITY. In the event the Borrowers include
more than one party/entity or there is one or more guarantors for the Loan, the
obligations of all such persons under this Agreement s1kall be joint and
several, and a covenant to do or refrain from doing any act shall be an
obligation for both or either to act or refrain from acting, as the case may be.
9. CONSENT TO [URISDICTION. Borrowers irrevocably and unconditionally
(a) agrees that any suit, action, or other legal proceeding arising out of or
relating to this Agreement may be brought, at the option of the Lender, in a
court of record, of competent jurisdiction in the State of Florida in Orange
County; (b) consents to the jurisdiction of each such court in any such suit,
action, or proceeding; (c) waives any objection which it may have to the laying
of venue of any such suit, action, or proceeding in any of such courts; and (d)
agrees that service of any court paper may be effected on Borrowers by mail,
addressed and mailed as provided herein or in such other manner as may be
provided under applicable laws or court rules in said State.
10. IURY WAIVER. BORROWERS AND LENDER HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, AND IRREVOCABLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A
TRIAL BY JURY IN RESPECT TO ANY LITIGATION, WHETHER IN CONTRACT OR TORT, AT LAW
OR IN EQUITY, BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT AND ANY OTHER DOCUMENT OR INSTRUMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHERWRBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR LENDER TO
<PAGE>
Exhibit 10.19 Line of Credit Agreement with BankFIRST
<PAGE>
STRATCOMM MEDIA USA, INC BANKFIRST
1947 LEE ROAD 15119 US HWY 441 Loan Number____________
WINTER PARK, FL 32789 EUSTIS, FL 32726 Date___APRIL 23, 1998___
Maturity Date ON DEMAND
Loan Amount $300,000.00
BORROIWER' NAME AND ADDRESS LENDER'S NAME AND ADDRESS Renewal of ____________
- -------------------------------------------------------------------------------
For the value received, I promise to pay you, or your address listed above the
PRICIPAL sum of THREE HUNDRED THOUSAND AND NO/100 *************** Dollars
$300,000.00 [ ] Single Advance: I will receive all of this principal sum on
_______. No additional advances are contemplated under this note. [X] Multiple
Advance: The principle amount shown above is the maximum amount of the principal
I can borrow under this note. On APRIL 23, 1998 I will receive the amount of
$_____________and future principal advances are contemplated.
Conditions: The conditions for future advances are SUBJECT TO
ANNUALFINACIAL REVIEW AND PER CUSTOMER
REQUERST_______________________________________________________________
[X] Open End Credit: You and I agree that I may borrow up to the
maximum principal sum more than one time. This feature is subject to
all other conditions and expires on DEMAND . [ ] Closed End Credit: You
and I agree that I may borrow (subject to all other conditions) up to
the maximum principal sum only one time.
INTEREST: I agree to pay interest on the outstanding principal balance from
APRIL 23, 1998 at the rate of 8.500%
Per year until FIRST CHANGE DATE .
[X] Variable Rate: This rate may then changed as stated below.
[X] Index Rate: The future rate will be ____EQUAL TO the following
index rate: WALL STREET JOURNAL PRIME RATE
PUBLISHED FROM TIME TO TIME IN THE MONEY SECTION OF THE WALL STREET
JOURNAL______.
[ ] No Index: The future rate will not be subject to any internal
or external index. It will be entirely in your control.
[x}Frequency and Timing: The rate on this note may change as often as
daily.
A change on the interest rate will take effect ON THE SAME DAY.
[x] Limitations: During the term of this loan, the applicable interest
rate will not be more than ____18.000% or less than ____________________%. The
rate may not change more than ___________% or each________________.
Effect of Variable Rate: A change in the interest rate will have the
following effect on the payments; [X] the amount of each scheduled
payment will change [X] The amount of the final payment will change.
[ ]----------------------------------------------------------------
ACCURAL METHOD: Interest will be calculated on a ______ACTUAL/360
POST MATURITY RATE: I agree to pay the interest on the unpaid balance of
this note owing after maturity, and until paid in full. [ ] on the same
affixed or variable rate basis in effect before maturity (as indicated
above). [X] at a rate equal to THE STATE OF FLORIDA MAXIMUM RATE
CURERENCTLY AT 18%.
[X] LATE CHARGE: If a payment is made more than __10 days after its due, I
agree to pay a late charge of 5.000% OF THE LATE PAYMENT WITH A MAXIMUM
OF $50.00
[X] ADDITIONAL CHARGES: in addition to interest, I agree to pay the following
charges which [X] are [ ] are not included in the principal amount
above:
EFER TO DISBURSEMENT AUTHORIZATION__________________
PAYMENTS: I agree to pay this note as follows:
[X] Interest: I Agree to pay the accrued interest ON THE 23RD DAY OF EACH
MONTH BEGINNING MAY 23, 1988
[X] Principal: I agrees to pay the principal ON DEMAND
[ ] Installments: I agree to pay this note in ____________ payments. The
first payment will be in the amount of _______________ and will be
due ___________________________________. A payment of __________________
will be due_______________________________________thereafter. The final
payment of the entire unpaid balance and interest will be
--------------------------------------------------------------
PURPOSE: The purpose of this loan is __BUSINESS: SUPPORT WORKIN CAPITAL.
ADDITIONAL TERMS:
<PAGE>
SECURITY
SECURITY INTEREST: I give you a security interest in all of the property
described below that I now own and that I may own in the future (including but
not limited to, all parts, accessories, repairs, improvements, and accessions to
the property), wherever the property is or may be located, and all proceeds and
products from the property.
[ ] Inventory. All inventory which I hold for ultimate sale or lease, or which
has been or will be supplied under contracts of service, or which are raw
materials, work in process, or materials used or consumed in my business. [ ]
Equipment: All equipment including, but not limited to, all machinery, vehicles,
furniture, fixtures, manufacturing equipment, farm machinery and equipment, shop
equipment, office and recordkeeping equipment, and parts and tools. All
equipment described in a list or schedule which I give to you will also be
included in the secured property, but such a list is not necessary for a valid
security interest in my equipment.
[ ] Farm Products: All farm products including but not limited to: (a) all
poultry and livestock and their young, along with their products, produce and
replacements; (b) all crops, annual or perennial, and all product of the crops;
and (c) all feed, seed, fertilizer, medicines, and other supplies used or
produced in my farming operations [ ] Accounts, Instruments, Documents, Chattel
paper, and Other Rights to Payment: All rights I have now and that I may have in
the future to payment of money including, but mot limited to:
(a) payment for goods and other property sold or leased or for service
rendered, whether or not I have earned such payment by performance; and
(b) rights to payment arising out of all present and future debt
instruments, chattel paper and loans and obligations recievable. The
above include any rights and interests(including all liens and security
interet) which I may have by law or agreement against any acount debtor
or obligor of mine.
[ ] Gerneral Intanigables: All gener intangibals including, but not limited to,
tax refunds, applications for patents, patents, copyrights, trademarks, trade
secrets, good will, trade names, customer lists, permits and franchises, and the
right to use my name.
[ ] Government Payments and Programs: All payments,
accounts, general intangibles, or other benefits (including, but not limited to,
payments in kind, deficiency payments, letters of entitlement, warehouse
receipts, storage payments, emergency assistance payments, diversion payments,
any conservation reserve payments) which I now and in the future may have any
rights or interest and which arise under or as a result of any preexisting,
current or future Federal or state governmental program (including, but not
limited to, all programs administered by the Commodity Credit Corporation and
the ASCS).
[X] The secured property includes, but is not limited by, the following:
BANKFIRST CD #0300007576 IN THE AMOUNT OF $200,000.00 DATED 11/07/97 AND
BANKFIRST CD #0300007559 IN THE AMOUNT OF $100,000.00 DATED 10/10/97 BOTH IN THE
NAME OF STRATCOMM MEDIA USA, INC.
If this Agreement covers timber to be cut, minerals (including oil and gas),
fixtures or crops growing or to be grown, the legal description
is_________________________________________________________________________
[ ] If checked, file this agreement on the real estate records. Record Owner
(if not me)______________________________________
- --------------------------------------------------------------------------
The property will be used for [ ] personal [X] business [ ] agricultural [ ]
_________________________________ purpose.
ADDITIONAL TERMS OF THE SECURITY AGREEMENT
GENERALLY - This agreement secures this note and any other debt I have with you,
now or later. However, it will not secure other debts if you fail with respect
to such other debts, to make any required disclosure about this security
agreement or if you fail to give any required notice of the right of rescission.
If property described in this agreement is located in another state, this
agreement may also, in some circumstances be governed by the law of the state in
which the Property is located.
OWNERSHIP AND DUTIES TOWARD PROPERTY - I represent all of the Property, or to
the extent this 'is a purchase interest I will acquire ownership of the Property
with the loan. I will defend it against any other claim. Your claim to the
property is ahead of the claims of any other creditor. I agree to do whatever
you require to protect your security interest and to keep your claim in the
Property ahead of the claims of other creditors. I will not do anything to harm
your position.
I will keep books, records and accounts about the property and my business in
general. I will let you examine these records at any reasonable time. I will
keep the Property in my possession and use it only for the purposes(s) described
on page 1 of this agreement. I will not change the specified use without your
express written permission. I represent that I am the original owner of the
Property and, if I am not, that I have provided you with a list of all previous
owners of the Property.
I will keep the Property at my address, unless we agree I may keep it at
another location. If the property is to be used in another state, I will give
you a list of those states. I will not try to sell the Property unless it is
inventory or I receive your written permission to do so. If I sell the Property
I will have the payment made payable to the order of you and me.
You may demand immediate payment of the debt(s) if the debtor is not a
natural person and without your prior written consent; (1) a beneficial interest
in the debtor is sold or transferred, or (2) there is a change in either the
identity or number of members of a partnership, or (3) there is a change in
ownership of more than 25 percent of the voting stock of a corporation.
I will pay all taxes and charges on the Property as they become due. You have
the right of reasonable access in order to inspect the Property. I will
immediately inform you of any loss or damage to the Property.
If I fail to perform any of my duties under this security agreement, or any
mortgage, deed of trust, lion or other security interest, you may without notice
to me perform the duties or cause them to be performed. Your right to perform
for me shall not create an obligation to perform and your failure to perform
will not preclude you from exercising any of your other rights under the law or
this security agreement.
PURCHASE MONEY SECURITY INTEREST - For the sole purpose of determining the
extent of a purchase money security interest arising under this security
agreement: (a) payments on any nonpurchase money loan also secured by this
agreement will not be deemed to apply to the Purchase Money Loan, and (b)
payments on the Purchase Money Loan will be deemed to apply first to the
nonpurchase money portion of the loan, if any, and then to the purchase money
obligations in the order in which the items of collateral were acquired or if
acquired at the same time, in the order selected by you. No security interest
will be terminated by application of this formula. "Purchase Money Loan" means
any loan the proceeds of which, in whole or in part, are used to acquire any
collateral securing the loan and all extensions, renewals, consolidations and
refinancing of such loan.
PAYMENTS BY LENDER - You are authorized to pay, on my behalf, charges I am or
may become obligated to pay to preserve or protect the secured property (such as
property insurance premiums). You may treat those payments as advances and add
them to the unpaid principal under the note secured by this agreement or you may
demand immediate payment of the amount advanced.
INSURANCE - I agree to buy insurance on the property against all the risks and
for the amounts you require and to furnish you continuing proof of the coverage.
I will have the insurance company name you as a loss payee on any such policy.
You may require added security if you agree that insurance proceeds may be used
to repair or replace the property. I will buy insurance from a firm licensed to
do business in the state where you are located. The firm will be responsibly
acceptable to you. The insurance will last until the property is released from
this agreement. If I fail to buy or maintain the insurance (or fail to name you
as a loss payee) you may purchase it yourself.
WARRANTIES AND REPRESENTATIONS - If this agreement includes accounts, I will not
settle any account for less than its full value without your written permission.
I will collect all accounts until you tell me otherwise. I will keep the
proceeds from all the accounts and, any goods which are returned to me or which
I take back in trust for you. I will not mix them with any other property of
mine. I will deliver them to you at your request. If you ask me to pay the full
price on any returned items or items retaken by myself, I will do so.
If this agreement covers inventory, I will not dispose of it except in my
ordinary course of business at the fair market value for the Property, or at a
minimum price established between you and me.
If this agreement covers farm products I will provide you, at your request, a
written list of the buyers, commission merchants or selling agents to or through
whom I may sell my farm products. In addition to those parties named on this
written list, I authorize you to notify at your sole discretion any additional
parties regarding your security interest in my farm products. I remain subject
to all applicable penalties for selling my farm products in violation of my
agreement with you and the Food Security Act. In this paragraph the terms farm
products, buyers, commission merchants and selling agents have the meanings
given to them in the Federal Food Security Act of 1985.
REMEDIES - I will be in default on this security agreement if I am in default on
any note this agreement secures or if I fail to keep any promise contained in
the terms of this agreement. If I default, you have all of the rights and
remedies provided in the note and under the Uniform Commercial Code. You may
require me to make the secured property available to you at a place which is
reasonably convenient. You may take possession of the secured property and sell
it as provided by law. The proceeds will be applied first to your expenses and
then to the debt. I agree that 10 days written notice sent to my last known
address by first class mail will be reasonable notice under the Uniform
Commercial Code. My current address is on page 1. 1 agree to inform you in
writing of any change of my address.
FILING - A carbon, photographic or other reproduction of this security agreement
or the financing statement covering the Property described in this agreement may
be used as a financing statement where allowed by law. Where permitted by law,
you may file a financing statement which does not contain my signature, covering
the Property secured by this agreement.
Any person who signs within this box does so to give you a security interest in
the Property described on this page. This person does not promise to pay the
note. "I" as used in this security agreement will include the borrower and any
person who signs within this box.
Date
Signed _________________________________________________
<PAGE>
ADDITIONAL TERMS OF THE NOTE
DEFINITIONS - As used on page 1, "[X]" means the terms that apply to this loan.
"l," *me" or "my" means each Borrower who signs this note and each other person
or legal entity (including guarantors, endorsers, and sureties) who agrees to
pay this note (together referred to as "us"). "You" or "your" means the Lander
and its successors and assigns.
APPLICABLE LAW - The law of the state of Florida will govern this agreement. Any
term of this agreement which is contrary to applicable law will not be
effective, unless the law permits you and me to agree to such a variation. It
any provision of this agreement cannot be enforced according to its terms, this
fact will not affect the enforceability of the remainder of this agreement. No
modification of this agreement may be made without your express written consent.
Time is of the essence in this agreement. PAYMENTS - Each payment I make on this
note will first reduce the amount I owe you for charges which are neither
interest nor principal. The remainder of each payment will then reduce accrued
unpaid interest, and then unpaid principal. If you and I agree to a different
application of payments, we will describe our agreement on this note. I may
prepay a part of, or the entire balance of this loan without penalty, unless we
specify to the contrary on this note. Any partial prepayment will not excuse or
reduce any later scheduled payment until this note is paid in full (unless, when
I make the prepayment, you and I agree in writing to the contrary). INTEREST -
Interest accrues on the principal remaining unpaid from time to time, until paid
in full. If I receive the principal in more than one advance, each advance will
start to earn interest only when I receive the advance. The interest rate in
effect on this note at any given time will apply to the entire principal sum
outstanding at that time. Notwithstanding anything to the contrary, I do not
agree to pay and you do not intend to charge any rate of interest that is higher
than the maximum rate of interest you could charge under applicable law for the
extension of credit that is agreed to in this note (either before or after
maturity). If any notice of interest accrual is sent and is in error, we
mutually agree to correct it, and it you actually collect more interest than
allowed by law and this agreement, you agree to refund it to me.
INDEX RATE - The index will serve only as a device for setting the interest rate
on this note. You do not guarantee by selecting this index, or the margin, that
the interest rate on this note will be the same rate you charge on any other
loans or class of loans you make to me or other borrowers.
POST MATURITY RATE - For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS - If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any described in the "PAYMENTS BY LENDER" paragraph
below.
MULTIPLE ADVANCE LOANS - It this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed and
credit, repaying a part of the principal will not entitle me to additional
credit. SET-OFF - I agree that you may set off any amount due under this note
against any right I have to receive money from you.
"Right to receive money from you" means: (1) any deposit
account balance I have with you; (2) any money owed to me on
an item presented to you or in your possession for collection
or exchange; and (3) any repurchase agreement or other
nondeposit obligation
"Any amount due and payable under this note " means the total amount of which
you are entitled to and under the terms of this note at the time you set off.
This total includes any balance the date for which you properly accelerate under
this note.
If my right to receive money from you is also owned by, someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to other amounts I could Withdraw on my sole request or
endorsement, Your right of set-off does not apply to an account of other
obligation where my rights are only as a representative. It also does not apply
to any individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor occurs
because you set off this debt against any of my accounts. I agree to hold you
harmless from any such claims arising as a result of your exercise of your right
to set-off. DEFAULT - I will be in default if any one or more of the following
occur: (1) 1 fail to make a payment an time or in the amount due; (2) 1 fail to
keep the Property insured, if required; (3) 1 fail to pay, or keep any promise,
on any debt or agreement I have with you; (4) any other creditor of mine
attempts to collect any debt I owe him through court proceedings; (5) 1 die, am
declared incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or
I am unable to pay my debts as they become due); (6) 1 make any written
statement or provide any financiall information that is untrue or inaccurate at
the time it was provided; (7) 1 do or fail to do something which causes you to
believe you will have difficulty collecting the amount.[ owe you; (8) any
collateral securing this note is used in a manner or for a purpose which
threatens confiscation by a legal authority; (9) 1 change my name or assume an
additional name without first notifying you before making such a change; 110) 1
fail to plant, cultivate and harvest crops in due season; (11) any loan proceeds
are used for a purpose that will contribute to excessive erosion of highly
erodible land or to the conversion of wetlands to produce an agricultural
commodity, as further explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES - If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued unpaid charges). (2)
You may set off this debt against any right I have to the payment of money
from you, subject to the terms of the "SET-OFF" paragraph herein.
(3) You may demand security, additional security, or additional parties to be
obligated to pay this note as a condition for not using any other remedy. (4)
You may refuse to make advances to me or allow purchases on credit by me.
(5) You may use any remedy you have under state or federal law.
(6) You may make use of any remedy given to you in any agreement securing
this note.
By selecting any one or more of these remedies you do not give up your right
to use later any other remedy. By waiving your right to declare an event to be a
default, you do not waive your right to consider later the event a default if it
continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES - I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note. I also agree to pay any.
reasonable fee costs (except Where prohibited by law). I agree that "reasonable
attorney's fees" shall be constructed to mean 10% of the principal sum named in
this note, or such larger fee that the court may determine to be reasonable and
just. To the Extent permitted by the United States Bankruptcy Code, I also agree
to pay reasonable attorney fees and cost you incur to collect his debt as
awarded by nay court exercising jurisdiction under the Bankruptcy Code.
WAIVER - I give up my rights to require you to do certain things. I will not
require you to: (1) demand Payment of amounts due (presentment); (2) obtain
Official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of dishonor). To the
extent permitted by law, I also waive my right to a trial by jury in respect to
any action arising from this note and any other agreement executed in
conjunction with this credit transaction. I waive any defenses I have based on
sureship or impairment of collateral.
OBLIGGATIONS INDEPENDENT - I understand that I must pay this note someone else
has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me a, or anyone else who is obligated on
this note, or any number of us together to collect this note. You may without
notice release any party to this agreement without releasing any other party. it
you give up any of your rights, with or without notice, it will not affect my
duty to pay this note. Any extension of new credit to any of us, or renewal of
this note by all or less than all of us will pot release me from my duty to pay
it. (Of course, you are entitled to only one payment in full.) I agree that you
may at your option extend this note or the debt represented by this note, or any
portion of the note or debt, from time to time without limit or notice and for
any term without affecting my liability for payment of the note. I will not
assign my obligation under this agreement without your prior written approval.
CREDIT INFORMATION - I agree and authorize you to obtain credit information
about me from time to time (for example, by requesting a credit report) and to
report to others your credit experience with me (such as a credit reporting
agency). I agree to provide you, upon request, any financial statement or
information you may deem necessary. I warrant that the financial statements and
information I provide to you are or will be accurate, correct and complete.
SIGNATURES: I GREE TO THE TERMS OF THIS NOTICE (INCLUDING THOSE ON PAGES 1
AND 2). I have received a copy on toady's date.
STRATCOMM MEDIA USA, INC._____________________________________________________
JOESPH H LANDIS, CHIEF EXEC OFFICER___________________________________________
PAUL SERLUCO, CHIEF FINAN OFFICER_____________________________________________
Signature for lender: ANNE K FRAY, EXECUTIVE VISE PRESIDNET__________________
<PAGE>
BANKFIRST
15119 US HWY 441
EUSTIS, EL 32726
STRATCOMM MEDIA U.S.A., INC.
1947 LEE ROAD
WINTER PARK, FL 32789
Account holder's name and address: I: means the account holder named above. It
there is more than one, "I" means all account holders jointly and each account
holder separately.
Assignment of deposit or share account: For value received, I assign and
transfer to you, and I give you a security interest in the following account(s):
BF CD #0300007576 AND BF CD #0300007559 BOTH IN THE NAIVE OF STRATCOMM MEDIA
U.S.A., INC.
and any renewals or substitutions. These account(s) will be referred to as the
collateral in the rest of this agreement. The collateral is held with:
BANKFIRST
15119 US NWY 441
EUTIS, FL 32726
which will be referred to as the depository in the rest of this agreement. The
collateral includes all funds now in the accounts listed plus all additions of
any kind and from any source, made at any time before the release of this
agreement in writing.
Secured debt(s): This agreement is made to secure the payment of:
[ ] all present and future debts, of every kind and description which:
may now or hereafter owe to you, no matter how or when these debts arise. (We
intend this paragraph to be very broad. For example, "debts" include loans or
credit purchases, made by or transferred to you, as well as debts arising from
any other relationship such as chuck overdrafts, forgeries, or returned
deposits. These also include debts arising from any capacity [maker, co-maker,
endorser, surety, guarantor].) It more than one person or entity is listed, then
all joint and separate debts of all those listed are secured.
[X] the following described debt(s), plus all extensions, renewals,
modifications and substitution NOTE AM SECURITY AGREEMENT DATED 4/23/98 IN THE
AMOUNT OF $300,000.00.
Additional terms:Additional terms: The following terms are also part of this
agreement: (1) This agreement will last until you release it in writing, and
you are not required to release it until the secured debts are paid in full.
(2) While this agreement is in effect, neither I not anyone also (except you,
the secured party) can withdraw all or any part of the collateral.
(3) No joint owner, beneficiary, surviving spouse or representative of my estate
gets any rights in the collateral in the event of my death or incapacity until
the secured debts are paid in full.
(4) You have the right to withdraw all or any part of the collateral and apply
the withdrawal toward the payment of the secured debt(s), even if the withdrawal
causes a penalty. If a secured debt is in default you can exercise this right
without any notice to me or my consent (unless such notice or consent is
required by law and cannot be waived). You have the right to sign my name for
sign your name as my attorney in fact) to exercise the rights given to you in
this agreement.
(5) 1 represent and promise that no other person or entity has any rights in the
collateral that have priority over those I am giving you here and that no part
of the collateral is exempt or protected by law from this agreement. (6) The
rights and remedies I am giving you here are in addition to any stated in any
other agreements. It there is more than one debt secured, more than one type of
collateral (including collateral outside of this agreement) or more than one
debtor liable, it is entirely in your discretion as to the order (7) 1 neither
assume nor am excused from personal liability for any of the secured debts
merely by making this agreement; my personal liability will be determined by
referring to other documents. I do assume personal liability for the warranties
and representation (8) A debt secured by this agreement (whether specifically
listed or not) includes all sums that could possible be due under the debt. (9)
I specifically request and direct the depository to honor and accept this
agreement and its terms.
Signature(s) of account holder(s): By signing here we accept the terms of this
agreement and acknoledgment receipt of this copy.
By: _____________________________________________________
JOESPH H LANDIS, CHIEF EXECUTIVE OFFICER
By: ______________________________________________________
PAUL SELUCO, CHIEF FINANCIAL OFFICER
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
NOTICE TO DEPOSITORY: ACKNOLEDGMENT BT THE DEPOSITORY: RELEASE BY SECURED PARTY:
DATE: DATE: APRIL 23, 1998 Date:
To: To: BANKFIRST To:
[ ] this confirms our oral notice dated:
Please take notice of this agreement. Please We have received your notice of this agreement. We This is to advise you that
the assignment and security
confirm your receipt of this notice and agree that no account holder or any other person interest in the collateral
described above has been released
your acceptance of its terms by completing (other than you, the secured party) has any right and the original
certificate, or passbook or other
the acknowledgement portion and returning to make any withdrawals from the collateral until evidence of the collateral
(if any) has been returned
a copy to the secured party. This agreement is released in writing by you. to the account holder(s).
By: By: By:
- ------------------------------------- ----------------------------------------- -----------------------------------------
for the secured party for the depository for the secured party
</TABLE>
SIGNATURES: I AGREE TO THE TERMS OF THIS LINE OF CREDIT. I HAVE RECEIVED A COPY
ON TODAY'S DATE. STRATCOMM MEDIA U.S.A. ,-INC-
(page I of 1)
STRATCOMM MEDIA U.S.A., INC. BANKFIRST
1947 LEE ROAD 15119 US HWY 441 Line of Credit No
WINTER PARK, EL 32789 EUSTIS FL 32726 Date : APRIL 23, 1998
Max credit amt. $300,000.00
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS Loan Ref #. You have
extended to me a line of credit in the AMOUNT of THREE HUNDRED THOUSAND AND
NO/100 ____________________________$ 300,000.00 .
- --------------------------------------------------------------------
Although the line of credit expires on that date, I will remain obligated to
perform all my duties under this agreement so long as I owe you any money
advanced according to the terms of this agreement, as evidenced by any note or
notes I have signed promising to repay these amounts This line of credit is an
agreement between you and me. It is not intended that any third party receive
any benefit from this agreement, whether by direct payment, reliance for future
payment or in any other manner. This agreement is not a letter of credit.
1. AMOUNT: This line of credit is:
[X] OBLIGATORY: You may not refuse to make a loan to me under this line of
credit unless one of the following occurs:
a. I have borrowed the maximum amount available to me;
b. This line of credit has expired;
c. I have defaulted on the note (or notes) which show my indebtedness
under this line of credit;
d. I have violated any term of this line of credit or any note or other
agreement entered into in connection with this line of credit;
e. SUBJECT TO ANUUAL FINACIAL REVIEW___________________________
==============================================================
[ ] DISCRETIONARY : You may refuse to make a loan to me under this line of
credit once the aggregate outstanding advances equal or exceed
----------------------------------------------------------.
Subject to the obligatory or discretionary limitation above, this line of credit
is:
[ X] OPEN-END (Business or Agricultural only): I may borrow up
to the maximum amount of principal more than one time.
[ ] CLOSED-END: I may borrow up to the maximum only
one time.
2. PROMISSORY NOTE: I will repay any advances made according to this line of
credit agreement as set out in the promissory note, I signed on________
APRIL 23, 1998___________, or any note(s) I sign at a later
time which represent advances under this
agreement. The note(s) set(s) out the terms relating to maturity, interest rate,
repayment and advances. If indicated on the promissory note, the advances will
be made as follows _______SUBJECT TO ANNUAL FINANCIAL REVIEW AND PER CUSTOMER
REQUEST____
- ---------------------------------------------------------------------------
3. RELATED DOCUMENTS: I have signed the following documents in connection with
this line of credit and note(s) entered into accordance with this line of
credit:
[X] security agreement dated APRIL 23, 1998 [X] ASSIGNMENT OF
ACCOUNT [ ] mortgage
dated______________________________________ [X] DOCUMENTARY
STAMP LETTER [ ] guaranty
dated_______________________________________ [ ]
-------------------------------
4. REMEDIES: If I am in default on the note(s) you may:
a. take any action as provided in the related documents
b. without notice to me, terminate this line of credit.
By selecting any of these remedies you do not give up
your right to later use any other remedy, By deciding not to use any remedy
should I
5. COSTS AND FEES: If you hire an attorney to enforce this agreement I'll pay
your reasonable attorney's fees, where permitted by law. I will also pay your
court costs and costs of collection, where permitted by law.
6. COVENANTS: For A long as this line of credit is in effect or I owe You
money for advances made in accordance with the line of credit, I will do the
following:
a. maintain books and records of my operations relating to the need for this
line of credit;
b. permit you or any of your representative to inspect and/or copy these records
c. provide to you any documentation requested by you which support the reason
for making any advance under the line of this credit;
d. permit you to make any advance payable to the seller(or seller and me) of any
items being purchased with that advance;
e. ____________________________________________________________________________
----------------------------------------------------------------------------
7. NOTICES: All notices or other when correspondence with me should be sent to
my address stated above. The notice or correspondence shall be effective when
deposited in the mail, first class, or delivered to me in person.
8. MISCELLANEOUS: This line of credit may not be changed except by a written
agreement signed by you and me. The law of the state in which you are located
will govern this agreement. Any term of this agreement which is contrary to
applicable law will not be effective, unless the law permits you and me to
agree to such a violation.
FOR THE LENDER SIGNATURES: IAGREE TO THE TERMS OF THIS LINE OF CREDIT.
I HAVE RECEIVED A COPY ON TODAY"S DATE.
ANNE K. FRAY STRATCOMM MEDIA USA, INC.
TITLE: EXECUTIVE VICE PRESIDENT By:
JOESPH H LANDIS, CHIEF EXEC OFFICER
By
PAUL SERLUCO, CHIEF FINAN OFFICER
<PAGE>
STRATCOMM MEDIA USA, INC.
1947 LEE ROAD BANKFIRST Loan Number______________
WINTER PARK, FL 32789 15119 US HWY 441 Dat APRIL 23, 1998
EUSTIS, FL 32726 Mat. Due _ON DEMAND___
BORROWERS NAME AND ADDRESS LENDER'S NAME AND
ADDRESS Loan Amount $_300,000.00_
- -----------------------------------------------------------------------------
I hereby authorize and request the following disbursement from the loan
reference above:
a. Amount given directly to me $ 298,600.00
b. Amount paid on my account (#_____________) $
c. To lender amounts paid to others on my behalf $ 350.00
d. To property insurance company $
e. To credit line insurance company $
f. To disability insurance company $
g. To public officials $
h. DOCUMENTARY STAMP TAX $ 1,0500.00
i.
j.
k.
l.
m.
n.
o.
p.
q.
Comments STRATCOMM MEDIA USA, INC
By:
JOESPH H LANDIS, CHIEF EXEC OFFICER
By:
Loan officer: PAUL SERLUCO, CHIEF FINAN OFFICER
<PAGE>
(page I of 1)
CORPORATE AUTHORIZATION RESOLUTION
BANKFIRST By: STRATCOMM MEDIA USA, INC.
15119 US HWY 441 1947 LEE ROAD
EUSTIS, FL 32726 WINTER PARK, FL 32789
A. I, LEN ARNOFF certify that I am Secretary (clerk) of the above named
Corporation organized under the laws of FLORIDA Federal Employer IND. Number
59-3131730, engaged in business under the trade name of STRATCOMM MEDIA U.S.A. ,
and that the following is a correct copy of resolutions adopted at a meeting of
the Board of Directors of this corporation duly and properly called and held on
APRIL 23, 1998 . These resolutions appear in the minutes of this meeting and
have not been rescinded or modified.
B. Be it resolved that,
(1) The Financial Institution named above is designated as a depository for the
funds of this corporation.
(2) This resolution shall continue to have effect until express written notice
of its rescission or modification has been received and recorded by this
Financial Institution. (3) All transactions, if any, with respect to any
deposits, withdrawals, rediscounts and borrowings by or on behalf of this
corporation with this Financial Institution prior to the adoption of this
resolution are hereby ratified, approved and confirmed. (4) Any of the persons
named below, so long as they act in a representative capacity as agents of this
corporation, are authorized to make any and all other contracts, agreements,
stipulations and orders which they may deem advisable for the effective exercise
of the powers indicated below, from time to time with this Financial
Institution, concerning funds deposited in this Financial Institution, moneys
borrowed from this Financial Institution or any other business transacted by and
between this corporation and this Financial Institution subject to any
restrictions stated below.
(5) Any and all prior resolutions adopted by the Board of Directors of this
corporation and certified to this Financial Institution as governing the
operation of this corporation's account(s), are in full force and effect, unless
supplemented or modified by this authorization.
(6) This corporation agrees to the terms and conditions of any account
agreement, properly opened by any authorized representative(s) of this
corporation, and authorizes the Financial Institution named above, at any time,
to charge this corporation for all checks, drafts, or other orders, for the
payment of money, that are drawn on this Financial Institution, regardless of by
whom or by what means the facsimile signature(s) may have been affixed so long
as they resemble the facsimile signature specimens in section C. (or the
facsimile signature specimens that this corporation files with this Financial
Institution from time to time) and contain the required number of signatures for
this purpose.
C. If indicated, any person listed below (subject to any expressed restrictions)
is authorized to:
(A) JOSEPH H. LANDIS, CHIEF EXEC OFFICER
(B) PAUL SERLUCO, CHIEF FINANCIAL OFFICER
(C)
(D)
Indicate A, B, C and/or D
A B (1)Exercise all of the all of the powers listed in (2) through
(6). (2) Open any deposit or checking account(s) in the name of
this corporation.
(3) Endorse checks and orders for the payment of money and withdraw
funds on deposit with this Financial Institution. Number of
authorized signatures required for this purpose . (4) Borrow money
on behalf and in the name of this corporation, sign, execute and
deliver promissory notes or other evidences of indebtedness. Number
of authorized signatures required for this purpose . (5) Endorse,
assign, transfer, mortgage or pledge bills receivable, warehouse
receipts, bills of lading, stocks, bonds, real estate or other
property now owned or hereafter owned or acquired by this
corporation as security for sums borrowed, and to discount the
same, unconditionally guarantee payment of all bills received,
negotiated or discounted and to waive demand, presentment, protest,
notice of protest and notice of non-payment. Number of authorized
signatures required for this purpose (6) Enter into written lease
for the purpose of renting and maintaining a Safe Deposit Box in
this Fi cial Institution. Number of authorized persons required to
gain access and to terminate the lease
D. I further certify that the Board of Directors of this corporation has, and at
the time of adoption of this resolution had, full power and lawful authority to
adopt the foregoing resolutions and to confer the powers granted to the persons
named who have full power and lawful authority to exercise the same.
In Witness Whereof, I have hereunto subscribed my
name and affixed the seal of this corporation on
IMPRINT APRIL 23, 1998
SEAL
HERE
JOESPH H LANDIS
LEN ARNOFF
<PAGE>
DOCUMENTARY STAMP LETTER
BankFIRST
15119 US HWY 441
EUSTIS, FL 32726
Re: Loan Agreement between Stratcomm Media U.S.A., Inc. and BankFIRST
dated April 23, 1998.
Gentlemen:
Reference is made to the above-captioned loan agreement, under which we
are financing a Line of Credit in the amount of Three Hundred Thousand and
No/100 Dollars ($300,000.00) through your finance department in the bank.
It is understood that the only documentary stamps which have been
purchased in connection with this transaction have been placed on the
notes mentioned in the agreement, and that should it later prove necessary
to place state documentary stamps on the paper in each individual
'transaction, we will hold BankFIRST harmless and guarantee payment of all
such additional documentary stamps that may be necessary to purchase in
the future.
This will also include any stamps that have to be purchased for contracts
for individual transactions negotiated under the abovecaptioned agreement
prior to the date of this letter.
ACKNOWLEDGED:
Stratconm Media U.S.A., Inc.
By: (SEAL)
Joseph H. Landis
Chief Executive Officer
By (SEAL)
Paul Serluco
Chief Financial Officer
Date:
<PAGE>
CORPORATE AUTHORIZATION RESOLUTION
BANKFIRST By: STRATCOMM MEDIA USA, INC.
15119 US HWY 441 1947 LEE ROAD
EUSTIS, FL 32726 WINTER PARK, FL 32789
A. I, LEN ARNOFF certify that I am Secretary (clerk) of the above named
Corporation organized under the laws of FLORIDA Federal Employer IND. Number
59-3131730, engaged in business under the trade name of STRATCOMM MEDIA U.S.A. ,
and that the following is a correct copy of resolutions adopted at a meeting of
the Board of Directors of this corporation duly and properly called and held on
APRIL 23, 1998 . These resolutions appear in the minutes of this meeting and
have not been rescinded or modified.
B. Be it resolved that,
(1) The Financial Institution named above is designated as a depository for the
funds of this corporation.
(2) This resolution shall continue to have effect until express written notice
of its rescission or modification has been received and recorded by this
Financial Institution. (3) All transactions, if any, with respect to any
deposits, withdrawals, rediscounts and borrowings by or on behalf of this
corporation with this Financial Institution prior to the adoption of this
resolution are hereby ratified, approved and confirmed. (4) Any of the persons
named below, so long as they act in a representative capacity as agents of this
corporation, are authorized to make any and all other contracts, agreements,
stipulations and orders which they may deem advisable for the effective exercise
of the powers indicated below, from time to time with this Financial
Institution, concerning funds deposited in this Financial Institution, moneys
borrowed from this Financial Institution or any other business transacted by and
between this corporation and this Financial Institution subject to any
restrictions stated below.
(5) Any and all prior resolutions adopted by the Board of Directors of this
corporation and certified to this Financial Institution as governing the
operation of this corporation's account(s), are in full force and effect, unless
supplemented or modified by this authorization.
(6) This corporation agrees to the terms and conditions of any account
agreement, properly opened by any authorized representative(s) of this
corporation, and authorizes the Financial Institution named above, at any time,
to charge this corporation for all checks, drafts, or other orders, for the
payment of money, that are drawn on this Financial Institution, regardless of by
whom or by what means the facsimile signature(s) may have been affixed so long
as they resemble the facsimile signature specimens in section C. (or the
facsimile signature specimens that this corporation files with this Financial
Institution from time to time) and contain the required number of signatures for
this purpose.
C. If indicated, any person listed below (subject to any expressed restrictions)
is authorized to:
(A) JOSEPH H. LANDIS, CHIEF EXEC OFFICER
(B) PAUL SERLUCO, CHIEF FINANCIAL OFFICER
(C)
(D)
Indicate A, B, C and/or D
A B (1)Exercise all of the all of the powers listed in (2) through
(6). (2) Open any deposit or checking account(s) in the name of
this corporation.
(3) Endorse checks and orders for the payment of money and withdraw
funds on deposit with this Financial Institution. Number of
authorized signatures required for this purpose -2- . (4) Borrow
money on behalf and in the name of this corporation, sign, execute
and deliver promissory notes or other evidences of indebtedness.
Number of authorized signatures required for this purpose . -2- (5)
Endorse, assign, transfer, mortgage or pledge bills receivable,
warehouse receipts, bills of lading, stocks, bonds, real estate or
other property now owned or hereafter owned or acquired by this
corporation as security for sums borrowed, and to discount the
same, unconditionally guarantee payment of all bills received,
negotiated or discounted and to waive demand, presentment, protest,
notice of protest and notice of non-payment. Number of authorized
signatures required for this purpose -2- (6) Enter into written
lease for the purpose of renting and maintaining a Safe Deposit Box
in this Fi cial Institution. Number of authorized persons required
to gain access and to terminate the lease -2-
D. I further certify that the Board of Directors of this corporation has, and at
the time of adoption of this resolution had, full power and lawful authority to
adopt the foregoing resolutions and to confer the powers granted to the persons
named who have full power and lawful authority to exercise the same.
In Witness Whereof, I have hereunto subscribed my
name and affixed the seal of this corporation on
IMPRINT APRIL 23, 1998
SEAL
HERE
JOESPH H LANDIS
LEN ARNOFF
<PAGE>
Exhibit 10.20 Line of Credit Agreement with BankFIRST
<PAGE>
STRATCOMM MEDIA U.S.A., INC. BANKFIRST
1947 LEE ROAD 1031 WEST MORSE BLVD STE 150 Line of Credit No
WINTER PARK, EL 32789 WINTER PARK, FL 32789 Date:OCTOBER 28,1998
Max credit amt.
$450,000.00
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS Loan Ref #. You have
extended to me a line of credit in the AMOUNT of FOUR HUNDRED FITY THOUSAND AND
NO/100____________________________$ 450,000.00 .
- ----------------------------------------------------------------------------
Although the line of credit expires on that date, I will remain obligated to
perform all my duties under this agreement so long as I owe you any money
advanced according to the terms of this agreement, as evidenced by any note or
notes I have signed promising to repay these amounts This line of credit is an
agreement between you and me. It is not intended that any third party receive
any benefit from this agreement, whether by direct payment, reliance for future
payment or in any other manner. This agreement is not a letter of credit.
1. AMOUNT: This line of credit is:
[X] OBLIGATORY: You may not refuse to make a loan to me under this line of
credit unless one of the following occurs:
a. I have borrowed the maximum amount available to me;
b. This line of credit has expired;
c. I have defaulted on the note (or notes) which show my indebtedness
under this line of credit;
d. I have violated any term of this line of credit or any note or other
agreement entered into in connection with this line of credit;
e. SUBJECT TO ANUUAL FINACIAL REVIEW___________________________
==============================================================
[ ] DISCRETIONARY : You may refuse to make a loan to me under
this line of credit once the aggregate outstanding advances
equal or exceed
------------------------------------$---------------------.
Subject to the obligatory or discretionary limitation above, this line of credit
is:
[ X] OPEN-END (Business or Agricultural only): I may borrow up to the maximum
amount of principal more than one time.
[ ]CLOSED-END: I may borrow up to the maximum only one time.
2. PROMISSORY NOTE: I will repay any advances made according to this line of
credit agreement as set out in the promissory note, I signed on________
OCTOBER 28, 1998___________, or any note(s) I sign at a
later time which represent advances under this agreement. The
note(s) set(s) out the terms relating to maturity, interest
rate, repayment and advances. If indicated on the promissory
note, the advances will be made as follows _______SUBJECT TO
ANNUAL FINANCIAL REVIEW AND PER CUSTOMER
REQUEST____
----------------------------------------------------------------------------
3. RELATED DOCUMENTS: I have signed the following documents in connection with
this line of credit and note(s) entered into accordance with this line
of credit:
[X] security agreement dated OCTOBER 28, 1998 [X] ASSIGNMENT
OF ACCOUNT [ ] mortgage
dated______________________________________ [X] DOCUMENTARY
STAMP LETTER [ ] guaranty
dated_______________________________________ [ ]
-------------------------------
4. REMEDIES: If I am in default on the note(s) you may:
a. take any action as provided in the related documents
b. without notice to me, terminate this line of credit.
By selecting any of these remedies you do not give up
your right to later use any other remedy, By deciding not to use any remedy
should I
5. COSTS AND FEES: If you hire an attorney to enforce this agreement I'll pay
your reasonable attorney's fees, where permitted by law. I will also pay your
court costs and costs of collection, where permitted by law.
6. COVENANTS: For A long as this line of credit is in effect or I owe You
money for advances made in accordance with the line of credit, I will do the
following:
a. maintain books and records of my operations relating to the need for
this line of credit;
b. permit you or any of your representative to inspect and/or copy these
records
c. provide to you any documentation requested by you which support the
reason for making any advance under the line of this credit;
d. permit you to make any advance payable to the seller(or seller and me)
of any items being purchased with that advance;
e. ______________________________________________________________________
----------------------------------------------------------------------
7. NOTICES: All notices or other when correspondence with me should be sent to
my address stated above. The notice or correspondence shall be effective when
deposited in the mail, first class, or delivered to me in person.
8. MISCELLANEOUS: This line of credit may not be changed except by a written
agreement signed by you and me. The law of the state in which you are located
will govern this agreement. Any term of this agreement which is contrary to
applicable law will not be effective, unless the law permits you and me to
agree to such a violation.
FOR THE LENDER SIGNATURES: IAGREE TO THE TERMS OF THIS LINE OF CREDIT.
I HAVE RECEIVED A COPY ON TODAY"S DATE.
ANNE K. FRAY STRATCOMM MEDIA USA, INC.
TITLE: EXECUTIVE VICE PRESIDENT By:
JOESPH H LANDIS, CHIEF EXEC OFFICER
By
PAUL SERLUCO, CHIEF FINAN OFFICER
<PAGE>
STRATCOMM MEDIA USA, INC.
1947 LEE ROAD BANKFIRST Loan Number____
WINTER PARK, FL 32789 1031 WEST MORSE BLVD SUITE 150 Date OCT. 28, 1998
WINTER PARK, FL 32789 Mat. Due ON DEMAND
BORROWERS NAME AND ADDRESS LENDER'S NAME AND ADDRESS Loan Amount
$450,000.00
- -----------------------------------------------------------------------------
I hereby authorize and request the following disbursement from the loan
reference above:
a. Amount given directly to me $ 149,475.00
b. Amount paid on my account (#_____________) $ 300,000.000
c. To lender amounts paid to others on my behalf $
d. To property insurance company $
e. To credit line insurance company $
f. To disability insurance company $
g. To public officials $
h. DOCUMENTARY STAMP TAX $ 525.00
i.
j.
k.
l.
m.
n.
o.
p.
q.
Comments STRATCOMM MEDIA USA, INC
By:
JOESPH H LANDIS, CHIEF EXEC
OFFICER
By:
Loan officer: PAUL SERLUCO, CHIEF FINAN OFFICER
<PAGE>
SECURITY
SECURITY INTEREST: I give you a security interest in all of the property
described below that I now own and that I may own in the future (including but
not limited to, all parts, accessories, repairs, improvements, and accessions to
the property), wherever the property is or may be located, and all proceeds and
products from the property.
[ ] Inventory. All inventory which I hold for ultimate sale or lease, or which
has been or will be supplied under contracts of service, or which are raw
materials, work in process, or materials used or consumed in my business. [ ]
Equipment: All equipment including, but not limited to, all machinery, vehicles,
furniture, fixtures, manufacturing equipment, farm machinery and equipment, shop
equipment, office and recordkeeping equipment, and parts and tools. All
equipment described in a list or schedule which I give to you will also be
included in the secured property, but such a list is not necessary for a valid
security interest in my equipment.
[ ] Farm Products: All farm products including but not limited to: (a) all
poultry and livestock and their young, along with their products, produce and
replacements; (b) all crops, annual or perennial, and all product of the crops;
and (c) all feed, seed, fertilizer, medicines, and other supplies used or
produced in my farming operations [ ] Accounts, Instruments, Documents, Chattel
paper, and Other Rights to Payment: All rights I have now and that I may have in
the future to payment of money including, but mot limited to:
(a) payment for goods and other property sold or leased or for service rendered,
whether or not I have earned such payment by performance; and (b) rights to
payment arising out of all present and future debt instruments, chattel paper
and loans and obligations recievable.
The above include any rights and interests(including all liens and
security interet) which I may have by law or agreement against any
acount debtor or obligor of mine.
[ ] Gerneral Intanigables: All gener intangibals including, but not limited to,
tax refunds, applications for patents, patents, copyrights, trademarks, trade
secrets, good will, trade names, customer lists, permits and franchises, and the
right to use my name.
[ ] Government Payments and Programs: All payments, accounts, general
intangibles, or other benefits (including, but not limited to, payments in kind,
deficiency payments, letters of entitlement, warehouse receipts, storage
payments, emergency assistance payments, diversion payments, any conservation
reserve payments) which I now and in the future may have any rights or interest
and which arise under or as a result of any preexisting, current or future
Federal or state governmental program (including, but not limited to, all
programs administered by the Commodity Credit Corporation and the ASCS).
[X] The secured property includes, but is not limited by, the following:
BANKFIRST CD #0300007576 IN THE AMOUNT OF $200,000.00 DATED 11/07/97 AND
BANKFIRST CD #0300007559 IN THE AMOUNT OF $100,000.00 DATED 10/10/97, BANKFIRST
CD #30007572 IN THE AMOUNT OF $100,000.00 AND BANKFIRST CD #300007524 IN THE
AMOUNT OF $50,000.00. ALL IN THE NAME OF STRATCOMM MEDIA USA, INC.
If this Agreement covers timber to be cut, minerals (including oil and gas),
fixtures or crops growing or to be grown, the legal description
is____________________________________________________________________________
[ ] If checked, file this agreement on the real estate records. Record Owner
(if not me)______________________________________
- ----------------------------------------------------------------------------
The property will be used for [ ] personal [X] business [ ] agricultural [ ]
_________________________________ purpose.
ADDITIONAL TERMS OF THE SECURITY AGREEMENT
GENERALLY - This agreement secures this note and any other debt I have with you,
now or later. However, it will not secure other debts if you fail with respect
to such other debts, to make any required disclosure about this security
agreement or if you fail to give any required notice of the right of rescission.
If property described in this agreement is located in another state, this
agreement may also, in some circumstances be governed by the law of the state in
which the Property is located.
OWNERSHIP AND DUTIES TOWARD PROPERTY - I represent all of the Property, or to
the extent this 'is a purchase interest I will acquire ownership of the Property
with the loan. I will defend it against any other claim. Your claim to the
property is ahead of the claims of any other creditor. I agree to do whatever
you require to protect your security interest and to keep your claim in the
Property ahead of the claims of other creditors. I will not do anything to harm
your position.
I will keep books, records and accounts about the property and my business in
general. I will let you examine these records at any reasonable time. I will
keep the Property in my possession and use it only for the purposes(s) described
on page 1 of this agreement. I will not change the specified use without your
express written permission. I represent that I am the original owner of the
Property and, if I am not, that I have provided you with a list of all previous
owners of the Property.
I will keep the Property at my address, unless we agree I may keep it at
another location. If the property is to be used in another state, I will give
you a list of those states. I will not try to sell the Property unless it is
inventory or I receive your written permission to do so. If I sell the Property
I will have the payment made payable to the order of you and me.
You may demand immediate payment of the debt(s) if the debtor is not a
natural person and without your prior written consent; (1) a beneficial interest
in the debtor is sold or transferred, or (2) there is a change in either the
identity or number of members of a partnership, or (3) there is a change in
ownership of more than 25 percent of the voting stock of a corporation.
I will pay all taxes and charges on the Property as they become due. You have
the right of reasonable access in order to inspect the Property. I will
immediately inform you of any loss or damage to the Property.
If I fail to perform any of my duties under this security agreement, or any
mortgage, deed of trust, lion or other security interest, you may without notice
to me perform the duties or cause them to be performed. Your right to perform
for me shall not create an obligation to perform and your failure to perform
will not preclude you from exercising any of your other rights under the law or
this security agreement.
PURCHASE MONEY SECURITY INTEREST - For the sole purpose of determining the
extent of a purchase money security interest arising under this security
agreement: (a) payments on any nonpurchase money loan also secured by this
agreement will not be deemed to apply to the Purchase Money Loan, and (b)
payments on the Purchase Money Loan will be deemed to apply first to the
nonpurchase money portion of the loan, if any, and then to the purchase money
obligations in the order in which the items of collateral were acquired or if
acquired at the same time, in the order selected by you. No security interest
will be terminated by application of this formula. "Purchase Money Loan" means
any loan the proceeds of which, in whole or in part, are used to acquire any
collateral securing the loan and all extensions, renewals, consolidations and
refinancing of such loan.
PAYMENTS BY LENDER - You are authorized to pay, on my behalf, charges I am or
may become obligated to pay to preserve or protect the secured property (such as
property insurance premiums). You may treat those payments as advances and add
them to the unpaid principal under the note secured by this agreement or you may
demand immediate payment of the amount advanced.
INSURANCE - I agree to buy insurance on the property against all the risks and
for the amounts you require and to furnish you continuing proof of the coverage.
I will have the insurance company name you as a loss payee on any such policy.
You may require added security if you agree that insurance proceeds may be used
to repair or replace the property. I will buy insurance from a firm licensed to
do business in the state where you are located. The firm will be responsibly
acceptable to you. The insurance will last until the property is released from
this agreement. If I fail to buy or maintain the insurance (or fail to name you
as a loss payee) you may purchase it yourself.
WARRANTIES AND REPRESENTATIONS - If this agreement includes accounts, I will not
settle any account for less than its full value without your written permission.
I will collect all accounts until you tell me otherwise. I will keep the
proceeds from all the accounts and, any goods which are returned to me or which
I take back in trust for you. I will not mix them with any other property of
mine. I will deliver them to you at your request. If you ask me to pay the full
price on any returned items or items retaken by myself, I will do so.
If this agreement covers inventory, I will not dispose of it except in my
ordinary course of business at the fair market value for the Property, or at a
minimum price established between you and me.
If this agreement covers farm products I will provide you, at your request, a
written list of the buyers, commission merchants or selling agents to or through
whom I may sell my farm products. In addition to those parties named on this
written list, I authorize you to notify at your sole discretion any additional
parties regarding your security interest in my farm products. I remain subject
to all applicable penalties for selling my farm products in violation of my
agreement with you and the Food Security Act. In this paragraph the terms farm
products, buyers, commission merchants and selling agents have the meanings
given to them in the Federal Food Security Act of 1985.
REMEDIES - I will be in default on this security agreement if I am in default on
any note this agreement secures or if I fail to keep any promise contained in
the terms of this agreement. If I default, you have all of the rights and
remedies provided in the note and under the Uniform Commercial Code. You may
require me to make the secured property available to you at a place which is
reasonably convenient. You may take possession of the secured property and sell
it as provided by law. The proceeds will be applied first to your expenses and
then to the debt. I agree that 10 days written notice sent to my last known
address by first class mail will be reasonable notice under the Uniform
Commercial Code. My current address is on page 1. 1 agree to inform you in
writing of any change of my address.
FILING - A carbon, photographic or other reproduction of this security agreement
or the financing statement covering the Property described in this agreement may
be used as a financing statement where allowed by law. Where permitted by law,
you may file a financing statement which does not contain my signature, covering
the Property secured by this agreement.
Any person who signs within this box does so to give you a security interest in
the Property described on this page. This person does not promise to pay the
note. "I" as used in this security agreement will include the borrower and any
person who signs within this box.
Date
Signed _________________________________________________
<PAGE>
ADDITIONAL TERMS OF THE NOTE
DEFINITIONS - As used on page 1, "[X]" means the terms that apply to this loan.
"l," *me" or "my" means each Borrower who signs this note and each other person
or legal entity (including guarantors, endorsers, and sureties) who agrees to
pay this note (together referred to as "us"). "You" or "your" means the Lander
and its successors and assigns. APPLICABLE LAW - The law of the state of Florida
will govern this agreement. Any term of this agreement which is contrary to
applicable law will not be effective, unless the law permits you and me to agree
to such a variation. It any provision of this agreement cannot be enforced
according to its terms, this fact will not affect the enforceability of the
remainder of this agreement. No modification of this agreement may be made
without your express written consent. Time is of the essence in this agreement.
PAYMENTS - Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you and I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST - Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
principal sum outstanding at that time. Notwithstanding anything to the
contrary, I do not agree to pay and you do not intend to charge any rate of
interest that is higher than the maximum rate of interest you could charge under
applicable law for the extension of credit that is agreed to in this note
(either before or after maturity). If any notice of interest accrual is sent and
is in error, we mutually agree to correct it, and it you actually collect more
interest than allowed by law and this agreement, you agree to refund it to me.
INDEX RATE - The index will serve only as a device for setting the interest rate
on this note. You do not guarantee by selecting this index, or the margin, that
the interest rate on this note will be the same rate you charge on any other
loans or class of loans you make to me or other borrowers.
POST MATURITY RATE - For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS - If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any described in the "PAYMENTS BY LENDER" paragraph
below.
MULTIPLE ADVANCE LOANS - It this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed and
credit, repaying a part of the principal will not entitle me to additional
credit. SET-OFF - I agree that you may set off any amount due under this note
against any right I have to receive money from you.
"Right to receive money from you" means: (1) any deposit
account balance I have with you; (2) any money owed to me on
an item presented to you or in your possession for collection
or exchange; and (3) any repurchase agreement or other
nondeposit obligation
"Any amount due and payable under this note " means the total amount of which
you are entitled to and under the terms of this note at the time you set off.
This total includes any balance the date for which you properly accelerate under
this note.
If my right to receive money from you is also owned by, someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to other amounts I could Withdraw on my sole request or
endorsement, Your right of set-off does not apply to an account of other
obligation where my rights are only as a representative. It also does not apply
to any individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor occurs
because you set off this debt against any of my accounts. I agree to hold you
harmless from any such claims arising as a result of your exercise of your right
to set-off. DEFAULT - I will be in default if any one or more of the following
occur: (1) 1 fail to make a payment an time or in the amount due; (2) 1 fail to
keep the Property insured, if required; (3) 1 fail to pay, or keep any promise,
on any debt or agreement I have with you; (4) any other creditor of mine
attempts to collect any debt I owe him through court proceedings; (5) 1 die, am
declared incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets
or I am unable to pay my debts as they become due); (6) 1 make any written
statement or provide any financiall information that is untrue or inaccurate at
the time it was provided; (7) 1 do or fail to do something which causes you to
believe you will have difficulty collecting the amount.[ owe you; (8) any
collateral securing this note is used in a manner or for a purpose which
threatens confiscation by a legal authority; (9) 1 change my name or assume an
additional name without first notifying you before making such a change; 110) 1
fail to plant, cultivate and harvest crops in due season; (11) any loan proceeds
are used for a purpose that will contribute to excessive erosion of highly
erodible land or to the conversion of wetlands to produce an agricultural
commodity, as further explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES - If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued unpaid charges). (2)
You may set off this debt against any right I have to the payment of money
from you, subject to the terms of the "SET-OFF" paragraph herein.
(3) You may demand security, additional security, or additional parties to be
obligated to pay this note as a condition for not using any other remedy. (4)
You may refuse to make advances to me or allow purchases on credit by me.
(5) You may use any remedy you have under state or federal law.
(6) You may make use of any remedy given to you in any agreement securing
this note.
By selecting any one or more of these remedies you do not give up your right
to use later any other remedy. By waiving your right to declare an event to be a
default, you do not waive your right to consider later the event a default if it
continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES - I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note. I also agree to pay any.
reasonable fee costs (except Where prohibited by law). I agree that "reasonable
attorney's fees" shall be constructed to mean 10% of the principal sum named in
this note, or such larger fee that the court may determine to be reasonable and
just. To the Extent permitted by the United States Bankruptcy Code, I also agree
to pay reasonable attorney fees and cost you incur to collect his debt as
awarded by nay court exercising jurisdiction under the Bankruptcy Code.
WAIVER - I give up my rights to require you to do certain things. I will not
require you to: (1) demand Payment of amounts due (presentment); (2) obtain
Official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of dishonor). To the
extent permitted by law, I also waive my right to a trial by jury in respect to
any action arising from this note and any other agreement executed in
conjunction with this credit transaction. I waive any defenses I have based on
sureship or impairment of collateral.
OBLIGGATIONS INDEPENDENT - I understand that I must pay this note someone else
has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me a, or anyone else who is obligated on
this note, or any number of us together to collect this note. You may without
notice release any party to this agreement without releasing any other party. it
you give up any of your rights, with or without notice, it will not affect my
duty to pay this note. Any extension of new credit to any of us, or renewal of
this note by all or less than all of us will pot release me from my duty to pay
it. (Of course, you are entitled to only one payment in full.) I agree that you
may at your option extend this note or the debt represented by this note, or any
portion of the note or debt, from time to time without limit or notice and for
any term without affecting my liability for payment of the note. I will not
assign my obligation under this agreement without your prior written approval.
CREDIT INFORMATION - I agree and authorize you to obtain credit information
about me from time to time (for example, by requesting a credit report) and to
report to others your credit experience with me (such as a credit reporting
agency). I agree to provide you, upon request, any financial statement or
information you may deem necessary. I warrant that the financial statements and
information I provide to you are or will be accurate, correct and complete.
SIGNATURES: I GREE TO THE TERMS OF THIS NOTICE (INCLUDING THOSE ON PAGES 1
AND 2). I have received a copy on toady's date.
STRATCOMM MEDIA USA, INC._______________________________________________
JOESPH H LANDIS, CHIEF EXEC OFFICER_____________________________________
PAUL SERLUCO, CHIEF FINAN OFFICER_______________________________________
Signature for lender: ANNE K FRAY, EXECUTIVE VISE PRESIDNET____________
<PAGE>
CORPORATE AUTHORIZATION RESOLUTION
BANKFIRST By: STRATCOMM MEDIA USA, INC.
15119 US HWY 441 1947 LEE ROAD
EUSTIS, FL 32726 WINTER PARK, FL 32789
A. I, LEN ARNOFF certify that I am Secretary (clerk) of the above named
Corporation organized under the laws of FLORIDA Federal Employer IND. Number
59-3131730, engaged in business under the trade name of STRATCOMM MEDIA U.S.A. ,
and that the following is a correct copy of resolutions adopted at a meeting of
the Board of Directors of this corporation duly and properly called and held on
APRIL 23, 1998 . These resolutions appear in the minutes of this meeting and
have not been rescinded or modified.
B. Be it resolved that,
(1) The Financial Institution named above is designated as a depository for the
funds of this corporation.
(2) This resolution shall continue to have effect until express written notice
of its rescission or modification has been received and recorded by this
Financial Institution. (3) All transactions, if any, with respect to any
deposits, withdrawals, rediscounts and borrowings by or on behalf of this
corporation with this Financial Institution prior to the adoption of this
resolution are hereby ratified, approved and confirmed. (4) Any of the persons
named below, so long as they act in a representative capacity as agents of this
corporation, are authorized to make any and all other contracts, agreements,
stipulations and orders which they may deem advisable for the effective exercise
of the powers indicated below, from time to time with this Financial
Institution, concerning funds deposited in this Financial Institution, moneys
borrowed from this Financial Institution or any other business transacted by and
between this corporation and this Financial Institution subject to any
restrictions stated below.
(5) Any and all prior resolutions adopted by the Board of Directors of this
corporation and certified to this Financial Institution as governing the
operation of this corporation's account(s), are in full force and effect, unless
supplemented or modified by this authorization.
(6) This corporation agrees to the terms and conditions of any account
agreement, properly opened by any authorized representative(s) of this
corporation, and authorizes the Financial Institution named above, at any time,
to charge this corporation for all checks, drafts, or other orders, for the
payment of money, that are drawn on this Financial Institution, regardless of by
whom or by what means the facsimile signature(s) may have been affixed so long
as they resemble the facsimile signature specimens in section C. (or the
facsimile signature specimens that this corporation files with this Financial
Institution from time to time) and contain the required number of signatures for
this purpose.
C. If indicated, any person listed below (subject to any expressed restrictions)
is authorized to:
(A) JOSEPH H. LANDIS, CHIEF EXEC OFFICER
(B) PAUL SERLUCO, CHIEF FINANCIAL OFFICER
(C)
(D)
Indicate A, B, C and/or D
A B (1)Exercise all of the all of the powers listed in (2)
through (6).
(2) Open any deposit or checking account(s) in the name of
this corporation. (3) Endorse checks and orders for the
payment of money and withdraw funds on deposit with this
Financial Institution. Number of authorized signatures
required for this purpose. (4) Borrow money on behalf and in
the name of this corporation, sign, execute and deliver
promissory notes or other evidences of indebtedness. Number of
authorized signatures required for this purpose . (5) Endorse,
assign, transfer, mortgage or pledge bills receivable,
warehouse receipts, bills of lading, stocks, bonds, real
estate or other property now owned or hereafter owned or
acquired by this corporation as security for sums borrowed,
and to discount the same, unconditionally guarantee payment of
all bills received, negotiated or discounted and to waive
demand, presentment, protest, notice of protest and notice of
non-payment. Number of authorized signatures required for this
purpose (6) Enter into written lease for the purpose of
renting and maintaining a Safe Deposit Box in this Fi cial
Institution. Number of authorized persons required to gain
access and to terminate the lease
D. I further certify that the Board of Directors of this corporation has, and at
the time of adoption of this resolution had, full power and lawful authority to
adopt the foregoing resolutions and to confer the powers granted to the persons
named who have full power and lawful authority to exercise the same.
In Witness Whereof, I have hereunto subscribed my
name and affixed the seal of this corporation on
IMPRINT APRIL 23, 1998
SEAL
HERE
JOESPH H LANDIS
LEN ARNOFF
<PAGE>
DOCUMENTARY STAMP LETTER
BankFIRST
15119 US HWY 441
EUSTIS, FL 32726
Re: Loan Agreement between Stratcomm Media U.S.A., Inc. and BankFIRST
dated April 23, 1998.
Gentlemen:
Reference is made to the above-captioned loan agreement, under which we
are financing a Line of Credit in the amount of Three Hundred Thousand and
No/100 Dollars ($300,000.00) through your finance department in the bank.
It is understood that the only documentary stamps which have been
purchased in connection with this transaction have been placed on the
notes mentioned in the agreement, and that should it later prove necessary
to place state documentary stamps on the paper in each individual
'transaction, we will hold BankFIRST harmless and guarantee payment of all
such additional documentary stamps that may be necessary to purchase in
the future.
This will also include any stamps that have to be purchased for contracts
for individual transactions negotiated under the abovecaptioned agreement
prior to the date of this letter.
ACKNOWLEDGED:
Stratconm Media U.S.A., Inc.
By: (SEAL)
Joseph H. Landis
Chief Executive Officer
By (SEAL)
Paul Serluco
Chief Financial Officer
Date:
<PAGE>
Exhibit 10.21 Promissory Note with Robert Lewis, Jr.
<PAGE>
PROMISSORY NOTE
$299,000.00 Place of Execution: Orlando, Florida
Effective Date: July 1 , 1998
Date of Execution: July . 1998
FOR VALUE RECEIVED, the undersigned, as Maker, promises to pay to the
order of ROBERT E. LEWIS, JR. or order ("Holder"), in the manner hereinafter
specified, the principal sum of Two Hundred Ninety-Nine Thousand and No/l00
Dollars ($299,000.00) with interest on the principal balance from Effective Date
at the rate of Five Percent (6%), per annum. The said principal and interest
shall be payable in lawful money of the United States of America at 2708
Glennedwin Court, Apopka, Florida 32712, or at such a place as may hereafter be
designated by written notice from the Holder to the Maker hereof, on the dates
and in the manner following:
The first installment of $60,000.00 plus interest in the amount of
$17,940.00 on July 1. 1999 The second installment of $60,000.00 plus
interest in the amount of$ 14,340.00 on July 1. 2000 The third
installment of $60,000.00 plus interest in the amount of $10,740.00 on
July 1, 2001 The fourth installment of $60,000.00 plus interest in the
amount of $7,140.00 on July 1, 2002 The fifth installment of $59,000.00
plus interest in the amount of $3,540.00 on July 1. 2003.
Prepayment. The Maker of this Promissory Note ("Note") shall have the
right to prepay this obligation at any time.
Late Payment. A late charge in the amount of five percent (5%) of any
installment payment of principal or interest due upon this obligation shall be
paid, in the event that any such installment payment has not been made within
five (5) days of the due date thereof.
Acceleration. If default be made in the payment of any of the sums or
interest mentioned herein, or in the performance of any of the agreements
contained in this Promissory Note or as contained in a certain Mortgage Deed and
Security Agreement of even date, and such default shall continue for more than
fifteen (15) days, then the entire principal sum and accrued interest shall, at
the option of the Holder hereof, become at once due and collectible without
further notice, time being of the essence; and said principal sum and accrued
interest shall both bear interest from such time until paid eighteen percent
(18%) per annum. Failure to exercise this option shall not constitute a waiver
of the right to exercise the same in the event of any subsequent default.
Waivers Attorneys' Fees and Costs. Presentment, notice of dishonor, and
protest are hereby waived by Maker, guarantor and endorsers hereof, and each
agree to pay all costs, reasonable attorneys' fees, whether suit be brought or
riot, if, after maturity of this Note or default hereunder, counsel shall be
employed to collect this Note.
<PAGE>
Legal Interest Rate. All agreements between the undersigned and the Holder
hereof are expressly limited so that under no contingency or event whatsoever
shall the amount paid or agreed to be paid to the Holder hereof for the use,
forbearance or detention of the money advanced or to be advanced hereunder
exceed the highest lawful rate permissible under the laws of the State of
Florida. If fulfillment of any provision hereof or any other agreement referred
to herein, or pertaining hereto, at the time performance of such provision shall
be due, shall involve amount exceeding the limit of validity prescribed by law
which a court of competent jurisdiction may deem applicable hereto, then, the
obligation to be fulfilled shall be reduced to the limit of such validity, and
if from any circumstances, the Holder hereof shall ever receive as interest an
amount which would exceed the highest lawful rate, such amount which would
otherwise be excessive interest, shall be applied to the reduction of the unpaid
principal balance hereunder and not to the payment of interest.
Security. This Note is secured by a Mortgage Deed and Security
Agreement upon real and personal property in Orange County, Florida, and this
Note is to be construed according to the laws of the State of Florida. The terms
and conditions of said Mortgage and Security Agreement are by reference
incorporated herein.
Maker. The term "Maker~ as used herein shall include the Makers
successors and assigns.
Waiver of Trial By Jury. Maker hereby knowingly, voluntarily and
intentionally waives any right it may have to a trial by jury in respect of any
litigation (including but not limited to any claims, Cross claims, or Third
Party Claims) arising out of, under or in connection with this Note, or the
transactions contemplated herein. Maker hereby certifies that no representative
or agent of the Holder nor the Holder's counsel has represented, expressly or
otherwise, that the Holder would not, in the event of such litigations, seek to
enforce this waiver of right to jury trial provision. Maker acknowledges that
the Holder has been induced to enter into this loan, including the Note, by,
inter alia, the provisions of this paragraph.
ALTAMONTE PRINTING, INCORPORATED
By: signed by Joseph H. Landis
Name: JOSEPH H. LANDIS
Title: President
Required Documentary Stamps have been paid upon and are affixed to the Mortgage
and Security Agreement securing the Promissory Note.
{Continues on next page.]
<PAGE>
ABSOLUTE, UNCONDITIONAL AND CONTINUING GUARANTEE
The undersigned STRATCOMM MEDIA U.S.A, INC., does hereby personally guarantee
payment and performance of the foregoing Promissory Note in the principal amount
of $299,000.00 in accordance with the terms and conditions thereof, and
STRATCOMM MEDIA U.S.A, INC. does hereby acknowledge that such personal guarantee
is absolute, unconditional and continuing until such time as the foregoing
Promissory Note has been paid in lull and satisfied.
STRATCOMM MEDIA U.S.A., INC.
By:__signed by Joseph H. Landis______________
Name: JOSEPH H. LANDIS
Title: PRESIDENT
<PAGE>
Exhibit 10.22 Secruities and Exchange Commission Civil Action
<PAGE>
UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
(Orlando Division)
- ------------------------------------------
UNITED STATES SECURITIES AND )
EXCHANGE COMMISSION, )
)
Plaintiff, ) C.A. No.
)
v. )
)
CORPORATE RELATIONS GROUP, INC., ) COMPLAINT
STRATCOMM MEDIA LTD., ) INJUNCTIVE RELIEF
GULF ATLANTIC PUBLISHING, INC., ) SOUGHT
NEW CONCEPTS L.L.C., )
CJL CORPORATION, ) [Violations of Federal
POW WOW, INC., ) Securities Laws]
FONDO DE ADQUISICIONES E )
INVERSIONES INTERNACIONALES XL, S.A., )
C.A. OPORTUNIDAD, S.A., )
AMMONIA HOLD, INC. )
and )
ROBERTO E. VEITIA, JAMES W. SPRATT )
III, JAMES A. SKALKO, JACK R. RODRIGUEZ, )
JOSE ANTONIO GOMEZ CORTES, )
ARNOLD ZOUSMER, CHARLES J. LIDMAN )
and MICHAEL PARNELL, )
)
Defendants. )
- ------------------------------------------)
Thomas C. Newkirk
James A. Kidney (Trial Counsel)
Jerry A. Isenberg
Christopher R. Conte
Jeffrey P. Weiss
Attorneys for Plaintiff
U.S. Securities and Exchange Commission
Mail Stop 8-8 (Kidney)
450 Fifth Street, N.W.
Washington, D.C. 20549-0808
(202) 942-4797 Fax: (202) 942-9581 (Kidney)
Date: September 27, 1999 [email protected]
TABLE OF CONTENTS
SUMMARY OF THE COMPLAINT 2
VIOLATIONS ALLEGED 4
JURISDICTION AND VENUE 5
DEFENDANTS 5
I. Fraud in the Distribution, Promotion, Purchase and Sale of Securities 8
II. Unlawful Touting of Securities 14
III. Violations of the Registration Requirements of the Securities Act
Through Phony Regulation S Sales and Inapplicable Exemptions 14
<PAGE>
IV. Specific Securities Transactions in Which Defendants Violated the
Antifraud, Touting and Registration Provisions of the Securities Laws 17
A. The Tracker Corporation of America 17
1. The Regulation S Offering 18
2. The S-8 Offering 20
3. CRG Promotion of Tracker Stock to Investors 21
B. Delta Petroleum 23
1. August 1995 through February 1996 24
2. March 1996 through May 1996 26
3. May 1996 through December 1996 27
4. CRG Promotion of Delta Stock 28
C. Ammonia Hold 29
1. Stock Loans Repaid with Regulation S Stock 29
a. Olympus Investment Loan 29
b. Grace Holdings Loan 30
2. The Ammonia Hold Offering Purporting to Use Regulation D and S
Exemptions 32
3. August Regulation S Sales 33
4. CRG Promotion of Ammonia Hold 34
D. Information Management Technologies Corporation 35
E. Foreland Corporation 39
V. Specific Securities Transactions In Which Defendants Violated the
Antifraud and Touting Provisions of the Securities Laws 41
A. Atlas Pacific Ltd. 42
B. ECO2 43
C. Global Intellicom 45
D. Global Spill Management, Inc. 47
E. Golf Ventures 49
F. Jreck Subs 51
G. Sobik's Subs 53
H. Vector Aeromotive 54
I. Viking Management Group 56
VI. Stratcomm Acted as an Unregistered Dealer and, with CRG, Caused an
Unregistered Distribution of Stratcomm Common Stock Which CRG
Touted Without Disclosing Its Relation to Stratcomm 58
VII. CRG Acted as an Unregistered Broker and Dealer 60
VIII. Ammonia Hold Fraudulently Reported Stock Sales as Revenues 61
<PAGE>
FIRST CLAIM -- Securities Fraud 62
SECOND CLAIM -- Securities Fraud 65
THIRD CLAIM -- Touting 66
FOURTH CLAIM -- Sale of Unregistered Securities 67
FIFTH CLAIM -- Sales by Unregistered Persons 69
PRAYER FOR RELIEF 70
UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
(Orlando Division)
- ------------------------------------------
UNITED STATES SECURITIES AND )
EXCHANGE COMMISSION, )
)
Plaintiff, ) C.A. No.
)
v. )
)
CORPORATE RELATIONS GROUP, INC., ) COMPLAINT
STRATCOMM MEDIA LTD., ) INJUNCTIVE RELIEF
GULF ATLANTIC PUBLISHING, INC., ) SOUGHT
NEW CONCEPTS L.L.C., )
CJL CORPORATION, ) [Violations of Federal
POW WOW, INC., ) Securities Laws]
FONDO DE ADQUISICIONES E )
INVERSIONES INTERNACIONALES XL, S.A., )
C.A. OPORTUNIDAD, S.A., )
AMMONIA HOLD, INC. )
and )
ROBERTO E. VEITIA, JAMES W. SPRATT )
III, JAMES A. SKALKO, JACK R. RODRIGUEZ, )
JOSE ANTONIO GOMEZ CORTES, )
ARNOLD ZOUSMER, CHARLES J. LIDMAN )
and MICHAEL PARNELL, )
)
Defendants. )
- ------------------------------------------)
Plaintiff, the Securities and Exchange Commission ("the Commission"),
alleges for its Complaint that the defendant corporations and individuals
violated provisions of the securities laws of the United States in connection
with the issuance, offer, distribution, purchase or sale of securities of at
least 15 small corporations during the period beginning in at least September
1994 and continuing beyond December 1996 to a date to be determined. These
violations resulted in unlawful profits estimated to be in excess of $20
million. SUMMARY OF THE COMPLAINT
1. Defendant Corporate Relations Group, Inc. ("CRG"), a Winter Park, Florida,
company, by and through its principal associates, defendants Roberto E. Veitia
("Veitia"), James W. Spratt III ("Spratt") and James A. Skalko ("Skalko"),
directed and operated a fraudulent scheme in which they acquired investment
<PAGE>
control of large blocks of securities from small public companies either for
free or at a steep discount from the market price. They then touted these
securities to the public in CRG publications and ordered employees to promote
the stocks to brokers, some of whom were bribed to sell the securities to their
customers. CRG, sometimes by and through other defendants, then sold the
securities at a profit while promoting them to the public. The statements in the
CRG publications were materially false and misleading because CRG failed
adequately to disclose that it was paid for the promotions, the amount it was
compensated, or that at the same time it was promoting the stock to the public
as a worthy investment, it was selling the stock.
2. CRG also acquired unregistered securities for ultimate resale in the United
States by persuading client companies (who retained CRG to promote their
securities) to issue unregistered securities to offshore entities, either
defendant Fondo de Adquisiciones E Inversiones Internacionales XL, S.A.
("Fondo") or defendant C.A. Oportunidad, S.A. ("Oportunidad"). These securities
also were acquired from issuers by CRG at a substantial discount to the
prevailing market price. Although securities sold by an issuer to non-U.S.
entities may be exempt from the registration requirements of the securities laws
if certain conditions are met, the securities distributed to Fondo and
Oportunidad remained under the control of CRG. CRG and its principals --
sometimes with defendants New Concepts L.L.C. ("New Concepts"), Arnold Zousmer
("Zousmer"), CJL Corporation ("CJL") and Charles J. Lidman ("Lidman") -- funded
or arranged to fund the purchase of the discounted securities and retained
investment control. CRG then directed the sale of these unregistered securities
back into the United States for unlawful sale on the open market, usually at a
price well above the deeply discounted price for which they were acquired and at
a substantial profit to the defendants. Sometimes CRG directed Fondo or
Oportunidad to sell the securities to New Concepts, usually through defendant
Spratt, to "cover" short positions which CRG and New Concepts used to insure
ultimate distribution of the stock and to lock in profits from the original
discounted purchase.
3. In addition to the scheme described above, defendants Stratcomm Media Ltd.
("Stratcomm") and Ammonia Hold, Inc. ("Ammonia Hold") sold their own
unregistered securities in the United States. CRG and Stratcomm, the parent
company of CRG and operated by the same principals, did so through their
employees, although CRG, Stratcomm and the employees were not registered to
offer securities for sale to the public as required by law. CRG also promoted
Stratcomm stock in its publications, often without disclosing that Stratcomm
owned CRG. To make itself appear to be more successful than it was, Ammonia Hold
falsely reported the proceeds of its stock sales as revenue rather than
infusions of capital in a report filed with the Commission, in a press release
and on its web site. VIOLATIONS ALLEGED
4. By virtue of the conduct described herein, defendants CRG, Gulf Atlantic
Publishing, Inc. ("Gulf Atlantic," but collectively included with "CRG"),
Veitia, Spratt, Skalko, a CRG employee, Jack R. Rodriguez ("Rodriguez"), Fondo,
Oportunidad, Jose Antonio Gomez Cortes ("Gomez"), who was the president or
control person of both Fondo and Oportunidad working at CRG's direction, Ammonia
Hold and Michael Parnell ("Parnell") violated Section 17(a) of the Securities
Act of 1933 ("Securities Act") [15 U.S.C. ss. 77q(a)], Section 10(b) of the
Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. ss. 78j(b)] and Rule
10b-5 promulgated thereunder [17 C.F.R. ss.10b-5]. Additionally, defendants
Stratcomm and Veitia are liable for CRG's violations of these provisions as
controlling persons of CRG under Section 20 of the Exchange Act [15 U.S.C. ss.
78t]. (Fraud).
<PAGE>
5. By virtue of the conduct described herein, defendants CRG, Gulf Atlantic,
Veitia, Spratt and Skalko violated Section 17(b) of the Securities Act [15
U.S.C. ss. 77q(b)]. Additionally, defendants Stratcomm and Veitia are liable for
CRG's violations of these provisions as controlling persons of CRG under Section
20 of the Exchange Act. (Touting).
6. By virtue of the conduct described herein, defendants CRG, Pow Wow, Inc.
("Pow Wow"), Veitia, Spratt, Skalko, Rodriguez, Fondo, Oportunidad, Gomez,
Ammonia Hold, Parnell, Stratcomm, New Concepts, Zousmer, CJL and Lidman violated
Section 5 of the Securities Act [15 U.S.C. ss. 77e]. Additionally, defendants
Stratcomm and Veitia are liable for CRG's violations of these provisions as
controlling persons of CRG under Section 20 of the Exchange Act. (Sales of
unregistered securities).
7. By virtue of the conduct described herein, defendants CRG, Stratcomm,
Spratt, Skalko and Rodriguez violated Section 15(a)(1) of the Exchange Act [15
U.S.C. ss. 78o(a)(1)]. Additionally, defendants Stratcomm and Veitia are liable
for CRG's violations of these provisions as controlling persons of CRG under
Section 20 of the Exchange Act. (Sales of securities by unregistered brokers and
dealers). JURISDICTION AND VENUE
8. This Court has jurisdiction over this action under Section 20(b) of the
Securities Act [15 U.S.C. ss. 77t(b)] and Sections 21(d), 21(e) and 27 of the
Exchange Act [15 U.S.C. ss.ss. 78u(d), 78u(e) and 78aa]. Venue lies in this
Court pursuant to Section 20 of the Securities Act and Section 27 of the
Exchange Act.
9. In connection with the transactions, acts, practices, and courses of
business described in this Complaint, each of the defen-dants, directly and
indirectly, has made use of the means or instrumentalities of interstate
commerce, of the mails, and/or of the means or instrumentalities of
transportation or communication in interstate commerce.
DEFENDANTS
10. CRG, a wholly-owned subsidiary of Stratcomm, is a public relations firm
located in Winter Park, Florida. CRG, and, later, Gulf Atlantic (again,
collectively herein, "CRG"), produced a variety of publications, ranging from
one-page fax bulletins to monthly, full-color magazines. CRG charged companies
for its "public relations" services, which included touting securities of client
companies to investors through CRG publications, press releases and direct
contact with brokers.
11. Stratcomm is a Vancouver, Canada corporation with its principal offices in
Winter Park, Florida. It is the parent company of CRG and of several other
subsidiaries. Stratcomm, which conducted business through its subsidiaries,
traded on the Over The Counter ("OTC") Bulletin Board [a trading vehicle
utilized by "micro cap" companies whose market capitalization is relatively
small] until October 5, 1994, when trading was halted. Trading resumed on the
OTC Bulletin Board on July 28, 1998. In the interim, Stratcomm offered its stock
off-market through brokers as described herein.
12. Gulf Atlantic is a wholly-owned subsidiary of Stratcomm located in Winter
Park, Florida. In late 1995, Gulf Atlantic succeeded CRG as the primary entity
publishing magazines and newsletters that touted stock to the public.
13. Veitia, age 51, lives in Orlando, Florida. He was the president and
chairman of CRG and the president, chief executive officer and chairman of the
board of Stratcomm until July 1997. He reassumed the presidency of Stratcomm in
1999. For most of the relevant period, he was the sole director of Gulf
Atlantic. In 1988, Florida and Michigan ordered Veitia to, among other things,
cease and desist from offering and selling unregistered, non-exempt securities.
These orders arose from activities not related to the matters alleged herein.
<PAGE>
14. Spratt, age 43, lives in Longwood, Florida. He was a vice president of CRG
from September 1994 to late 1996. Spratt previously was a registered
representative with several brokerage firms.
15. Skalko, age 41, lives in Heathrow, Florida. He was a senior employee of CRG
beginning in September 1994. Skalko also was a registered representative for
several broker-dealers before joining CRG and was the principal for defendant
Pow Wow beginning in May 1996.
16. Rodriguez, age 37, lives in Casselberry, Florida. He was a CRG employee
from June 1992 through September 1995 and was a registered representative at
various times from 1987 through late 1996.
17. Pow Wow is a Florida corporation located at CRG's offices. Pow Wow was
incorporated in August 1994 with Veitia as its initial director. Skalko became
Pow Wow's president and sole director in May 1996.
18. Fondo is a Costa Rican entity formed in August 1993.
19. Oportunidad is a Costa Rican entity formed in October 1994. Until February
1997, Gomez's daughter was president of the company.
20. Gomez was president of Fondo and, after February 1997 when he succeeded his
daughter, president of Oportunidad.
21. New Concepts, an Illinois corporation, has been a registered broker-dealer
since May 1994. 22. Zousmer, age 57, lives in Rancho Santa Fe, California. He
is a partner in New Concepts and has been a
registered representative since 1975. He has been registered as a broker-dealer
since 1993.
23. Lidman, age 55, lives in Del Mar, California. He is the owner and president
of CJL and has been a business associate of CRG since at least 1993. Lidman had
a beneficial interest in a New Concepts proprietary account.
24. CJL is a California consulting firm Lidman formed in 1981.
25. Ammonia Hold's principal offices are in Little Rock, Arkansas. Ammonia
Hold manufactures odor-eliminating products for consumer and industrial markets.
The company's common stock trades on the OTC Bulletin Board. Ammonia Hold and
Stratcomm are the only public companies named as defendants in this action.
26. Parnell, age 41, lives in Little Rock, Arkansas. He has been a registered
representative since March 1981 and currently is registered with Peterson
Investments, Inc. During the relevant time, Parnell was a registered
representative at PaineWebber Inc. and a major Ammonia Hold shareholder. In July
1996, Parnell became president and chief executive officer of Ammonia Hold.
I. Fraud in the Distribution, Promotion, Purchase and Sale of
Securities
27. CRG, through its principals, Veitia, Spratt and Skalko, designed, developed
and implemented a fraudulent scheme to enrich themselves and their co-defendants
by causing CRG's corporate clients to distribute securities -- both registered
and unregistered, non-exempt securities -- to CRG and its nominees at a deep
discount to the prevailing market price. CRG then promoted these securities to
the public through CRG publications and directly to brokers, sometimes bribing
brokers to recommend the securities to their customers. CRG realized profits by
selling the securities while recommending that the public buy the stock.
28. CRG produced a variety of publications to showcase recommendations to
investors of securities that CRG was paid to promote. The most prominent of
these was MoneyWorld. Veitia was the publisher of most of these publications.
Spratt and Skalko solicited companies to promote, wrote articles and columns and
otherwise assisted in preparing publications promoting the purchase of
securities by companies they knew paid for the promotions. The statements in the
publications were materially false and misleading because they failed adequately
to disclose either the compensation or that CRG was selling recommended stocks,
which benefited Spratt and Skalko, as well as Veitia. In many instances, Spratt
placed the orders in brokerage accounts controlled by CRG in which the
defendants realized their profits. Skalko, as Pow Wow's president and sole
director after May 1996, was responsible for trading in the Pow Wow account.
<PAGE>
29. CRG also provided direct promotion to the broker-dealer community through
its "Broker Relations Executives" ("BREs"), whom CRG paid to interest brokers in
soliciting their clients to purchase the securities CRG was promoting. The BREs
typically did not adequately disclose to brokers they were compensated for
promoting the securities. During the promotions of at least one customer
company, The Tracker Corporation of America ("Tracker"), brokers accepted cash
bribes from CRG to recommend stock to their clients.
30. CRG often received securities as payment for its promotional activities
from cash-short small capital companies. As described below, CRG also owned,
directly or indirectly, or exercised investment control over, unregistered
securities sold at deep discounts by its clients to Fondo or Oportunidad, which
held these securities until CRG directed they be sold back into the United
States for the direct or indirect benefit of the defendants, sometimes to
"cover" a short position in a security arising from CRG and New Concepts
selling.
31. A short position is created when stock is borrowed to sell with the
understanding that the borrowed stock will be replaced at a later date. Selling
short generally means the seller expects the price of the stock to go down, so
that the borrowed stock can be replaced with stock acquired a lower price. CRG
could sell securities short even anticipating some increase in price because it
expected to receive, directly or indirectly, stock at a deep discount from its
issuer-clients which it could use to replace the borrowed stock. In addition,
purporting to "wash" restrictive legends off of restricted stock through sales
to supposedly independent foreign accounts, Fondo and Oportunidad provided CRG
with a reliable source of stock to cover large short positions in thinly traded
issues.
32. While CRG was promoting the securities of its customers as wise investments
to the public, CRG was selling the securities of these same companies, taking
advantage of whatever increase in price or market activity their promotional
efforts encouraged. The statements in these publications were materially false
and misleading because CRG failed adequately to disclose that it acquired
discounted securities of the companies it was promoting in its publications, or
that many of the securities sold were not subject to a registration statement or
an exemption, or that CRG was paid to promote the securities by the issuer, or
that CRG was promoting purchase of the securities through brokers, sometimes
using bribes, or that CRG, directly or through New Concepts, Fondo Oportunidad
or Pow Wow, was selling these securities while it was promoting them as a buying
opportunity to the public.
33. Veitia was the mastermind behind CRG's fraudulent scheme. As president and
chairman of CRG, president, chief executive officer and chairman of the board of
Stratcomm, and as the sole director of Gulf Atlantic, Veitia directed and
controlled the activities of those entities, all of which had their principal
offices in Winter Park, Florida. Veitia convinced CRG clients that Fondo and
Oportunidad were legitimate, independent offshore purchasers qualified to
acquire U.S. securities under Regulation S, a special exemption from
registration with the Commission for offshore sales by issuers. Veitia
negotiated on behalf of Fondo and Oportunidad with client issuers. In fact,
Fondo and Oportunidad were controlled by CRG or were purchasing securities on
behalf of CRG and, therefore, securities sold to those entities never truly were
sold offshore and, therefore, were not exempt from the registration requirements
of the Securities Act.
34. Veitia was the publisher of most CRG and Gulf Atlantic promotional
materials and, as such, exerted influence, control and direction over those
firms' promotional activities and disclosures. Veitia also caused CRG to pay
bribes to brokers and caused Stratcomm to sell unregistered, non-exempt
securities through the BRE work force. Veitia executed public relations
contracts on behalf of CRG and signed the majority of checks, account opening
papers, legal documents and authorizations to transfer money and securities.
Veitia also signed the profit-sharing agreement with New Concepts, which
provided a vehicle for Spratt to short stocks in which CRG had taken positions
through its nominees, Fondo and Oportunidad. Veitia also opened many brokerage
accounts for CRG and directed at least some of the trading through the accounts.
<PAGE>
35. Spratt actively participated in CRG's overall fraudulent scheme. He
functioned as CRG's second-in-command and supervised many of the company's
day-to-day activities. Spratt executed some of the contracts between CRG and its
clients and approved trade confirmations collected by BREs to evidence the
buying activity they generated. Spratt traded the New Concepts and other
accounts in connection with the profit-sharing arrangement with New Concepts and
Spratt created the large short positions at New Concepts which locked in profits
from, and insured the ultimate distribution of, the discounted, unregistered,
non-exempt securities through Fondo and Oportunidad. Spratt also was an
aggressive promoter of CRG clients whose stock was being sold by CRG. Spratt
wrote a column in MoneyWorld entitled "Rumor Mill" and published separate
promotional materials, all of which were materially false and misleading because
they failed adequately to disclose CRG's fraudulent scheme or that issuers paid
for Spratt's promotions. Spratt also directed Rodriguez to bribe brokers. Spratt
received compensation from CRG in the form of free stock, bonuses and
commissions for his promotional activities.
36. Skalko participated in CRG's fraudulent scheme. He assisted Veitia and
Spratt in running day-to-day operations at CRG. Skalko also supervised the BREs
in their promotional activities, occasionally published promotional articles in
CRG publications, and was responsible for the trading in Pow Wow after May 1996.
Skalko personally bribed a broker to sell securities and also directed Rodriguez
to bribe brokers. Skalko received compensation from CRG in the form of free
stock, bonuses and commissions for his promotional activities.
37. Gomez, Fondo and Oportunidad participated in the fraudulent scheme by
allowing CRG to direct trading and other transactions in Fondo and Oportunidad
brokerage and bank accounts and by acting at the direction of CRG, Veitia and
Spratt. They did so for the purpose of evading the registration requirements of
the Securities Act by deceiving issuers for the purpose of acquiring stock under
the guise of Regulation S in order to sell the unregistered stock back into the
United States at the direction of and for the benefit of CRG while CRG was
promoting the same securities to the public in its publications.
38. Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and
Rule 10b-5 promulgated thereunder all prohibit use of any device, scheme or
artifice to defraud in the offer or sale of any security. Section 10(b) and Rule
10b-5 also prohibit fraud in the purchase of securities. The scheme described
above and identified in more detail below violated these statutes.
II. Unlawful Touting of Securities
39. The anti-touting provision of the Securities Act, Section 17(b), forbids
promotion of securities for consideration without disclosure of the receipt and
amount of such consideration. Some CRG publications contained statements that
CRG, its officers, directors and employees "may from time to time have a
position in the investments referred to in this advertiser-supported
publication" or similar representations. Some promotional articles were labeled
"Advertorials." Other publications did not even include these inadequate
"disclaimers." The quoted disclaimers, labels and similar others were inadequate
under the anti-touting law because they failed adequately to disclose both the
receipt and amount of compensation paid CRG by its issuer-clients.
III. Violations of the Registration Requirements of the
Securities Act Through Phony Regulation S Sales and
Inapplicable Exemptions
<PAGE>
40. Section 5 of the Securities Act forbids any person, directly or indirectly,
to sell a security unless an appropriate registration statement is in effect, or
to offer to sell or offer to buy a security unless the applicable registration
statement has been filed. The act provides certain exemptions from registration.
One of those exemptions, Regulation S [17 C.F.R. ss.ss.230.901, et seq.],
permits the offer and sale of unregistered securities outside the United States
if certain requirements are met. Among those requirements are that use of
Regulation S not be part of a plan or scheme to avoid the registration
provisions of the Securities Act [17 C.F.R. ss. 901 (Preliminary Statement)] and
that the offshore purchaser be neither a U.S. person nor a person acquiring the
securities for a the account or benefit of a U.S. person. [17 C.F.R. ss. 903
(c)(3)(iii)(B)(1)]. Regulation S does not provide an exemption or safe harbor
for the distribution or resale of securities back into the United States.
Persons who purchase Regulation S stock with a view to distributing such
securities in the United States are "underwriters" and may not sell such
securities except pursuant to a filed and effective registration statement.
41. CRG solicited its public relations clients to sell unregistered stock to
Fondo or Oportunidad at a substantial discount, relying on an apparent
Regulation S exemption as presented by CRG. Fondo and Oportunidad were
incorporated in Costa Rica but maintained stock trading accounts in Canada and
the United States. However, these sales did not qualify under Regulation S and,
therefore, were not exempt from registration, because the securities sold to
Fondo and Oportunidad at all times remained under the direction and control of
CRG. CRG, sometimes with New Concepts, Zousmer and Lidman, usually funded
purchase of these securities by Fondo and Oportunidad or arranged for funding by
other U.S. investors. Further, CRG acted as an underwriter by purchasing
securities from issuers through Fondo and Oportunidad for the purpose of selling
such securities into the U.S. market. Therefore, the subsequent sales back into
the United States by the Costa Rican companies violated Section 5 of the
Securities Act.
42. After the Regulation S deception involving The Tracker Corporation of
America described below, CRG's strategies grew more sophisticated. At or about
the time that a CRG public relations client was going to pay CRG for services
with heavily discounted securities or, at CRG's direction, sell heavily
discounted securities to Fondo or Oportunidad, CRG sold the same company's stock
"short" at the market price in CRG accounts or in accounts at New Concepts and
at another brokerage firm, A&S Limited Partners ("A&S"), over which CRG
maintained control and a beneficial ownership interest. New Concepts and CRG
agreed to split profits from some of the trading activity in the New Concepts
and A&S accounts. At other times, CRG retained all the profits from these
accounts. Spratt directed trading in the accounts whether or not the profits
were to be split with New Concepts. By selling the customer's stock short, CRG
and New Concepts insured that there would be a buyer (CRG and New Concepts) for
the thinly-traded securities when Fondo or Oportunidad sold the phony Regulation
S stock at a substantial profit in the United States. Selling short also "locked
in" the difference between the discounted price of the Regulation S stock and
the market price when the stock was sold short, virtually insuring the
defendants a profit. Promotional efforts by CRG, including use of the BRE sales
force, helped to cushion any negative impact on market price from the short
selling.
43. CRG also unlawfully purported to rely on other exemptions from
registration, including Rule 504 under Regulation D [17 C.F.R. 230.504], which,
among other things, permits the sale of unregistered securities for offerings
under $1 million.
44. As described in more detail below, defendants Stratcomm, CRG, Pow Wow,
Veitia, Spratt, Skalko, Rodriguez, Fondo, Oportunidad, Gomez, New Concepts,
Zousmer, CJL, Lidman, Parnell and Ammonia Hold violated Section 5 of the
Securities Act by selling securities which were not subject either to a valid
registration statement on file with the Commission or a valid exemption from
registration. <PAGE>
IV. Specific Securities Transactions in Which Defendants Violated
the Antifraud, Touting and Registration Provisions of the Securities
Laws
45. Specific instances in which the defendants violated the antifraud, touting
and registration provisions of the securities laws are described below.
Additional instances of touting and fraud are alleged in Section V, below.
A. The Tracker Corporation of America
46. The Tracker Corporation of America is a Delaware corporation whose common
stock traded on the OTC Bulletin Board. Tracker retained CRG in February 1994,
agreeing to pay CRG $450,000, but CRG did not begin promoting the company in its
publications until the following summer. From September 1994 to March 1996, CRG
directed for Tracker the two sets of private placements described below, raising
a total of more than $3.3 million from investors. CRG, Veitia, Spratt, Skalko,
Fondo and Zousmer together earned profits of over $2.2 million from trading
Tracker stock.
1. The Regulation S Offering
47. In or about September 1994, defendants Veitia and CRG suggested to Tracker
that it raise funds by selling its stock to defendant Fondo pursuant to
Regulation S. On September 16, 1994, Tracker executed a subscription agreement
to sell Fondo 785,000 shares of stock for $3,155,700, or $4.02 per share -- a 40
percent discount from the closing price that day on the OTC Bulletin Board. The
subscription agreement and associated promissory notes provided that Fondo would
pay Tracker's $450,000 bill owed to CRG under the February public relations
contract, pay Tracker $250,000 in 10 days and pay Tracker $2,455,700 within 60
days. Tracker issued Fondo two stock certificates, one for 210,000 shares and
another for 575,000 shares. It retained the smaller certificate pending Fondo's
payment of the $2,455,700 balance.
48. Fondo paid nothing for the Tracker stock. Instead, Zousmer, Lidman and
three of their business associates each sent Fondo $50,000 to cover the initial
$250,000 payment to Tracker. Veitia told Zousmer and Lidman it was a good
investment. Simultaneously, all five investors opened brokerage accounts at
Torrey Pines Securities ("Torrey Pines"). Fondo wired Tracker the $250,000 in
two installments.
49. Leonard Aronoff ("Aronoff"), corporate counsel to Stratcomm and CRG, acted
as "attorney-in-fact" for Fondo and, later, Oportunidad. Aronoff opened U.S. and
Canadian bank and brokerage accounts for the Costa Rican entities in which funds
were deposited and securities were deposited, bought and sold.
50. In late October 1994, roughly 40 days after the subscription agreement was
executed, Aronoff caused the stock transfer agent to cancel the certificate for
575,000 Tracker shares in Fondo's name and reissue nearly all of the stock to
CRG (516,440 shares) and the remainder to the five U.S. investors who financed
the payment to Tracker (58,560 shares). CRG paid the transfer agent fee.
51. CRG never paid Fondo for the 516,440 shares it received in October but the
defendants later executed documents that purported to show that the securities
were fully paid at the time of transfer.
52. By early November 1994, CRG deposited its 516,440 shares into a number of
brokerage accounts and transferred 8,500 shares each to Spratt and Skalko. Each
sold his shares for more than $50,000. From November 1994 through June 1995, CRG
sold nearly all of its shares for a profit of $1.8 million. None of these shares
was the subject of a registration statement on file with the Commission or
exempt from registration. <PAGE>
53. Fondo never paid Tracker the $2,455,700 balance owed under the Regulation S
subscription agreement. From December 1994 through January 1995, CRG and
Stratcomm paid Tracker, on Fondo's behalf, approximately $700,000 from the
proceeds of CRG's sale of some of the Tracker stock it received from Fondo.
54. Although Fondo failed to meet its commitments to Tracker under the
September subscription agreement, CRG demanded that Tracker release the
certificate for 210,00 shares it held in Fondo's name. In January 1995, Tracker
gave Aronoff the certificate in return for Fondo's promise to wire Tracker
$600,000 by the end of the month. Days later, Aronoff caused the transfer agent
to reissue all 210,000 shares to CRG. Finally, in June 1995, Veitia, Spratt and
Skalko, on behalf of CRG, and Tracker agreed that CRG would return 200,000
shares of stock to Tracker as final payment by Fondo under the September
subscription agreement. No one from Fondo was party to the agreement.
55. This series of transactions beginning with a phony Regulation S transfer to
Fondo resulted in payment of only $1.4 million to Tracker, instead of over $3
million which was called for by the subscription agreement, but CRG, Spratt and
Skalko realized profits of approximately $1.8 million by selling the
unregistered stock in the United States.
2. The S-8 Offering
56. In the fall of 1995, CRG and Veitia orchestrated an investment opportunity
for certain CRG employees and associates to buy Tracker stock for one dollar per
share through Fondo. This stock was then sold while CRG publications continued
promoting Tracker stock, resulting in approximately a 245 percent return for
each CRG investor.
57. In August 1995, Veitia recommended that Tracker compensate some of its
employees by issuing them stock pursuant to Form S-8, which permits distribution
of stock to employees, vendors and the like as compensation. Tracker registered
770,000 shares and sold Fondo 170,000 of them at one dollar per share, the
approximate market price.
58. On October 2, 1995, Fondo paid Tracker's employees $170,000. On October 13,
CRG replaced these funds with those it collected from employees and associates,
including CRG, Spratt, Skalko, Veitia and Zousmer. CRG also announced that
$15,000 in commissions was available for its BREs who successfully induced
brokers to buy Tracker stock for their customers.
59. In mid-October, Fondo opened a brokerage account at Torrey Pines and sold
its 170,000 shares of Tracker stock. Fondo collected proceeds of nearly $420,000
and distributed all of it to the CRG investors.
3. CRG Promotion of Tracker Stock to Investors
60. During the entire period in which CRG was selling Tracker stock for its own
account and that of its Costa Rican nominees, CRG continued to promote Tracker
stock in its publications. CRG featured Tracker in issues of MoneyWorld, Growth
Industry Report, Market Express and Confidential Fax Alert -- all CRG
publications. In January 1995, while CRG was selling Tracker stock, company
publications proclaimed Tracker as "The Stock to Watch" with "Growth Outlook:
- ----- High" and projected that earnings would soar from a loss of $11.5 million
in 1995 to a $40.9 million profit in 1997. In October and November 1995, while
Fondo was selling Tracker stock on behalf of CRG employees for profits of over
200 percent, CRG publications urged investors to buy Tracker, calling it "The
Stock to Watch" and describing its growth potential as "----- High."
61. CRG also promoted Tracker stock directly to brokers through the BRE sales
force. CRG, through Spratt, Skalko, Veitia and Rodriguez, also paid brokers cash
to induce their clients to buy Tracker stock, preferably crossing the purchase
order with stock CRG owned. These payments usually represented 10 percent of the
dollar amount invested by the broker's client. CRG paid at least seven brokers a
total of over $85,000 to promote Tracker stock to their customers, who bought
more than 140,000 shares of Tracker stock. None of these brokers disclosed these
bribes to their clients or prospects.
<PAGE>
62. The statements in CRG's publications touting Tracker were materially false
and misleading because CRG failed adequately to disclose that it was being paid
to promote Tracker stock, the amount of compensation, that it and entities it
controlled were selling Tracker stock while promoting it as a good investment to
readers, that it was paying CRG employees commissions to promote Tracker stock
to brokers or that it was bribing brokers to sell the stock to their clients.
63. By virtue of the conduct described above: (1) defendants CRG, Gulf
Atlantic, Veitia, Spratt, Skalko, Rodriguez, Gomez and Fondo violated Section
17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder; (2) defendants CRG, Veitia, Spratt and Skalko violated Section 17(b)
of the Securities Act; (3) defendants CRG, Veitia, Spratt, Skalko, Gomez, Fondo,
Lidman, Zousmer and CJL violated Section 5 of the Securities Act, and (4)
Stratcomm and Veitia are liable for violations by CRG as controlling persons of
CRG pursuant to Section 20(a) of the Exchange Act.
B. Delta Petroleum
64. Delta Petroleum Corporation ("Delta") is a Colorado corporation engaged in
the oil and gas business. Its stock is registered with the Commission pursuant
to Section 12(g) of the Exchange Act [15 U.S.C. ss. 78l(g)] and trades on the
NASDAQ Small Cap Market.
65. In August 1995, Delta paid CRG 54,546 shares of restricted Delta common
stock valued at $5.50 per share, a 12 percent discount from the market price,
plus 300,000 options. The payment was in lieu of cash for promotional services.
That same month, CRG began shorting Delta common stock in its account at Smith
Barney, and Spratt began shorting Delta stock in the New Concepts account. These
short sales at New Concepts were the first transactions pursuant to the
profit-sharing arrangement between CRG and New Concepts.
66. Beginning in or about October 1995 through December 1996, CRG and Gulf
Atlantic promoted Delta stock in their publications. During this time, CRG, in
its own name or through its nominees, Fondo and Oportunidad, acquired more than
700,000 shares of stock from Delta through three private placements, in addition
to the stock received as promotion compensation in August 1995. CRG eventually
transferred most of this stock to Spratt to cover the short positions
established in the account shared with New Concepts. CRG, Fondo, Oportunidad and
New Concepts made a profit of more than $2.5 million trading Delta securities.
1. August 1995 through February 1996
67. In early August 1995, CRG offered to invest in Delta. On August 15, Veitia
executed an agreement for CRG to buy 231,000 shares of common stock from Delta
in a "Rule 144" private placement. Rule 144, at the time, permitted persons who
held restricted shares to resell them publicly without registration and without
being deemed underwriters if certain conditions were satisfied including, inter
alia, that the securities had been held, in most instances, for at least two
years. CRG bought the stock for $3.24 per share, a 45 percent discount from the
market price. On August 17, 1995, CRG paid Delta $750,000. Half of these funds
came from New Concepts, which had learned of the investment opportunity from
Lidman. In mid-September 1995, Delta owed CRG 25,000 additional shares as a
penalty for failing to make the initial Rule 144 stock unrestricted by
registering it by a certain date.
68. On September 21, 1995, Delta issued CRG a restricted stock certificate for
256,000 shares, which CRG deposited in its account at Torrey Pines. CRG then
began to purportedly sell the Rule 144 stock to Fondo pursuant to Regulation S,
in an effort to avoid the two-year holding period required by Rule 144.
<PAGE>
69. In December 1995, CRG and Veitia informed Delta that it wanted to sell
117,000 Rule 144 shares to Fondo. CRG informed Delta that the shares would be
sold pursuant to Regulation S for $702,000. CRG and Aronoff supplied Delta with
a $702,000 canceled check from Fondo to CRG as evidence the sale was lawful.
However, on the day Fondo wrote the check to CRG, CRG wrote a check for the same
amount to Fondo.
70. Between December 5 and 11, 1995, Spratt increased the short position in
Delta stock in the New Concepts account from 51,500 to 115,300 shares.
71. On December 22, 1995, CRG used Fondo to remove the restrictive legend from
117,000 shares of the Rule 144 stock. Delta canceled CRG's certificate for
256,000 shares and issued certificates for 117,000 restricted shares to Fondo
and the remaining 139,000 restricted shares to CRG. After approximately 40 days,
Aronoff caused the transfer agent to issue Fondo 117,000 purportedly
unrestricted shares of Delta common stock. On January 31, Fondo sold 115,300 of
those shares through Torrey Pines to Spratt at New Concepts, covering a
substantial amount of the short position in the New Concepts account.
72. Fondo realized profits of nearly $470,000 on the sale of 115,300 shares,
which it split with New Concepts. 73. On January 25, 1996, Fondo paid New
Concepts $393,750, representing repayment of New Concepts' $375,000 loan
to CRG plus interest.
74. CRG acquired another 20,000 restricted shares from Delta in late December
1995 as a penalty for Delta's failing to register the initial Rule 144 stock
acquired in September. Thus, by late December, CRG owned 159,000 shares of Rule
144 common stock.
75. On December 28, 1995, Veitia and Gomez agreed that CRG would "sell" Fondo
all of CRG's remaining Rule 144 stock for $981,276 pursuant to Regulation S..
CRG presented Delta with another canceled check from Fondo to CRG to establish
the sale was lawful. As before, on the day Aronoff wrote a check to CRG, CRG
wrote Fondo a check for the same amount.
76. On February 5, 1996, CRG told Delta to cancel CRG's certificates for
159,000 shares of restricted stock and issue a new certificate to Fondo for
159,000 shares of unrestricted stock. Delta issued the certificate for
unrestricted shares to CRG, not to Fondo, although Fondo was the supposed owner
of the stock. Meanwhile, Spratt increased CRG's short position in Delta at New
Concepts, reaching 160,700 shares short by February 22, 1996. On February 26,
Spratt received the 159,000 shares CRG obtained from Delta and covered most of
the short position. Fondo sold New Concepts 1,700 additional shares to wind down
the short position. New Concepts and CRG split gross profits of over $1 million
from the December-February transactions in Delta stock.
2. March 1996 through May 1996
77. In early 1996, CRG again invited Delta to issue Regulation S stock to
obtain capital. In late February, Delta sold Oportunidad 100,000 shares of
restricted stock pursuant to Regulation S for $5.50 per share -- a 15 percent
discount from the closing market price. Delta later added an additional 15,000
shares at no cost after it learned that Oportunidad was unhappy with the size of
the discount on the first 100,000 shares. This investment through Oportunidad
was not made pursuant to CRG's profit-sharing arrangement with New Concepts.
78. In early March, CRG and Spratt again began selling Delta stock short at
both New Concepts and in an account at another broker-dealer.
79. On April 29, Delta canceled the restricted certificates in Oportunidad's
name and issued one certificate for 115,000 shares without a restrictive legend.
Oportunidad transferred the entire position to CRG, which used the shares to
close its short positions both at New Concepts and at the other brokerage
account.
<PAGE>
80. Oportunidad collected over $703,000, including a profit of nearly $154,000,
from the Regulation S transactions in Delta stock in the winter and spring of
1996. These proceeds were wired to an account at the Bank of Montreal and used
to buy $800,000 of Delta Series C convertible securities as described below.
3. May 1996 through December 1996
81. In May 1996, Delta, at the suggestion of CRG, sold Fondo and Oportunidad
$1.6 million of Series C convertible stock. Oportunidad and Fondo each bought 80
shares for $800,000, purportedly pursuant to Regulation S. The securities were
convertible into common stock at the lesser of $4.50 per share or 65 per cent of
the five-day average closing price for the five days prior to conversion. Delta
common stock was trading at around $6 per share at the time. The convertible
stock purchases by Fondo and Oportunidad were not made pursuant to CRG's
profit-sharing arrangement with New Concepts.
82. In July 1996, Oportunidad converted the Series C shares into 183,738 shares
of freely trading Delta common stock and sold the entire position for a profit
of nearly $400,000. Oportunidad sold the stock, in part, to Pow Wow and to
accounts at New Concepts and A & S to cover short positions Spratt had built.
83. In August 1996, Fondo converted its entire Series C position into 212,863
shares of unrestricted Delta common stock and sold that position for a profit of
nearly $450,000. Spratt bought nearly half of the shares to cover a short
position in Delta in an A & S account.
4. CRG Promotion of Delta Stock
84. Throughout the period October 1995 through at least December 1996, while
CRG and its Costa Rican nominees were selling their own Delta securities, CRG
publications promoted Delta stock to the public as a wise investment. CRG
featured Delta in various issues of MoneyWorld, Growth Industry Report and
Confidential Fax Alert. CRG hailed Delta as "The Stock to Watch," "Mother
Nature's Gift to Investors" and named the company "In Contention for Oil Play of
the Decade." One of the publications asked if "1,000 Percent Gains Possible?" In
a "Rumor Mill" article for MoneyWorld, Spratt predicted that Delta, then priced
at $6.86 per share, would "leap to over $15 a share."
85. The statements in CRG's publications touting Delta were materially false
and misleading because CRG failed adequately to disclose that it was being paid
to promote Delta stock, the amount of compensation, that it and entities it
controlled were selling Delta stock while promoting it as a good investment to
readers and that it was paying CRG employees commissions to promote Delta stock
to brokers.
86. By virtue of the conduct described above: (1) defendants CRG, Gulf
Atlantic, Veitia, Spratt, Skalko, Gomez, Fondo and Oportunidad violated Section
17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder; (2) defendants CRG, Gulf Atlantic, Veitia, Spratt and Skalko
violated Section 17(b) of the Securities Act; (3) defendants CRG, Veitia,
Spratt, Skalko, Pow Wow, Gomez, Fondo, Oportunidad, Lidman, Zousmer, New
Concepts and CJL violated Section 5 of the Securities Act, and (4) Stratcomm and
Veitia are liable for violations by CRG as controlling persons of CRG pursuant
to Section 20(a) of the Exchange Act.
C. Ammonia Hold
87. CRG promoted Ammonia Hold from February 1996 through at least December
1996. During that time, CRG acquired and then sold over one million shares of
Ammonia Hold securities in a series of transactions utilizing its nominees,
Fondo and Oportunidad, unlawfully to avoid registration requirements. CRG,
Spratt, Skalko, Fondo, and Oportunidad realized profits of more than $4.7
million trading Ammonia Hold securities.
1. Stock Loans Repaid with Regulation S Stock
a. Olympus Investment Loan
88. In January 1996, Ammonia Hold, its then-president and Parnell met with CRG
and its principals to discuss hiring CRG. At about that time, Spratt began
shorting Ammonia Hold at New Concepts. CRG's trading in Ammonia Hold stock at
New Concepts was not pursuant to the profit-sharing arrangement with New
Concepts. On February 5, 1996, Ammonia Hold retained CRG to conduct promotional
activities and agreed to pay CRG with 117,000 shares of unrestricted common
stock and 500,000 options for common stock, exercisable in series of 100,000
shares at various prices.
<PAGE>
89. Ammonia Hold, which had no unrestricted stock, had to borrow stock from
Olympus Investment Corp. ("Olympus"), an existing shareholder, to pay CRG.
Ammonia Hold and Parnell caused Olympus to deliver 117,000 shares of purportedly
unrestricted stock to CRG. CRG sold the borrowed stock for over $800,000.
90. Parnell then caused Ammonia Hold to issue 117,000 shares, pursuant to
Regulation S, to Banque SCS Alliance, S.A., a Swiss bank. On information and
belief, these shares were used to repay Olympus for the borrowed shares.
b. Grace Holdings Loan
91. Shortly after retaining CRG, Ammonia Hold asked CRG to exercise its first
two series of options for $660,000. Ammonia Hold, which still had no
unrestricted stock, again borrowed stock to sell to CRG, planning to repay the
borrower with newly issued Regulation S stock held by Fondo. This time the
lender was Grace Holdings, Ltd., one of Banque SCS's holding companies.
92. In early March 1996, Ammonia Hold issued Fondo certificates for 550,000
shares of restricted Ammonia Hold stock pursuant to Regulation S. Fondo did not
pay for this stock and did not own it; Fondo merely held the shares for the
benefit of Ammonia Hold. In order to lift the restriction and acquire the stock
more quickly, Ammonia Hold and Parnell effected a transfer of 100,000 shares
from Grace Holdings to Fondo, representing that it was Regulation S stock that
was now unrestricted. A week later, Fondo sold 78,190 shares to Spratt to cover
CRG's short position in the New Concepts account. Fondo paid Ammonia Hold
$300,000. Shortly thereafter, Ammonia Hold replaced Grace Holdings' 100,000
shares of stock with 100,000 of the 550,000 of stock Fondo was holding.
93. In early April, Ammonia Hold caused Grace Holdings to transfer another
100,000 shares of alleged Regulation S stock to Fondo, for which Fondo paid
Ammonia Hold $360,000. Later in April, Fondo sold 84,776 shares of Ammonia Hold,
through Public Securities ("Public"), to Spratt at New Concepts to cover the
short position he had rebuilt for CRG in the New Concepts account. In late June,
Ammonia Hold replaced Grace Holdings' second block of 100,000 shares with
another 100,000 shares held by Fondo.
94. Fondo realized profits of nearly $600,000 through its sale of the two
100,000-share blocks of stock it purchased from Ammonia Hold. CRG realized a
profit of over $92,000 selling the company stock short in the New Concepts
account. Spratt and Skalko also received stock as part of a "finder's fee" and
realized gross profits of approximately $37,000 apiece.
2. The Ammonia Hold Offering Purporting to
Use Regulation D and Regulation S Exemptions
95. Between July and August 1996, Ammonia Hold made a $1,545,000 public
offering of securities to CRG in the names of Fondo and Oportunidad without
proper registration or a valid exemption but purporting to take advantage of two
exemptions to registration -- Regulation D and Regulation S.
96. Regulation D [17 C.F.R. ss.230.501 et seq.] exempts from the registration
requirements of Section 5 of the Securities Act, among other things, sales by an
issuer of securities not exceeding $1 million. [17 C.F.R. ss.230.504]. In
general, all offers and sales of securities of the same class within a six month
period are counted in determining if the $1 million ceiling for a Rule 504
Regulation D issue is exceeded. [17 C.F.R. ss. 230.502].
97. In early July, Gomez executed a subscription agreement on behalf of Fondo
to purchase 488,666 shares of Ammonia Hold common stock for $500,000 pursuant to
Rule 504 of Regulation D. This price, which Parnell and Aronoff negotiated,
represented an 85 percent discount to the market price. Fondo transferred some
<PAGE>
of the stock to Spratt, who covered a 25,000 share short position. Fondo
liquidated the rest of the position by early August for over $3.2 million -- a
profit of at least $2.8 million.
98. Later in July, Ammonia Hold sold another $500,000 of common stock to Fondo
and $545,000 to Oportunidad. Both transactions purported to be pursuant to
Regulation S.
99. Because the three sales to the Costa Rican nominees of CRG were within a
few weeks of each other, because all were part of a single plan of finance or
for the same general purpose, and because all were for common stock, the
offerings are properly integrated under Regulation D, Rule 502(a). As a result,
in addition to not qualifying for a Regulation S exemption due to CRG's control
of the stock sold to Fondo and Oportunidad, the $1.5 million offering by Ammonia
Hold also was without proper registration because it exceeded the $1 million
limit under the Rule 504 exemption.
3. August Regulation S Sales
100. During the summer of 1996, Ammonia Hold's president purported to sell
Oportunidad 100,000 shares of his personal holdings in Ammonia Hold as
Regulation S stock at $3.00 per share. At the time, Ammonia Hold stock was
selling for about $7 per share.
101. From August 5 to August 15, 1996, at CRG's direction, Oportunidad sold
100,000 shares of Ammonia Hold, collecting proceeds of over $670,000. On August
15, the transfer agent canceled the Regulation S stock certificate and issued a
certificate to Oportunidad for 100,000 purportedly unrestricted shares.
102. On September 30, 1996, Fondo transferred $500,000 to Oportunidad's account
at the Bank of Montreal. The next day, Oportunidad paid Ammonia Hold's president
$300,000 for the 100,000 shares sold to Oportunidad the previous month.
Oportunidad realized $370,000 profit on the entire transaction.
4. CRG Promotion of Ammonia Hold
103. CRG publications promoted Ammonia Hold stock to investors from February
1996 through at least December 1996, while CRG and its nominees were selling the
same issuer's securities. On February 14, 1996 -- just days after Ammonia Hold
hired CRG -- Spratt featured the company in his Rumor Mill publication, calling
the stock his "PICK OF THE YEAR!" and "[his] strongest pick yet." He advised
subscribers to place a buy order at a $10 limit when the stock was selling at
$6.38 and predicted the stock would "skyrocket to between $14 - $16." (Emphasis
in original). These recommendations were repeated in the April and May issues of
MoneyWorld. In March and June 1996, CRG featured Parnell in MoneyWorld as one of
its "Brokers of the Month" and, also in June, MoneyWorld named Ammonia Hold as
"the Stock to Watch" with 1997-98 revenue projected to be "up 900%."
104. Even when Ammonia Hold's stock price declined, CRG publications
optimistically promoted the investment. Spratt, in his MoneyWorld columns in
July and August 1996, continued characterizing Ammonia Hold as his "PICK OF THE
YEAR" without disclosing that CRG and entities which it controlled had sold
hundreds of thousands of shares of Ammonia Hold stock and that these sales could
have been a factor in the decline of the company's share price.
105. The statements in CRG's publications touting Ammonia Hold were materially
false and misleading because CRG failed adequately to disclose that it was being
paid to promote Ammonia Hold stock, the amount of compensation, that it and
entities it controlled were selling Ammonia Hold stock while promoting it as a
good investment to readers and that it was paying CRG employees commissions to
promote Ammonia Hold stock to brokers.
<PAGE>
106. By virtue of the conduct described above: (1) defendants CRG, Gulf
Atlantic, Veitia, Spratt, Skalko, Gomez, Fondo and Oportunidad violated Section
17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder; (2) defendants CRG, Gulf Atlantic, Veitia, Spratt and Skalko
violated Section 17(b) of the Securities Act; (3) defendants CRG, Veitia,
Spratt, Skalko, Gomez, Fondo, Oportunidad, Ammonia Hold and Parnell violated
Section 5 of the Securities Act, and (4) Stratcomm and Veitia are liable for
violations by CRG as controlling persons of CRG pursuant to Section 20(a) of the
Exchange Act.
D. Information Management Technologies Corporation
107. Information Management Technologies Corporation ("IMTECH") is a Delaware
corporation with its principal offices located in New York City. IMTECH provides
information and facilities management services to financial and other service
industries. IMTECH's common stock is registered with the Commission pursuant to
Section 12(g) of he Exchange Act and its stock trades on the NASDAQ Small Cap
Market.
108. On September 21, 1995, IMTECH retained CRG for 171,000 shares of
unrestricted stock, which IMTECH had to borrow from existing shareholders. CRG
ultimately received nearly 108,000 of purportedly unrestricted shares of stock
pursuant to the retention agreement, most of which CRG used to cover a short
position created in its own accounts and the rest of which it sold on the
market. CRG promoted IMTECH from December 1995 through June 1996, while CRG and
New Concepts realized nearly $900,000 on the sale of IMTECH securities.
109. In early fall of 1995, CRG introduced IMTECH to Fondo as an entity that
might be willing to invest in the company. On September 26, five days after
retaining CRG for promotions, IMTECH agreed to sell Fondo a debenture
convertible into common stock at $.875 per share. The debenture cost $250,000.
The sales agreement provided that when Fondo elected to convert the debenture,
IMTECH had the option of either filing a registration statement or providing
Fondo the stock pursuant to Regulation S.
110. Spratt, meanwhile, had begun shorting IMTECH common stock at New Concepts
pursuant to the profit sharing arrangement. By September 12 Spratt had shorted
10,345 shares, a position he maintained until mid-December.
111. CRG and New Concepts, not Fondo, paid for the IMTECH debenture and agreed
to split profits evenly. On October 5, 1995, New Concepts wired $125,000 to
Fondo. On October 10, CRG wired Fondo $125,000. On October 31, Fondo wired
IMTECH $250,000 for the debenture.
112. On December 6, 1995, Aronoff informed IMTECH that Fondo intended to
convert the debenture into 285,750 shares of common stock pursuant to Regulation
S. The $.875 per share price was a 63 percent discount to the market price of
$2.375. In late December, the transfer agent issued a certificate in Fondo's
name "c/o Corporate Relations Group."
113. In mid-December, Spratt added to the short position at New Concepts,
reaching 285,750 shares short by January 17, 1996.
114. By mid-February, IMTECH and Aronoff had the transfer agent lift the
Regulation S restrictive legend. On February 20, 1996, Fondo sold nearly all
285,750 shares through Torrey Pines Securities to Spratt at New Concepts to
cover the short position.
115. New Concepts calculated net trading profits from the IMTECH "Regulation S"
transaction to be approximately $430,000, which New Concepts split with CRG.
116. CRG also introduced IMTECH to its other Costa Rican nominee, Oportunidad.
On December 29, 1995, Aronoff executed an offshore subscription agreement on
behalf of Oportunidad to purchase 200,000 shares of IMTECH stock pursuant to
Regulation S for $250,000, roughly a 60 percent discount to the market price.
117. CRG and New Concepts purchased the stock in Oportunidad's name. New
Concepts financed $100,000 and CRG and two individuals financed $150,000 of the
purchase price.
118. On February 26, Aronoff and IMTECH caused the transfer agent to cancel the
restricted certificate in Oportunidad's name and issue a certificate for 200,000
purportedly unrestricted shares.
<PAGE>
119. By March 4, Spratt had brought the short position in the New Concepts
account to exactly 200,000 shares. He maintained that position until April 11,
when Oportunidad sold its entire block of 200,000 shares to Spratt through
Torrey Pines, completely covering the short position.
120. New Concepts calculated the profit on the Oportunidad Regulation S
transaction to be over $446,000. CRG and New Concepts split those profits.
121. CRG publications promoted IMTECH securities to investors from December
1995 through June 1996. The February 1996 edition of MoneyWorld proclaimed that
IMTECH was "The Stock to Watch" and told investors that the company was "poised
to join the ranks" of ADP, Microsoft and others in the corporate outsourcing
business.
122. The statements in CRG's publications touting IMTECH were materially false
and misleading because CRG failed adequately to disclose that it was being paid
to promote IMTECH stock, the amount of compensation, that it and entities it
controlled were selling IMTECH stock while promoting it as a good investment to
readers and that it was paying CRG employees commissions to promote IMTECH stock
to brokers.
123. By virtue of the conduct described above: (1) defendants CRG, Gulf
Atlantic, Veitia, Spratt, Skalko, Gomez, Fondo and Oportunidad violated Section
17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder; (2) defendants CRG, Gulf Atlantic, Veitia, Spratt and Skalko
violated Section 17(b) of the Securities Act; (3) defendants CRG, Veitia,
Spratt, Skalko, Gomez, Fondo, Oportunidad, Lidman, Zousmer, New Concepts and CJL
violated Section 5 of the Securities Act; and (4) Stratcomm and Veitia are
liable for violations by CRG as controlling persons of CRG pursuant to Section
20(a) of the Exchange Act.
E. Foreland Corporation
124. Foreland Corporation ("Foreland") is a Nevada corporation with its
principal offices in Colorado. Foreland explores for and produces oil and gas.
Its stock is registered with the Commission pursuant to Section 12(g) of the
Exchange Act, and trades on the NASDAQ Small Cap Market.
125. In April 1996, Foreland retained CRG to perform promotional activities,
which it did from approximately June 1996 through at least December 1996. CRG
agreed to be paid from proceeds of a forthcoming $1.7 million financing Foreland
planned. During the period in which CRG was promoting Foreland, CRG, Fondo and
Spratt realized a profit of over $1.5 million trading Foreland securities.
126. From April 30 to May 2, 1996, CRG and five business associates bought
Foreland's entire $1.7 million offering of 1996-2 Series 6% Convertible
Preferred Stock, at $1,000 per share. Investors could convert their preferred
stock to common stock at 75 percent of the closing price on the day the offering
closed, or 65 percent of the five-day moving average as of the day prior to
conversion. Terms of the offering required Foreland to file a registration
statement for the underlying stock within 15 business days. However, the
offering also provided that should the underlying stock not be available as
unrestricted stock pursuant to a registration statement within 45 days, Foreland
would offer the preferred convertible shares to any non-U.S. purchaser pursuant
to Regulation S.
127. The Foreland investors organized by CRG were New Concepts, which bought
850 shares, pursuant to a recommendation by Lidman, Fondo, which bought 650
shares with Regulation S resale restrictions, and four U.S. residents who
learned of the investment opportunity from either Spratt or Veitia, each of whom
bought 50 shares. The CRG/New Concepts profit sharing agreement was not invoked.
128. In late June 1996, before Foreland's registration statement was declared
effective, Fondo converted 325 of its 650 preferred shares into 151,735
unrestricted shares and a certificate was issued on or about July 12. Fondo sold
these shares over the next several days, including 100,000 shares to Spratt at
New Concepts to cover an existing short position in Foreland common stock and
16,000 shares to cover a short position by Pow Wow. <PAGE>
129. On July 23, the Commission declared Foreland's registration statement
effective. Thereafter, Fondo converted its remaining 325 shares of convertible
preferred stock into another 151,735 shares of common stock. It sold 147,735
shares through Public to New Concepts, which Spratt used to partially cover a
short position.
130. As a result of the Regulation S sales and the subsequent conversion of
preferred to common stock, Fondo realized a net profit of approximately
$585,000. CRG also realized additional profits on Spratt's short position in
Foreland stock.
131. CRG publications promoted Foreland securities from June through December
1996. MoneyWorld's July issue termed Foreland "a strong buy . . . as part of a
long-term, aggressive growth portfolio." (Emphasis in original). Spratt
recommended buying Foreland in his MoneyWorld column because "rumor has it that
the well they just hit will produce at a rate of over 1,000 barrels a day! This
now could push FORL [Foreland's stock symbol] to a value of $15 to $20 a share."
132. The statements in CRG's publications touting Foreland were materially
false and misleading because CRG failed adequately to disclose that it was being
paid to promote Foreland stock, the amount of compensation, that it and entities
it controlled were selling Foreland stock while promoting it as a good
investment to readers and that it was paying CRG employees commissions to
promote Foreland stock to brokers.
133. By virtue of the conduct described above: (1) defendants CRG, Veitia,
Spratt, Skalko, Gomez and Fondo violated Section 17(a) of the Securities Act,
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; (2) defendants CRG,
Veitia, Spratt and Skalko violated Section 17(b) of the Securities Act; (3)
defendants CRG, Veitia, Spratt, Skalko, Gomez, Fondo, Lidman, Zousmer, New
Concepts and CJL violated Section 5 of the Securities Act;, and (4) Stratcomm
and CRG are liable for violations by CRG as controlling person pursuant to
Section 20(a) of the Exchange Act.
V. Specific Securities Transactions In Which Defendants Violated
the
Antifraud and Touting Provisions of the Securities Laws
134. CRG, Gulf Atlantic, Veitia, Spratt and Skalko defrauded investors in
stocks of small issuers by touting those stocks in CRG and Gulf Atlantic
publications on a monthly basis in 1995 and 1996 while selling the stock on the
market. The statements in these publications were materially false and
misleading because the defendants failed to disclose that they were selling
stock they were recommending. On information and belief, defendants continued
this fraudulent scheme beyond 1996 with other securities issues to a date to be
determined. Additional examples of fraudulent conduct based on this pattern are
described below.
A. Atlas Pacific Ltd.
135. In July 1995, Veitia and Spratt executed on behalf of CRG a contract to
promote Atlas Pacific, Ltd. ("Atlas Pacific"), an Australian corporation whose
securities were traded on the Australian Stock Exchange but who began trading
American Depositary Receipts ("ADRs") in the United States OTC market beginning
that same month. Upon information and belief, CRG exercised two 250,000-share
blocks at a cost of more than $92,000. CRG established a 250,000-share short
position in its own account in early August, which it then covered with the
first block of options. CRG sold more Atlas securities short throughout October
and September 1995, which position it substantially covered with the second
block of options. CRG sold a total of 500,000 shares of Atlas Pacific securities
from August through December earning net profits of nearly $290,000.
136. Spratt received commissions from CRG related to Atlas Pacific totaling
$3,765. Skalko received commissions totaling $4,360. Veitia received commissions
from CRG and Stratcomm related to Atlas Pacific totaling $47,090.
<PAGE>
137. CRG promoted Atlas Pacific to the public through the summer of 1995 while
CRG was selling the company's stock. CRG's Core Broker Report informed investors
that "one of the most thrilling aspects of the world of investing is finding a
truly hot prospect -- a company that is so vital and exciting that you know its
just can't miss. Such a company is Atlas Pacific Limited, which we've profiled
inside this issue." The August 1995 edition of MoneyWorld featured Atlas Pacific
on its cover with the headline "In Search of the Ultimate Hard Asset, Atlas
Pacific Limited: The Stock to Watch." The article inside, labeled a "special
advertorial feature," advised readers: "If you can imagine the world with just
one publicly traded gold mine or only one publicly traded diamond producer, then
you can envision the awesome potential Atlas Pacific Limited holds for
investors..."
138. The statements in CRG's publications touting Atlas Pacific were materially
false and misleading because CRG failed adequately to disclose that it was being
paid to promote Atlas Pacific stock, the amount of compensation, that CRG was
selling Atlas Pacific stock while promoting it as a good investment to readers
and that it was paying CRG employees commissions to promote Atlas Pacific stock
to brokers.
139. By virtue of the conduct described above, defendants CRG, Veitia, Spratt
and Skalko violated Sections 17(a) and 17(b) of the Securities Act, Section
10(b) of the Exchange Act and Rule 10b-5 thereunder, and defendants Stratcomm
and Veitia are liable for violations by CRG as controlling persons of CRG
pursuant to Section 20(a) of the Exchange Act.
B. ECO2
140. In April 1995, Veitia and Rodriguez executed a contract on behalf of CRG
to promote ECO2 Inc. ("ECO2"), a Delaware corporation with offices in Hawthorne,
Florida whose securities were registered the with Commission pursuant to Section
12(g) of the Exchange Act and were traded on the OTC Bulletin Board. ECO2 agreed
to compensate CRG with 300,000 shares of stock, valued at $1 a share, plus
options to acquire 400,000 additional shares. CRG transferred at least 7,500
shares of ECO2 stock to Rodriguez as a finder's fee.
141. CRG received its initial 50,000 shares in late May, which it sold in June
for $30,067. CRG then began shorting the stock, partially covering when it
received steeply discounted stock from ECO2. CRG sold over 360,000 shares on the
open market in July for more than $1.3 million. In August, while aggressively
promoting ECO2 in its publications, CRG sold nearly 280,000 shares for nearly
$1.3 million. Upon information and belief, CRG paid only $750,000 for its ECO2
stock. Spratt also sold ECO2 in his own account in August and September 1995,
realizing a $2,700 profit.
142. CRG began promotion of ECO2 in its August 1995 issue. "Discarded tires may
be one of the most ominous environmental hazards of our time, but they are also
a tremendous store of energy. Big, big money is to be made by the company that
taps this resource and offers a solution to the tire overpopulation problem,"
MoneyWorld informed readers in its August issue. "Enter ECO2, purveyors of a
cost-effective, ecologically safe alternative to landfills." In the October
issue, MoneyWorld christened ECO2 "The Stock to Watch", informing readers that
sales were projected to "race from $164,000 to $12,000,000 in two years -- a
7,200 percent increase" and advising in the same "Special Advertorial Feature"
on the company that "It pays to be the first to recognize a new marketplace,
just ask Ted Turner or Bill Gates." Similar promotions by CRG continued through
at least November 1995.
143. The statements in CRG's publications touting ECO2 were materially false
and misleading because CRG failed adequately to disclose that it was being paid
to promote ECO2 stock, the amount of compensation, that it and Spratt were
selling ECO2 stock while promoting it as a good investment to readers and that
it was paying CRG employees commissions to promote ECO2 stock to brokers.
<PAGE>
144. By virtue of the conduct described above, defendants CRG, Veitia, Spratt
and Skalko violated Section 17(a) of the Securities Act, Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder; defendants CRG, Veitia, Spratt and
Skalko violated Section 17(b) of the Securities Act, and defendants Stratcomm
and Veitia are liable for violations by CRG as controlling persons of CRG
pursuant to Section 20(a) of the Exchange Act.
C. Global Intellicom
145. In August 1996, CRG, through Veitia and Spratt, contracted to promote
Global Intellicom, Inc., a Nevada corporation with headquarters in New York City
whose securities were registered with the Commission pursuant to Section 12(g)
of the Exchange Act and were traded on the NASDAQ Small Cap Market. Global
Intellicom paid CRG $550,000 in cash and granted CRG options for 500,000 shares
of common stock. On September 3, 1996, CRG paid Spratt $37,442.91 as a "finders
fee" for the Global Intellicom contract.
146. CRG began shorting Global Intellicom in the A&S account in August 1996,
reaching approximately 100,000 shares short in late September, covering at
market prices later in the month for a $50,000 profit.
147. Upon information and belief, CRG, through its nominees Fondo and
Oportunidad, purchased $825,000 worth of convertible preferred stock from Global
Intellicom in August 1996. In October, Oportunidad and Fondo, at the direction
of CRG, began shorting Global Intellicom, when Global Intellicom was trading
between $4 and $5. They covered the positions in November and December, when the
stock was $2.50 or less. Oportunidad earned a net profit of over $250,000, and
Fondo a net profit of $265,000.
148. Although CRG, directly and through Oportunidad and Fondo, had been selling
Global Intellicom continuously since August, Veitia wrote in a "Publisher's
Note" for the November 1996 edition of MoneyWorld, "If you're looking for a
stock you can call home about, Global Intellicom . . . could be your answer."
The accompanying article on Global Intellicom informed readers that "What
Microsoft is to software, and what IBM is to hardware, Global Intellicom could
become to telecommuting services. Global Intellicom has the potential to double
or triple it sales each year, reaching hundreds of millions in sales by the turn
of the century." CRG published the identical article with this statement and
others glowing about Global Intellicom's near-term prospects in the December
issue of MoneyWorld.
149. The statements in CRG's publications touting Global Intellicom were
materially false and misleading because CRG failed adequately to disclose that
it was being paid to promote Global Intellicom stock, the amount of
compensation, that it and entities it controlled were selling Global Intellicom
stock while promoting it as a good investment to readers and that it was paying
CRG employees commissions to promote Global Intellicom stock to brokers.
150. By virtue of the conduct described above, defendants CRG, Veitia, Spratt
and Skalko violated Sections 17(a) and 17(b) of the Securities Act, Section
10(b) of the Exchange Act and Rule 10b-5 thereunder, defendants Gomez,
Oportunidad and Fondo violated Section 17(a) of the Securities Act, Section
10(b) of the Exchange Act and Rule 10b-5 thereunder, and defendants Stratcomm
and Veitia are liable for violations by CRG as controlling persons of CRG
pursuant to Section 20(a) of the Exchange Act.
D. Global Spill Management, Inc.
151. Global Spill Management, Inc. ("Global Spill") was a Nevada corporation
with principal offices in Pennsylvania. The company was in the environmental
cleanup industry. Global Spill's securities were registered with the Commission
pursuant to Section 12(g) of the Exchange Act and were traded on the NASDAQ
Small Cap Market. Global Spill retained CRG in May 1994 for 147,349 shares of
common stock.
152. From June 1994 through September 1995, CRG promoted Global Spill through
its publications and broker network while it actively sold over 2 million shares
of Global Spill for its own account. CRG acquired some of the stock from Global
<PAGE>
Spill in return for the very promotional services which helped CRG realize
significant profits from sales of the stock. CRG realized net profits of more
than $950,000 trading Global Spill common stock from July 1994 through at least
September 1995.
153. In December 1994, CRG delivered 30,000 shares to Spratt who sold the
shares for just over $50,000. Moreover, on two occasions, CRG delivered 10,000
shares to Skalko who sold them for nearly $19,000. CRG also paid commissions
related to Global Spill totaling more than $28,000 to Skalko, $27,000 to Spratt
and $23,000 to Veitia.
154. CRG publications and its BREs promoted Global Spill securities from July
1994 through December 1995. The October 1994 issue of Growth Stock Alert
represented Global Spill's "Growth Outlook to be ----- High" and projected
earnings would increase from $8.8 million in 1993 to $25 million in 1995. In
February 1995, Growth Stock Alert again projected $25 million in 1995 revenues.
In April 1995, MoneyWorld observed: "Although the 'McDonald's' and 'Burger King'
of environmental services have yet to emerge, the opportunity for this historic
quality of growth exists and GSMI [Global Spill's stock symbol] is positioning
itself to take full advantage." The August 1995 issue of MoneyWorld, in an
article written by Skalko, featured Global Spill as "The Stock to Watch" under
an article titled "Searching for the next Waste Management, Inc."
155. The statements in CRG's publications touting Global Spill were materially
false and misleading because CRG failed adequately to disclose that it was being
paid to promote Global Spill stock, the amount of compensation, that CRG, Spratt
and Skalko were selling Global Spill stock while promoting it as a good
investment to readers and that it was paying CRG employees commissions to
promote Global Spill stock to brokers.
156. By virtue of the conduct described above, defendants CRG, Veitia, Spratt
and Skalko violated Sections 17(a) and 17(b) of the Securities Act, Section
10(b) of the Exchange Act and Rule 10b-5 thereunder, and defendants Stratcomm
and Veitia are liable for violations by CRG as controlling persons of CRG
pursuant to Section 20(a) of the Exchange Act.
E. Golf Ventures
157. In January 1996, CRG contracted to promote Golf Ventures, Inc. ("Golf
Ventures," now Golf Communities of America), then a Utah corporation whose
securities were traded on the OTC Bulletin Board. On January 23, 1996, CRG
received 350,000 shares of stock as payment under the contract.
158. On or about January 24, 1996, Veitia authorized a transfer of 30,000
shares of Golf Venture stock from CRG's account to New Concepts to cover a short
position CRG had built days earlier. On or about January 26, 1996, Veitia
authorized transfer of 33,500 Golf Venture shares from CRG's account to Spratt's
personal account, which he quickly sold for nearly $50,000. On March 19, 1996,
CRG paid Spratt $7,972.19, which, according to the check, was Spratt's share of
"profit on Golf Ventures options."
159. From late January through late March 1996, CRG sold off its position in
Golf Ventures common stock for nearly $750,000. In addition, Spratt shorted Golf
Ventures in the New Concepts account from February through June 1996.
160. From February through June 1996, CRG promoted Golf Ventures securities in
its publications. On February 1, 1996, just as CRG began a huge selloff of the
stock from its own accounts, its Rumor Mill fax publication told subscribers
"the Rumor Mill recommends the immediate purchase of Golf Ventures currently at
$5.00 a share with a buy limit of $8.00. ... Rumor Mill believes that [Golf
Ventures] will provide a 200% - 400% return to our subscribers." MoneyWorld's
April 1996 issue featured Golf Ventures in a headline as "An investor's hole in
one," followed by a "Special Advertorial Feature" stating "the company is
considered greatly undervalued." The "Rumor Mill" column in MoneyWorld's April
issue advised: "Continue to buy [Golf Ventures] up to $10 and look for a move to
$14-$16 in the next 60 days."
<PAGE>
161. The statements in CRG's publications touting Golf Ventures were materially
false and misleading because CRG failed adequately to disclose that it was being
paid to promote Golf Ventures stock, the amount of compensation, that it and
Spratt were selling Golf Ventures stock while promoting it as a good investment
to readers and that it was paying CRG employees commissions to promote Golf
Ventures stock to brokers.
162. By virtue of the conduct described above, defendants CRG, Veitia, Spratt
and Skalko violated Sections 17(a) and 17(b) of the Securities Act, Section
10(b) of the Exchange Act and Rule 10b-5 thereunder, and defendants Stratcomm
and Veitia are liable for violations by CRG as controlling persons of CRG
pursuant to Section 20(a) of the Exchange Act.
F. Jreck Subs
163. In March 1996, CRG executed a contract to perform public relations for
Jreck Subs, Inc. ("Jreck"), a Colorado company with headquarters in Watertown,
N.Y., whose securities were traded on the OTC Bulletin Board. The contract
called for CRG to receive 660,000 restricted Jreck shares, estimated in the
contract to be worth $200,000. A few days later, CRG and Jreck executed another
agreement, this one purporting to commit Fondo to subscribing to 350,000 shares
in Jreck's Regulation D initial public offering. In May, Gomez formally executed
a subscription agreement to acquire 350,000 shares in a Regulation D offering
for one cent per share -- a total of $3,500.
164. Fondo received the offering stock on September 9, 1996, the first day of
trading in Jreck, and immediately began selling off the 350,000-share position
for over two dollars per share. By the end of November, Fondo had netted nearly
$740,000 selling Jreck Subs stock.
165. In its own accounts, CRG bought nearly 1.2 million shares of Jreck stock
from November through December 1996 at 60 cents per share and sold roughly
800,000 of those shares at prices between $1.30 and $2.30 for a net profit of
more than $980,000.
166. While Fondo and CRG were selling Jreck stock, CRG publications were
promoting the stock to investors, comparing the company potential to Wal-Mart
and McDonald's. An October 1996 "Advertorial" in MoneyWorld said ". . . Jreck is
one of the highest grossing (per unit) submarine chains in the country (the
highest?) and soon to be the fastest-growing in the entire fast-food industry."
(Emphasis in original). Both the November and December issues of MoneyWorld
claimed that "in 1995, Jreck's last fiscal year, the company had system sales of
just over $12 million. Fiscal '98, with over 300 units, will generate sales of
about $120 million. MacDonald's (sic) never grew that fast." In his "Publisher's
Note" in the December issue of MoneyWorld, Veitia wrote that "in this issue we
present two 'stocks to watch' that each have a raw potential reminiscent of the
early days of America's great franchises. The advertorial for Jreck Subs, Inc...
tells the story of a small chain of submarine sandwich shops that could become
the fastest growing company in the fast-food industry."
167. The statements in CRG's publications touting Jreck were materially false
and misleading because CRG failed adequately to disclose that it was being paid
to promote Jreck stock, the amount of compensation, that it and entities it
controlled were selling Jreck stock while promoting it as a good investment to
readers and that it was paying CRG employees commissions to promote Jreck Subs
stock to brokers.
168. By virtue of the conduct described above, defendants CRG, Veitia, Spratt
and Skalko violated Sections 17(a) and 17(b) of the Securities Act, Section
10(b) of the Exchange Act and Rule 10b-5 thereunder, defendants Gomez and Fondo
violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder, and defendants Stratcomm and Veitia are liable for
violations by CRG as controlling persons of CRG pursuant to Section 20(a) of the
Exchange Act.
<PAGE>
G. Sobik's Subs
169. In February 1996, Veitia and Skalko executed an agreement on behalf of CRG
to perform public relations work for Sobik's Subs, Inc. ("Sobik's," now
Interfoods of America, Inc.), a Nevada corporation headquartered in Miami,
Florida whose securities were registered with the Commission pursuant to Section
12(g) of the Exchange Act and traded on the OTC Bulletin Board. The initial
agreement called for CRG to be paid with 116,700 shares of Sobik's stock. This
was supplemented in late May with 100,000 additional shares.
170. From approximately March 1, 1996 until July 1996, CRG sold all of the free
or discounted stock it received plus additional shares it bought on the market
at prices ranging from $6 to $2, realizing over $1 million in trading profits.
In addition, Sobik's provided Pow Wow 233,000 shares of free or steeply
discounted stock, which Pow Wow immediately transferred to Oportunidad.
Oportunidad sold all of the stock in a two-week period in May 1996, realizing
over $1.2 million in trading profits.
171. CRG promoted Sobik's in its publications from March through October 1996.
"With a proven concept, strong demand, and a 25-year track record, Sobik's is a
'sub'-stantial investment opportunity," according to the Growth Stocks column in
the April 1996 issue of MoneyWorld. In a May 1996 "Special Advertorial Feature,"
MoneyWorld called Sobik's an "exciting opportunity for investors to share in the
immense potential of what may soon be one of the country's leading deli-style
chains." In July, MoneyWorld claimed that Sobik's "is realizing swift growth
reminiscent of the early days of McDonald's." It estimated Sobik's revenues
would "surge above $80 million" in 2000, claiming that "even by Wall Street
standards, which have seen some spectacular growth stocks, this is a significant
forecast."
172. The statements in CRG's publications touting Sobik's were materially false
and misleading because CRG failed adequately to disclose that it was being paid
to promote Sobik's stock, the amount of compensation, that it and entities it
controlled were selling Sobik's stock while promoting it as a good investment to
readers and that it was paying CRG employees commissions to promote Sobik's
stock to brokers.
173. By virtue of the conduct described above, defendants CRG, Veitia, Spratt
and Skalko violated Sections 17(a) and 17(b) of the Securities Act, Section
10(b) of the Exchange Act and Rule 10b-5 thereunder, defendants Gomez and
Oportunidad violated Section 17(a) of the Securities Act, Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder, and defendants Stratcomm and Veitia are
liable for violations by CRG as controlling persons of CRG pursuant to Section
20(a) of the Exchange Act.
H. Vector Aeromotive
174. In October 1995, Veitia and Skalko executed an agreement on behalf of CRG
to perform public relations work for Vector Aeromotive Corporation ("Vector"), a
Nevada corporation based in Jacksonville, Florida, whose securities were
registered with the Commission pursuant to Section 12(g) of the Exchange Act and
were traded on the NASDAQ Small Cap Market. The contract called for Vector to
compensate CRG with either $175,000 or 350,000 shares of stock. Vector in fact
paid CRG $30,000 and gave CRG 290,000 shares of stock in March and, upon
information and belief, another 350,000 shares in April 1996. From March through
May 1996, CRG sold all of its Vector stock for over $410,000. All of CRG's
Vector trading was in a new brokerage account Veitia opened at Spencer Edwards
in which Skalko had trading authority.
175. CRG promoted Vector from December 1995 through July 1996. A long article
was reprinted in the December 1995 and January and March 1996 editions of
MoneyWorld. The January issue was introduced by a "Publisher's Note" from Veitia
commenting that "the young pups we look at in this issue are all driven with the
relentless passion to succeed. They share a rare entrepreneurial spirit that
gives them a competitive edge in their markets. . . Vector Aeromotive . . . is
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ready to take the fast lane with the debut of its American-built M12 sports
car." The thrice-printed article contended that "Vector is now positioned to
carve its niche in the lucrative high-end auto market" and that "... Vector is
certain to draw the attention of the press and Wall Street, and a spurt in
trading activity -- one that could lead to rapid share appreciation -- is
possible."
176. The statements in CRG's publications touting Vector were materially false
and misleading because CRG failed adequately to disclose that it was being paid
to promote Vector stock, the amount of compensation, that it was selling Vector
stock while promoting it as a good investment to readers and that it was paying
CRG employees commissions to promote Vector stock to brokers.
177. By virtue of the conduct described above, defendants CRG, Veitia, Spratt
and Skalko violated Sections 17(a) and 17(b) of the Securities Act, Section
10(b) of the Exchange Act and Rule 10b-5 thereunder, and defendants Stratcomm
and Veitia are liable for violations by CRG as controlling persons of CRG
pursuant to Section 20(a) of the Exchange Act.
I. Viking Management Group
178. On or about August 3, 1995, Veitia and Spratt contracted on behalf of CRG
with Viking Management Group, Inc. ("Viking," later renamed Viking Resources
International, Inc.), a Delaware corporation with its principal offices in
Tampa, Florida, whose securities were registered with the Commission pursuant to
Section 12(b) of the Exchange Act and traded on the OTC Bulletin Board. The
contract called for CRG to provide public relations services in return for
133,344 shares of Viking stock plus options.
179. CRG began shorting Viking stock in late July. From August through November
1995, CRG continued selling Viking stock at prices well over two dollars per
share, supplementing its position by exercising options to buy stock from
Viking, some of which at only 40 cents per share. By year-end, CRG had sold
nearly one million shares of Viking for profits of roughly $1.5 million.
180. In August 1995, CRG transferred to Spratt and Skalko 6,750 shares each,
and each realized nearly $28,000 selling the stock while CRG was promoting it to
investors. In September 1995, CRG transferred an additional 5,000 each to Spratt
and Skalko, who each realized $12,300 selling the stock while CRG was promoting
it to investors.
181. CRG promoted Viking in MoneyWorld Growth Stock Alert #95-1, which was
inserted in the October 1995 issue of MoneyWorld. "Created to capitalize on the
most promising sectors within the burgeoning recycling industry, Viking has
established a solid foothold in uniquely profitable market niches that are
gaining prominence," CRG wrote. (Emphasis in original). "Viking has established
impressive momentum that promises to continue. How this rapid growth will affect
share value cannot be predicted for certain. But clearly, this is a significant
timing opportunity." (Emphasis in original). CRG devoted the November "Special
Advertorial Feature" of MoneyWorld to Viking under the headline "The Stock to
Watch. Garbage In - Profits Out. The Amazing Dynamics of Recycling." The text
declared that "Viking gives investors a direct line to some of the industry's
most promising growth potential" and that "Viking has widespread potential for
growth." A chart suggested that Viking profits would reach $6 million by 1998
despite a $60,000 loss in 1995. "Just as it takes substantial planning for a
space shuttle launch, but once ignition is sparked the momentum is unparalleled,
so too has Viking's planning stage led to a 1995 'corporate' launch that's
skyrocketing the company forward."
182. The statements in CRG's publications touting Viking were materially false
and misleading because CRG failed adequately to disclose that it was being paid
to promote Viking stock, the amount of compensation, that CRG, Spratt and Skalko
were selling Viking stock while promoting it as a good investment to readers and
that it was paying CRG employees commissions to promote Viking stock to brokers.
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183. By virtue of the conduct described above, defendants CRG, Veitia, Spratt
and Skalko violated Sections 17(a) and 17(b) of the Securities Act, Section
10(b) of the Exchange Act and Rule 10b-5 thereunder, and defendants Stratcomm
and Veitia are liable for violations by CRG as controlling persons of CRG
pursuant to Section 20(a) of the Exchange Act.
VI. Stratcomm Acted as an Unregistered Dealer and, with CRG,Caused
an Unregistered Distribution of Stratcomm Common Stock Which CRG Touted Without
Disclosing Its Relation to Stratcomm
184. CRG and Stratcomm engaged in a substantial distribution of unregistered
Stratcomm common stock from the fall of 1994 through the end of 1995. CRG and
Stratcomm, through their employees, including Spratt, Skalko and Rodriguez, at
the direction of Veitia, solicited the sale of Stratcomm stock to U.S.
residents, who sent funds directly to Stratcomm. Stratcomm and CRG paid
commissions to their employees for the sale of Stratcomm stock. None of the
employees were registered persons nor were they associated with any registered
broker or dealer. CRG and Gulf Atlantic also promoted the sale of Stratcomm
stock in their publications, often without disclosing they were owned by
Stratcomm.
185. From October 1994 through early 1996, Stratcomm, through its employees,
sold approximately one million shares of Stratcomm common stock to U.S.
investors, collecting approximately $1 million in gross proceeds. Stratcomm did
not file a registration statement with the Commission concerning these shares
and Stratcomm neither provided a private placement memorandum to investors nor
made any attempt to meet any exemption to registration permitted by the law.
186. Sometimes Stratcomm did not have stock to deliver to investors. Therefore,
Veitia, on behalf of Stratcomm, negotiated the purchase of restricted stock from
existing shareholders and loaned over 500,000 of his own shares to deliver to
newer investors. Aronoff caused the transfer agent to lift restrictive legends
from these stocks so they could appear to be unrestricted. Stratcomm purchased
the majority of shares from existing shareholders at approximately 20 cents
(Cdn) per share but sold the majority of the same shares for one dollar (Cdn) or
more through the BREs.
187. Stratcomm and CRG paid at least $140,000 in commissions to its employees
for selling Stratcomm stock. Defendants Spratt, Skalko and Rodriguez were among
the employees to whom CRG and Stratcomm paid commissions for offering
unregistered Stratcomm stock for sale to investors, although none of the
defendants were registered persons or associated with any registered
broker-dealer.
188. Chicken Kitchen was another part of Stratcomm's business in 1994 and 1995.
CRG promoted Chicken Kitchen from October 1994 through at least December 1995,
urging readers to acquire Stratcomm stock because of allegedly attractive
investment prospects for Chicken Kitchen. CRG did so without disclosing CRG's
relationship either to Stratcomm or to Chicken Kitchen. Market Express Action
Alert #92, in October 1994, advised readers that "for a prospect that's really
cookin' check out the menu of investment opportunities provided by this purveyor
of fast food about to go national with a rollout of corporate owned and
franchised outlets. The next Boston Market? You be the judge." "Chicken Kitchen
is one growth stock you can really eat up," declared Growth Stock Alert in
February 1995. MoneyWorld for February 1995 advised that "at its current price,
Stratcomm Media may be an absolute steal." CRG printed a glowing article in both
the October and November 1995 MoneyWorld, and largely repeated it a third time
in December 1995. The December article also declared that Chicken
Kitchen/Stratcomm "is poised to become a standout in the fast food crowd."
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189. By virtue of the conduct described above: (1) defendants CRG, Veitia,
Spratt and Skalko violated Sections 17(a) and 17(b) of the Securities Act,
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; (2) defendants
Stratcomm, Veitia, Spratt, Skalko and Rodriguez violated Section 5 of the
Securities Act; (4) defendants Stratcomm, CRG, Spratt, Skalko and Rodriguez
violated Section 15(a)(1) of the Exchange Act, and (5) Stratcomm and Veitia are
liable for violations by CRG as controlling persons of CRG pursuant to Section
20(a) of the Exchange Act.
VII. CRG Acted as an Unregistered Broker and Dealer
190. During the period from September 1994 through December 1996 to a date to
be determined, defendant CRG acted as a broker by engaging in the business of
touting its clients' securities to registered representatives through its BREs.
CRG provided direct promotion to the broker-dealer community through its BREs,
who contacted registered representatives to induce them to solicit their clients
to buy stocks of companies CRG was promoting. BREs commonly promoted stocks
while CRG was selling those same stocks. CRG paid commissions to the BREs after
the BREs proved to CRG management, notably defendants Spratt and Skalko, that
they caused buying activity.
191. During the period from September 1994 through December 1996 to a date to
be determined, defendant CRG acted as a dealer by engaging in the business of
buying and selling securities for its own account, through its nominees, Fondo
and Oportunidad. As detailed in paragraphs 45 to 133, CRG purchased securities
on at least one dozen occasions from at least five of its issuer-clients and
sold those securities in hundreds of transactions to liquidate those positions.
192. By virtue of the conduct described above, defendant CRG violated Section
15(a)(1) of the Exchange Act, and Stratcomm and Veitia are liable for these
violations by CRG as controlling persons of CRG pursuant to Section 20(a) of the
Exchange Act.
VIII. Ammonia Hold Fraudulently Reported
Stock Sales as Revenues
193. Defendant Parnell caused defendant Ammonia Hold fraudulently to report
that $160,000 of a total $660,000 paid by defendant Fondo for stock borrowed
from Grace Holdings ( 91-94) constituted revenue from a licensing agreement with
Grace Holdings. The alleged "revenue" was reported as such in Ammonia Hold's
Form SB-2 registration statement filed with the Commission, in a press release
and on the company's website.
194. The licensing agreement was a sham. Grace Holdings never paid Ammonia Hold
for a licensing agreement. 195. The misrepresentation in the Commission filing,
the press release and on the company website was
material. By improperly reporting an additional $160,000 in revenue for the year
ended June 30, 1996 (nearly 20% of reported revenue for the year), Ammonia Hold
was able to understate its net loss for that year by nearly 15 percent.
196. Parnell also caused Ammonia Hold to materially misrepresent CRG's purchase
of 200,000 shares of stock for $660,000. The company stated that it issued
200,000 shares of restricted stock to Grace Holdings in exchange for a licensing
agreement and $500,000. These statements were false. They also were materially
misleading because they allowed Ammonia Hold to disguise its sales of
unregistered stock to CRG through Fondo.
197. By virtue of the conduct described above, defendants Ammonia Hold and
Parnell violated Section 17(a) of the Securities Act, Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder.
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FIRST CLAIM
[Securities Fraud]
Violations by Defendants CRG, Stratcomm, Gulf Atlantic, Veitia, Spratt, Skalko,
Rodriguez, Fondo, Oportunidad and
Gomez of Section 17(a)
of the Securities Act, Section 10(b) of the Exchange Act
and Rule 10b-5 Thereunder
198. Paragraphs one through 197 are hereby realleged and incorporated by
reference. 199. Defendants CRG, Gulf Atlantic, Veitia, Spratt and Skalko
directly, and as to defendants Veitia and
Stratcomm additionally as control persons of CRG under Section 20 of the
Exchange Act, from a period beginning in at least September 1994 and continuing
through December 1996 to a date to be determined, violated Section 17(a) of the
Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by
engaging in a fraudulent scheme in the promotion, offer, purchase and sale of
the securities of Tracker, Delta, Ammonia Hold, IMTECH, Foreland, Stratcomm,
Global Spill., Atlas Pacific, ECO2, Global Intellicom, Golf Ventures, Jreck
Subs, Sobik's, Vector, Viking and those of other companies to be identified in
an accounting.
200. Defendants Fondo, Oportunidad and Gomez, from a period beginning in at
least September 1994 and continuing through December 1996 to a date to be
determined, directly violated Section 17(a) of the Securities Act, Section 10(b)
of the Exchange Act and Rule 10b-5 thereunder by engaging in a fraudulent scheme
in the offer, purchase and sale of the securities of Tracker, Delta, Ammonia
Hold, IMTECH, Foreland, Global Intellicom, Jreck, Sobik's and those of other
companies to be identified in an accounting.
201. For the period beginning in or about September 1994 and continuing through
December 1996 to a date to be determined, defendants CRG, Gulf Atlantic, Veitia,
Spratt, Skalko, Fondo, Oportunidad and Gomez, in connection with the purchase or
sale of securities, by the use of means or instrumentalities of interstate
commerce or of the mails, directly or indirectly, (a) employed devices, schemes
or artifices to defraud; (b) made untrue statements of material facts or omitted
to state material facts necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading; or (c)
engaged in acts, practices or courses of business which operated or would
operate as a fraud or deceit upon other persons, including purchasers and
sellers of such securities.
202. Defendant Rodriguez violated Section 17(a) of the Securities Act, Section
10(b) of the Exchange Act and Rule 10b-5 thereunder by engaging in a fraudulent
scheme in which he bribed at least two brokers in connection with the promotion
of Tracker securities with the intention that these bribes not be disclosed to
investors.
203. Beginning in or about October 1994 and continuing through the end of 1994,
defendant Rodriguez, in connection with the purchase or sale of securities, by
the use of means or instrumentalities of interstate commerce or of the mails,
directly or indirectly, (a) employed devices, schemes or artifices to defraud;
(b) made untrue statements of material facts or omitted to state material facts
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading; or (c) engaged in
acts, practices or courses of business which operated or would operate as a
fraud or deceit upon other persons, including purchasers and sellers of such
securities.
204. By reason of the foregoing, defendants CRG, Gulf Atlantic, Veitia, Spratt,
Skalko, Rodriguez, Fondo, Oportunidad and Gomez directly violated Section 17(a)
of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder. Additionally, defendants Veitia and Stratcomm are liable for CRG's
violations under Section 20 of the Exchange Act as controlling persons of CRG.
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SECOND CLAIM
[Securities Fraud]
Violations by Defendants Parnell and Ammonia Hold of Section 17(a)
of the Securities Act, Section 10(b) of the Exchange Act
and Rule 10b-5 Thereunder
205. Paragraphs one through 197 are hereby realleged and incorporated by
reference.
206. Defendants Parnell and Ammonia Hold violated the antifraud provisions of
the securities laws, Section 17(a) of the Securities Act, Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder, by engaging in a fraudulent scheme in
which they falsely reported capital contributions from the sale of Ammonia Hold
stock as revenues and disguised the sale of unregistered securities in a public
filing with the Commission, a press release and on Ammonia Hold's website.
207. For the period beginning in or about February 1996 and concluding in or
about December 1996, defendants Parnell and Ammonia Hold, in connection with the
purchase or sale of securities, by the use of means or instrumentalities of
interstate commerce or of the mails, directly or indirectly, (a) employed
devices, schemes or artifices to defraud; (b) made untrue statements of material
facts or omitted to state material facts necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading; or (c) engaged in acts, practices or courses of business which
operated or would operate as a fraud or deceit upon other persons, including
purchasers and sellers of such securities.
208. By reason of the foregoing, defendants Parnell and Ammonia Hold violated
directly Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder.
THIRD CLAIM
[Touting]
Violations by Defendants CRG, Stratcomm, Gulf Atlantic, Veitia, Spratt and
Skalko of Section 17(b) of the Securities Act
209. Paragraphs one through 197 are hereby realleged and incorporated by
reference.
210. For the period beginning in or about September 1994 through December 1996
and continuing to a date to be determined, defendants CRG, Gulf Atlantic,
Veitia, Spratt and Skalko directly, and defendants Stratcomm and Veitia
additionally as controlling persons of CRG under Section 20 of the Exchange Act,
violated the anti-touting provision of the securities laws, Section 17(b) of the
Securities Act, by promoting in CRG and Gulf Atlantic publications the
securities of Tracker, Delta, Ammonia Hold, IMTECH, Foreland, Global Spill,
Atlas Pacific, ECO2, Global Intellicom, Golf Ventures, Jreck, Sobik's, Vector,
Viking and those of other companies to be identified in an accounting, without
adequately disclosing the receipt of and amount of consideration received from
those issuers in return for said promotions.
211. For the period beginning in or about September 1994 and continuing through
December 1996 to a date to be determined, defendants CRG, Gulf Atlantic, Veitia,
Spratt and Skalko used the means or instruments of interstate transportation, or
communication in interstate commerce, or the mails, to publish and circulate
communications which described securities for a consideration received from the
issuers without fully disclosing the receipt of such consideration and the
amount thereof.
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212. By reason of the foregoing, defendants CRG, Gulf Atlantic, Veitia, Spratt
and Skalko violated directly Section 17(b) of the Securities Act. Additionally,
defendants Stratcomm and Veitia are liable for CRG's violations under Section 20
of the Exchange Act as controlling persons of CRG. FOURTH CLAIM [Sale of
Unregistered Securities]
Violations by Defendants CRG, Veitia, Spratt,
Skalko, Rodriguez, Fondo, Oportunidad, Gomez, Ammonia Hold, Parnell, Stratcomm,
Pow Wow, New Concepts, Zousmer,
CJL and Lidman of Section 5
of the Securities Act
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213. Paragraphs one through 197 are hereby realleged and incorporated by
reference.
214. Sections 5(a) and 5(c) of the Securities Act prohibit any person, directly
or indirectly, from making use of any means or instrument of transportation or
communication in interstate commerce or of the mails to offer to sell or to sell
a security unless a registration statement is filed or in effect, or an
exemption applies. Beginning in or about September 1994 and continuing through
at least December 1996 to a date to be determined, defendants CRG, Veitia,
Spratt, Skalko, Fondo, Oportunidad, Gomez and Pow Wow offered to sell and/or
sold securities of Tracker, Delta, Ammonia Hold, IMTECH, Foreland, Stratcomm and
other securities still to be identified to investors in the United States when,
at all times, said securities were not registered with the Commission and such
offers to sell and/or the sales were not eligible for any exemption from
registration.
215. Beginning in or about September 1994 and continuing through at least
December 1996 to a date to be determined, defendants New Concepts, Zousmer, CJL
and Lidman offered to sell and/or sold securities of Tracker, Delta, IMTECH, and
Foreland to investors in the United States when, at all times, said securities
were not registered with the Commission and such offers to sell and/or the sales
were not eligible for any exemption from registration.
216. Beginning in or about September 1994 and continuing through at least
December 1996, defendant Rodriguez offered to sell and/or sold securities of
Stratcomm to investors in the United States when, at all times, said securities
were not registered with the Commission and such offers to sell and/or the sales
were not eligible for any exemption from registration.
217. Beginning in or about February 1996 and continuing through at least August
1996, defendants Ammonia Hold and Parnell offered to sell and/or sold securities
of Ammonia Hold to investors in the United States when, at all times, said
securities were not registered with the Commission and such offers to sell
and/or the sales were not eligible for any exemption from registration.
218. By reason of the foregoing, defendants CRG, Veitia, Spratt, Skalko,
Rodriguez, Fondo, Oportunidad, Gomez, Ammonia Hold, Parnell, Stratcomm, Pow Wow,
New Concepts, Zousmer, CJL and Lidman violated directly Sections 5(a) and 5(c)
of the Securities Act. Additionally, defendants Stratcomm and Veitia are liable
for CRG's violations under Section 20 of the Exchange Act as controlling persons
of CRG. FIFTH CLAIM [Sales by Unregistered Persons]
Violations by Defendants CRG, Stratcomm, Veitia, Spratt, Skalko and Rodriguez
of Section 15(a)(1) of the Exchange Act
219. Paragraphs one through 197 are hereby realleged and incorporated by
reference.
220. Section 15(a)(1) of the Exchange Act prohibits any person from acting as a
broker or dealer by making use of the mails or an instrumentality of interstate
commerce to solicit the purchase or sale of a security unless such person is
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registered in accordance with the statute. From approximately October 1994
through spring 1995, defendants Spratt, Skalko and Rodriguez, who were not
registered as brokers at the time, solicited investors for the purchase of
Stratcomm stock, negotiated with investors for such sales and were paid
commissions by CRG or Stratcomm based upon their sales success.
221. During the period from September 1994 through December 1996 to a date to
be determined, defendant CRG violated Section 15(a)(1) by acting as a broker
without proper registration by engaging in the business of touting its clients'
securities to registered representatives through its BREs. At CRG's direction,
BREs encouraged registered representatives to sell such securities to their
clients. Upon such sales, CRG paid commissions to the BREs.
222. During the period from September 1994 through December 1996 to a date to
be determined, defendant CRG violated Section 15(a)(1) by acting as a dealer
without proper registration by engaging in the business of buying and selling
securities for its own account, through its nominees, Fondo and Oportunidad.
223. During the period from October 1994 through early 1996, defendant
Stratcomm violated Section 15(a)(1) by acting as a dealer without proper
registration when it sold for a profit approximately one million shares of
common stock and bought stock from other investors in order to make delivery to
new investors.
224. By reason of the foregoing, defendants CRG, Spratt, Skalko, Rodriguez and
Stratcomm violated Section 15(a)(1) of the Exchange Act by effecting the
purchase or sale of securities without meeting the broker-dealer registration
requirements of the Exchange Act. Additionally, defendants Stratcomm and Veitia
are liable for CRG's violations under Section 20 of the Exchange Act as
controlling persons of CRG. PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that this Court:
I.
Make findings of fact and conclusions of law that the defendants
violated the provisions of the federal securities laws as alleged above.
II.
Enter Orders
A. Restraining and enjoining Stratcomm, CRG, Gulf Atlantic,
Veitia, Spratt, Skalko, Rodriguez, Fondo, Oportunidad, Gomez, Ammonia Hold and
Parnell from violating Section 17(a) of the Securities Act, Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder;
B. Restraining and enjoining CRG, Gulf Atlantic, Veitia, Spratt
and Skalko from violating Section 17(b) of the Securities Act;
C. Restraining and enjoining CRG, Pow Wow, Veitia, Spratt, Skalko,
Rodriguez, Fondo, Oportunidad, Gomez, Ammonia Hold, Parnell, Stratcomm, New
Concepts, Zousmer, CJL and Lidman from violating Sections 5(a) and (c) of the
Securities Act.
D. Restraining and enjoining CRG, Stratcomm, Spratt, Skalko and
Rodriguez from violating Section 15(a)(1) of the Exchange Act; III.
Enter an order requiring defendants, and each of them, to pay for an
accounting to determine the full amount of the monies received as a result of
their conduct as alleged herein, including for sales of corporate securities not
identified herein by name, through the present, said accounting to be performed
by persons or entities not unacceptable to the Commission; IV.
Enter an Order directing each defendant to disgorge their profits from
the illegal conduct alleged herein, plus interest. Said profits shall include,
inter alia, profits from all trading alleged herein, including that of issuers
not specifically identified through the present whose securities defendants sold
while promoting the securities in CRG publications or which was not either
subject to a registration statement on file with the Commission or not lawfully
exempt from registration, all compensation received by defendants Veitia,
Spratt, Skalko and Rodriguez for their BRE related conduct, all compensation
received by defendants Veitia, Spratt and Skalko as finder's fees for the
issuers alleged in the Complaint, and all compensation received by defendants
CRG, Gulf Atlantic, Veitia, Spratt and Skalko from the sale of publications they
controlled, edited or wrote without adequate disclosure that promotions therein
were paid for by the companies promoted, or the amount of compensation, or that
the defendants were selling securities they recommended for purchase in the
publications. V.
Enter an Order imposing civil penalties on each defendant for their
unlawful acts pursuant to Section 21 (d)(3)(B)(iii) of the Exchange Act [15
U.S.C. ss. 78u(d)(3)(B)(iii)].
VI.
Retain jurisdiction of this action in accordance with the principles of
equity and the Federal Rules of Civil Procedure in order to implement and carry
out the terms of all orders and decrees that may be entered, or to entertain any
suitable application or motion for additional relief within the jurisdiction of
the Court.
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VII.
Grant such other and additional relief as this Court may deem just and
proper.
Respectfully submitted,
------------------------------------
Thomas C. Newkirk
James A. Kidney (Trial Counsel)
Jerry A. Isenberg
Christopher R. Conte
Jeffrey P. Weiss
Attorneys for Plaintiff
U.S. Securities and Exchange Commission
Mail Stop 8-8
450 Fifth Street, N.W.
Washington, D.C. 20549-0808
(202) 942-4797 (Kidney)
(202) 942-9581 (Kidney Fax)
Date: September 27, 1999 [email protected]
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
UNITED STATES SECURITIES AND ) CASE NO.: 99-1222-CV-22-A
EXCHANGE COMMISSION, )
)
Plaintiff, )
) Dispositive Motion
vs. )
)
ROBERTO E. VEITIA, STRATCOMM )
MEDIA LTD., et al. )
)
Defendants. )
DEFENDANTS' ROBERTO E. VEITIA AND STRATCOMM
MEDIA, LTD.'S MOTION AND MEMORANDUM TO DISMISS
The Defendants, Roberto E. Veitia, (hereinafter, "Veitia") and Stratcomm
Media Ltd., (hereinafter, "Stratcomm") (or collectively, "Defendants"), pursuant
to Rule 9(b) and 12(b) of the Federal Rules of Civil Procedure, hereby file this
Motion and Memorandum to Dismiss.
The SEC has alleged that Veitia violated the fraud and touting provision
in of the securities acts in relation to sixteen public companies. It is also
alleged that Veitia sold unregistered securities and failed to register as a
broker dealer. Additionally, both Veitia and Stratcomm are alleged to be control
persons of Corporate Relations Group, Inc. (hereinafter "CRG") and therefore
liable under Section 20 of the Exchange Act. Stratcomm is also alleged to have
sold its own shares without registration.
Central to the SEC's claims is the contention that Stratcomm as a control
person and Veitia, both individually, and in his position of control, omitted to
state material information
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in the offer and sale of securities and failed to disclose information required
by Section 17(b). The omissions alleged are that Veitia and CRG failed to
adequately disclose they were being paid to promote certain issuers, the amount
of the compensation they received, that they sold stock in the issuers while
promoting the issuers and that their employees were paid to promote the issuers
to stockbrokers. In one instance the SEC claims that Veitia also failed to
disclose cash payments made to stockbrokers.
The SEC further complains that these disclosures were inadequate as they
were not contained in the publications which promoted the issuer clients.
Also, the SEC has alleged that Veitia and CRG sold unregistered securities
and therefore, acts as a broker dealer in certain transactions which were
originally issued under Regulation S exemption, as well as other transactions
involving the sale of Stratcomm's stock.
Further, the SEC contends that the broker dealer provisions were violated
since unregistered CRG employees contacted stockbrokers and promoted CRG client
companies to these brokers to effect the sale of securities.
As a consequence of these alleged violations the SEC seeks a number of
remedies. These include the issuance of an injunction and fines which are
statutory remedies. Furthermore the SEC seeks non-statutory relief including
disgorgement of all profits and compensation and an accounting.
The Complaint as to Veitia and Stratcomm is inadequate in relation to Rule
9(b). The SEC has improperly lumped Co-Defendants CRG and Gulf Atlantic
Publishing, Inc. (hereinafter "GAP") together in the Complaint, referring to
these defendants as "collectively
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CRG." Also, in numerous allegations of fraud the SEC has failed to identify the
action of either defendant in making a statement which contained an omission.
Rather, the SEC has described CRG as having engaged in "promotion" and has not
identified any statement which was made on which to support a securities fraud
claim. Additionally, CRG is alleged to have sold securities outside the time
period of either promotional efforts occurring or publication of articles.
However, the SEC in its prayer for relief seeks the disgorgement of all profits
and compensation derived from all CRG's client companies.
The Complaint also utilizes other short hand techniques which render the
Complaint legally deficient. The SEC has chosen to preface certain allegations
with the phrases, ". . .by virtue of the conduct described above. . ." or "by
reason or the foregoing" without any other limiting language. The employment of
these phrases in this more than 200 paragraph complaint introduces significant
ambiguity into the allegations of fraud.
The SEC has failed to state a claim for relief for securities fraud
against Veitia, individually. The SEC has not identified which actions or
omissions that Veitia made would subject him to liability under the securities
laws.
The conduct of CRG, Stratcomm, and Veitia, is protected speech by the
First Amendment. The application of these fraud provisions against these
Defendants who publish generalized investment information together with features
which were clearly marked "Advertorials" and contained other disclaimers that
the Defendants were paid for having published the advertorials is contrary to
the First Amendment.
Additionally, other information contained in filings with the SEC
indicates that much
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of the information which the SEC claims was omitted in the publications was in
fact provided to the public. Therefore, the SEC has only alleged that the
omissions of which it complains were omitted from certain publications not that
the information was undisclosed.
Similarly, the SEC contends that the touting provision Section 17(b) was
violated. A review of Section 17(b) in light of the First Amendment indicates
that no claim for relief under this section can be sustained on these facts.
Additionally 17(b) merely requires disclosure it does not mandate the time,
place or manner of the disclosure as alleged in the Complaint.
The claim of touting and scalping cannot exist when such claims are based
upon publication of advertisements which are revealed to be paid advertisements.
The entire basis for the SEC's fraud, touting, and scalping fails due to the
fact that we are here dealing with disclosed advertising.
Furthermore, the SEC has not stated as claim for relief against Veitia and
Stratcomm in relation to the sale of unregistered securities and failing to
register as a broker dealer. Substantial confusion regarding the application of
Regulation S during the years at issue in the Complaint indicates that a claim
based on Regulation S transactions would be in violation of due process.
Also, the SEC has not stated a claim for relief for the sale of
unregistered securities issued by Stratcomm.
As much of the relief which the SEC requests from this Court is not
authorized by statute such relief must be denied.
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The Defendants, Veitia and Stratcomm, hereby incorporate and adopt the
motion to dismiss and supporting memorandum filed by the CRG and GAP, as well as
the other Defendants.
In light of the foregoing the Defendants, ROBERTO E. VEITIA and STRATCOMM
MEDIA, LTD. request that this Court dismiss the Complaint for the reasons
provided above and as more fully described below.
MEMORANDUM OF LAW
I. First Amendment and Section 17(b)
A. Section 17(b) of the Securities Act Violates
the First Amendment of the United States Constitution
The SEC in its Third Claim alleges that CRG and other Defendants,
including Veitia, Stratcomm, and Mr. Spratt, violated Section 17(b) of the
Securities Act of 1933 (the "Securities Act") because they did not disclose in
MoneyWorld and its related publications the fact that they were being paid by,
and the amount of compensation they received from, various public companies.
Section 17(b)'s requirements do not satisfy First Amendment standards set forth
by the Supreme Court for regulation of commercial speech because the statute
does not directly and materially advance the government's stated interest and
its requirements are more extensive than necessary to achieve the statutory
purpose.
Section 17(b) compels a person to disclose not only the fact that he
or she has been paid to publish an article or advertisement that describes a
security, but also the amount of such payment. Section 17(b) provides that:
It shall be unlawful for any person, by the use of any means or
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instruments of transportation or communication in interstate
commerce or by the use of the mails, to publish, give publicity to,
or circulate any notice, circular, advertisement, newspaper,
article, letter, investment service, or communication which, though
not purporting to offer a security for sale, describes such security
for a consideration received or to be received, directly or
indirectly, from an issuer, underwriter, or dealer, without fully
disclosing the receipt, whether past or prospective, of such
consideration and the amount thereof.
15 U.S.C.ss.77(b) (1977). Section 17(b)'s compulsions plainly impact the First
Amendment guarantee of freedom of speech. "Mandating speech that a speaker would
not otherwise make necessarily alters the content of the speech," and therefore
must be considered a content-based regulation of commercial speech. Riley v.
National Fed'n of the Blind of North Carolina, Inc., 487 U.S. 781, 795 (1988).
In determining whether Section 17(b) violates the First Amendment, this
Court must first determine the appropriate judicial standard of review for
governmental regulation compelling the content of commercial speech. The Supreme
Court first recognized the constitutional value of commercial speech in Virginia
State Board of Pharmacy vs. Virginia Citizen's Consumer Council, Inc., 425 U.S.
748 (1976). Since then, the Supreme Court, the Courts of Appeal in several
circuits, and district courts throughout the country, have clarified and
enhanced the substantial burden of proof that the government must satisfy if it
chooses to impose content-based regulations on commercial speech. See e.g., 44
Liquormart, Inc, v. Rhode Island, 517 U.S. 44 (1996); Central Hudson Gas &
Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980);
Nordyke V. Santa Clara Cty., 110 F.3d 707, 713 (9th Cir. 1997).
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The Supreme Court's decisions concerning commercial speech are based
on the test adopted in Central Hudson Gas & Electric Corp. v. Public Service
Commission of New York, 447 U.S. 557 (1980) - a test that, as some Justices of
the Supreme Court observed, was inadequate from the beginning because it assumed
that commercial speech should receive less than full First Amendment protection.
See 44 Liquor Mart, Inc, v. Rhode Island, 517 U.S. 44 (1996). This Court now has
before it a case where the government is attempting to regulate the content of
commercial speech in magazines directed to the investing public.
(1) This Court Should Adopt Strict
Scrutiny As The Appropriate Standard
For Judicial Review Of Commercial Speech
We respectfully submit that this Court should determine that commercial
speech enjoys the same full First Amendment protections as noncommercial speech,
and strike down Section 17(b) of the Securities Act as unconstitutional.
(a) Content-Based Regulations are
Equally Unacceptable for Commercial
and Noncommercial Speech
Content-based regulations include any government directive that mandates
speech that a speaker otherwise would not make. See Riley v. National Fed'n of
the Blind of North Carolina, Inc., 487 U.S. 781, 795 (1988) (requiring that
professional fund raisers disclose percentage of charitable contributions
collected actually turned over to charity violates the First Amendment); Miami
Herald Publishing Co. v. Tornillo, 418 U.S. 241, 256 (1974) (compelling
newspapers to print an editorial reply violates First Amendment). Content-based
regulations are inherently suspect under the First Amendment both in the context
of
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noncommercial and commercial speech.1
The possibility that constitutional distinctions might exist between
commercial and noncommercial speech, and that the Constitution might require
less protection for commercial speech, was first suggested by Justice Blackmun
in Virginia State Board, 425 U.S. at 771 n.24. These so-called "commonsense
distinctions" led to the Supreme Court's Central Hudson multi-factor test, and
to the conclusion that full First Amendment protection would not be afforded to
commercial speech. See Central Hudson Gas, 447 U.S. at 562-63.
Regardless of what "common sense" once seemed to suggest twenty years
ago, recent decisions of the Supreme Court demonstrate that these distinctions
between categories of speech can no longer support lesser protection for
commercial speech.2 In modern society, advertising is of substantial importance
to the livelihood of consumers and businesses alike. Advertising about public
companies and their stock informs the American public about investment
opportunities. Advertising for computers and related products informs the
American public about ways to receive unprecedented access to information and
how to form electronic communities. Advertising for digital cameras informs
families of new ways to
- --------
1 "The very purpose of the First Amendment is to foreclose public authority from
assuming a guardianship of the public mind through regulating the press, speech,
and religion." Thomas v. Collins, 323 U.S. 516, 545 (1945) (Jackson, J.,
concurring). "To this end, the government, even with the purest of motives, may
not substitute its judgment as to how best to speak for that of speakers and
listeners: free and robust debate cannot thrive if directed by the government."
Riley, 487 U.S. at 790. The Supreme Court's antipathy toward content-based
regulations in commercial speech context is reflected in its "general rule" that
"the speaker and the audience, not the government, assess the value of the
information presented." Edenfield v. Fane, 507 U.S. 761, 767 (1993).
2 As Justice Stevens, joined by Justices Kennedy and Ginsburg, recently stated
in 44 Liquormart, "neither the 'greater objectivity' nor the 'greater hardiness'
of truthful, nonmisleading commercial speech justifies reviewing its complete
suppression with added deference." 517 U.S. at 502. Justice Thomas reached the
same conclusion. Id. at 523 n.4.
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preserve their memories of important events. These messages, while labeled mere
"commercial" speech, certainly are no less important to the public, and cannot
be less worthy of First Amendment protection, than the rantings of neo-Nazis or
expletives about the draft emblazoned on Leonard Cohen's jacket, each of which
was found to constitute speech protected under the First Amendment. See National
Socialist Party v. Village of Skokie, 432 U.S. 43 (1977); Cohen v. California,
403 U.S. 15 (1971).
Adoption of strict scrutiny as the test for regulation of commercial speech
already has been endorsed by four members of the Supreme Court 179 Justices
Stevens, Kennedy, Thomas and Ginsburg. 44 Liquormart, 517 U.S. at 501 (plurality
opinion); id. at 526 (Thomas, J., concurring). Indeed, under the Supreme Court's
more recent decisions, the Central Hudson test itself has evolved into a near
equivalent of strict scrutiny.3 For this reason, the SEC's apparent reliance on
SEC v. Wall Street Publishing, Inc., 851 F.2d 365 (D.C. Cir. 1988), and on the
recent unpublished district court decision in SEC v. Huttoe, No. 96-2543 (D.D.C.
1998), is plainly incorrect.4 Those decisions completely fail to take account
two decades of commercial speech cases which have refined the Central Hudson
test, and firmly tightened the scrutiny on any restrictions against commercial
speech.
- --------------
3 In Greater New Orleans Broadcasting Association, Inc. v. United States, the
most recent Supreme Court case involving commercial speech, the Court explicitly
stated that it was not adopting strict scrutiny, although it left open the
possibility of considering it in an appropriate case. 119 S. Ct. 1923, 1929
(1999).
4 The facts in both cases are clearly distinguishable from this case because the
publishers of the articles in question failed to disclose the fact that they
were being paid to publish the articles. In Wall Street Publishing, the articles
were not labeled advertisements, 851 F.2d at 372; and in Huttoe, the court held
that the statement "Personnel associated with SGA may own shares in the
companies mentioned herein or may act as consultants thereto," did not
constitute disclosure of compensation. Here, Money World magazine labeled the
articles "advertorials."
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(b) The Historical Circumstances
Surrounding the adoption of the Bill of
Rights Confirm that Commercial Speech
Merits Full First Amendment Protection
The historical evidence as to the original intent of the framers of the
Constitution supports equal First Amendment treatment of commercial and
noncommercial speech. During the period leading to the Constitutional
Convention, Americans were deeply concerned about the relationship between
government and commerce. The Federalist papers, published following the
Constitutional Convention, made clear that commercial concerns were central to
the Framers. As Alexander Hamilton wrote in No. 12, "The prosperity of commerce
is now perceived and acknowledged by all enlightened statesmen to be the most
useful as well as the most productive source of national wealth, and has
accordingly become a primary object of their political cares." The Federalist
No. 12, at 91 (Alexander Hamilton) (Clinton Rossiter ed., 1961). In order to
remedy the commercial crisis that had arisen under the Articles of
Confederation, the drafters of the Constitution provided for a strong central
government that would have the express power to regulate interstate commerce.
See Catherine Drinker Bowen, Miracle at Philadelphia: The Story of the
Constitutional Convention May to September 1787 9-10 (1966).
However, the creation of a strong central government also worried many
Americans who feared that a new federal government would like England trample
upon their basic freedoms. To allay those fears, the Bill of Rights was drafted
and ratified by the States. The Reader's Companion to American History 97-99
(Eric Foner & John A. Garraty eds., 1991); Herbert J. Storing, What the
Anti-Federalists Were For 64-70 (Murray Dry ed., 1981).
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First among the amendments to the Constitution was the provision that "Congress
shall make no law . . . abridging the freedom of speech, or of the press . . .
." U.S. Const. amend. I.
At the time of the ratification of the Bill of Rights, the American
people thus were concerned with advancing the free flow of commerce, and they
relied heavily on advertising as a means of communicating about commercial
matters. At the same time the new Americans plainly were interested in placing
limits on the powers given to the national government by the new Constitution.
Because, as Hamilton wrote, a desire for peaceful prosperity based on commerce
was a prime force leading to the creation of the Constitution, the conclusion is
inescapable that early Americans believed that their advertising was as worthy
of protection under the First Amendment as was their speech on other social or
political issues of the day.
In sum, both the historical evidence of original intent, and the
Supreme Court's repeated condemnation of content-based regulation, compel the
adoption of strict scrutiny as the test for protecting commercial speech from
paternalistic censorship. This Court therefore should recognize that commercial
speech is to be fully protected by the First Amendment.
(2) This Court Should Strike Down
Section 17(b) Under the Strict Scrutiny Test
In order to defend Section 17(b) from constitutional attack under the
strict scrutiny standard, the SEC must demonstrate: (i) that it has a compelling
interest in requiring that anyone who publishes an article that describes a
security must disclose both the fact that they have been paid to publish and the
amount thereof; and (ii) that these mandated disclosures are narrowly tailored
to serve the government's compelling interest. Riley v.
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National Federation of the Blind of North Carolina, Inc., 487 U.S. 781, 786
(1988). While the SEC may argue that the governmental interests asserted to
justify Section 17(b) are compelling, the SEC cannot possibly maintain its
burden of establishing that Section 17(b)'s requirement that the publisher
disclose both the fact and the amount of compensation is narrowly tailored to
pass First Amendment muster.
(a) The Legislative History of Section 17(b)
Reveals That Congress Was Concerned
About Objective Reporting and Securities Fraud
Like the 1933 Act's other provisions, Section 17(b) was designed to require full
and fair disclosure of the character of securities sold in commerce and through
the mails. See Securities Act of 1933, 15 U.S.C.ss.77a et. seq. (1997).
Congress' main concern in drafting the bill that became Section 17(b) was to
prohibit advertisements that were masquerading as "objective reporting." The
House Committee Reports noted that Section 17(b) was "particularly designed to
meet the evils of the 'tipster sheet' as well as articles in newspapers or
periodicals that purport to give an unbiased opinion but which opinions in
reality are bought and paid for." See H.R. REP. NO. 85, at 24 (1933), reprinted
in FEDERAL SECURITIES LAWS: 1 LEGISLATIVE HISTORY 1933-1982, at 161 (1983).
The legislative history of Section 17(b) does not indicate that the
drafters of the legislation were concerned about advertising that was plainly
identified as such, or about revealing how much a publisher of such advertising
was paid. Rather, the drafters of the bill expressed concern that anyone reading
a publication that described a security should know whether the article was
"bought and paid for" in order to curtail securities fraud. H.R. REP.
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No. 85 at 6. As discussed below, while the government's interest in enacting
Section 17(b) may be substantial, its requirement that persons disclose the fact
and amount of consideration neither necessary nor narrowly tailored to the
Congressional purpose.
(b) Section 17(b)'s Requirement That Publishers
Disclose The Fact And Amount Of
Compensation Cannot Withstand Strict Scrutiny
Section 17(b)'s requirement that anyone who publishes an article that
describes a security must disclose the fact that they have been paid to publish
the article and the amount of consideration cannot withstand strict scrutiny
because the statute is not narrowly tailored. While preventing securities fraud
is a compelling government interest, see SEC v. Capital Gains Research Bureau,
Inc., 375 U.S. 180, 186-87 (1963); Blount v. SEC, 61 F.3d 938, 944 (D.C. Cir.
1995), the question here is whether Section 17(b) is narrowly tailored to meet
the government's interest.
First, the fact that a company paid to have an article or
advertisement, which "describes a security," in a publication does not
necessarily mean that fraudulent conduct is occurring or that someone is being
deceived. Every day, corporations and individuals pay to have advertisements
placed in newspapers, magazines and other periodicals across the country. Many
advertisements contained in these periodicals "describe a security," but do not
mention the fact or amount that the publisher was paid to publish the
advertisement. Most editions of the Wall Street Journal or Business Week
magazine contain such examples. To suggest, without more, that there is a
correlation between advertisements which "describe a security," and fraud is
simply unsupportable. As the Supreme Court stated in Riley, "[i]t is
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well settled that a speaker's rights are not lost merely because compensation is
received; a speaker is no less a speaker because he or she is paid to speak."
487 U.S. at 801. "Broad prophylactic rules in the area of free expression are
suspect. Precision of regulation must be the touchstone in an area so closely
touching our most precious freedoms." NAACP v. Button., 371 U.S. 415, 438
(1963).
Moreover, where the publication is plainly labeled as an advertisement
such as here, disclosing the specific amount of compensation paid to the
publisher does not directly advance the government's interest in preventing
securities fraud. While the SEC may argue that the amount of compensation is
material to the reader because the SEC believes it discloses the extent of the
publisher's bias, several other reasons unrelated to the subjectivity of the
publication could account for higher or lower compensation. These include: (i)
the amount of advertising pages purchased; (ii) the size of the paid circulation
or geographic reach of the magazine; (iii) prevailing advertising rates in the
industry; (iv) overhead and costs of the publication; and (v) other business
arrangements between the advertiser and the publisher.
The burden lies with the SEC to demonstrate that forcing publishers to
disclose the fact and the amount paid for advertising is the least intrusive
means in preventing "masquerading" and securities fraud. Where the articles are
already labeled "Advertorials," forcing publishers to disclose the amount of
consideration they charge for the advertisements has no direct correlation to
preventing securities fraud. Whether CRG was paid $100 or $100,000, or 100
shares or 10,000 shares of stock, a MoneyWorld reader already knows
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without this information that he or she is reading an article paid for by the
company. Simply put, Section 17(b)'s requirements constitute a more extensive
regulation than is necessary to serve Congressional intent or any SEC
enforcement interest. Hence, under First Amendment strict scrutiny standards,
Section 17(b) cannot stand.
(3) Section 17(b) is Unconstitutional
Under the Central Hudson Test
Even if Section 17(b) is not subjected to strict scrutiny, the
government cannot meet the test set forth in Central Hudson. Under that test,
the SEC must show that: (i) if the communication is neither misleading nor
related to unlawful activity; (ii) the government has a substantial interest;
(iii) the restriction advances the asserted interest in a direct and material
way; and (iv) the restriction is not more extensive than necessary. Central
Hudson, 447 U.S. at 564. For the reasons set forth above, the SEC cannot contend
that paid advertising as such is unlawful or misleading; particularly where, as
here, the publication is clearly labeled as an advertisement.5
While admittedly there is a compelling governmental interest in
combating securities fraud, once the fact of consideration is disclosed, the SEC
cannot successfully argue that it has a substantial or compelling interest in
mandating the disclosure of the amount of consideration. Moreover, even if the
SEC could satisfy the second prong of the Central Hudson test, Section 17(b)
clearly founders on the third and fourth prongs.
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5 There is no allegation in this case that any of the advertisements published
in Money World contained false or misleading statements. See City of Cincinnati
v. Discovery Notework, Inc., 507 U.S. 410, 416 (1993) (the unlawful or
misleading conduct must relate to the content of the speech). The SEC's "fraud"
case in this regard is based solely on defendants' claimed failure to disclose
(i) the receipt of compensation from the companies who paid to have
advertisements place in Money World, and (ii) their trading in the securities.
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The third prong of the Central Hudson test addresses whether the
compelled speech directly and materially advances the asserted governmental
interest. "This burden is not satisfied by mere speculation or conjecture;
rather, a governmental body seeking to sustain a restriction on commercial
speech must demonstrate that the harms it recites are real and that its
restrictions will in fact alleviate them to a material degree." Greater New
Orleans, 119 S. Ct. at 1932, quoting Edenfield v. Fane, 507 U.S. 761, 770-771
(1993). For the reasons set out above, where the fact of consideration has
already been disclosed, the requirement that the publisher also disclose the
amount of consideration does not materially or directly advance any governmental
interest. In light of the several factors impacting advertising rates, the SEC's
claim that disclosure of the amount of consideration materially advances the
ability of investors to measure editorial bias is based on nothing but
speculation and surmise. Furthermore, editorial bias does not exist with
advertisements.
Finally, the SEC cannot satisfy the fourth prong of the Central Hudson
test because the SEC cannot show that the restriction is no more extensive than
necessary to serve the government's interest. Greater New Orleans, 119 S. Ct. at
1932. Although the possibility of fraud and deception exist in any publication
that describes a security, the government's interest in preventing securities
fraud is separately addressed and protected by other provisions of the federal
securities laws. Section 10(b) and Rule 10b-5 of the Exchange Act and Section
17(a) of the Securities Act, also known as the antifraud statutes, prohibit
misrepresentations, omissions of material fact, schemes or artifices to defraud
and acts, practices or courses of business which operate as a fraud or deceit.
Indeed, the SEC has
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relied upon these antifraud provisions in this case. See Complaint at pp. 62-66.
Because these antifraud statutes already address and protect the essence of the
government's purpose in promulgating Section 17(b) (i.e., to combat fraud),
additional mandates that impinge upon the fundamental right of freedom of speech
must be no more extensive than necessary. Accordingly, because another statute
already addresses the government's interest, 17(b) should be struck down as
unconstitutional.
The fact that the SEC has never charged major publishers such as the
Wall Street Journal or Business Week for failure to disclose the receipt and
amount of compensation for advertisements that "describe a security," is also
evidence that 17(b) provides ineffective or remote support for the government's
purpose of combating fraud. The aspect of the statute challenged here is simply
unnecessary.
Because the articles in CRG's publications were plainly labeled as
"bought and paid for," the additional requirement that CRG disclose the amount
of consideration it received does not directly or materially advance the
government's interests. Moreover, because other federal statutes adequately
address and protect the government's concern of combating securities fraud by
less restrictive means, Section 17(b)'s regulation of commercial speech is more
extensive than necessary under both the strict scrutiny and the Central Hudson
test. Thus, Section 17(b) violates the First Amendment and should be declared
unconstitutional by this Court.
(4) Freedom of the Press
There can be no doubt that the publications here at issue are within
the First
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Amendment's protection afforded to "the press." The Supreme Court stated in
Lowell v. City of Griffin Ga., 303 U.S. 444, 452 (1938), "The press in its
historic connotation comprehends every sort of publication which affords a
vehicle of information and opinion." The publications at issue here are no less
subject to constitutional protection under the First Amendment than Standard and
Poors. That publication was recognized as being within the meaning of the press
in the case of In Re Scott Paper Company Securities Litigation, 145 F.R.D. 366
(E.D. Pa. 1992)(First Amendment protection applies to disseminators of corporate
financial information).
The Supreme Court has recognized that the First Amendment is designed to
prevent previous restraints on publications principally although not exclusively
through previous restraints or censorship. Grosjean v. American Press Co., 297
U.S. 233, 249 (1936).
While it is conceded that there may be some reasonable controls on
freedom of the press such controls cross the line when the press is required to
publish the exact terms, amount, and method of compensation for advertisements
which are revealed as such.
The effect of such prior restraint on the press is far reaching. First,
it will reveal particular details of the financial aspects of advertisement to
competing members of the press. This may have an adverse impact upon the
economic viability of the press.
Second, the requirements of disclosure will impact the content of the
publication. Space in the publication will be required to set forth the SEC's
mandated disclosure.
The publications will therefore have less space to publish information
or will have
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increased costs to the requirements of additional space to set forth the details
of remuneration for each advertisement.
Such infringement on the press serves no legitimate purpose. The public
only need know that information is an advertisement to accomplish the intent of
Congress in enacting Section 17(b).
II. Failure to Satisfy the Pleading Requirements of Rule 9(b)
---------------------------------------------------------
Federal Rules of Civil Procedure 9(b) provides that, "In all averments
of fraud or mistake, the circumstances constituting fraud or mistake shall be
stated with particularity. Malice, intent, knowledge, and other conditions of
mind of a person may be averred generally."
The Complaint fails to satisfy the requirement of Rule 9(b) as to
Defendants Veitia and Stratcomm.
The SEC contends that Stratcomm and Veitia are control persons of Co-
Defendants CRG and GAP. However, the SEC has only sought to hold Veitia and
Stratcomm liable as control persons for the actions of CRG (Cmplt. P. 199).
The SEC has chosen to combine CRG and GAP in the Complaint and grouped
these Defendants as "collectively CRG" (Cmplt. P. P. 4 & 10). This grouping has
rendered this Complaint legally deficient.
The use of such labeling has resulted in Stratcomm and Veitia being
unable to determine whether the SEC seeks to sanction them for the actions of
CRG or GAP, or both companies together. The lumping of these defendants is
contrary to the specificity
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requirements or Rule 9(b).
In a securities action, mere conclusory allegations of deception or fraud
are insufficient to satisfy Rule 9(b). Elster v. Alexander, 75 F.R.D. 458 (D.C.
Ga. 1977); Segal v. Gordon, 467 F.2d 602 (2d Cir. 1972); In re: Checkers
Securities Litigation, 858 F.Supp. 1168 (M.D. Fla. 1994). Rule 9(b) requires, at
a minimum that a plaintiff allege the time, place and content of the false
representations or omissions, as well as the identity of the person making the
misrepresentation or omission. Keith v. Stoelting, Inc., 915 F.2d 996, 1000 (5th
Cir. 1990)(citing 5 Charles A. Wright & Arthur R. Miller, Federal Practice and
Proceduress.1297 at 403). When multiple defendants are charged with securities
fraud, the particularity requirements for pleading fraud requires specific
allegations of each defendant's participation in the fraud. DiVittorio v.
Eqidyne Extractive Industries, Inc., 822 F.2d 1242, 1247 (2nd Cir. 1987); Furman
v. Sherwood, 833 F.Supp. 408 (S.D.N.Y. 1993). Also, common allegations used to
imply that each defendant was responsible for statements and actions of others
in a securities fraud action cannot satisfy the requirements of Rule 9(b). David
F. Apple, M.D. Professional Corp. Pension Plan v. Prudential Bache Securities,
Inc., 820 F.Supp. 984 (W.D.N.C. 1992), aff'd, 933 F.2d 228 (4th Cir. 1993). Each
Defendant is entitled to be apprized by particularized pleadings of facts
surrounding the alleged fraud. Center Cadillac, Inc. v. Bank Leumi Trust Co. of
N.Y., 808 F.Supp. 213 (S.D.N.Y. 1992).
A. Improper Labeling of Defendants
A review of the complaint reveals that the SEC's allegations fail to
place the Defendants Stratcomm and Veitia on notice as to what specific acts or
practices of each
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Defendant the SEC seeks to sanction. As the SEC has chosen to combine CRG
together with GAP, each allegation in the Complaint as to CRG is therefore an
allegations which pertains equally to GAP.
The SEC has alleged that GAP is a subsidiary of Defendant, Stratcomm.
Furthermore, the SEC contends that from late 1995 GAP replaced CRG as the
primary entity which was responsible for publishing promotional magazines and
newsletters. (Cmplt.P. 12)
The Complaint's deficiency is clearly illustrated in the allegations
regarding the promotion of Tracker, Delta Petroleum, Ammonia Hold and Imtech. In
each section of the complaint devoted to describing the promotion of these
entities the allegation provides that CRG promoted the aforementioned
corporations in various publications (Cmplt. P. P. 60, 84, 103, 121, 134).
However, the SEC has provided that both CRG and GAP have violated 17(a), 10(b)
and Rule 10b-5 as to each of these companies without alleging a single fact
which is specific to GAP (Cmplt. P. P. 63, 86, 106, 123, 134). Therefore, Veitia
and Stratcomm are not on notice as to which entity committed any action which
might subject them to liability.
The SEC's lumping of these two Defendants as "collectively CRG" is
particularly egregious since one of the main violations alleged by the SEC is
fraud in the promotion of securities. In part the SEC has claimed that CRG and
other defendants committed fraud by failing to make certain disclosures in
promotional materials. Therefore, the identity of the party that is making the
promotion is central to determining what obligation if any that party had in
light of the securities laws.
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The Complaint must allege specifics of fraud as required by Rule 9(b)
as to each Defendant. Schultz v. Rhode Island Hosp. Trust Nat. Bank, 94 F.3d
721, 731 (1st Cir. 1996).
B. Failure to Plead With Specificity As to Veitia
The SEC seeks to hold Veitia, individually, liable for almost each and
every securities violation alleged in the Complaint. The allegations however
fail to provide what acts or practices Veitia engaged in which subject him to
liability.
The SEC alleges that Veitia was "the mastermind", or made "suggestions" or
"orchestrated" certain actions (Cmplt.P. 33, 47, 56). These types of conclusory
allegations are precisely the types of allegations which Rule 9(b) seeks to
remedy. Additionally, Veitia is not mentioned in any substantive way in
allegations involving Ammonia Hold, Imtech, Global Spill, Jreck Subs, Sobik
Subs, and Viking Management, as well as the allegations directed at Stratcomm.
Therefore, the only allegations concerning Veitia regarding any of these issuers
are those allegations that he was a "mastermind." Such allegations cannot
sustain a claim for relief for fraud. See, S.E.C. v. U.S. Environmental, Inc.,
897 F.Supp. 117, 119 (S.D. N.Y. 1995)(Claim of primary liability cannot be
sustained on mere allegations that a person engaged in a plan or scheme.)
Furthermore, the SEC has not provided Veitia notice as to which acts
would subject him to liability in for those issuers in which the SEC alleges he
was involved. The SEC claims that Veitia executed a stock purchase agreement
with Delta Petroleum (Cmplt. P. 67). Also alleged is that Veitia bought 50
shares of Foreland stock (Cmplt. P. 127). Additionally, the SEC has alleged that
Veitia executed certain contracts with issuer clients
22
<PAGE>
(Cmplt.P.P. 67, 135, 140, 174). None of this behavior establishes that Veitia,
individually, has violated the securities laws.
The allegations provide that omissions were made in CRG publications.
The allegations do not provide that Veitia himself made omissions.
To satisfy Rule 9(b) Veitia is entitled to be informed of the time and
place each statement was made which contained an omission, what statements were
made, the manner in which they were made and what the defendants received from
the fraud alleged. Brooks v. Blue Cross & Blue Shield of Fla, Inc., 116 F.3d
1364, 1370 (11th Cir. 1997) On these allegations the SEC has failed to satisfy
this pleading requirement.
C. Failure to Specify Control Person Liability
The allegations as to Stratcomm's actions cannot sustain a cause of
action for control person liability. There are no allegations which establish
that Stratcomm engaged in any way in any fraudulent activity.
To sustain a cause of action under Section 20(a) it must be shown that the
controlling person was involved in the fraudulent scheme. Rochez Brothers, Inc.
v. Rhoades, 527 F.2d 880, 884 (3rd Cir. 1975). In Rochez the court stated,
"[t]he legislative history of Section 20(a) illustrates that Congress intended
liability to be based on something besides control. That something is culpable
participation. Id. at 884-885.
Here, the SEC has not even alleged one action on the part of Stratcomm
to indicate how they participated in any of the 15 securities transactions with
CRG's issuer clients. Having failed to do so the SEC has not satisfied the
pleading requirements of Rule
23
<PAGE>
9(b).
D. Failure to Specify Communication Made to Support Allegations of
Fraud
As discussed above, the SEC has claimed that Veitia and Stratcomm
violated the securities laws in their position as control persons. The SEC has
failed to establish with specificity the acts of CRG which might subject them to
liability.
The SEC has failed to allege with particularity when CRG made
communications which contained omissions of material information which would
subject them to liability for fraud. The facts as to what statements were made
by CRG together with when the statements were made are critical to the SEC's
claim of fraud.
The SEC has indicated in certain instances in the complaint that CRG
began promoting client companies during specified periods. However there are no
facts alleged which set forth the promotional efforts in detail. Likewise, the
times and content of the representations are not alleged. The general nature of
the allegations are the same for each company identified in the Complaint. The
allegations as to Tracker and ECO2 are examples of the improper pleading by the
SEC.
As to Tracker, the SEC has alleged that CRG began promoting Tracker in
the Summer of 1994 (Cmplt. P. 46). The SEC does not provide what those
promotional efforts included except to identify the January, October and
November, 1995 editions of MoneyWorld in which Tracker was featured.
Similarly, the allegations as to ECO2 are equally obtuse. Here, the SEC
alleges that CRG being promoted ECO2 in August, October and November 1995
(Cmplt. P. 142).
24
<PAGE>
Additionally, CRG is alleged to have started selling its shares of ECO2 in June
of 1995, which is well before the promotion began (Cmplt. P. 140). The SEC has
failed to identify any communication made in connection with the sale of
securities in June and July for which the SEC seeks to sanction them.
Part of the relief the SEC seeks is the disgorgement of all profits and
compensation CRG and GAP, as well as the other Defendants received from the
issuers alleged in the Complaint (See, Complaint, "Prayer for Relief IV"). The
SEC, by having failed to identify any communication made by any Defendant while
sales of securities were made by CRG, has failed to satisfy the pleading
requirements of Rule 9(b).
The failure to specify the acts of promotion, as well as when the
promotions occurred and the times of the sales, is a fatal violation of Rule
9(b).
E. The Complaint is Patently Vague
The SEC has chosen to preface certain allegations with the phrases, ".
. .by virtue of the conduct describe above. . ." or "by reason of the foregoing"
without any other limiting language. The use of these limitless terms is
contrary to the specificity requirements of Rule 9(b).
An example of the harm caused by vague allegations can be found in
paragraph 63 of the Complaint. That paragraph claims a violation of Section
17(a); Section 10(b); Rule 10b-5; Section 17(b); and Section 5, by referencing
the first 62 paragraphs. There is no indication as to the specific acts for
which the Defendants are being held accountable since the allegations in the
proceeding 62 paragraphs describe in general terms a number of events.
25
<PAGE>
These events include allegations as to Regulation S, Rule 144, and the issuance
of S-8 stock, as well as to conclusory statements of fraud. Similar allegations
can be found as to each of CRG's client companies.
F. Failure to State A Claim Upon Which Relief Can Be Granted
Veitia and Stratcomm hereby incorporate the arguments and legal
theories set forth in CRG's and GAP's memorandum in support of the motion to
dismiss.
The underlying support for the motion to dismiss as set forth in CRG's
and GAP's memorandum is equally applicable to Stratcomm and Veitia. The
promotional programs conducted with disclosure that said programs are paid
advertisements preclude liability on the part of all Defendants. The
remaining arguments in support of CRG and GAP's motion to dismiss are likewise
applicable to Stratcomm and Veitia.
III. Failure to State a Cause of Action in Relation to Section VI of
the Complaint
The SEC has alleged in Section VI of the Complaint that Stratcomm acted
as an unregistered broker dealer with CRG and caused an unregistered
distribution of Stratcomm common stock, which CRG and GAP touted without
disclosing its relation to Stratcomm. It further alleged that these activities
subject CRG, Veitia and other Defendants to liability under the fraud and
touting provisions of the securities laws. Additionally, Stratcomm, Veitia and
CRG are alleged to have violated Section 5 of the Securities Act and Section
15(a)(1) of the Exchange Act. Also, Stratcomm and Veitia are claimed to be
liable under Section 20(a) of the Exchange Act as control persons. The Complaint
fails to state a claim for relief as to this issue, for the reasons set forth
below, as well as those put forth in CRG's
26
<PAGE>
and GAP's motion to dismiss.
First, the SEC has failed to state a claim for relief for violation of
the fraud provisions of the securities laws. The basis of the SEC's claim that
these provisions were violated were that CRG and GAP did not disclose that they
were owned by Stratcomm, or related to another entity, Chicken Kitchen.
The fact that CRG and GAP omitted to disclose in its publications that they
are owned by Stratcomm and were affiliated with Chicken Kitchen cannot support a
violation of the fraud provisions of the securities laws as this relationship
was disclosed in numerous public filings. Investors are imputed with the
knowledge of the total mix of information available. Picard Chemical Inc. Profit
Sharing Plan v. Perrigo Company, 940 F.Supp. 1101, 1121-1123 (W.D. MI. 1996)(The
market may be assumed to be aware of publically available information.)
Therefore this alleged omission in the publications themselves cannot support
the SEC's claim for relief. Notably, the SEC fails to allege that such
information was not in the public domain.
Second, the SEC has failed to indicate how the touting provision found
in Section 17(b) has been violated. The SEC has not alleged that the
publications failed to disclose the fact that payment was made or the amount of
such payment (Cmplt. P. P. 184-189). Without either of these two rudimentary
elements, a claim for relief for Section 17(b) cannot stand.
Third, the SEC's allegation as to this alleged unregistered
distribution contains contradictory facts and therefore, does not place the
Defendants on notice as to what actions the SEC complains. The SEC has alleged
that the shares sold were unregistered (Cmplt. P.
27
<PAGE>
184). Additionally, the SEC has alleged that if Stratcomm did not have any
shares to sell, Stratcomm borrowed restricted shares and replaced those shares
with Veitia's shares (Cmplt. P. 186). Therefore, it appears at a minimum that
some of the shares sold were subject to a registration statement and therefore
were not unregistered.
Since the SEC has apparently alleged inconsistent positions, the
Defendants are not on notice as to what actions the SEC seeks to remedy. This is
in violation of Rule 8(a) which requires "a short plain statement showing that
the pleader is entitled to relief." The SEC has not alleged that Stratcomm sold
shares which Stratcomm itself owned. Rather, the allegations indicate that the
shares of Stratcomm stock which were sold were those of Stratcomm investor.
Therefore Stratcomm, Veitia and the other defendants are not alleged to have
conducted a distribution of shares which
Similarly, as the pleadings are inconsistent the applicability of
Section 15(a)(1) of the Exchange Act cannot be determined.
Therefore, the SEC has failed to state a claim for relief for a
violation of either the antifraud or touting provisions of the securities act
and has pled inconsistent facts regarding the alleged sale of unregistered
securities.
Conclusion
For the reasons set forth above, the Complaint should be dismissed.
28
<PAGE>
Respectfully submitted,
LAW OFFICES OF HORWITZ & FUSSELL,
a Professional Association
By: __________________________________
MARK L. HORWITZ, ESQUIRE
Florida Bar No. 147442
17 East Pine Street
Orlando, Florida 32801
(407) 843-7733
Fax No.: (407) 849-1321
Attorneys for Defendants, Roberto Veitia and
Stratcomm Media, Ltd.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing has been
furnished via U.S. Mail to the persons on the attached Service List this 13th
day of December, 1999.
MARK L. HORWITZ, ESQUIRE
29
<PAGE>
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
UNITED STATES SECURITIES AND ) CASE NO.: 99-1222-CV-22-A
EXCHANGE COMMISSION, )
)
Plaintiff, )
)
vs. ) Dispositive Motion
)
CORPORATE RELATIONS GROUP, )
INC., GULF ATLANTIC PUBLISHING, )
INC., et al., )
)
Defendants. )
DEFENDANTS, CORPORATE RELATIONS GROUP, INC. AND GULF
GULF ATLANTIC PUBLISHING, INC.'S MOTION TO DISMISS
The Defendants, Corporate Relations Group, Inc. (hereinafter "CRG") and
Gulf Atlantic Publishing, Inc., (hereinafter "GAP"), by and through their
undersigned counsel, move this Court to dismiss the complaint for failure to
state a claim upon which relief can be granted and for failure to plead fraud
with particularity. This motion is filed pursuant to Rule 12(b)(6) and 9(b) of
the Federal Rules of Civil Procedure.
Nature of Allegations and
Summary of Basis for Motion
The Securities and Exchange Commission, (hereinafter, "SEC"), filed a
76-page complaint against 16 corporations and individuals seeking a permanent
injunction, disgorgement and fines. The allegations date back to September, 1994
and detail activities
1
<PAGE>
through December, 1996. Additionally, the 16 Defendants are alleged to have
committed securities violations involving 15 public companies.
The SEC alleges that CRG and GAP violated Sections 5, 17(a) & 17(b) of
the Securities Act of 1933 ("Securities Act") [15 U.S.C. ss. 77q(a) & (b)];
Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C.
ss.78j(b)] and Rule 10b-5 promulgated thereunder 17 C.F.R. ss. 10b-5.
Additionally, CRG is alleged to have violated Section 15(a)(1) of the Exchange
Act [15 U.S.C. ss.78o(a)(1)].
The SEC has not alleged that either CRG or GAP made any
misrepresentation of material fact. Rather, the SEC contends that CRG and GAP
(and Defendants Veitia, Skalko, Spratt and Stratcomm) failed to adequately
disclose: that payment was made to promote companies; the amount of the
compensation received; that stock was sold in the companies while the companies
were being promoted; and, that CRG employees were paid to promote its customer
companies to stockbrokers. In one instance the SEC claims that CRG failed to
disclose that cash payments were made to stockbrokers.
Similarly, the SEC seeks to sanction CRG, GAP, and the other Defendants
under the disclosure provision in Section 17(b). The SEC contends that the
disclosures in CRG and GAP publications did not satisfy the requirements of
Section 17(b).
The SEC has also alleged that CRG, GAP, and the other Defendants sold
unregistered securities and therefore acted as a broker dealer in certain
transactions which were originally
2
<PAGE>
issued under the Regulations S exemption, as well as other transactions
involving the sale of Defendant, Stratcomm's stock.
The SEC also contends that CRG was required to register as a broker
dealer because its employees contacted stockbrokers to communicate information
(which is not claimed to be false) about CRG client companies.
As a consequence of these alleged violations, the SEC seeks a number of
remedies. These include the issuance of an injunction and fines which are
statutory remedies. Furthermore, the SEC seeks non-statutory relief including
disgorgement of profits and compensation, and an accounting.
The SEC has improperly lumped CRG and GAP together in the Complaint
referring to these Defendants as "collectively CRG." Also, in numerous
allegations of fraud, the SEC has failed to identify the action of either
Defendant in making a statement which contained an omission. Rather, the SEC has
described CRG as having engaged in "promotion" and has not identified any
statement which would support a securities fraud claim. Such vague allegations
do not comply with Rule 9(b) of the Federal Rules of Civil Procedure.
The SEC also alleges that CRG sold securities while promoting those
companies. The allegations are not specific as to the timing of the sales and
promotions. The SEC therefore claims it is fraudulent for CRG to sell stock
legally obtained for promotional services before or after the promotion. The SEC
seeks disgorgement of all profits and compensation without regard to the timing
of CRG's sale of stock legally obtained as compensation for services. The
Complaint therefore seeks disgorgement of profits even if CRG sold stock before
it began placing promotional material in its publications which was disclosed as
paid advertising. It is submitted that the First Amendment guarantee of freedom
3
<PAGE>
of speech and the press prohibit this action by the SEC in punishing CRG's
actions. In addition, as a matter of law, the publication of promotional
material disclosed as a paid advertisement can never be considered conduct which
would give rise to claims of touting or scalping.
The SEC has no legitimate interest in a publisher's purchase and sale
of stock in a corporation that advertises in the publisher's material when the
public is advised that the information disseminated is advertisement and not an
independent evaluation of the client company.
The Complaint also utilizes other shorthand techniques which render the
Complaint in violation of Rule 9(b) specificity requirements. The SEC has
chosen to preface certain allegations with the phrases, ". . .by virtue of the
conduct describe above. . ." or "by reason of the foregoing," without any other
limiting language. The employment of these phrases in this more than
200-paragraph complaint introduces significant ambiguity into allegations of
fraud.
The SEC has failed to state a claim for relief for securities fraud
against CRG and GAP. The conduct which the SEC alleges these Defendants engaged
is protected speech by the First Amendment. The application of these fraud
provisions against these Defendants who published generalized investment
information, together with features which were clearly marked "ADVERTORIALS" and
contained other disclaimers which revealed that the Defendants were paid for
having published the advertorials, is contrary to the First Amendment.
4
<PAGE>
Additionally, viewing the facts in the Complaint as true, the alleged
omissions could not be actionable under the securities laws, as the SEC has not
sufficiently alleged that the statements were made in connection with the
purchase and sale of a security.
The SEC's claim that CRG and GAP violated the disclaimer provision in
Section 17(b) is without merit. A review of Section 17(b) in light of the First
Amendment, indicates that no claim for relief under this section can be
sustained on these facts. Additionally, 17(b) merely requires disclosure; it
does not mandate the time, place or manner of the disclosure. The SEC complaint
is therefore defective as to Section 17(b) allegations for there are no
allegations that the disclosures were not made in other ways such as through
press releases and SEC filings.
The SEC's claim for relief against CRG and GAP for the sale of
unregistered securities and failing to register as a broker dealer should also
be dismissed. Substantial confusion regarding the application of Reg S during
the years at issue in the complaint indicates that a claim for relief based on
Reg S transactions would be in violation of constitutional due process
requirements.
Furthermore, the SEC has not stated a claim for relief for the sale of
unregistered securities issued by Stratcomm as this distribution was permissible
under the securities laws as sales made by the issuer through employees.
As much of the relief which the SEC requests from this Court is not
authorized by statute, (i.e., disgorgement of profits and compensation and an
accounting), such relief must be denied as failing to state a claim upon which
relief can be granted.
5
<PAGE>
The Defendants hereby incorporate and adopt the motion and memorandum
to dismiss filed on behalf of the other Defendants in this cause.
In light of the foregoing the Defendants, CORPORATE RELATIONS GROUP,
INC. and GULF ATLANTIC PUBLISHING, INC. request that this Court dismiss the
Complaint.
Respectfully submitted,
LAW OFFICES OF HORWITZ & FUSSELL,
a Professional Association
By: __________________________________
MARK L. HORWITZ, ESQUIRE
Florida Bar No. 147442
17 East Pine Street
Orlando, Florida 32801
(407) 843-7733
Fax No.: (407) 849-1321
Attorneys for Defendants, Corporate
Relations Group, Inc. and Gulf
Atlantic Publishing, Inc.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing has been
furnished via U.S. Mail to the persons on the attached Service List this 13th
day of December, 1999.
MARK L. HORWITZ, ESQUIRE
6
<PAGE>
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
UNITED STATES SECURITIES AND ) CASE NO.: 99-1222-CV-22-A
EXCHANGE COMMISSION, )
)
Plaintiff, )
)
vs. )
)
CORPORATE RELATIONS GROUP, )
INC., GULF ATLANTIC PUBLISHING, )
INC., et al., )
)
Defendants. )
MEMORANDUM OF LAW IN SUPPORT OF
DEFENDANTS, CORPORATE RELATIONS GROUP, INC.
AND GULF ATLANTIC PUBLISHING, INC.'S MOTION TO DISMISS
The Defendants, Corporate Relations Group, Inc. (hereinafter "CRG") and
Gulf Atlantic Publishing, Inc., (hereinafter "GAP"), by and through their
undersigned counsel, hereby file this Memorandum of Law in Support of their
Motion to Dismiss.
Rule 9(b)
Federal Rules of Civil Procedure 9(b) provides that, "In all averments
of fraud or mistake, the circumstances constituting fraud or mistake shall be
stated with particularity. Malice, intent, knowledge, and other conditions of
mind of a person may be averred generally."
The Complaint fails to satisfy the requirement of Rule 9(b). The SEC
has failed to set forth the allegations as to the conduct of each of these
Defendants, but rather has combined CRG and GAP, and grouped these Defendants as
"collectively CRG" (Cmplt. P. P. 4 & 10).
1
<PAGE>
In a securities action, mere conclusory allegations of deception or fraud
are insufficient to satisfy Rule 9(b). Elster v. Alexander, 75 F.R.D. 458 (D.C.
Ga. 1977); Segal v. Gordon, 467 F.2d 602 (2d Cir. 1972); In re: Checkers
Securities Litigation, 858 F.Supp. 1168 (M.D. Fla. 1994). Rule 9(b) requires, at
a minimum, that a plaintiff allege the time, place, and content of the false
representations or omissions, as well as the identity of the person making the
misrepresentation or omission. Keith v. Stoelting, Inc., 915 F.2d 996, 1000 (5th
Cir. 1990). When multiple defendants are charged with securities fraud, the
particularity requirements for pleading fraud requires specific allegations of
each defendant's participation in the fraud. DiVittorio v. Eqidyne Extractive
Industries, Inc., 822 F.2d 1242, 1247 (2d Cir. 1987); Furman v. Sherwood, 833
F.Supp. 408 (S.D.N.Y. 1993). Also, common allegations used to imply that each
defendant was responsible for statements and actions of others in a securities
fraud action cannot satisfy the requirements of Rule 9(b). David F. Apple, M.D.
Professional Corp. Pension Plan v. Prudential Bache Securities, Inc., 820
F.Supp. 984 (W.D.N.C. 1992), aff'd, 933 F.2d 228 (4th Cir. 1993). Each defendant
is entitled to be apprized by particularized pleadings of facts surrounding the
alleged fraud. Center Cadillac, Inc. v. Bank Leumi Trust Co. of N.Y., 808
F.Supp. 213 (S.D.N.Y. 1992). The SEC must also comply with the particularity
requirement of Rule 9(b). See, S.E.C. v. U.S. Environmental, 897 F.Supp. 117,
121 (S.D.N.Y. 1995); S.E.C. v. Cable/Tel Corp, 90 F.R.D. 662 (S.D.N.Y. 1981).
A. Improper Labeling of Defendants
The complaint fails to give notice as to what specific acts or
practices of each Defendant the SEC seeks to sanction by lumping both Defendants
together.
2
<PAGE>
The SEC has alleged that GAP is a subsidiary of Defendant,
Stratcomm Furthermore, the SEC contends that from late 1995 GAP replaced CRG as
the primary entity which was responsible for publishing promotional magazines
and newsletters. (Cmplt.P. 12)
The SEC's decision to lump these two defendants together
results in the Complaint being legally deficient. This deficiency is illustrated
in the allegations regarding the promotion of Tracker, Delta Petroleum, Ammonia
Hold and Imtech. As to these companies, the allegations provide that CRG
promoted the aforementioned corporations in various publications (Cmplt. P. P.
60, 84, 103, 121, 134). The SEC has alleged that both CRG and GAP have violated
17(a), 10(b) and Rule 10b-5 as to each of these companies without alleging a
single fact which is specific to GAP (Cmplt. P. P. 63, 86, 106, 123, 134).
The SEC's lumping of these two Defendants as "collectively
CRG" is particularly egregious since one of the main violations alleged by the
SEC is fraud in the promotion of securities. The SEC has claimed that CRG and
other Defendants committed fraud by failing to make certain disclosures in
promotional materials. (Cmplt. P. P. 28, 29, 32, 35) Therefore, the identity of
the party that is making the promotion is central to determining what
obligation, if any, that party had in light of the securities laws.
The Complaint must allege specifics of fraud as required by
Rule 9(b) for each defendant. Schultz v. Rhode Island Hosp. Trust Nat. Bank,
94 F.3d 721, 731 (1st Cir. 1996)
B.Failure to Specify Communication Made to Support Allegations of Fraud
The SEC has failed to allege with particularity when CRG made
communications which contained omissions of material information. The facts as
to what
3
<PAGE>
statements were made by CRG together with when the statements were made are
critical to the SEC's claim.1
The SEC has indicated in certain instances that CRG began
promoting client companies during specified periods. However, there are no facts
alleged which set forth the "promotional efforts" in detail. Likewise, the times
and content of the representations are not alleged. The general nature of the
allegations are the same for each company identified in the complaint. The
allegations as to Tracker and ECO2 are examples.
As to Tracker, the SEC has alleged that CRG began promoting
Tracker in the Summer of 1994 (Cmplt. P. 46). The SEC does not specify the
promotional efforts except to identify the January, October, and November, 1995
editions of MoneyWorld in which Tracker was featured.
Similarly, the allegations as to ECO2 are equally obtuse.
Here, the SEC alleges that CRG promoted ECO2 in August, October and November,
1995 (Cmplt. P. 142). Additionally, CRG is alleged to have started selling its
shares of ECO2 in June of 1995 which is well before the promotion began (Cmplt.
P. 140). The SEC has failed to identify any communication made in connection
with the sale of securities in June and July for which the SEC seeks sanctions.
Part of the relief the SEC seeks is the disgorgement of all
profits and compensation (See, Complaint, "Prayer for Relief IV"). The SEC by
having failed to
- --------
1
As the SEC has lumped GAP into CRG, the following analysis referring to CRG is
deemed to pertain equally to GAP.
4
<PAGE>
identify any communication made by any Defendant while sales of securities were
made by CRG, has failed to satisfy the pleading requirements of Rule 9(b).
The failure to specify the acts of promotion, as well as when
the promotions occurred, and the times of sales of securities is a fatal
violation of Rule 9(b).
C. The Complaint is Patently Vague
The SEC has chosen to preface certain allegations with the
phrases, ". . .by virtue of the conduct describe above. . ." or "by reason of
the foregoing" without any other limiting language. The use of these limitless
terms is contrary to the specificity requirements of Rule 9(b).
An example of the harm caused by vague allegations can be
found in paragraph 63 of the Complaint. That paragraph claims a violation of
Section 17(a); Section 10(b); Rule 10b-5; Section 17(b); and Section 5, by
referencing the first 62 paragraphs. There is no indication as to the specific
acts for which CRG and GAP are being held accountable since the allegations in
the proceeding 62 paragraphs describe in general terms a number of events.
Similar allegations can be found as to each of CRG's client companies.
Rule 12(b)(6)
Reg S violations. In Part IV of the Complaint it is alleged that CRG
violated the registration provisions of Section 5 in relation to Regulation S
transactions involving five corporations: Tracker, Delta Petroleum, Ammonia
Hold, Information Management Technologies, and Foreland Corporation. CRG is not
alleged to have been involved with the offer or sale of the transactions. The
SEC has failed to state a claim for relief for any
5
<PAGE>
securities violation as to the following five transactions:
1. DELTA PETROLEUM. CRG is only alleged to have given a
"suggestion" that Delta sell Regulation S stock to Fondo and Oportunidad in
paragraphs 81-83. CRG is not alleged to have offered, sold or otherwise
profited from this transaction.
2. AMMONIA HOLD. CRG is not alleged to have committed an
improper act which would subject them to liability in paragraphs 88-90 in
relation to Ammonia Hold's
transfer of borrowed unrestricted stock to CRG.
3. AMMONIA HOLD. CRG is not alleged to have participated in any way
with either the Regulation D or Regulation S offering as alleged in paragraphs
95-99. CRG is not alleged to have ever purchased or sold the shares, or
participated in any way in the transactions provided in paragraph 95-99. The SEC
has merely alleged that the offering of the securities was made to CRG in the
names of Fondo and Oportunidad, but no other facts have been alleged to support
liability as to CRG. Rather, the allegations detail Fondo's interaction with
Ammonia Hold as an independent entity. Without any allegation that CRG ever
controlled these shares, owned the shares, offered or sold the shares, or even
profited in the transaction, these allegations do not state a claim for relief
under the securities laws.
4. AMMONIA HOLD. Likewise, the allegations in paragraphs 100-102 do not
state a claim for relief as CRG is not alleged to have owned the shares, offered
or sold the shares, or even profited in the transaction described and therefore,
this transaction does not state a claim for relief under the securities laws as
to CRG.
5. FORELAND. The stock transactions described in paragraphs
124-130 do not
6
<PAGE>
indicate that CRG owned or controlled or traded any Regulation S shares. The
allegations merely provide that CRG participated in the $1.7 million offering of
Foreland shares. There is no indication that CRG owned, controlled or profited
from any of the Regulation S shares. Additionally, the SEC alleged that the
CRG/New Concepts Profit Sharing Agreement was not invoked and that Fondo itself
profited from the transaction (Cmplt. P. P. 127, 130). Nor has the SEC alleged
that the $1.7 million offer of securities was improper.
The Regulation S transactions in which CRG is mentioned are detailed in
the Complaint at the following paragraphs: 1) Tracker, P. P. 47-55; 2) Delta
Petroleum, P. P. 67-76; 77-80; 3) Ammonia Hold, P. P. 91-94; 4) Information
Management Technologies, P. P. 109-120.
Intimately involved in the Regulation S allegations are two Costa Rican
entities, Fondo and Oportunidad. Neither of these companies own any stock in
CRG, which is 100% owned by Co-Defendant Stratcomm. Nor do Fondo or Oportunidad
own any shares of Stratcomm. In each Regulation S transaction alleged in the
Complaint, the purchaser of the Regulation S stock was Fondo or Oportunidad.
Additionally, each alleged transfer to CRG occurred after the 40 day holding
period expired. As Fondo and Oportunidad were foreign entities and they held the
stock for more then 40 days, CRG's sales of stock would be entitled to the
exemption provided by Section 4(1).
The SEC is aware of the confusion that surrounded the issuance of stock in
Regulation S transactions for most of the 1990's. One SEC Commissioner expressed
his concern over enforcement actions involving Regulation S transactions. In the
Matter of GFL Ultra Fund Ltd., Release No. 3-7423, (June 18, 1997) Fed. Sec. L.
Rep. (CCH) 64 SEC- Docket 1958-8, Commissioner Wallman, in dissent, noted that
under Regulation S there existed confusion as to when securities could be sold
back into the United States and under what conditions. Id. at *4. He further
stated:
<PAGE>
Some member of the bar interpreted the 40-day or one-
year restricted periods to be the equivalent of a holding
period analogous to the Rule 144 safe harbor under the
Securities Act.
[Under 144 if all provisions of the safe harbor are
satisfied, including the holding period, then a person selling
the shares is not deemed to be an underwriter within the
meaning of Section 2(11)] These legal practitioners advised
their clients that the expiration of the restricted period
provided a safe harbor for U.S. resales by purchasers of
Regulation S securities, and that no further analysis as to
whether the seller could be deemed a "statutory underwriter
within the meaning of section 2(11) of the Securities Act was
necessary.
As to hedging, since Regulation S itself was silent
on the subject, some members of the bar, including counsel for
Ultra, looked to Rule 144 interpretations for guidance on
whether hedging could take place within the restricted period.
[. . .]
Despite the confusion and uncertainty, it wasn't
until 1994 that the Commission and its staff began informally
making statements about problems in the Regulation S area. The
Commission failed to make any formal pronouncements regarding
Regulation S until the issuance of Problematic Practices
release in June 1995. Finally, in February of this year,
[1997], the Commission proposed changes to Regulation S in
order to stop abusive practices.
[. . .]
In the February [1997] release, the Commission
clearly stated that the restricted period under Regulation S
was never intended to be analogous to a holding period under
Rule 144, that it did not provide a safe harbor for U.S.
resales by purchasers, and that resales into the United States
without
7
<PAGE>
registration must be evaluated into the United States without
registration must be evaluated under a "statutory underwriter"
analysis regardless of the issuer's compliance with Regulation
S.
[. . .]
With regard to hedging, in the Problematic Practices
release, the Commission raised concerns about hedging in the
U.S. markets by purchasers of Regulation S securities during
the restricted period. In both the February release and its
companion Rule 144 release, the Commission continued to raise
questions and concerns regarding hedging by purchasers of
unregistered securities - including the Section 5
ramifications of hedging. While continuing to seek comment,
the Commission has not yet made any definitive statements
regarding what forms of hedging are or are not permissible
with regard to unregistered securities.
Id. at *4-5.
A statute or regulation is void for vagueness if it does not provide a
person with fair notice of conduct that is prohibited under the statute.
Papachristou v. City of Jacksonville, 405 U.S. 156, 162 (1971). That portion of
the Complaint based upon a violation of Regulation S and registration provisions
of Section 5 is unconstitutional as a violation of due process and should be
dismissed.
In the alternative, the SEC has alleged contradictory theories of CRG's
involvement with the Regulation S transactions. The SEC has alleged that CRG
controlled Fondo and Oportunidad, but at the same time the SEC has alleged acts
which establish that Fondo and Oportunidad were autonomous entities. Such
autonomy is evident as both Fondo and Oportunidad are alleged to have conducted
their own securities transactions separate and distinct from transactions in
which CRG participated. Such independent actions can be seen
8
<PAGE>
in Fondo's relationship with Ammonia Hold in which Fondo reaped nearly $600,000
in profits (Cmplt. P. P. 93-94). Therefore, the sale by CRG of shares received
from Fondo and Oportunidad would be exempt from registration under Section 4(1).
Tracker S-8 Stock. The SEC has alleged in paragraphs 56-59 of the
Complaint that CRG was involved in an S-8 transaction with Tracker stock. The
SEC has alleged that CRG and Veitia "orchestrated" an investment opportunity
(Cmplt. P. 56). However, the SEC has not alleged any acts in the offer or sale
of the S-8 stock for which CRG would be liable under the securities act.
As the SEC has not alleged any action on the part of CRG in selling or
offering to sell the S-8 stock the SEC cannot support a claim for relief for any
violation of the securities laws based on this transaction.
Failure to State a Claim for Relief for Violations of Touting
Provisions
The SEC has alleged that CRG in the promotion of each of the 15 publically
traded companies violated 17(b) of the Securities Act, which is also known as
the touting provision. To support this allegation the SEC has alleged that CRG's
publications contained inadequate disclosures. The SEC has chosen to provide the
Court with only fragmented portions of the disclosures contained in CRG's
publications. (See, Cmplt.P. 39) Each article in question was labeled as an
advertorial. In addition, there were disclaimers which revealed that CRG was
retained as investor relations counsel for the company. In addition, the
copyright information discloses that the advertorials are copyrighted by the
company that is the subject matter of the ad. Other disclosures reveal that
9
<PAGE>
CRG and its officers may from time to time have a position in the investments
referred to in this advertising supported publication. (See, publications
attached to Defendant Spratt's Motion to Dismiss).
Section 17(b) does not require the disclosure be contained in the
particular notice, circular, article, etc. Likewise, there is no specification
in Section 17(b) of how the party is to make the disclosure required. The SEC
has alleged that these disclaimers, "were inadequate under the anti-touting law
because they failed adequately to disclose both the receipt and amount of
compensation paid CRG by its issuer-clients." Therefore, the SEC's position is
that CRG by failing to disclose the amount of compensation received by the
issuer/client in the publication itself is a violation of 17(b).
The securities laws are replete with notice and disclosure rules. Investors
are deemed to be on notice of information filed with the SEC. Picard Chemical,
Inc. Profit Sharing Plan v. Perrigo Company, 940 F.Supp. 1101, 1123 (W.D. MI
1996). Additionally, information disseminated through the media either in press
releases or in newspaper articles also affords a further avenue for disclosure.
Id. at 1121-1123. The SEC has not, nor can it allege, a lack of notice through
SEC filings and press releases.
Because 17(b) does not contain requirements as to a time, place and
manner of how a party is to make the disclosures required by the statute, it
remains the decision of each party to make such decisions for themselves. The
First Amendment clearly establishes that it is ". . .presumed that speakers, not
the government, know best both what they want to say and how to say it. See,
Riley v. National Federation of the Blind of North Carolina, Inc., 487 U.S.
10
<PAGE>
781, 791 (1988); see also, Thomas v. Collins, 323 U.S. 516, 545, 65 S.Ct. 315,
89 L.Ed. 430 (1945)." Texas State Troopers Association v. Morales, 10 F.Supp.
2d 628, 632 (N.D. Tex.1998)
Thus, the SEC's assertion that the amount of compensation must
accompany the publication is without statutory support. It is the SEC's burden
to establish otherwise or to allege no notice through other means such as
filings or press releases. Therefore, the SEC's claim for relief for violation
of the touting provision is legally deficient, fails to state a claim, and must
be dismissed.
Other First Amendment Challenges to Section 17(b)
Section 17(b) is unconstitutional for it is in violation of the First
Amendment's protection of freedom of speech and the press. The argument set
forth in the motion and memorandum to dismiss filed by Veitia and Stratcomm are
incorporated herein by reference.
Failure to State a Claim for Securities Fraud
The SEC has alleged that CRG, GAP and the related Defendants have
committed fraud in the offer and sale of securities by having omitted certain
information in their publications.
To prove liability under Section 10(b) the SEC is required to show that
there has been an omission of material fact made with scienter. SEC v. Fehn, 97
F.3d 1276, 1289 (9th Cir. 1996). The standard for finding that an omission is
material is whether there is a substantial likelihood that a reasonable investor
would consider the omitted facts important in making his or her investment
decision. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 446
11
<PAGE>
(1976).
Scienter is a necessary element under Section 10(b). Aaron v. SEC, 446 U.S.
680, 689-691 (1980). To establish scienter, the SEC must plead facts which show
knowing misconduct or severe recklessness. S.E.C. v. Warner, 674 F.Supp. 836
(S.D.Fla. 1987) (Denying injunctive relief as alleged misstatement was cured by
SEC filing.)
Additionally, a party may not be sanctioned under the securities laws
unless that party has a duty to disclose information. S.E.C. v. Rodgers, 790
F.2d 1450 (9th Cir. 1986). Such a duty may arise in the person uses insider
information or if they are in a fiduciary relationship or involved in a
fraudulent scheme. Id.
Here, the SEC has not alleged that either CRG or GAP made any
misrepresentation of a material fact. Rather, the SEC contends that CRG and GAP
failed to adequately disclose that it was being paid by its client companies to
promote certain issuers, the amount of the compensation received, that they as
well as other entities they allegedly controlled sold stock in the issuers while
promoting the issuers, and that CRG employees were paid to promote its client
companies to stockbrokers. In one instance, the SEC claims that CRG failed to
disclose that cash payments were made to stockbrokers.
The leading case on the issue of whether an omission of a material fact can
be fraudulent is Chiarella v. United States, 445 U.S. 222 (1980). The issue in
Chiarella was whether an employee of a publishing company who traded on material
non-public information could be prosecuted for fraud. Id. at 226. The court held
that absent a duty to speak a person could not be prosecuted for fraud. Id. at
235. The court reasoned that the law
12
<PAGE>
does not require a person to speak absent a duty. Id. at 227. The reason a
person having a duty to speak must divulge non-public information is that there
is an element of reliance which has attached to their actions. Id. With reliance
comes the corresponding duty. Id.
Viewing the facts as alleged as true, it is clear that CRG, GAP and
related Defendants are not alleged to have made misstatements of fact. The clear
and fair import of the publications revealed that the information was a paid
advertisement. The Defendants acknowledge that the details of the compensation
was not disclosed. Such was not required for there was no duty for such
disclosure, nor was the omission material, as a matter of law.
None of the omissions could be material when viewed by a reasonable
investor. A reasonable investor would view the disclaimers together with the
label, "advertorial" as necessarily indicating that the information provided was
a paid advertisement. Therefore, no reasonable investor would find that CRG,
GAP, or the related Defendants, failed to adequately disclose that they were
being paid to promote the fifteen companies listed in the complaint.
Furthermore, the amount that CRG or GAP was paid for the advertisement
would also not be material to a reasonable investor since the specific dollar
amount paid might be higher or lower from advertiser to advertiser since the
number of promotions and length of the article in each publication might vary
from issuer to issuer. See, e.g., Riley v. National Federation of the Blind of
North Carolina, 487 U.S. 781, 798 (1988). Also, the SEC has only alleged that
the amount of compensation was not in the publications. The SEC has not alleged
that the amount of compensation was not disclosed by other means.
13
<PAGE>
Third, the fact that CRG or GAP and other individuals or entities it
controlled were selling stock of the issuers while they were promoting those
issuers cannot be material to a reasonable investor. First many of the issuers
disclosed in SEC filings that CRG was paid in stock. (See, Motion to Dismiss
filed by Co-Defendant, James Spratt). Courts have held that as a matter of law,
"where information is contained in a documents filed with the SEC, the market
has knowledge of such matters. Picard Chemical Inc. Profit Sharing v. Perrigo
Company, 940 F.Supp. 1101, 1123 (W.D. MI. 1996). Therefore, the total mix of
information to a reasonable investor informed them that the featured articles
were paid advertisements and that CRG had been paid in shares of the issuer.
The allegation that CRG paid its broker relations executives to promote
these companies to stock brokers cannot be found to be material to a reasonable
investor. Such communications between CRG employees and stockbrokers were
pursuant to contracts CRG entered into with issuers. Some of these contracts
have been filed with the SEC and therefore the market is deemed to have
knowledge of such communications. Picard, 940 at 1123. Also, CRG in promoting
itself to the public had naturally highlighted as one of its services that it
had developed a broker network. A reasonable investor would understand that CRG
would pay its employees and that they would promote companies to stock brokers
in part through its own employees. Furthermore, the dissemination of truthful
information to the market is an activity which CRG had no duty to disclose in
its publications concerning items designated as paid advertisements.
As to the allegation that CRG paid brokers in relation to Tracker,
while this allegation
14
<PAGE>
is vehemently denied, it is accepted as true for purposes of this motion,
disclosure of such payment would not be the responsibility of CRG. Rather, each
stockbroker who received such payment would have to disclose the same to its
clients. There is clearly a fiduciary duty between the broker and his or her
customer. If an obligation exists to disclose compensation, the duty is upon the
broker, not CRG. The complaint fails to allege any duty on the part of CRG to
disclose information on the broker's compensation.
The total mix of information available here results in the omissions
being not material as a matter of law. The disclaimers as well as the labels,
Advertorials, and information filed with the SEC served to inform readers that
the MoneyWorld and Rumor Mill publications were paid advertisements.
One of the major cases discussing fraud in the promotion of securities
is the Supreme Court's decision in SEC v. Capital Gains Research Bureau, Inc.,
375 U.S. 180 (1963). The case arose under the Investment Advisors Act and
involved "scalping". Scalping is a practice whereby a person purchases shares
just before recommending that security and then selling the shares to reap a
short term profit following the recommendation.
The defendant in Capital Gains published two investment newsletters and
on six occasions committed acts of scalping. The published articles by Capital
Gains were not disclosed as advertisements. In finding that the defendant had
violated the Investment Advisors Act the Court found that a duty to disclose
arose out of a fiduciary-type relationship between an investment advisor and his
client. Such a fiduciary relationship would necessitate any conflict of interest
be disclosed.
15
<PAGE>
Other cases involving articles touting a company followed in the wake of
Capital Gains. Two of these, SEC v. Blavin, 706 F.2d 706 (6th Cir. 1983) and
Zweig v. The Hearst Co., 594 F.2d 1261 (9th Cir. 1983) also involved the
Investment Advisor Act. In both of these cases the courts noted the fiduciary
relationship imposed on the defendants due to the application of the Investment
Advisors Act. These cases did not involve publications setting forth disclosed
advertisements.
The broader application of the above three cases to situations other than
scalping is limited. The Supreme Court in Lowe v. S.E.C., 472 U.S. 181 (1985)
held that bona fide publications of regular and general circulation are exempt
from the Investor Advisors Act. Therefore, there is no fiduciary relationship
between a publisher and its readers.
In Lowe the petitioner was the president and principal of a corporation
that was a registered under the Investor Advisors Act. The SEC revoked Lowe's
registration since Lowe had previously been convicted of various offenses.
Lowe then began publishing an investment newsletter containing
investment advice. The SEC brought an action to enjoin Lowe's publishing of the
newsletter since he was unregistered.
The issue before the court was whether Lowe's publication of an
investment newsletter satisfied an exclusion to the Investment Advisors Act
which exempted "bona fide publications" from the acts requirements. The court
found that the newsletter did qualify under the exemption.
In arriving at its conclusion the court noted that the newsletter was
published
16
<PAGE>
regularly albeit with some irregularities. Also, the content of the petitioner's
newsletters was completely disinterested. Additionally, the court found that the
mere fact that the publication gave advice about a particular security did not
personalize the character of the information provided.
The Lowe decision affected the case involving another publisher, Wall
Street Publishing Institute. The defendant, Wall Street Publishing, was
originally found to have violated the Investment Advisors Act, as well as
Section 10(b) of the Exchange Act and 17(b) of the Securities Act. S.E.C. v.
Wall Street Publishing Institute, 591 F.Supp. 1070 (D.D.C. 1984).
The basis for the Section 10(b) violation was the finding that Wall Street
Publishing had made misstatements of fact in its publication. Id. at 1088. Wall
Street Publishing stated in its newsletter that, ". . .feature articles are
based on thorough research and first-hand interviews with company officials,
economists, security analysts, tax accountants and other experts." Id. at 1076.
The publisher admitted that he did not conduct interviews or research and that
the articles in the publication were supplied by the featured companies or their
public relations agents. Id.
The Wall Street Publishing case was remanded by the appellate court to
the district court as the Lowe case had been decided during the appeals process.
The issue before the district court on remand was whether Wall Street
Publishing could still be sanctioned under Section 10(b) and or Section 17(b) in
light of Lowe. S.E.C. v. Wall Street Publishing Institute, 664 F.Supp. 554, 555
(D.D.C. 1986), rev'd on other
17
<PAGE>
grounds, S.E.C. v. Wall Street Publishing Institute, 851 F.2d 365 (D.C. Cir.
1988). The district court noted that the Section 10(b) violation was based upon
the conclusion that the misstatements of Wall Street Publishing "touched" a
securities transaction since a reasonable investor would rely on them. Id.
However, after the Lowe decision this conclusion could not be made and
therefore, the Section 10(b) violation could not stand.
Here, CRG and GAP have published the MoneyWorld monthly magazine. This
publication contains numerous disclosures which identified the promotions in
question as advertisements. As a more thorough analysis of the publications has
been written in Co- Defendant, James Spratt's Motion to Dismiss, CRG and GAP
hereby incorporate by reference the analysis of these publications as found in
that motion.
The term "advertorial" clearly connotes the fact that the publisher is
receiving compensation for running the item. Ortho Pharm. Corp. v. Cosprophar,
Inc., 32 F.3d 690, 693 (2d Cir. 1994)(defined advertorials as "newspaper and
magazine advertisements that are formatted in the same style as new articles and
are placed adjacent to news items"); Wilcox v. Vail Valley Found., No. 91-C-551,
1993 U.S. Dist. Lexis 19360, at *2 n.2 (D.Col. Oct. 6, 1993). Advertorials have
been described as "Editorial Space for Sale" as the newspaper equivalent of
television's infomercial. Rancho Publs. v. Superior Court of Orange Co., 68 Cal.
App. 4th 1538, 81 Cal. Rptr. 2d 274 (1999) (citations omitted).
By identifying an article as an advertorial, courts have noted that the
article necessarily carries with it a pejorative badge. S.E.C. v. Wall Street
Publishing Institute, 851 F.2d 365, 375 (D.C. Cir. 1988)("Indeed, such a label
converts the article in the reader's mind
18
<PAGE>
into an advertisement and surely would sharply diminish the magazine's
attractiveness and circulation.")
Here, the MoneyWorld magazines contain approximately as many pages of
news items and information in relation to the financial markets as it contains
advertorial features. From a review of the November, 1996 edition of MoneyWorld
the magazine contained general information regarding: the effect of a second
presidential term on the stock market; U.S. investment in Latin America; the
grain supply; the oil and airline industries; unclaimed money; precious metals;
bankruptcy; China's control of Hong Kong; market cycles; mutual funds; S&P's
prediction of top performing stocks; Clinton/Dole's potential effect on the
market; and the dynamics of stock splits.
The inclusion of articles which are clearly denoted as "advertorials"
provides a reasonable investor that the information provided has been paid for.
This disclosure satisfies the Defendants' legal duty of disclosure.
The Defendants contend that "scalping" as a matter of law, cannot be
based upon a publication of articles which are advertisements and designated as
such.
The Complaint fails to state a claim for fraud under the securities
laws relied upon by the SEC.
Simultaneous Violations of Antifraud and Touting
Provisions The SEC in the fifth section of the Complaint has alleged
that CRG violated the
Sections 17(a) & (b) of the Exchange Act, Section 10(b) and Rule 10b-5 of the
Securities Act.
19
<PAGE>
The SEC contends that CRG's promotional activities involving nine
companies violated the antifraud and touting provisions of the securities laws.
These nine companies are: Atlas Pacific, ECO2, Global Intellicom, Global Spill
Management, Golf Ventures, Jreck Subs, Sobik's Subs, Vector Aeromotive, and
Viking Management Group.
While there are some distinctions regarding the allegations as to CRG's
actions as to each of these companies, the substance of the allegations are
identical. The SEC contends that CRG defrauded investors by failing to disclose
at least four items in its publications: 1) that CRG was being paid to promote
each entity; 2) that CRG did not disclose the amount of the compensation; 3)
that CRG was selling stock while promoting it as a good investment; and, 4) that
CRG was paying its employees commissions to promote each entity's stock to
brokers (Cmplt. P. P. 138, 143, 149, 155, 161, 167, 172, 176, 182).
The only variation from these four alleged disclosure violations is in
relation to the third omission. The third omission which relates to Global
Intellicom, Jreck Subs and Sobik's Subs, also provides that CRG failed to
disclose that "entities it controlled" were also selling stock of these
companies (Cmplt. P. P. 149, 167 and 172). Additionally, as to ECO2, Global
Spill, Golf Ventures and Viking Management, the allegations provide that CRG
failed to disclose that Defendants Spratt and/or Skalko were also selling stock
of these companies (Cmplt. P. P. 143, 155, 161 and 182).
None of these alleged disclosure violations is legally sufficient to
state a claim for relief for violations of the antifraud and touting provisions
of the securities laws and therefore each claim should be dismissed.
20
<PAGE>
First, the SEC has claimed that CRG has violated two distinct
provisions of the securities laws, the antifraud and touting provisions in its
promotion of these companies. Viewing the facts alleged in the Complaint as true
regarding these nine companies the SEC cannot claim simultaneous violations of
the antifraud and touting provision.
The antifraud and touting provisions are complimentary provisions of
the securities laws.2 While there is an overlap in these provisions, not every
violation of the touting provision will support a claim for relief under the
antifraud provisions and vice versa.
The SEC claims that as to each of the nine entities which CRG promoted,
four omissions were made in various publications. The SEC does not allege that
CRG or the other Defendants engaged in any other behavior to subject them to
liability under Section 17(a)(1) or (3) or under Rule 10b-5. Therefore, to state
a claim for relief under Section 17(a)(2), the SEC is required to allege facts
which establish that CRG, in the "offer or sale of any security" obtained money
or property by means of an omission of a material fact made in the light of the
circumstances under which it was made, not misleading.
However, since the SEC has also alleged that the statements contained
in the various CRG publications are subject to the requirement of Section 17(b),
then the statements contained in these publications do not rise to the level of
an "offer" of securities or "in connection with the sale of securities." The
plain language of Section 17(b) only encompasses, ". . .communications which
though not purporting to offer a security for sale,
- --------
2
CRG contends that the facts as alleged in the Complaint cannot support
a simultaneous violation of the antifraud and touting provisions of the
securities laws not that there can never be a simultaneous violation of the
antifraud and touting provisions of the securities laws.
21
<PAGE>
describes such security for a consideration. . ."
The Supreme Court in Lowe v. S.E.C., Supra, discussed the distinction
between personal advice given to investors by investment advisors and
information set forth in publications. That underlying difference is also
present here so as to distinguish information set forth in a disclosed paid
advertisement and offer or sale of security.
The SEC has claimed violations of both the antifraud and touting
provisions. These claims based on allegations of mere omissions to state
material information, necessarily requires an examination of the statements
which were made in the publication. To invoke the antifraud provisions the
statements in the publication must be made either in the "offer or sale of a
security" as required by Section 17(a) or "in connection with the purchase or
sale of a security" as required by Section 10(b) or Rule 10b-5. Either of these
criteria run counter to the limiting language of Section 17(b) which only
reaches those communication which, ". . .though not purporting to offer a
security for sale describes such security. . ." It is the position of the
Defendants that the touting and scalping cannot be present in the facts of this
case where a publication promotes a company through advertisements that are
disclosed to the public.
Alleged violation of Section 15 of the Exchange Act
The SEC alleges that CRG violated both the broker and dealer
registration
requirements found in Section 15 of the Exchange Act [15 U.S.C.A.ss.78o(a)(1)
which provides:
It shall be unlawful for any broker or dealer. . .(other than
such a broker or dealer whose business is exclusively
intrastate and
22
<PAGE>
who does not make use of any facility of a national securities
exchange) to make use of the mails or any means of interstate
commerce to effect any transactions in, or to induce or
attempt to induce the purchase or sale of, any security (other
than an exempted security...) unless such broker or dealer is
registered in accordance with subsection (b) of this section.
A "broker" is defined under Section 3(a)(4) of the Exchange Act as "any
person engaged in the business of effecting transactions in securities for the
account of others, but does not include a bank." 15 U.S.C.A. ss. 78c(a)(4). This
definition typically centers upon the meaning of "engaged in the business" and
"effecting transactions in securities."
Factors which have been considered in determining whether a person is a
"broker" include whether the person: (1) actively solicits investors; (2)
advises investors as to the merits of an investment; (3) acts with a "certain
regularity" of participation in securities transactions; (4) receives
commissions or transaction-related remuneration; (5) is an employee of the
issuer; (6) is selling, or previously sold the securities of other issuers; (7)
is involved in negotiations between the issuer and the investors; and, (8)
maintains custody or possession of funds or securities at any state of a
securities transaction. In re: Kemprowski and Cambridge Consulting Co., Exchange
Act Rel. No. 35058, [1994-95 Transfer Binder] Fed. Sec. L. Rep. (CCHP. 85,469 at
86,049 (Dec. 8, 1994); see also S.E.C. v. Hansen, [1984 Transfer Binder] Fed.
Sec. L. Rep. (CCHP. 91,426 (S.D.N.Y. 1984) (citing N. Wolfson, R. Phillips & T.
Russo, Regulation of Brokers, Dealers and Securities Markets, CFR 1.06 (1st ed.
1977) atss.1-12).
Here, the SEC has failed to allege any facts which would indicate that
CRG acted as a broker.
23
<PAGE>
First, CRG did not actively solicit investors to engage in any
securities transaction. The SEC has alleged that Broker Relations Executives
(hereinafter referred to as "BREs"), contacted registered representatives and
touted CRG client companies. This allegation does not establish in any way that
CRG solicited any investor. Furthermore, the Complaint does not allege that CRG
or BREs had any communication regarding any security with any investor. Rather,
the allegations provide that registered representatives communicated with
investors themselves.
Second, CRG did not advise investors as to the merits of any investment.
The SEC has not alleged otherwise in its complaint. The SEC has only alleged
that BREs communicated to registered representatives to promote CRG client
companies (Cmplt.P. 190). The facts as alleged do not indicate that CRG was in
any way involved in any negotiations or communications with an investor as may
be dispositive of this issue. See, Fulham & Co., SEC No-Action Letter, available
at 1972 WL 9129 (S.E.C.) (Dec. 29, 1972) Davenport Management, Inc., SEC
No-Action Letter, available at 1993 WL 120436 (S.E.C.) (Apr. 13, 1993).
Third, CRG did not act with regularity in the participation of
securities transactions as required to register as a broker dealer. The SEC in
alleging a violation of Section 15 has failed to indicate any securities
transaction which CRG effected or participated in. The SEC alleges that CRG
communicated to registered representatives through BREs and touted client
companies (Cmplt. P. 190). This allegation does not indicate that any securities
transaction was in any way effected by CRG.
24
<PAGE>
Fourth, BREs were not compensated out of the pool of funds provided by
an investor or issuer who were a party to a securities transaction. While the
SEC has alleged that BREs received compensation by demonstrating that a purchase
occurred there is no allegation that BREs received compensation from those funds
provided by an investor.
Fifth, BREs as employees of CRG are not employees of the issuers of the
securities involved.
Sixth, the BREs are not alleged to have sold the securities of any
issuer. The BREs are not alleged to have sold any security to anyone. The SEC
merely alleges that BREs touted CRG client companies to registered
representatives.
Seventh, BREs are not alleged to have engaged in any communication with
any investor. The act or communicating to a broker about a company's merits
cannot be stretched by the SEC so as to be deemed a communication with an
investor.
Eighth, neither CRG nor the BREs are alleged to have had custody or
possession of either the funds invested or the securities involved. The fact
that CRG was completely out of the loop regarding whatever securities purchases
occurred between registered representatives contacted by BREs and individual
investors, clearly indicates that CRG was not effecting securities transactions
as provided by Section 15.
The lack of any allegation that a BRE had contact with any investor
indicates that CRG is not in violation of the broker provisions of Section 15.
To be in violation of this section a broker is defined as a person who effects
the securities transactions in the account of another. The SEC by failing to
allege any communication between CRG or CRG's BREs
25
<PAGE>
and an investor, has failed to establish how CRG effected transactions in the
account of another. As the SEC has not alleged any of the criteria by which a
party may be sanctioned under Section 15 this claim is ripe for dismissal.
In essence, the SEC contends that one may not call a broker and tell a
broker true facts concerning a company. The SEC apparently feels that a company
cannot itself tell brokers true facts about itself and it cannot hire a public
relations company to do the same. The SEC's theory does not state a claim for
relief under any fair reading of the law.
The SEC has also failed to allege sufficient facts to state a claim for
relief based upon the allegations that CRG failed to register as a dealer under
Section 15.
A dealer is defined in Section 3(a)(5) of the Exchange Act as:
any person engaged in the business of buying and selling
securities for his own account, through a broker or otherwise,
..but does not include..any person insofar as he buys or sells
securities for his own account, either individually or in some
fiduciary capacity, but not as a part of a regular business.
A party is not engaged in the business of buying and selling securities
if he does not: (1) act as an underwriter or participate in a selling group in
any distribution of securities; (2) carry a dealer inventory in securities; (3)
quote a market in any security; (4) advertise or otherwise hold himself out to
the public as a dealer, or a willing to buy or sell any security on a continuous
basis; (5) render any investment advice; (6) extend or arrange for the extension
of credit on securities; or, (7) lend any securities. See, Davenport Management,
Inc., SEC No-Action Letter, available at 1993 WL 120436 (April 13, 1993).
Of the above seven criteria the SEC has only alleged that CRG engaged
in activities
26
<PAGE>
as an underwriter based on the Regulations S transactions with Tracker, Delta
Petroleum, Ammonia Hold, Information Management Technologies and Foreland. As
these transactions were conducted in compliance with Regulation S as it was
interpreted at the time, such compliance would indicate that CRG did not engage
in underwriting activities and therefore, did not have to register as a broker
dealer under Section 15 of the Securities Act. Furthermore, to base liability
under this section would be in violation of constitutional due process.
No Basis to Support Certain Remedies
The SEC is not empowered to seek most of the relief which it has
request. Therefore, this Court should dismiss those remedies which are not
authorized by law.
The SEC is authorized to seek injunctive relief pursuant to Section 20(b)
of the Securities Act [15 U.S.C.ss.77t(b)] and Sections 21(d) of the Exchange
Act [15 U.S.C. ss.ss.78u(d)]. Additionally, the SEC is authorized to seek the
imposition of fines pursuant to Section 21(d) of the Exchange Act [15
U.S.C.ss.78u(d)(3).
In this case the SEC requests relief far beyond these remedies.
Specifically, the SEC requests that this Court enter an Order which requires the
defendants: (1) to pay for an accounting; (2) to disgorge their profits from
trading as alleged in the complaint or may be discovered in the accounting; (3)
Veitia, Spratt and Skalko to disgorge all compensation received as finder's fees
for the issuers alleged in the Complaint; (4) CRG, Gulf Atlantic, Veitia, Spratt
and Skalko to disgorge all compensation received from the sale of publications
they controlled, edited, wrote without adequate disclosure that promotions
therein were paid
27
<PAGE>
for by the companies promoted, or the amount of compensation, or that the
defendants were selling securities they recommended for purchase in the
publication; and (5) such other relief as this Court deems just and proper.
Some courts have granted the SEC the ancillary relief which has been
requested. See, SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301 (2d Cir. 1971);
SEC v. Manor Nursing Center, Inc., 458 F.2d 1082 (2d Cir. 1972).
However, these decisions were decide before the decision in Central
Bank v. First Interstate Bank, 511 U.S. 164 (1994). In Central Bank, the
Supreme Court stated, "[a]dherence to the text in defining the conduct covered
byss.10(b) is consistent with our decisions interpreting other provisions of the
securities Acts." Id. at 176.
Therefore, given the Central Bank holding that strict adherence to the
plain language of the securities laws controls the substantive causes of action
that a litigant can bring, such reasoning would apply to the remedies available
under the same laws. Since the SEC has failed to establish that it is entitled
to relief beyond the entry of an injunction and fines these remedies should be
dismissed.
Conclusion
The Complaint should be dismissed for it fails to allege fraud with
specificity as required by Rule 9(b); fails to state a claim upon which relief
can be granted; and is in violation of the First Amendment provisions of freedom
of speech and the press. In addition, the complaint violates the due process
clause of the Fifth Amendment by attempting to apply laws and regulations which
were not clear during the time at issue in this Complaint.
28
<PAGE>
Respectfully submitted,
LAW OFFICES OF HORWITZ & FUSSELL,
a Professional Association
By: __________________________________
MARK L. HORWITZ, ESQUIRE
Florida Bar No. 147442
17 East Pine Street
Orlando, Florida 32801
(407) 843-7733
Fax No.: (407) 849-1321
Attorneys for Defendants, Corporate
Relations Group, Inc. and Gulf
Atlantic Publishing, Inc.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing has been
furnished via U.S. Mail to the persons on the attached Service List this 13th
day of December, 1999.
MARK L. HORWITZ, ESQUIRE
29
<PAGE>
UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
(Orlando Division)
UNITED STATES SECURITIES AND )
EXCHANGE COMMISSION, )
)
Plaintiff, ) CASE NO.: 99-1222-CV-22-A
) Hon. Anne C. Conway,
) Judge
v. ) Hon. Karla R. Spaulding,
) Magistrate Judge
)
)
CORPORATE RELATIONS GROUP, INC., )
ET AL., )
)
)
Defendants. )
)
PLAINTIFF' S MEMORANDUM IN OPPOSITION
TO CONSTITUTIONAL AND OTHER ARGUMENTS RAISED IN MOTIONS TO
DISMISS BY DEFENDANTS VEITIA, CRG, STRATCOMM, AND GULF ATLANTIC
James A. Kidney (Trial Counsel)
Jeffrey P. Weiss
William McGovern
Attorneys for Plaintiff
U.S. Securities and Exchange Commission
Mail Stop 8-8
450 Fifth Street, N.W.
Washington, D.C. 20549-0808
(202) 942-4797 (Kidney)
(202) 942-9581 (Kidney Fax)
Date: January 28, 2000 [email protected]
<PAGE>
TABLE OF CONTENTS
SUMMARY OF ARGUMENT 2
STATEMENT OF FACTS 3
I. SECTION 17(B) DOES NOT VIOLATE THE FIRST AMENDMENT 5
A. Strict Scrutiny Tests are Not Applicable to
Satutes Compelling Disclosure in Commercial Spee ch 5
B. Commercial Speech Disclosure Requirements Such as Section
17 (b) Are Subject to a "Rational Basis" Test 8
C. Compelled Disclosure of Compensation Does Not Violate the
First Amendment 10
D. Defendants' Conduct Demonstrates Why the Disclosure Provisions
of Section 17(b) Are Rational 13
II. VIOLATIONS OF SECTION 5 OF THE SECURITIES ACT ARE PROPERLY
PLED AND REGULATION S SUFFERS NO INFIRMITY 15
A. The Complaint States a Claim for Relief for Violations of Section 5 15
1. CRG 16
2. Skalko and Pow Wow 18
B. Regulation S is Not Void for Vagueness 18
III. THE COMPLAINT PROPERLY ALLEGES STRATCOMM IS LIABLE
FOR FRAUD AS A CONTROL PERSON OF CRG 21
IV. THE COMPLAINT PROPERLY ALLEGES VIOLATIONS OF SECTION 15
OF THE EXCHANGE ACT 22
A. The Complaint Adequately Alleges Defendants CRG, Spratt and
Skalko Acted as Unregistered Brokers 24
B. The Complaint Adequately Alleges Defendants CRG and Stratcomm
Acted as Unregistered Dealers, 28
CONCLUSION 29
<PAGE>
TABLE OF AUTHORITIES
Federal Cases
Bates v. State Bar of Arizona, 433 U.S. 350 (1977).........................6,10
Brown v. Enstar Group, Inc., 84 F.3d 393 (11th Cir. 1996)....................22
Brown v. Mendel, 864 F. Supp. 113 8 (M.D. Ala. 1994).........................22
Central Hudson Gas & Electric Corp. v. Public Service Commission
of New York, 447 U.S. 557 (1980)..............................................8
Dayton Area Visually Impaired Persons, Inc. v. Fischer, 70 F.3d 1474
(6th Cir. 1995)...............................................................7
Dun & Bradstreet, Inc. v. Greenmoss Builders, 472 U.S. 749 (1985).........11,12
Fischler v. Amsouth Bancorporation, 971 F. Supp. 533 (M.D. Fla. 1997).......22
G.A. Thompson & Co. v. Partridge, 636 F.2d 945 (5th Cir. 1981)...............22
Glickman v. Wileman Brothers & Elliott, Inc., 521 U.S. 457 (1997)..........9,11
Greater New Orleans Broadcasting Association, Inc. v.
United States, 527 U.S. 173 (1999)............................................5
Howry v. Nisus, Inc., 910 F. Supp. 576 (M.D. Fla. 1995)...................15,17
In re R M J 455 U.S. 191 (1982)............................................9,15
44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996)....................6,7
Mass. Financial Services, Inc. v. SIPC, 411 F. Supp. 411 (D. Mass),
aff'd, 545 F. 2d 754 (1st Cir. 1976), cert. denied, 43 1 U. S. 904 (1977)...23
Ohralik v. Ohio State Bar Assn., 43 6 U.S. 447 (1978)........................11
Peel v. Attorney Registration and Disciplinary Commission
of Illinois, 496 U.S. 91 (1990)...............................................6
Pharo v. Smith, 621 F.2d 656 (5th Cir. 1980).................................22
Pinter v. Dahl, 486 U.S. 622 (1988).......................................16,18
Riley v. National Federation of the Blind of North Carolina, Inc.,
487 U.S. 781 (1988).........................................................5,7
Rochez Brothers, Inc. v. Rhoades, 527 F.2d 880 (3rd Cir. 1975)...............22
Scheuer v. Rhodes, 416 U. S. 23 2 (1974).....................................15
Scope Pictures of Missouri, Inc. v. City of Kansas City, 140 F. 3d 1201
(8th Cir. 1998)...............................................................7
SEC v. Continental Tobacco Co., 463 F.2d 137 (5th Cir. 1972).................16
SEC v. Environmental Holdings, Inc., Litigation Release No. 14683
(Oct. 6, 1995), 1996 WL 590813 (N.D. Tex. 1996)..............................20
SEC v. Friendly Power Co., LLC, 49 F.Supp.2d 1363 (S.D. Fla. 1999)........15,16
SEC v. Hansen, [1984 Transfer Binder] Fed. Sec. L. Rep.
(CCH)P. 91,426 (S.D.N.Y. 1984)............................................23,24
SEC v. Huttoe, Civ. Action No. 96-2543 (D.D.C Sept. 14, 1998)..............5,12
SEC v. Holschuh, 694 F.2d 130 (7th Cir. 1982)................................16
SEC v. Kenton Capital, Ltd., 1998 WL 1121117 (D.D.C. 1998)...................23
SEC v. Margolin Fed. Sec. L. Rep. (CCH)P. 97,024 (S.D.N.Y. 1992).............24
SEC v. Murphy, 626 F.2d 633 (9th Cir. 1980)...............................16,18
SEC v. National Executive Planners, Ltd., 503 F.Supp.
1066 (M.D. N.C. 1980)........................................................23
SEC v. Randy, 38 F. Supp. 2d 657 (N.D. Ill. 1999)......................23,24,29
SEC v. Rehtorik, Litigation Release No. 13975 (Feb. 23, 1994),
1994 WL 62344 (N.D. Tex. 1994)...............................................20
<PAGE>
SEC v. Softpoint, Litigation Release No. 14480 (April 27, 1995),
1995 WL 254717 (S.D.N.Y. 1995)...............................................20
SEC v. Wall Street Publishing, Inc., 851 F.2d 365 (D.C. Cir. 1988).5,8,10,11,12
SEC v. Westdon Holding & Investment, Inc., Litigation Release No. 13088
(Nov. 14,1991), 1991 WL 288360 (S.D.N.Y. 1991)...............................20
Stokes v. Lokken, 644 F 2d 779 (8th Cir 1981)................................15
U.S.v. Amick 439 F.2d 351 (7th Cir. 1971), cert. denied, 403 U.S. 918 (1971).12
Virginia State Pharmacy Board v. Virginia Citizens Consumer Council, Inc.,
425 U.S. 748 (1976)........................................................9,11
Washington Legal Foundation v. Friedman, 13 F. Supp.2d 51 (D.D.C. 1998).......6
Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985)........7,8,9,10
State Cases
Gonzalez v. State Bar of Texas, 904 S.W. 2d 823 (Ct. App. Tex. 1995).........10
Hechler v. Christian Action Network, 491 S.E. 2d 618 (S. Ct. W. Va. 1997).....7
Kleese v. Pennsylvania State Board of Funeral Directors, 738 A. 2d 523
(Pa. 1999).................................................................9,10
SEC Administrative Actions
Davenport Management, Inc., SEC No-Action Letter, 1993 WL 12043 6............24
Financial Charters & Acquisitions, Inc., SEC No-Action Letter, 1984 WL 45923.24
Fulham & Co., SEC No-Action Letter, 1972 WL 9129.............................24
IMF Services, Inc., SEC No-Action Letter, 1971 WL 9607.......................26
In the Matter of the Application of Gordon Wesley Sodorff, Jr.,
Exchange Act Rel. No. 31134 (September 2, 1992),1992 WL 224082............23,28
In the Matter of Candie's, Inc., Litigation Release No. 33 -7263
(Feb. 21, 1996), 201996 WL 75741.............................................20
In the Matter of Joseph Kemprowski & The Cambridge Consulting Co., 58
SEC Docket 448, Exchange Act Rel. No. 34-35058 (Dec. 8, 1994)...............26
Joseph K. Bannon, CPA, SEC No-Action Letter, 1988 WL 235393..................24
Michael D. Barrett, SEC No-Action Letter, 1972 WL 8544.......................26
Securities Act Release No. 33-7192...........................................21
Security Mutual Life Insurance Company of Lincoln, Nebraska,
SEC No-Action Letter, 1993 WL 455423........................................24
U.S. v. Sung & Feher, Litigation Release No. 14500 (May 25, 1995)............20
Federal Statutes
15 U.S.C.ss.77q(a)......................................2,3,4,5,6,8,10,12,13,14
15 U.S.C.ss.78t(a)...........................................................21
15 U.S.C.ss.78o.........................................................4,22,24
15 U.S.C.ss.78c(a)(4).....................................................23,27
15 U.S.C.ss.78c(a)(5).....................................................23,25
15 U.S.C.ss.77e.............................................................4,5
Federal Regulations
17 C.F.R.ss.240.3a4-1........................................................27
17 C.F.R.ss.230.901 (Regulation S).............................4,17.18,19,20,21
<PAGE>
17 C.F.R.ss.230.903(a).......................................................19
17 C.F.R.ss.230.904(a)....................................................21,23
Other Authorities
Fed. R. Civ. Proc. 9(b).......................................................2
Fed. R. Civ. Proc. 12(b)(6)...................................................2
N. Wolfson, R. Phillips & T. Russo, Regulation of Brokers, Dealers and
Securities Markets, (1st Edition, 1977)............................24,26,27,28
L. Loss and I Seligman, Securities Regulation Vol. VI
(3rd Edition, 1990).......................................................28,29
UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
(Orlando Division)
- -----------------------------------------)
UNITED STATES SECURITIES AND )
EXCHANGE COMMISSION, )
)
)
Plaintiff, ) C.A. No. 99-1222-CV-22-A
) Hon. Anne C. Conway,
) Judge
V. ) Hon. Karla R. Spaulding,
) Magistrate Judge
)
)
CORPORATE RELATIONS GROUP, INC., ET AL., )
ET AL., )
)
)
Defendants )
)
- -----------------------------------------)
PLAINTIFF' S MEMORANDUM IN OPPOSITION
TO CONSTITUTIONAL AND OTHER ARGUMENTS RAISED IN MOTIONS TO
DISMISS BY DEFENDANTS VEITIA, CRG, STRATCOMM, AND GULF ATLANTIC
Plaintiff, the Securities and Exchange Commission ("the Commission"),
submits this memorandum in opposition to certain arguments raised in memoranda
in support of motions to dismiss filed by defendants Roberto E. Veitia
("Veitia"), Corporate Relations Group, Inc. ("CRG'), Stratcomm Media Ltd.
("Stratcomm") and Gulf Atlantic Publishing, Inc. ("Gulf Atlantic"), some of
which are adopted by the other movants. These issues are (a) the
constitutionality of Section 17(b) of the Securities Act (the anti-touting
provision); (b) whether the Complaint properly alleges a violation of Section 5
of the Securities Act (registration of securities); (c) whether the Complaint
properly pleads that Stratcomm is liable as a control person under Section 20(a)
of the Exchange Act, and (d) whether the Complaint properly alleges violations
of Section 15 of the Exchange Act (broker dealer registration).
1
<PAGE>
A second plaintiffs memorandum, entitled opposition to the motions
to dismiss by defendants Spratt, Skalko and Pow Wow, addresses arguments by
defendants Veitia, CRG, Stratcomm, Gulf Atlantic, James W. Spratt III
("Spratt"), James A- Skalko ("Skalko") and Pow Wow, Inc. ("Pow Wow")
(collectively, "the CRG defendants") that (a) the Complaint fails to meet
the particularity requirements of Fed. R. Civ. P. 9(b), and that (b) the
Complaint fails to state a cause of action for touting and fraud under Fed. R.
Civ. P. 12(b)(6). That memorandum also contains the most extensive summary
of the allegations of the Complaint against the CRG defendants and is adopted
by reference in this memorandum.
Finally, a third plaintiff's memorandum, entitled opposition to the
motions to dismiss by Jose Antonio Gomez Cortes ("Gomez"), Fondo de
Adquisiciones E Inversiones Internacionales XL, S.A. ("Fondo") and C.A.
Oportunidad, S.A. ("Oportunidad") (collectively, "the Gomez defendants")
addresses the arguments raised in motions to dismiss by those defendants.
Just as each of the movants purports to incorporate the arguments in
memoranda of the other defendants, so the plaintiff relies on all three of its
memoranda in opposing the motions to dismiss by all movants. 1
SUMMARY OF ARGUMENT
The constitutionality of Section 17(b), the anti-touting provision
which the defendants attack, has been sustained at least twice in the last 12
years. The chief argument the defendants muster against these well-reasoned
decisions is to admit that as recently as last year the Supreme Court affirmed
that commercial speech does not enjoy strict scrutiny protection, and then to
2
- --------
1 We note that all six defense memoranda in support of motions to
dismiss totaled 144 pages. The Commission is responding in 90.
<PAGE>
contend that, nevertheless, this Court should ignore the Supreme Court majority
and apply a strict scrutiny test to the defendants' conduct.
As an alternative, the defendants invoke authorities addressing
prohibitions on commercial speech and ignore the authorities applying the First
Amendment to disclosure statutes such as Section 17(b). The courts, including
the Supreme Court, have long recognized that First Amendment concerns are
substantially ameliorated when a statute requires that the public receive more
information, as opposed to statutes which aim to lessen information provided the
public. When the proper test is applied, Section 17(b), a disclosure statute,
clearly passes constitutional muster.
Regulation S is clear on its face, especially as applied to the conduct
alleged in this case, and its application, including in a criminal case in this
district, has been sustained. The Complaint also properly pleads all necessary
elements of broker-dealer and control person violations.
STATEMENT OF FACTS
The Commission has alleged in a well-pleaded and comprehensive
Complaint that the CRG defendants directed and operated a fraudulent scheme in
which they acquired control of large blocks of deeply-discounted securities from
their clients, which usually were small public companies. These defendants then
touted the securities to the public in CRG and Gulf Atlantic publications and
ordered CRG employees to promote the stocks to brokers. CRG then sold the
securities at a profit while promoting them to the public. The CRG defendants
omitted to disclose material information in the promotional materials and when
buying or selling securities by failing to disclose that they were being paid by
the issuers to promote the stocks, the amount of the compensation, or that at
the same time they were promoting the stocks, they were selling their positions.
3
<PAGE>
The Commission has alleged three causes of action addressed in this memorandum.
First, the Complaint alleges that various defendants violated Section 17(b) of
the Securities Act of 1933 ("Securities Act") (15 U.S.C. ss. 77q(a)] by
publishing promotional materials which, though not purporting to offer a
security for sale, promoted or "touted" the securities to investors without
fully disclosing the receipt and amount of consideration received for such
touting.
Second, the Commission alleges that various defendants violated Section
5 of the Securities Act (15 U.S.C. ss. 77e], which prohibits a person, directly
or indirectly, from offering to sell or selling a security unless a registration
statement is filed or in effect, or an exemption from registration applies.
These violations occurred in transactions made purportedly in reliance upon an
exemption known as Regulation S [17 C.F.R. ss.ss.230.901, et seq.], which
permits the offer and sale of unregistered securities outside the United States
if certain requirements are met.
Third, the Complaint alleges that the CRG defendants violated Section
15 of the Exchange Act [15 U.S.C. ss. 78o] because CRG acted as a broker-dealer
and neither it nor the individual defendants were registered with the Commission
as brokers or dealers.
CRG, Veitia, Stratcomm and Gulf Atlantic raise constitutional arguments
against two of these allegations. They claim that Section 17(b) violates the
First Amendment to the Constitution as a content-based regulation of commercial
speech that cannot withstand either a strict or intermediate scrutiny analysis.
Defendants also maintain that, from 1994 through 1996, the portion of Regulation
S that dealt with reselling stock back into the United States was sufficiently
confusing that basing liability for violations of Section 5 on violations of
Regulation S would be unconstitutional as a violation of due process.2
- -------------
2 Planitiff's memoranda in opposition to motions to dismiss by the CRG and
Gomez defendants provide a more detailed description of the allegations of the
Complaint.
<PAGE>
ARGUMENT
I. SECTION 17(b) DOES NOT VIOLATE THE FIRST AMENDMENT
A. Strict Scrutiny Tests are Not Applicable to
Statutes Compelling Disclosure in Commercial Speech
The defendants admit that the test in this case for assessing
the constitutionality of the anti-touting provision is that applied to
commercial speech. (Veitia Mem. p. 5). They have little choice, since they do
not contest they touted stock for a fee. They also admit, albeit grudgingly,
that as recently as last year the Supreme Court reaffirmed that commercial
speech is not subject to a strict scrutiny test urged by the defendants.
Greater New Orleans Broadcasting Association, Inc. v. United States,
527 U.S. 173, 119 S. Ct. 1923 (1999) (Veitia Mem. p. 9, n. 3).
Nevertheless, the defendants argue that strict scrutiny should be
applied in this case, and contend that the two decisions which directly address
and sustain the constitutionality of Section 17(b) of the Securities Act should
be ignored because "these decisions completely fail to take account of two
decades of commercial speech cases." (Def. Mem. p. 9).3 For the reasons
described herein, these two decisions appropriately did not dwell on the
authorities the defendants rely upon, which involve prohibitions on speech, but
instead relied on authorities addressing laws which require disclosure of
information to the public.
- -----------------
3 This contention is believed by the fact that the earlier of the two
decisions, SEC v Wall Street Publishing, Inc., 851 F. 2d 365 (D.C. Cir. 1988),
wass decided years after all but twe of the cases on which the defendants rely,
and was decided only a week before one of the remaining two, Riley v. National
Federation of the Blind of North Carolina, Inc., 487 U.S. 781 (1988). Only
Greater New Orleans, a case which the defendants barely acknowledge, was decided
after the only decision sustaining Section 17 (b), SEC v. Huttoe, No.96-2543
(D.D.C. Sept. 14,1998) (attached as Exhibit 1 to Plaintiff's Memorandum in
Opposition to Motions to Dismiss by Defendants CRG, Stratcomm, Gulf Atlantic,
Veitia, Spratt, Skalko and Pow-Wow, filed this date).
<PAGE>
For that reason, defendants' reliance-on 44 Liquormart,
Inc. v. Rhode island, 517 U.S. 484 (1996), is misplaced. At issue there was a
complete ban by the state on commercial speech related to liquor
advertising. The Court found that:
[p]recisely because bans against truthful, nonmisleading commercial
speech rarely seek to protect consumers from either deception or
overreaching, they usually rest solely on the offensive assumption that
the public will respond 'irrationally' to the truth. [citation
omitted]. The First Amendment directs us to be especially skeptical of
regulations that seek to keep people in the dark for what the
government perceives to be their own good.
44 Liquormart, 517 U.S. at 503, emphasis supplied.4
In the present case, Section 17(b) is not a ban, but is a disclosure
requirement that seeks to protect investors from harm by providing material
information so that they may properly judge the motives and objectivity of a
stock promoter. This distinction was not lost on the Court in 44
Liquormart:
When a State ... requires the disclosure of beneficial consumer
information, the purpose of its regulation is consistent with the
reasons for according constitutional protection to commercial speech
and therefore justifies less than strict review. However, when a State
entirely prohibits the dissemination of truthful, nonmisleading
commercial messages for reasons unrelated to the preservation of a fair
bargaining process, there is far less reason to depart from the
rigorous review that the First Amendment generally demands.
- ---------------
4 See also Peel v. Attorney Registration and Disciplinary
Commission of Illinois, 496 U.S. 91, 108(1990) ("disclosure of truthful,
relevant information is more likely to make a positive contribution to
decision making than is concealment of such information"); Bates v. State Bar
of Arizona, 433 U.S. 350, 375 (1977) ('Although, of course, the bar retains the
power to correct omissions that have the effect of presenting an inaccurate
picture, the preferred remedy is more disclosure, rather than less");
Washington Legal Foundation v. Friedman, 13 F.Supp.2d 51, 73 (D.D.C. 1998)
(full disclosure "comports with the Supreme Court's preference for combating
potentially problematic speech with more speech").
<PAGE>
44 Liquormart, 517 U.S. at 501, emphasis supplied. The Court went on to
recognize that under "less than strict review," only a "reasonable fit"
between a statute's requirements and its goals needs to be
established to be constitutional. 44 Liquormart, 517 U.S. at 507.
Defendants.' invocation of the First Amendment to invalidate a statute
that requires disclosure of material information -- in an industry predicated
upon such disclosure stands the amendment on its ear. Notwithstanding their
howls of protest, defendants' true objective is concealment of information they
would rather not have publicly known -- that these issuers about whom they have
published glowing endorsements have, in fact, paid handsomely for that very
privilege.
Defendants' reliance on Rile also is to no avail. The Court used a
strict scrutiny analysis to invalidate a state statute requiring certain
disclosures in the context of soliciting charitable contributions,
finding the statute to be a "content-based regulation of speech." Riley, 487
U.S. at 795. But the Court recognized that: (1) a state may
"constitutionally require" fundraisers to disclose certain financial
information; and (2) that "[p]urely commercial speech is more susceptible to
compelled disclosure requirements." Riley, 487 U.S. at 795-6, citing Zauderer
v. Office of Disciplinary Counsel, 471 U.S. 626, 629 (1985).5 Plainly, in the
purely commercial
- --------
5 Several lower courts have recognized, and even applied, the Riley
dicta. See e.g, Scope Pictures of Missouri, Inc. v. City of Kansas City, 140 F.
3d 1201, 1204-5 (8th Cir. 1998) (court found requirement to disclose risks of
certain diseases was content-neutral and narrowly tailored to serve significant
government interest and thus did not violate the First Amendment); Dayton Area
Visually Impaired Persons, Inc. v. Fisher, 70 F.3d 1474, 1481 (6th Cir. 1995)
(citing Riley, court recognized that "some speech by professional fundraisers
can be regulated without violating First Amendment principles"); Hechler v.
Christian Action Network, 491 S.E. 2d 618, 629 (S. Ct. W. Va. 1997) (court found
that the disclosure requirement at issue was "neutral statement which simply
direct[ed] a donor to a place where he or she may find more information" and
thus burdened no more speech than necessary to further "substantial state
interest" of preventing deception in charitable solicitations).
<PAGE>
speech arena -- as is the case before this Court -- government may require
disclosure of certain information, as long as the requirements are reasonably
related to achieving their objective.
Therefore, not only does Supreme Court precedent -- including the most
recent decisions -- dictate that a strict scrutiny test not be applied to the
defendant's touting activities, but the same precedents cited by the defendants
impose only a relatively light burden on statutes such as Section 17(b) which
add to the information available to the public.6
B. Commercial Speech Disclosure Requirements Such as Section 17(b)
Are Subject to a "Rational Basis" Test
Tacitly recognizing that their claim to strict scrutiny will fail,
the defendants argue that Section 17(b) cannot meet an intermediate test applied
to prohibitions on commercial speech. They rely chiefly on Central Hudson Gas
& Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980),
a case decided eight years before SEC v. Wall Street Publishing, Inc., 851 F.
2d 365 (D.C. Cir. 1988), affirmed the constitutionality of Section 17(b).
But Central Hudson is inapposite to the disclosure requirements of Section
17(b) because it struck down a state regulation completely banning
advertising by a public utility. In doing so, the Court set forth a test to
analyze prohibitions on commercial speech. Central Hudson, 447 U.S. at 563-4.
The present case, however, deals with a disclosure requirement, not a
speech prohibition. The leading case for determining the constitutionality of
such requirements is Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626,
629 (1985), which applied a rational basis test to such statutes in the
commercial arena.
- ------------------
6 The court can ignore the historical arguments offered to support
strict scrutiny of commercial speech at pp. 10- 11 of Veitia's memorandum.
We can safely assume the Supreme Court was aware of The Federalist and the
history of the Bill of Rights when it rendered the decisions on which he parties
relies.
<PAGE>
In Zauderer, the Supreme Court decided the issue of whether a state may
"seek to prevent deception of the public" by requiring attorneys to disclose in
their advertising certain information regarding fee arrangements. The appellant
contended the state must pass the Central Hudson test for prohibitions on
speech. Zauderer, 471 U.S. at 650-5 1.
In rejecting this contention, the Supreme Court, found that the
appellant "overlook[ed] material differences between disclosure requirements and
outright prohibitions on speech," and that the state had not attempted to
prevent attorneys from conveying information, but merely required them "to
provide somewhat more information than they might otherwise be inclined to
present." Zauderer, 471 U.S. at 650, emphasis supplied.7 The Court then found:
Because the extension of First Amendment protection to commercial
speech is justified principally by the value to consumers of the
information such speech provides, see Virginia Pharmacy Board v.
Virginia Citizens Consumer Council, Inc., 425 U.S. 748 (1976),
appellant's constitutionally protected interest in not providing any
particular factual information in his advertising is minimal. Thus, in
virtually all our commercial speech decisions to date, we have
emphasized that because disclosure requirements trench much more
narrowly on an advertiser's interest than do flat prohibitions on
speech, "warning[s] or disclaimer[s] might be appropriately required
... in order to dissipate the possibility of consumer confusion or
deception." In re R.M.J., 455 U.S. 191, 201 (1982).
- ----------------
7 See also Glickman v. Wileman Brothers & Elliott, Inc., 521 U.S.
457, 474 and n. 18 (1997) (Supreme Court found it was "error," for court of
appeals to rely on Central Hudson for purpose of assessing the constitutionality
of a regulation compelling funding for speech); Kleese v. Pennsylvania State
Board of Funeral Directors, 738 A. 2d 523, 525 (Pa. 1999) (state court relied
on Zauderer in determining whether a disclosure requirement violated First
Amendment rights, finding that the parties "have incorrectly focused on the
Central Hudson test and that this test does not apply in this instance ...
In this case, there is no prohibition at issue but a disclosure requirement is
at issue.").
9
<PAGE>
Zauderer, 471 U.S. at 651.8 Indeed, the Court specifically rejected- the
contention that a disclosure requirement should be subjected to a "least
restrictive means" analysis, which the defendants want the Court to adopt here,
instead characterizing disclosure requirements as "one of the acceptable less
restrictive alternatives" to suppression of speech. Zauderer, 471 U.S. at 651
n.14.
The Court held that an advertiser's rights are "adequately protected as
long as disclosure requirements are reasonably related to the State's interest
in preventing deception of consumers. Zauderer, 471 U.S. at 651.9 As a result,
the Court concluded that a requirement that an attorney advertising his
availability on a contingent fee basis disclose that clients will have to pay
costs even if their lawsuits are unsuccessful "easily passes muster under this
standard." Zauderer, 471 U.S. at 652.
In short, Section 17(b) is constitutional because it is a disclosure
requirement that is reasonably related to the Commission's interest in
preventing deception of investors.
C. Compelled Disclosure of Compensation Does Not
Violate the First Amendment
SEC v. Wall Street Publishing Institute, Inc., 851 F. 2d 365, 374
(D.C. Cir. 1988), squarely addresses whether Section 17(b) violates the First
Amendment. The Court of Appeals
- ------------------
8 See also Bates, 433 U.S. at 384 (1977) ("We do not foreclose the
possibility that some limited supplementation, by way of warning or disclaimer
or the like, might be required ...so as to assure that the consumer is not
misled").
9 Accord Kleese. 738 A.2d at 526 ("small" and "fairly innocuous"
requirement to include name of the supervising funeral director in
advertisements is "reasonably related to the state's interest in preventing
reception of consumers"); Gonzalez v. State Bar of Texas, 904 S.W. 2d 823, 829
(Ct. App. Tex. 1995) (attorney's rights as advertiser adequately protected
as long as state bar's disclosure requirements are reasonably related to state's
interest in preventing the deception of consumers).
<PAGE>
for the District of Columbia, applying the Supreme Court's rationale in
Zauderer, found that a promoter's failure to disclose consideration received in
return for publication is "constitutionally proscribable."
To that end, the court made several key observations. First, the
court noted that Section 17(b) did not ban or restrict speech, but rather,
required affirmative disclosure. Wall Street Publishing,
851 F. 2d at 371.10 Indeed, the court, adopted the language of Virginia
State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425
U.S. 748 (1976), in observing that challenges to disclosure requirements are
"paternalistic," and that the zeal to protect the public from information
cannot withstand First Amendment scrutiny. Wall Street Publishing 851 F. 2d at
371.11
Second, the court observed the distinction between the government's
power to regulate commercial speech and its power to regulate certain "fields
of economic activity," and in particular, the securities industry. Wall
Street Publishing, 851 F. 2d at 372-3, citing Dun & Bradstreet, Inc. v.
Greenmoss Builders, 472 U.S. 749, 758 n.5 (1985).12
- ------------------
10 The court found that "[r]equiring disclosure of a material fact in
order to prevent investor misunderstanding is the very essence of federal
securities regulation." Wall Street Publishing, 851 F.2d at 373 n.9.
11 Accord Glickman, 521 U.S. 457 (1997) (Supreme Court indicated that
compelled speech regulations that do not infringe upon a "crisis of conscience"
should not be afforded First Amendment protections).
12 In Dun & Bradstreet, the Supreme Court, in a plurality opinion,
observed, "certain kinds of speech are less central to the interest of the
First Amendment than others." The Court noted "there are '[n]umerous
examples... of communications that are regulated without offending the First
Amendment, such as the exchange of information about securities, corporate
proxy statements, the exchange of price and production information among
competitors, and employers' threats of retaliations for the labor activities of
employees."' Id. citing Ohralik v. Ohio State Bar Assn., 436 U.S. 447, 456
(1978).10 The court found that "[r]equiring disclosure of a material fact in
order to prevent investor misunderstanding is the very essence of federal
securities regulation." Wall Street Publishing, 851 F.2d at 373 n.9.
<PAGE>
The court concluded that "regulation of the exchange of information
regarding securities is subject only to limited First Amendment scrutiny" and
that, in areas of extensive federal regulation -- like the securities industry
- -- the Constitution does not require a court "to weigh the relative merits of
particular regulatory objective that impinge upon communications occurring
within the umbrella of an overall regulatory scheme." Wall Street Publishing,
851 F. 2d at 373 Again citing Zauderer, 471 U.S. at 650, the court noted that
disclosure requirements that regulate commercial speech have been upheld even
when the government has not shown that, absent the disclosure, the underlying
speech is false or misleading or that the disclosure requirement serves a
substantial government interest other than preventing deception.
More recently, the United States District Court for the District
of Columbia, relying on Wall Street Publishing, rejected a claim by the
defendant, a stock promoter, that Section 17(b) violated his First Amendment
rights. SEC v. Huttoe, No. 96-2543 (D. D.C. Sept. 14, 1998), Ex. 1, to
Plaintiff s Mem. in Opposition to Motions to Dismiss By CRG et al. In Huttoe,
the District Court recognized that speech relating to securities transactions
formed a "distinct category of communications in which the government's
power to regulate is at least as broad as with respect to the general rubric of
commercial speech" and is thus subject to rational basis scrutiny. Huttoe,
slip op. at 26, citing Wall Street Publishing, 851 F. 2d at 373, and Dun
& Bradstreet, 472 U.S. at 758. The court, applying the rational basis test,
found that the Commission had a "substantial interest in the investing public
'knowing whether an apparently objective statement is motivated by the promise
of payment."' Huttoe slip op. at 27, quoting U.S. v. Amick, 439 F.2d 351, 365
(7th Cir. 1971) cert. denied, , 403 U.S. 918 (1971).
<PAGE>
D. Defendants' Conduct Demonstrates Why the Disclosure Provisions
of Section 17(b) Are Rational
The defendants assert that they have met the first requirement of
Section 17(b) that the fact of payment for touting stock be disclosed -- and
that the requirement that the amount of compensation be disclosed fails both the
strict and intermediate scrutiny tests they urge the Court to adopt. 'As we have
shown, the appropriate test is whether the provisions of Section 17(b) are
rationally related to the goal of preventing deception in the securities markets
through touting. The conduct of the defendants demonstrates that the statute's
requirements that both compensation and the amount of compensation be disclosed
are rationally related to the goal of informing investors of the degree of
pecuniary interest of touts in recommending stock and to avoid deception.
Whether reviewed in isolation or as part of the whole package delivered
by Money World and its companion publications, the "disclosures" on which the
defendants rely are themselves deceptive. The reasons for this are described
fully in a companion memorandum and are specifically incorporated herein by
reference.13 To summarize, the term "advertorial" is intentionally ambiguous,
and plainly intended to dilute the term "advertisement" by suggesting an
objective endorsement. A quick scan of Money World (some of which are attached
as appendices to Spratt's motion to dismiss) discloses that the CRG defendants
made every effort to minimize even the modest impact, if any, of "advertorial"
by, for example, devoting covers of the magazine to the touted companies,
promoting the touting articles in publisher's letters, and by seamlessly merging
the touts with other editorial content by use of the same type, headlines,
layout and
- ---------------
13 See Plaintiffs Memorandum in Opposition to the Motions to Dismiss by
Defendants CRG, Stratcomm, Gulf Atlantic, Veitia, Spratt, Skalko and Pow Wow,
pp. 24-28.
<PAGE>
editorial style.14 Other language relied on by the defendants to contend they
"disclosed" payment by touted companies is, in fact, deceptive, suggesting that
CRG stands by the magazine's recommendations as professional investment
counselors rather than acting contrary to them.
The important issue raised by this case is not whether Section 17(b) is
unconstitutional, but rather whether transparent ruses employed by the
defendants to avoid the disclosure requirements of the statute will be tolerated
and the goals of the statute eviscerated. Holding that only clear and
straightforward disclosure of the fact and amount of payment, rather than
evasive conduct to hide those facts, meets the requirements of Section 17(b),
will ensure the statute is fairly enforced and the goals of the statute met.
Only a schemer could conclude the payment for touting was fairly and
straightforwardly disclosed. Had CRG also disclosed the amount of compensation
for touting of its client stocks, presumably it would have been harder for CRG
to discount the statute so completely in its publications, as it has done.
Clearly, the requirements of Section 17(b) are rationally related to the goal of
requiring touts to disclose who has bought and paid for their promotions and how
large was the payment. Therefore, the statute passes the constitutional tests
applied to laws requiring that information be disclosed to the investing
public.15
- ------------
14 In fact, most of the articles not labeled "advertorial" promote stocks of CRG
client companies or of Stratcomm. Those which do not are generally filler
material.
15 CRG's argument that because publications such as The Wall Street Journal or
Business Week have not been sued by the Commission under Section 17(b) simply
ignores the fact that those publications merely sell advertising space, clearly
identifiable as such, while CRG offers its CC editorial" services for the
specific goal of promoting company stock.
<PAGE>
II. VIOLATIONS OF SECTION 5 OF THE SECURITIES ACT ARE
PROPERLY PLED AND REGULATION S SUFFERS NO INFIRMITY
A. The Complaint States a Claim for Relief for Violations of Section 5
Defendants CRG and Gulf Atlantic argue that the Complaint fails to
state a claim for relief against them under Section 5 of the Securities Act for
sale of unregistered securities not eligible for any valid exemption. The basis
for this is an extremely blind reading of the Complaint, which fails to
acknowledge even such obvious and well-pleaded subterfuges such as when, in both
the Delta and IMTECH deals, CRG wrote checks to pay Fondo or Oportunidad for
stock on the same date that Fondo and Oportunidad were purporting to buy the
same stock pursuant to the Regulation S exemption for off-shore purchasers.
(Complaint P. P. 69, 75, 109-120).16
In deciding a motion to dismiss, the Court must accept the
plaintiff's factual allegations as true and construe the complaint in the
light most favorable to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232 (1974);
Howry v. Nisus, Inc., 910 F. Supp. 576 (M.D. Fla. 1995). See also Plaintiff s
Memorandum in Opposition to Motions of CRG et at., p. 6.
Sections 5(a) and 5(c) of the Securities Act prohibit any person from
directly or indirectly offering to sell or selling securities unless a
registration statement is in effect or has been filed as to the securities,
or an exemption from registration is available. Scienter is not required to
establish a violation of Section 5. Stokes v. Lokken, 644 F.2d 779, 784
(8th, Cir. 1981); SEC v. Friendly Power Co. LLC. et al., 49 F.Supp.2d. 1363
(S.D. Fla. 1999). Thus, the Commission need only meet simple notice
pleading requirements under Rule 8.
In order to plead a prima facie violation of Section 5, the Commission
must allege that (1) securities were offered or sold for which no registration
statement either was filed or in effect; (2)
- --------------
16 Hereinafter, paragraph symbols alone shall refer to paragraphs of the
Complaint.
<PAGE>
the offering or sale was made through interstate commerce or the mails; and
(3) defendants, directly or indirectly, offered or sold the securities.
Friendly Power Co., at p. 6, citing SEC v. Continental Tobacco Co. 463 F.2d 137,
155 (5th Cir. 1972).
Direct sellers include the owner of the securities being sold,
and anyone who personally solicits purchases from investors or offers from
prospective buyers. See Pinter v. Dahl, 486 U.S. 622, 646-47 (1988).
The latter category applies to persons who have a motivation "to serve [their]
own financial interests or those of the securities owner." Pinter, 48 6 U.S.
at 647. Indirect sellers include persons who did not have direct contact
with potential buyers or engage in selling efforts of the securities, but
instead employed or directed others to sell the securities. See generally SEC
v. HoIschuh, 694 F.2d 130, 140 (7th Cir. 1982).
A person who offers or sells a security in reliance upon an exemption
from the registration requirements has the burden of establishing the
availability of the exemption. SEC v. Murphy, 626 F.2d 633, 645
(9th Cir. 1980). Such exemptions are narrowly construed. Id.
1. CRG
CRG argues that the Complaint alleges that only Fondo and
Oportunidad bought and sold unregistered securities in Regulations S and D
transactions, and that it did not properly allege that CRG was involved in
those deals. CRG Mem. pp. 5-7. CRG then asserts that Fondo and Oportunidad
are not affiliated or associated with CRG. CRG Mem. p. 7. CRG then
concludes the Commission therefore failed to state a claim for relief.
CRG Mem. p. 7.
This argument is fatally flawed. No less than 22 times, the Commission
alleges that CRG directed or controlled Fondo and Oportunidad for purposes of
the unlawful stock transactions, or that these entities were nominees of CRG. P.
P. 2, 30, 33-4, 60, 62, 66, 84-5, 87, 99, 103-5, 122, 32, 147, 149, 167, 172,
191, 222. Defendants simply ignore these allegations. Thus, in the
<PAGE>
context of the various Regulations S and D transactions, the allegations of
which cover 24 pages of the Complaint, the Commission has clearly alleged that
CRG participated in sales of unregistered securities.
CRG also argues the Commission has alleged contradictory theories -
that CRG controlled Fondo and Oportunidad and that, at times, Fondo and
Oportunidad acted autonomously. CRG Mem. pp. 9- 10. However, there is nothing
contradictory in these allegations. It is clear from a simple reading of the
Complaint, let alone one affording reasonable inferences to the plaintiff, that
Fondo and Oportunidad acted in concert with CRG as a "front" for CRG's domestic
ownership of securities so that a Regulation S exemption could be claimed. In
other instances, including those in which registered stock was sold, Fondo and
Oportunidad bought and sold stock in coordination with CRG so that all the
defendants could realize a profit from CRG's scalping activities. See Plaintiffs
Memorandum in Opposition to Motion of Gomez, Fondo and Oportunidad, pp. 3-10.
This is not contradictory pleading, but rather extensive, detailed pleading of
concerted conduct to violate the securities laws. The Complaint plainly alleges
a cause of action against CRG under Section 5.17
- ------------
17 CRG also claims the Commission alleges CRG violated Section 5 of the
Securities Act in connection with the sale of Tracker stock pursuant to a Form
S-8 registration statement. CRG again misreads the Complaint. The
Commission does not allege Section 5 violations regarding these transactions,
but rather that CRG and other defendants violated the antifraud provisions
of the securities laws by selling such stock while they were promoting the
company.
<PAGE>
2. Skalko and Pow Wow
Skalko and Pow Wow also contest the adequacy of the pleading of Section
5 violations against them.18 The Complaint specifically identifies Skalko as
having sold the following unregistered securities: Tracker and Stratcomm stock
in the fail of 1994, see P. P. 52, 187; and Ammonia Hold stock in the summer of
1996. See P. 94. The Complaint also specifically identifies Pow Wow as selling
unregistered Delta stock in July 1996. See P. 82. The burden of establishing an
exemption from registration for these sales rests with Skalko and Pow Wow, not
the Commission. Murphy, 626 F.2d at 645, In addition, as described more fully at
pp. 9 - 12 of Plaintiffs Memorandum Opposing Motions of Defendants CRG,
Stratcomm, Gulf Atlantic, Veitia, Spratt, Skalko and Pow Wow, Skalko is
responsible as a manager of CRG for the corporate conduct, and the plaintiff is
not required to guess at his specific role when Skalko and the other individual
CRG defendants chose not to testify during the investigation.19
B. Regulation S is Not Void for Vagueness
CRG also contends that Regulation S is unconstitutionally vague,
relying solely on a dissenting opinion of a former SEC commissioner.
CRG Mem. pp. 7-8. Whatever the target of former Commissioner Wallman's
lonely dissent, the defendants had fair notice that their conduct
- ----------------------
18 Spratt did not make this argument, but he, too, is alleged to have
violated the statute.P.P. 52, 55, 63, 106, 114, 123, 129, 130, 133.
19 Skalko also argues the Commission failed to allege he offered to sell or sold
any Stratcomm stock personally. Skalko Brief at 2 1. Skalko ignores that which
is inconvenient. The Complaint clearly alleges that from the fail of 1994
through the end of 1995, CRG and Stratcomm, "through their employees, including
Spratt, Skalko and Rodriguez ... solicited the sale of Stratcomm stock to U.S.
residents....", 1184, and that "Defendants Spratt, Skalko and Rodriguez were
among the employees to whom CRG and Stratcomm. paid commissions for offering
unregistered Stratcomm. stock for sale to investors...." 1187. Given that
Section 5 proscribes any person from directly or indirectly offering to sell or
selling securities without an effective registration statement or an exemption,
these allegations properly state a claim.
<PAGE>
was prohibited by Regulation S. There never has been any ambiguity that the
regulation requires a legitimate offshore purchaser and prohibits use of
nominees to front for a domestic purchaser, the very corruption of Section 5
alleged in this case.
In two places, the "Preliminary Notes" to Regulation S gave defendants
the direction they claim they lacked. Note 2 advises:
In view of the objective of these rules and the policies underlying the
[Securities] Act, Regulation S is not available with respect to any
transaction or series of transactions that, although in technical
compliance with these rules, is part of a plan or scheme to evade the
registration provisions of the [Securities] Act. In such cases
registration under the [Securities] Act is required.
Additionally, Note 6 alerted defendants that:
Regulation S is available only for offers and sales of securities
outside the United States. Securities acquired overseas, whether or not
pursuant to Regulation S, may be resold in the United States only if
they are registered under the Act or an exemption from registration is
available.
17 C.F.R.ss.230.901 (Preliminary Statement), see also Securities Act Release
No. 33-6863 at *2 (Apr. 24, 1990) (hereinafter "Reg. S Release").
Moreover, pursuant to either safe harbor provision of the rule, the
offer or sale of securities "shall be made in an offshore transaction," Rule
903(a) and Rule 904(a) [17 C.F.R. ss.ss. 903 (a) and 904(a)], and an offer or
sale is considered "offshore" if the offer is not made to a U.S. person and at
the time the buy is originated, the buyer is outside the U.S. This language
provides notice. All of the Regulation S transactions described in the
Commission's Complaint constituted schemes or plans by the defendants to evade
registration. Defendants introduced Fondo and Oportunidad to issuers as bona
fide offshore purchasers, but the Costa Ricans collected money from U.S.
persons, namely, CRG and other domestic codefendants CRG recruited, to fund the
transactions. During this time, defendants were shorting
<PAGE>
or selling against the position they had purchased, thus locking in the spread
between the market price and the discounted sale price. Defendants' transactions
were nothing more than a plan to evade the registration provisions of the
Securities Act.
From 1991 through the present, the government has brought
enforcement actions for violations of the registration provisions involving
purported reliance on Regulation S.20 Notably, in May 1995, the United States
Attorney for the Middle District of Florida, as a result of a Commission
investigation, obtained indictments against two individuals in the first
criminal Regulation S prosecution. U.S. v. Sung and Feher, 95 CRIM. 92
(M.D. Fla.), Litigation Release No. 14500 (May 25, 1995). The United States
alleged that the defendants caused a company to sell stock purportedly
pursuant to Regulation S, to brokerage accounts in Canada that they controlled.
Thereafter, the defendants sold the unregistered stock back into the United
States. In May 1996, the jury convicted one of the defendants of, among other
things, conspiracy to sell unregistered stock. See Litigation Release No.
14901 (May 6, 1996).
- --------------------
20 SEC v. Westdon Holding & Investment, Inc., Litigation Release No.
13088 (Nov. 14, 1991), 1991 WL 288360 (S.D.N.Y. 1991). See also, SEC v.
Rehtorik, Litigation Release No. 13975(Feb. 23, 1994), 1994 WL 62344
(N.D. Tex. 1994) (Commission alleged defendant sold stock issued in unregistered
offerings, purportedly pursuant to Regulation S, to five British Virgin Island
companies he controlled); SEC v. Softpoint , Litigation Release No. 14480
(April 27, 1995), 1995 WL 254717 (S.D.N.Y. 1995) (Commission alleged that
Softpoint issued stock to six foreign entities, at least three of which were
owned by the defendants, and that these defendants then directed the sale
of that stock back into the U.S. without registering the sales); SEC v.
Environmental Holdings, Inc., Litigation Release No. 14683 (Oct. 6, 1995),
1996 WL 590813 (N.D. Tex. 1996) (improper use of Regulation S to make public
distributions of stock in the U.S.); In the Matter of Candie's. Inc.,
Litigation Release No. 33 -7263 (Feb. 21, 1996), 1996 WL 75741("each respondent
sold or participated in the sale of unregistered stock to the foreign purchasers
under circumstances in which they know, or should have known, that the
purchasers were acting as conduits for the distribution of securities to U.S.
investors without registration or valid exemption from registration.").
<PAGE>
Although further notice is not necessary, a Commission release in June 1995 --
before all but one of the Regulation S deals engineered by the defendants --
gave additional guidance. The Commission said the regulation was not satisfied
when securities
are in essence being placed offshore temporarily to evade registration
requirements with the result that the incidence of ownership of the
securities never leaves the U.S. market, or that a substantial portion
of the economic risk relating thereto is left in or is returned to the
U.S. market during the restricted period, or that the transaction is
such that there was no reasonable expectation that the securities could
be viewed as actually coming to rest abroad.
Securities Act Release No. 33-7190 at *3 (June 27, 1995). The Commission
characterized such transactions as "nothing more than a delayed sale by the
seller in the United States, with the purported offshore purchaser serving as a
statutory underwriter." Id. at *4.
As applied to defendants' conduct, the requirements of Regulation S
could not be plainer, and were plain from the first date Regulation S was
effective. There is no constitutional infirmity.
III. THE COMPLAINT PROPERLY ALLEGES STRATCOMM IS LIABLE
FOR FRAUD AS A CONTROL PERSON OF CRG
Stratcomm's contention that the Complaint fails properly to allege
"control person' liability for the conduct of CRG under the provisions of
Section 20(a) of the Exchange Act [ 15 U.S. C. ss. 78t(a)] simply fails to
recognize the standard applicable in this Circuit. Section 20(a) provides:
Every person who, directly or indirectly, controls any person liable
under any provision of this title or of any rule or regulation
thereunder shall also be liable jointly and severally with and to the
same extent as such controlled person to any person to whom such
controlled person is liable, unless the controlling person acted in
good faith and did not directly or indirectly induce the act or acts
constituting the violation or cause of action.
The Eleventh Circuit requires only that a plaintiff allege that a
defendant "had the power to control the general affairs of the entity primarily
liable at the time the entity violated the
21
<PAGE>
securities laws. and had the requisite power to directly or indirectly control
or influence the specific corporate policy which resulted in the primary
liability." Brown v. Enstar Group, Inc., 84 F. 3 d 3 93 (1lth Cir. 1996). The
Eleventh Circuit expressly rejected the culpable participation doctrine -- a
stricter standard of control person liability adopted by some circuits and
offered by Stratcomm that requires actual participation in the wrongful
transaction. See also G.A. Thompson & Co. v. Partridge , 636 F.2d 945
(5th Cir. 198 1); Pharo v. Smith, 621 F.2d 656 (50' Cir. 1980); Fischler v.
Amsouth Bancorporation, 971 F. Supp. 533 (M.D. Fla. 1997); Brown v. Mendel,
864 F.Supp. 1138 (M.D. Ala. 1994). Rochez Brothers, Inc. v. Rhoades, 527
F.2d 880 (3rd Cir. 1975), relied upon by Stratcomm, does not state the law in
this Circuit.
The Commission's Complaint sets forth that Stratcomm conducted business
through CRG, its subsidiary, and that it was operated by the same principals as
CRG. See P. P. 3, 5, 10-11. In effect, Veitia, Spratt and Skalko, as the
principal managers of both Stratcomm and CRG, were conducting Stratcomm's
business through CRG. Thus, Stratcomm, through its common principals, had the
power to control the general affairs of CRG as well as the specific corporate
conduct which resulted in primary liability for CRG under the law of this
Circuit.
IV. THE COMPLAINT PROPERLY ALLEGES VIOLATIONS OF
SECTION 15 OF THE EXCHANGE ACT
Each of the CRG defendants has alleged the Complaint fails to state
acause of action for operating as an unregistered broker or dealer in violation
of Section 15 of the Exchange Act ( 15 U.S.C. ss. 78o].
Section 15(a)(1) of the Exchange Act provides it is unlawful for a
"broker" or "dealer" "to effect any transaction in, or to induce or attempt to
induce the purchase or sale of, any security unless such broker or dealer is
registered [with the Commission]." Scienter is not an
22
<PAGE>
element of the violation. SEC v. Randy, 38 F. Supp. 2d 657, 667
(N.D. M. 1999); SEC v. Randy, 38 F. Supp. 2d 657, 667 (N.D. III. 1999); SEC v.
National Executive Planners, Ltd., 503 F. Supp. 1066, 1073 (M.D. N.C. 1980).
Thus, only notice pleading is required under Rule 8.
Section 3(a)(4) of the Exchange Act [15 U.S.C. ss. 78c(a)(4)] defines a
"broker" as "any person engaged in the business of effecting transactions in
securities for the account of others " Section 3(a)(5) [15 U.S.C. ss. 78c(a)(5)]
defines a "dealer" as "any person engaged in the business of buying and selling
securities for his own account, through a broker or otherwise or any person
insofar as he buys or sells securities for his own account, either individually
or in some fiduciary capacity, but not as a part of a regular business." The
"regular business" language has been interpreted to "exclude from the definition
of 'dealer' members of the public who buy and sell securities for their own
account as ordinary traders." In the Matter of the Application of Gordon Wesley
Sodorff Jr., Exchange Act Rel. No. 31134 (September 2, 1992), 1992 WL 9 224082,
citing E. Weiss, Registration and Regulation of Brokers and Dealers 8 (1965).
Courts have required a showing that the alleged broker or dealer
exhibit "a certain regularity of participation in securities transactions
at key points in the chain of distribution. SEC v. Hansen,
[1984 Transfer Binder] Fed. Sec. L. Rep. (CCH) P. 91,426 (S.D.N.Y. 1984),
citing Mass. Financial Services, Inc. v. SIPC, 411 F. Supp. 411, 415 (D. Mass),
aff'd, 545 F.2d 754 (1st Cir. 1976), cert. denied, , 431 U.S. 904 (1977).
Regularity of participation has been demonstrated by the dollar amount of
securities sold and the active solicitation of clients. See National
Executive Planners., 503 F. Supp. at 1073. Indeed, a corporation could be a
broker even though securities transactions are "only a small part of its
business activity." SEC v. Kenton Capital, Ltd., 1998 WL 1121117 (D.D.C. 1998).
<PAGE>
A. The Complaint Adequately Alleges CRG, Spratt and
Skalko Acted as Unregistered Brokers
The Complaint adequately alleges that CRG violated Section 15(a)(1) by
acting as a broker without proper registration. A person is more likely to be
declared to be acting as a broker if he: (1) is not an employee of the issuer;
(2) receives commissions as opposed to salary21; (3) is selling, or previously
sold, the securities of other issuers; (4) is involved in negotiations between
the issuer and the investor; (5) evaluates the merits of the investment or gives
advice; or (6) is an active rather than passive finder of investors.22 Hansen at
98,119.
To state a claim, the Commission need not establish all six Hansen
factors, but the receipt of transaction-based compensation is often a critical
- -- if not conclusive -- factor in determining whether a person acted as a
broker. According to one treatise, registration is invariably required "where a
person is specifically compensated for the function of effecting securities
transactions for others..." N. Wolfson, R. Phillips & T. Russo, Regulation of
Brokers, Dealers and Securities Markets,P. 1.06 at 1-11 (1st ed. 1977).23
- ---------------
21 See e.g., SEC v. Margolin, [ 1992 Transfer Binder] Fed. Sec. L. Rep.
(CCH)P. 97,025 (S.D.N.Y. 1992) (defendant "engaged in other conduct which
provided evidence of brokerage activity such as receiving transaction-based
compensation....).
22 See e.g., SEC v. Randy, 38 F. Supp. 2d 657, 668 (N.D. M. 1999)
(defendant acted as broker because he "actively sought to effect securities
transactions on behalf of others....); National Executive Planners, Ltd.,
503 F. Supp. at 1073 (defendant acted as a broker-dealer because, among other
reasons, it "solicited clients actively").
23 Moreover, in the context of "No-Action Letters," the Commission's Division of
Market Regulation often has advised that a person would be considered to be
acting as a broker if he receives transaction-based compensation. See, e.g., The
Security Mutual Life Insurance Company of Lincoln, Nebraska, SEC No-Action
Letter, 1993 WL 455423 (S.E.C.)(Oct. 26, 1993); Davenport Management, Inc., SEC
No-Action Letter, 1993 WL 120436 (S.E.C.)(Apr. 13, 1993); Joseph K. Bannon, CPA
SEC No-Action Letter, 1988 WL 235393 (S.E.C.) (Dec. 9, 1988); Fulham & Co., SEC
No-Action Letter, 1972 WL 9129 (S.E.C.) (Dec. 20, 1972). Compare Financial
Charters & Acquisitions Inc., SEC No-Action Letter, 1984 WL 45923 (S.E.C.)(Nov.
<PAGE>
The Complaint alleges that, from September 1994 through at least
December 1996, CRG touted its clients' securities to registered representatives
through its Broker Relations Executive ("BRE") sales force (P. P. 29, 190) and
that CRG, Veitia, Spratt and Skalko touted securities "to the public" through
CRG publications. P. P. 1, 27-28. The Commission further alleges that BREs
contacted registered representatives to induce them to solicit their clients to
buy stock of companies CRG was then promoting, and that after proving to CRG
management, namely Spratt and Skalko, that they caused buying activity, CRG paid
commissions to the BREs. P. 190.
The Complaint also alleges that Spratt and Skalko solicited the sale of
Stratcomm. stock to U.S. residents, P. P. 184, 220; negotiated with investors
for such sales, P. 220; and received commissions from CRG and Stratcomm for
selling this stock. P. P. 187, 220. The Complaint further alleges that this
sales effort continued from late 1994 through, at least, the end of 1995, P. P.
184-185.
The Commission pleads a number of the Hansen criteria, including, most
importantly, that BREs (who worked at CRG's direction) received
transaction-based compensation. P. 190. Moreover, the Commission has alleged
regularity of business - CRG solicited investors in this fashion for more than
two years. P. 190. Thus, the Complaint meets simple notice pleading
requirements.
CRG argues primarily that, as a matter of fact, it did not solicit
investors, and that the Complaint fails to allege it communicated with
investors.24 The Complaint alleges, however, that
- ----------------
25, 1994)(staff granted no-action based, in part, because fee earned was "flat"
and would "not be based, directly or indirectly, on transactions in
securities").
24 Defendants contend the Commission failed to allege facts sufficient to
sustain each of eight factors that purportedly demonstrate whether a person is
acting as a broker.
<PAGE>
CRG, through its BREs, solicited investors through the investors' brokers.P.P.
29, 190. This is sufficient.
In In the Matter of Joseph Kemprowski and The Cambridge Consulting
Co., 58 S.E.C. Docket 448, Securities Exchange Act Release No. 34-35058
(Dec. 8, 1994), a settled administrative action which CRG cites,
the Commission found that the respondents acted as brokers by virtue of the
following actions:
Kemprowski and Cambridge [1)] repeatedly contacted potential investors,
direct and through registered representatives, to make sales pitches;
2) facilitated stock sales; and 3) received compensation based in part
on sales of [stock]. [emphasis added]
Indeed, the facts of Kemprowski are remarkably similar to those in the present
case. There, as here, an issuer hired a company to perform "public relations"
work; that company hired individuals to promote the issuer; in promoting sales
of the issuer's stock, the company and its representatives contacted investors
directly and through registered representatives; and recommended that the
investors buy the issuer's stock.25
CRG also argues that, through its BREs, it did not actually sell any
stock, and that the Commission failed to allege that CRG sold any stock. The
Complaint, however, alleged that
- -----------------
25 Moreover, in his treatise, Wolfson maintains that "[t]he absence of direct
investor contact, is, however, not determinative of the question of
broker-dealer regulation, if the proposed activity is repetitive by nature." N.
Wolfson, R. Phillips PP T. Russo, Regulation of Brokers, Dealers and Securities
Markets, P. 1.06 at 1- 14 (1st ed. 1977). Wolfson cites a no-action request from
a company which, through its sole employee, sought to solicit the investment
company industry to buy a unique insurance product. See IMF Services, Inc., SEC
No-Action Letter, 1971 WL 9607 (S.E.C.)(July 8, 1971). The company stressed that
neither it nor its employees would contact potential investors or even their
registered representatives, but rather only underwriters and national
distributors. The staff nevertheless concluded the company was required to
register as a broker-dealer. Id. See also Michael D. Barrett, SEC No-Action
Letter, 1972 WL 8544 (S.E.C.) (March 30, 1972) (staff concluded corporations
that provided certain securities information only
<PAGE>
BREs contacted registered representatives to induce them to solicit their
clients to buy stock of companies CRG was then promoting, and that after proving
to CRG management, namely Spratt and Skalko, that they caused buying activity,
CRG paid commissions to the BREs. P. 190. This language puts CRG on notice that
BREs did, in fact, cause sales of stock.
Neither Spratt nor Skalko advances a compelling argument in favor of
dismissal. Each maintains the Commission failed to satisfy the regularity
requirement. The Complaint alleges, however, that CRG's and Stratcomm's efforts
to sell Stratcomm. stock continued for more than one year, and that, more
particularly, Spratt and Skalko solicited such sales from October 1994 through
the spring of 1995. Both defendants also overlook the importance of
transaction-based compensation. See supra. Indeed, one commentator has
maintained that "[t]he payment of sales commissions is often critical to those
broker determinations in cases where an issuer is seeking to distribute its own
securities through its officers, directors, and employees," N. Wolfson, R.
Phillips & T. Russo, Regulation of Brokers, Dealers and Securities Markets, P.
1.06 at 1 - 11 (1" ed. 1977), and that "the SEC staff has consistently held that
registration as a broker was required whenever the employees engaged in the
distribution effort received a commission based on the sales of the issuer's
securities." Id. at 1-13. (citations omitted).26
- ----------------
to register representatives and not members of the general public still would be
require to register as broker-dealers).
26 Indeed, Spratt's and Skalko's receipt of transaction-based compensation
disqualifies them from the safe harbor provided by Rule 3a4-1 entitled,
"Associated Persons of an Issuer Deemed Not toBe Brokers." See Rule 3a4-1(2) [17
C.F.R. ss. 3a4-1(2)],
<PAGE>
B. The Complaint Adequately Alleges CRG and Stratcomm Acted
As Unregistered Dealers
The "primary indicia in determining that a person has 'engaged in
the business' within the meaning of the term 'dealer' is that the level of
participation in purchasing and selling securities involves more than a few
isolated transactions." In the Matter of the Application of Gordon Wesley
Sodorff, Jr., Admin. Proc. File No. 3-7390, Securities Exchange Act Rel. No.
31134 (September 2, 1992). "There is no requirement, however, that such
activity be a person's principal business or the principal source of income."
Id. If the purchaser became the owner of the stock it is irrelevant to the
"dealer" analysis whether or not the stock was registered in the purchaser's
name. Id.
The Complaint alleges that CRG acted as an unregistered dealer by
engaging in the business of buying and selling securities for its own account,
predominantly through its nominees, Fondo and Oportunidad. P. 191, The Complaint
specified that CRG bought securities on at least one dozen occasions from at
least five of its issuer-clients and sold those securities in hundreds of
transactions. P. 191 For more detailed allegations concerning CRG's purchases
and sales, the Complaint then refers to Section IV of the Complaint (P. P. 45
through 133), entitled, "Specific Securities Transactions in Which Defendants
Violated the Antifraud, Touting and Registration Provisions of the Securities
Laws." These 24 pages, which itemize transactions in the securities of Tracker,
Delta Petroleum, Ammonia Hold, IMTECH and Foreland, provide CRG with proper
notice.
CRG admits that it engaged in activities as an underwriter in
connection with the Regulation S transactions in the securities of Tracker,
Delta Petroleum, Ammonia Hold, IMTECH and Foreland. Nevertheless, it asserts
that a party "is not engaged in the business of buying and
<PAGE>
selling securities if he does not" [emphasis added] engage in seven criteria.
CRG mischaracterizes the standard. Although citing to the Davenport
no-action letter, the original language comes from Professor Loss, who
stated merely that "a dealer has characteristic attributes" as embodied in
the criteria he then enumerated. L. Loss & I Seligman, Securities Regulation,
Vol. VI, at 2983 (3d ed. 1990). Loss continued: "Needless to say, a person
does not have to exhibit all or any given number of these dealer characteristics
in order to be considered a dealer." Id. At 2983-4. Thus, one criterion will
suffice.
Moreover, scienter is not an element of a Section 15(a) claim, see,
e.g., Randy, 38 F. Supp. 2d at 667; thus, CRG's self-serving understanding
that it complied with Regulation S is irrelevant,
CONCLUSION
For the reasons stated above, as well as those in companion memoranda
filed this date opposing other motions to dismiss the Complaint, the motions of
the CRG defendants to dismiss should be denied.
Respectfully submitted,
________________________________
James A. Kidney ( Trial Counsel)
Jeffrey P. Weiss
William McGovern
Attorneys for Plaintiff
U.S. Securities and Exchange Commission
Mail Stop 8-8
450 Fifth Street, N.W.
Washington, D.C. 20549-0808
(202) 942-4797 (Kidney)
(202) 942-9581 (Kidney Fax)
Date: January 28, 2000 [email protected]
<PAGE>
UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
(Orlando Division)
- -----------------------------------)
UNITED STATES SECURITIES AND )
EXCHANGE COMMISSION, )
)
)
Plaintiff, ) C.A. No. 99-1222-CV-22-A
) Hon. Anne C. Conway, Judge
V. ) Hon. Karla R. Spaulding,
) Magistrate Judge
)
)
CORPORATE RELATIONS GROUP, INC., )
ET AL., )
)
)
Defendants. )
- -----------------------------------)
CERTIFICATE OF SERVICE
The undersigned counsel for the plaintiff, the Securities and Exchange
Commission, hereby certifies that copies of the enclosed:
1. Plaintiffs Memorandum in Opposition to Constitutional and
Other Arguments Raised in Motions to Dismiss by
Defendants Veitia, CRG, Stratcomm and Gulf Atlantic;
2. Plaintiff's Memorandum in Opposition to Motions to Dismiss By
Defendants Gomez, Fondo and Oportunidad;
3. Plaintiffs Memorandum in Opposition to Motions to Dismiss By
Defendants CRG, Stratcomm, Gulf Atlantic, Veitia, Spratt,
Skalko and Pow Wow;
were served this 28th day of January, 2000, via Federal Express for delivery on
January 3 1, 2000, postage pre-paid, upon the following counsel for the parties
or on pro se defendants at the addresses shown:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PARTY COUNSEL
- ------------------------------------------------------------------------------------------------------------------------------------
James W. Spratt, III Carl F. Schoeppl, Esq.
- ------------------------------------------------------------------------------------------------------------------------------------
Schoeppl & Burke, P.A.
4800 North Federal Highway, Suite 210-A
Boca Raton, Florida 33431-5176
And
Howard Hawkins, Esq.
Keith Miller, Esq.
Cadwalader, ' Wickersham & Taft
100 Maiden Lane
New York, New York 1003 8
- ------------------------------------------------------------------------------------------------------------------------------------
Roberto Veitia Mark L. Horwitz, Esq.
Corporate Relations Group Law Offices of Horwitz & Fussell
Stratcomm 17 East Pine Street
Gulf Atlantic Orlando, Florida 32801
- ------------------------------------------------------------------------------------------------------------------------------------
James Skalko Joseph I. Goldstein, Esq.
Pow Wow Charles R. Mills, Esq.
Kirkpatrick & Lockhart
1800 Massachusetts Ave. N.W.
2nd Floor
Washington, D.C. 20036-1800
- ------------------------------------------------------------------------------------------------------------------------------------
Jose Antonio Gomez Cortez Rodney F. Page
Fondo de Adquisiciones E Inversiones Therese D. Pritchard
Internationales XL, S.A. Bryan Cave LLP
Oportunidad, S.A. 700 Thirteenth Street, N.W.
Washington, D.C. 20005-3960
And
G. Kenneth Norrie
James M. Riley
Rogers, Towers, Bailey, Jones & Gay
1301 Riverplace Blvd., Suite 1500
Jacksonville, Florida 32201-9020
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
New Concepts LLC. Gordon B. Nash, Jr.
CJL Corporation Scott Murray
Arnold Zousmer Gardner, Carton & Douglas
Charles I Lidman Quaker Tower - # 3400
321 North Clark Street
Chicago, Illinois 606104795
And
Michael A. Paasch, Esq.
Mateer & Harbert, P.A.
Two Landmark Center
225 East Robinson Street, Suite 600
Orlando, Florida 32803
- ------------------------------------------------------------------------------------------------------------------------------------
Jack R. Rodriguez Pro Se
237 Mt. Blanc Ct.
No. 105
Casselberry, Florida 32707
</TABLE>
________________
James A. Kidney
Jeffrey P. Weiss
William F. McGovern
Counsel for Plaintiff Securities
and Exchange Commission
U.S. Securities and Exchange Commission
Mail Stop 8-8
450 Fifth St., N.W.
Washington, D.C. 20549-0808
(202) 942-4797 (Kidney)
January 28, 2000 (202) 942-9581 (Fax)
<PAGE>
Group 2
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
SECURITIES AND EXCHANGE COMMISSION
Plaintiff,
v. Civil Action No. 96-2543 (GK)
CHARLES 0. HUTTOE, et al.,
Defendants and Relief Defendants
MEMORANDUM OPINION
The Securities and Exchange Commission "SEC" brings this action against
Defendant Shannon B. Terry ("Terry" and his wholly owned Bahamian corporate
shell, Dunbar Holdings, Ltd. ("Dunbar Holdings" , charging violation of sections
17(a) and 17(b) of the Securities Act of 1933, 15 U.S.C. ss.ss. 77q(a) and
77q(b) " SA ss. 17 (a) 11 and "SA ss. 17 (b) 11 respectively) , section 10 (b)
of the Securities Exchange Act of 1934, 15 U.S.C. 77j (b) SEA ss. 10(b) "), and
Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5 " Rule 10b-5") . The SEC also charges
that Relief Defendant J.S. Holdings, Inc. "J.S. Holdings"), a holding company,
is holding $255,000 in illegal proceeds for the benefit of Defendant Charles 0.
Huttoe.
This matter comes before the Court on Plaintiff's Motion for Summary
Judgment or in the Alternative, Preliminary Injunction as to Defendants Terry,
Dunbar Holdings and J.S. Holdings [#156]. Defendants Terry and Dunbar Holdings
jointly filed a motion for summary judgment [#177] in which they argue that SA
ss. 17 (b) , if
<PAGE>
applied against Terry, would violate the First Amendment's guarantee of free
expression and the Fifth Amendment's guarantee of process of law
Upon consideration of the motions, oppositions, replies and entire
record herein, for the reasons set forth below, Plaintiff's Motion for Summary
Judgment [#156] is granted in part and denied in part, and Defendants' Motion
for Summary Judgment [#177] is denied.
1. BACKGROUND1
The SEC brought charges against named Defendant Charles O. Huttoe,
Chairman of the Board and Chief Executive officer of Systems of Excellence, Inc.
("SOE" for fraud in connection with the registration and sale of SOE common
stock.2 The SEC also named several cc-defendants in its complaint, including
Defendants Terry Dunbar Holdings, alleging that these individuals and entities
fraudulently promoted SOE stock or illegally received unregistered shares or
proceeds from the sale of such shares.
The present motion relates only to Defendants Terry and Dunbar
Holdings, and Relief Defendant J.S. Holdings. The SEC alleges that
- ---------
1 Pursuant to Local Rule 108(h), "[i]n determining a motion for summary
judgment, the Court may assume that facts identified by the moving party in its
statement of material facts are admitted, unless usch a fact is controverted in
the statement of genuine issues filed in opposition to the motion." The court
thus recites uncontroverted facts from the Plaintiff's Statement of Material
Uncontested Facts.
2 A final judgment was entered, under seal, against Defendant Huttoe in
November 1997.
<PAGE>
Terry, directly and through the Dunbar Holdings entity, was a participant in
Huttoe's fraud. Terry is also charged with the fraudulent promotion of stocks in
a number of companies unrelated to Huttoe. Relief Defendant J.S. Holdings,
though not charged with violation of the securities laws, is alleged to be a
repository of funds fraudulently earned by Defendant Huttoe
A. Shannon Terry & Dunbar Holdings
Shannon Terry, age 28, was an independent contractor employed by SGA
Goldstar Research, Inc. ("SGA" from August 1993 until November 1996. His prior
education and training included a degree in Finance and Economics, earned in
June 1992, two months of unspecified work at SGA in June and July 1992, and one
year of employment by a bank as a credit analyst.
SGA published the SGA Goldstar Whisper Stocks newsletter ("Whisper
Newsletter") Theodore Melcher, the sole shareholder of SGA3 was also publisher
and editor of the Whisper Newsletter. did business out of Melcher's home, where
the Newsletter prepared using desktop publishing equipment. Terry -and Melcher
were the only two people working at SGA during most of Terry's tenure.
The Whisper Newsletter was a "high-risk aggressive growth" newsletter
containing profiles of companies and making recommendations regarding the
purchase of stock in those companies.
- --------------------
3 SGA Goldstar Research, Inc. and Theodore Melcher are also named
Defendants in the SEC's original complaint against named Defendant Charles
Huttoe.
3
<PAGE>
Each edition typically featured promotion of largely unknown and untested penny
stock or small capitalization companies. The Newsletter was available through
direct subscription, as well as indirectly through several news provider
services. SGA subscribers received the Whisper Newsletter by facsimile each
evening or downloaded a copy by logging into SGA's Internet web page. Each
evening's edition was-post-dated to the following day, In 1996 there were
approximately 280 subscribers to the Whisper Newsletter. In addition to its
subscription revenue, SGA received compensation from companies publicized in the
Whisper Newsletter.
Terry performed a range of tasks including bookkeeping, word
processing, and answering phones. One of his main responsibilities was selling
subscriptions to new and existing clients. Terry also assisted in the production
and distribution of the Newsletter, reviewing press release information about
companies profiled by the Whisper Newsletter and writing articles and
commentaries about some of these same companies. During his employment, Terry
wrote an increasing number of articles, and at times wrote as many as half of
all of the articles in the Newsletter
For his work, Terry received a base compensation of $25,000 per year
and 12.5 percent of all new and renewal subscriptions. In addition, companies
paid SGA with stock in exchange for articles promoting their stock in the
Whisper Newsletter, and SGA would in turn give Terry stock for companies he
promoted in the articles he wrote. Thus, although the stock was not directly
given to Terry by the issuing company, it came from the issuing company to SGA
and
4
<PAGE>
then directly to Terry for the articles he wrote about those stocks. Terry
admits to being present at some of the meetings where the stock payments were
negotiated, but denies being a decision maker or negotiator in these meetings.4
Between October 1994 and September 1996, Terry received stock in 18 companies
which
- ---------
4 Terry admits participation in meetings to negotiate stock in exchange
for promoting Central Resources, American Bio Medica, and Systems of Excellence.
(See Pls. Stmt. of Material Uncontested Facts at 5; Defs. Rsponse to Stmt of
Material Uncontested Facts at 5.)
<PAGE>
5
were then promoted in the whisper Newsletter.5 The ultimate value
<TABLE>
<CAPTION>
Stock Shares Dates Dates Dates Shares
Issuer Rec'd Rec'd Promoted SOLD SOLD Proceeds
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Affinity Tele 85,000 7/14/95;
7/21/95;
8/8/95 $57,625
Aimrite Holdings 51,750 2/22/96
5/31/96 $20,530.50
American Bio 20,000 7/15/96 7/15/96- 7/17/96 7,500
8/30/96 7/19/96 2,500
7/25/96 2,500
7/26/96 2,500
7/29/96 2,500
9/04/96 2,500 $116,250
Ameriquest 2,500 2/3/95 3/31/95- 4/05/95 2,500 $7,187.50
4/3/95
Century Tech 75,000 1/8/96 1/19/96 1/19/96 12,000
5/10/96 63,000 $31,402.50
Chancellor Group 2,500 6/11/96 6/11/96- 7/11/96- 1,000
2,500 6/26/96 7/25/96 8/5/96 1,500 $20,937.50
Dragon Envir. 37,500 6/13/96 6/13/96 6/17/96 5,000
16,500 10/30/96 6/17/96 6/18/96 10,000
9/18/96 3,000
9/30/96 3,000 $58,031.10
Essential Res. 40,000 7/12/96 7/30/96 8/9/96 2,000
5,000 9/13/96 9/19/96 8/12/96 1,50:
8/15/96 1,500 $49,375
Fidelity Med. 15,000 5/10/95 $6,555
Garcis USA (Buys) 20,000 4/3/95 4/4/95- 4/12/95 2,500
3,000 5/4/95 4/17/95 4/17/95
4/28/95 17,500
(Free) 5/5/95 3,000 $7,717.50
Insulpro Indus. 15,000 3/13/95 3/15/95 4/21/95
(Buys) 5,000 3/13/95 4/3/95 5/3/95 20,000 $10,740
Int'l Std. Group 50,000 3/14/96 $47,509.10
NVID Int'l 225,000 2/15/96 $53,375
Silent Radio 10,000 10/21/94 $22,874.50
</TABLE>
6
<PAGE>
of all stocks he received from his allegedly illegal activities was $828,448.6
Terry is the sole owner of Dunbar Holdings, a corporate shell that is
located in Grand Turks, Bahamas. Terry maintains and directs a trading account
in the name of Dunbar Holdings with a Canadian brokerage firm. Stocks that Terry
received for his commentaries in the Whisper Newsletter were placed into the
Canadian trading account of Dunbar Holdings.
As the table in footnote 5 demonstrates, Terry's trading of, stocks
either coincided with the publication of stories about these, same stocks in the
Whisper Newsletter or took place shortly after publications of the stories.
Terry wrote some of the articles and co-authored others with Melcher who always
retained final editorial control over articles appearing in the Whisper
Newsletter. These stories would recommend that the subscribers buy the stocks in
companies promoted However, after some of the stories were printed in the
Whisper Newsletter, Terry would turn around and sell his personal holdings of
that particular stock within a few days Since the price of a featured stock
often increased soon after Whisper Newsletter's aggressive promotion to
subscribers, made substantial profits from his sales. This pattern of selling in
contravention of the Whisper recommendations was repeated over
- -------------
6 For purposes of summary judgment, the SEC reduced its disgorgement
request from $851,322.50 to $828,448 in its Reply Memo in response to Defendant
Terry's denial that he received stock valued at $22,874.50 in exchange for
promoting Silent Radio, Inc. (p1's Reply at 3, n.3; see also p1's Stmt of Mat.
Uncontested Facts, 34; Terry Response, 34.)
<PAGE>
a two year period for all stocks Terry received as compensation for promotion of
these stocks.
B. J.S. Holdings
J. S. Holdings is a holding company, owned by Jeffrey Szur, which in turn
owns J.S. Securities. J.S. Holdings received a wire transfer in the amount of
$255,000 from Defendant Huttoe on August 21, 1996. Plaintiff claims that this
amount represents proceeds of the sale of unregistered SOE stock from a nominee
account in name of National Trading Services, Inc. ("NTSI" a Florida Corporation
controlled by Huttoe.
II. STANDARD OF REVIEW
A party against whom a claim . . . is asserted . . . may, at any time,
move with or without supporting affidavits for a summary judgment in
the party's favor as to all or any part thereof . . . The judgment
sought shall be rendered forthwith if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a
matter of law.
Fed. R. Civ. P. 56 (b) - (c). The party seeking summary judgment bears the
initial burden of demonstrating an absence of a genuine issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317 322 (1986) . In determining whether the
movant has met this burden a court must consider all factual inferences in the
light most favorable to the non-moving party. McKinney v. Dole, 765 F.2d 1129,
1135 (D.C. Cir. 1985). Once the moving party makes initial showing, however, the
nonmoving party must demonstrate specific facts showing that there is a genuine
issue for trial."
8
<PAGE>
Celotex, 477 U.S. at 324; McKinney, 765 F.2d at 1135. Moreover, "[i]n
determining a motion for summary judgment the court may assume that facts
identified by the moving party in its statement of material facts are admitted,
unless such a fact is controverted in the statement of genuine issues filed in
opposition to the motion." Local Rule 108(h).
III. CLAIMS AGAINST SHANNON TERRY & DUNBAR HOLDINGS
The SEC alleges that Terry violated SA ss. 17(a), SEA ss. 10(b), and
SEC Rule 10b-5 when he (1 touted publicly traded securities to potential
investors in articles he wrote for the Whisper Newsletter in return for
undisclosed compensation from the issuers of those securities, (2 traded his
personal share holdings in stocks even as he was writing articles in the Whisper
Newsletter recommending their purchase, and (3) failed to disclose either of
these practices when he solicited subscriptions to the Whisper Newsletter. The
SEC also alleges that Terry violated SA ss. 17(b) when he failed to disclose to
subscribers that he received consideration in exchange for writing and
publishing article promoting stock.
Terry deposited the proceeds he received for the articles in Dunbar
Holdings. The SEC requests that Terry and Dunbar Holdings disgorge payments for
promoting stocks, trading profits, and subscription commissions, as well as
prejudgment interest on all illegal profits. The SEC also seeks to permanently
enjoin Terry and Dunbar Holdings from participating in further violation of the
securities laws
9
A. Violation of SAss.17(a),1 SEA 5 10 (b)2 and Rule 10b-5.3
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7 Section 17(a) of the Securities Act, 15 U.S.C.ss.77q(a) provides:
It shall be unlawful for any person in the offer or sale of any
securities by the means or instruments of transportation or communication in
interstate commerce- of by the use of the mails, directly or indirectly (1) to
employ a device, scheme, or artifice to defraud, or (2) to obtain money or
property by means of any untrue statement of a material fact or any omission to
state a material fact necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading, or (3) to
engage in any transaction practice or course of business which operates or would
operate as a fraud or deceit upon the purchaser.
8 Section 10(b) of the Securities Exchange Act, 15 U.S.C. 78j (b) , makes
it unlawful for "any person, directly or indirectly," to use or employ, in
connection with the purchase or sale of any security registered on a national
securities exchange or any security not so registered any manipulative or
deceptive device or contrivance in contravention of such rules and regulations
as the Commission may prescribe as necessary or appropriate in the public
interest or for the protection of investors.
9 SEC Rule 10b-5, 17 C.F.R. Sec. 240.10b-5, pursuant to its power under
- -a(.Lion 10(b). It provides:
It shall be unlawful for any person, directly or indirectly, by the
use of any means or instrumentality of interstate commerce, or of the mails, or
of any facility of any national securities exchange,
(1) to employ any device, scheme, or artifice to defraud,
(2) to make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make statements made, in the light of the
circumstances under which they were made, not misleading, or
(3) to engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any person, in connection with the
purchase or sale of any security.
10
<PAGE>
It is a fraud for "any person' to make any statement in connection with a
securities transaction that is materially false or misleading. 15 U. S. C.ss.77
(q) (a) ; 15 U. S. C.ss.78j (b) ; 17 C. F. Rss. 240.10b-5. A statement is made
"in connection with" the sale of any security "whenever it may reasonably be
expected that a publicly disseminated document will cause reasonable investors
to buy or sell securities in reliance thereon, regardless of the motive or
existence of contemporaneous transactions by or on behalf of the violator." SEC
v. Savoy Industries. Inc., 587 F.2d 1149, 1171 (D.C. Cir. 1978), cert. denied,
sub nom. Zimmerman v. SEC, 440 U.S., 913 (1979) A statement is materially
misleading if there is a substantial likelihood that a reasonable investor would
consider an omitted fact significant in making his or her investment decision.
See Basic, Inc, v. Levinson. 485 U.S. 2,24, 2-3.2 (1988) (adopting standard of
materiality in TSC Industries Inc. v. Northway, Inc., 426 U.S 438 (1976 for the
SEAss.10(b and Rule 10b-5 context) ; SEC v. Steadman, 967 F.2d 636, 643 (D.C.
Cir. 1992) (using Basic and TSC materiality standard in SAss.17(a) context)
A material misstatement violates SAss.17 (a (1) , SEAss.10 (b) and Rule
10b-5 when made with scienter, and violates SA ss.ss.17 (a) (2) and 17 (a) 3
when made negligently. Aaron v. SEC, 446 U.S. 680 (1980). Scienter is "a mental
state embracing intent to deceive, manipulate, or defraud," Ernst & Ernst v.
Hochfelder, 425 U.S. 185 (1976), as demonstrated by "extreme recklessness". SEC
v. Steadman, 967 F.2d at 641. Extreme recklessness is an "extreme departure from
the standard of ordinary care,...which presents
11
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a danger of misleading buyers or sellers that is either known to the defendant
or is so obvious that the actor must have been aware of it." Id. at 641-42
(citing Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 1045 7th Cir.
1977), cert. denied, sub nom. Meers v., Sundstrand Corp.-, 434 U.S 875 (1977)).
1. Nondisclosure of Paid Promotional Nature of Articles
The SEC maintains that Terry failed to inform Whisper subscribers of the paid
promotional nature of the articles appearing in the Whisper Newsletter and that
this nondisclosure was material. The record reflects that Terry sold
subscriptions to, and wrote the contents of, much of the Whisper Newsletters.
Although, Terry did not write all of the commentaries, he did write many about a
number of stocks appearing in the Whisper Newsletter. Terry admits that he was
compensated with the stock of companies he profiled or otherwise wrote about.4
The fact that Terry received stock in exchange for writing articles
appearing in the Whisper Newsletter is "material" so long as there is a
"substantial that a. reasonable investor
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10 In its Motion for Summary Judgment, and Statement of Material
Uncontested Facts, the SEC describes these payments as the "receipt of free
stock" in exchange for promotion of such stock. The Defendant denies that he
received "free stock" in the companies touted by the Whisper Newsletter, but
admits that he received stock as compensation for writing articles appearing in
the Newsletter. (Compare, e.g. Pls. Stmt. of Mat.. Uncontested FactsP.P. 2, 3,
5-9, with Defs. Response to Pls. Stmt of Mat. Uncontested Facts,P.P. 2, 3, 5-9.
See also Pls. Reply Mot. at 8, n.8.)
What is material, and uncontested, is that the Defendant received
stocks in exchange for writing articles that promoted those stocks. It is also
uncontested that Melcher was also paid to promote stock in the Whisper
Newsletter.
12
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would consider the motivation of the person recommending the purchase of a stock
a significant factor in making an investment decision. Basic, Inc., 485 U.S at
232. "[S]uppression of information material to an evaluation of the
disinterestedness of investment advice operate[s] as a deceit on purchasers."
Capital Gains Research, 375 U.S. at 198 (citing SEC v. Torr, 15 F. Supp. 315,
317 (S.D.N.Y. 1936), rev'd on other grounds, 87 F.2d 446 (2nd Cir. 1936)).
Consequently, the paid promotional nature of the articles was clearly a
"material', fact for subscribers of the Newsletter who were potential investors
Indeed, Terry does not argue that the compensation he and Melcher received
was not a "material" fact requiring disclosure. He argues, rather, that this
fact was disclosed to whisper Newsletter subscribers. It is uncontested that the
Whisper Newsletter contained a disclaimer which, during most of Terry's tenure
read as follows: "Personnel associated with SGA may own shares in the companies
mentioned herein or may act as consultants thereto." On July 12, 1996, the words
"for compensation" were added to the end of this sentence.5 The question before
the court,
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11 The full text of the disclosure, as amended, reads:
SGA Goldstar Research is not an -investment advisor! Information
contained in SGA Goldstar is obtained from sources believed to be reliable;
however, in certain instances such information involves rumors or other time
sensitive materials which cannot adequately be verified. SGA makes no
representation or warranty as to the accuracy or adequacy of the information and
recommendations provided. This material is not deemed as a solicitation for the
purchase or sale of a security or commodity. Use of the information and
recommendations is at the subscriber's sole risk. Personnel associated with SGA
may own shares in the companies mentioned
13
<PAGE>
wrote and, thus, were deprived of information substantially likely to affect
their investment decision. Consequently, Terry committed fraud by making these
misleading statements in the Newsletter.
Moreover, there is no question that Terry acted with requisite scienter
to violate SA ss. 17 (a) (i) , SEA 10 (b) and Rule 10b-5. Scienter is reflected
in the Defendant's pattern of "touting stock" for more than two years. Terry
admits that he and Melcher received stock in return for promoting the issuer of
the stock and that he knew that the "disclaimer" appearing in the Newsletter did
not state that the staff received stock in return for promoting the issuer in
the Newsletter. The ineffectiveness of the Newsletter's disclosure was not
merely negligent. These statements were so likely to mislead subscribers that it
either known to the defendant or [was] so obvious that the actor must have been
aware of it." SEC v. Steadman, 967 F.2d at 641-42. Clearly Terry must have known
that the footnote in the Newsletter could not have adequately alerted
subscribers to the fact that he and Melcher received free stock for promoting
the companies they urged subscribers of the Newsletter to buy.
Terry raises a number of defenses to the SEC's allegations. First, he
responds that the information appearing in the Whisper Newsletter was not "in
connection with" the offer or sale of securities within the meaning of the
securities laws. In support of this argument, Terry directs the Court to
language in the Newsletter's disclaimer which states "This material is not
deemed as a solicitation for the purchase or sale of a security or
<PAGE>
commodity." Notwithstanding the disclaimer, it is clear that the stocks promoted
by Terry and the Whisper Newsletter were designed to provide subscribers with
information that would cause "a reasonable investor to buy or sell securities in
reliance thereon", SEC v. Savoy Industries Inc., 587 F.2d at 1171, and were
therefore, "in connection with" the offer or sale of securities. (See P1's
Stmt.P.P. 12-27.)
Second, Terry argues that he did not commit fraud because he wrote only
some of the articles appearing in the Whisper Newsletter and because Melcher
exercised final editorial control over its content.1 Yet, Terry concedes that he
was responsible for selling subscriptions, writing and preparing the Newsletter
for distribution, and distributing the Newsletter to subscribers by facsimile
and the Internet. Terry further concedes that he was paid stock in those
companies for which he was writing promotional articles in the Newsletter The
fact that Melcher committed fraud would not excuse the fraud committed by
Defendant Terry
Terry argues, finally, that the Court cannot find that the articles he
wrote were fraudulent because the SRC failed to prove that the information
contained in the articles was inaccurate. To the extent that articles are
inaccurate, Terry argues that he was permitted as a journalist to rely upon the
press releases and other sources of information that were the basis of his
writing. In particular, Terry argues that any inaccuracies about SOE were the
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12 Melcher reviewed Terry's commentaries when he was in the office but,
when Melcher was traveling, Terry's commentaries were published without editing.
(Pls. Stmt. atP. 4.)
<PAGE>
extreme recklessness in failing to disclose the paid promotional nature of
articles appearing in the Whisper Newsletter
2. Terry's Nondisclosure of Sales Contrary to the Newsletter's
Recommendations to Buy.
The SEC maintains that Terry failed to inform Newsletter subscribers
that he intended to sell his personal holdings of stock despite the
recommendations to buy being made in the Whisper Newsletter. The record reflects
that Terry sold stocks after the Whisper Newsletter recommended that its
subscribers purchase those stock There are ample and uncontested facts in the
record that establish that this was not an isolated incident but a pattern of
behavior repeated continuously over a two year period.2 As has been established
above, Terry received stock in exchange for promoting those companies in the
Whisper Newsletter. It is also uncontested in the record that Terry sold stock
in 18 companies shortly after the Whisper Newsletter made strong recommendations
that its subscribers buy those very same stocks, and profited to the tune of
$828,448.3
Terry's practice of selling when the Newsletter was recommending buying
has long been understood to operate as a fraud
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13 The SEC has provided, and the Court has reviewed, voluminous records of
Terry's trading activities, Whisper Stock Newsletters corresponding to the time
of Terry's trading, and Defendant's deposition. The significant activities at
issue are reflected in the table located, supra, at footnote 5.
14 While most of the stocks Terry sold were received as compensation for
touting the issuer, some were purchased by Terry shortly before promotional
articles appeared in the Whisper Newsletter. (See Pls. Stmt. of Mat. Uncontested
Facts atP.P. 14, 15, 18, 21, 22,24, and 26.)
<PAGE>
or deceit upon investors. In SEC v. Capital Gains Research Bureau, Inc., 374 U.S
180 (1963), the Supreme Court held that "scalping", a known practice whereby the
owner of shares of a security recommends that security for investment and then
immediately sells it at a profit upon the rise in the market price which follows
the recommendation, was a violation of the Investment Advisers Act. 375 U.S. at
181.4 Similarly, in Zweig v. Hearst Corp., 594 F.2d 1261 (9th Cir. 1979), the
Ninth Circuit held that a financial columnist's failure to reveal to readers his
practice of "scalping" the stocks of companies he wrote about was a material
nondisclosure creating liability under Rule 10b-5 LA. at 1266.5
To be clear,, the fraud lies not in Terry's practice of selling stocks
contrary to Whisper's recommendations, but in the failure to disclose that
practice to potential investors and readers. The practice reflects on the
objectiveness of the investment advice and is therefore material. Capital Gains
Research, 375 U.S. at 198.
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15 Section 206 of the Investment Advisors Act ("IAA") provides in relevant
part that "it shall be unlawful for any investment adviser . . . to engage in
any transaction, practice or course of business which operates as a fraud or
deceit upon any client or prospective client." 15 U.S.C. ss. 80b-6(2). The
Supreme Court in Capital Gains Research recognized that this language mirrors
that used in SA ss. 17 (a) (3) , which also appears in Rule 10b- 5 (3) under SEA
ss. 10 (b). While the basis of liability under the IAA results from the
fiduciary relationship between the investment advisor and the advisee, the
Supreme Court understood that Congress intended that both Acts reflect a general
proscription against fraudulent or deceptive practices such as the material
nondisclosure involved in scalping. 375 U.S. at 197-98.
16 The Ninth Circuit also held that it was "fully consistent with the
spirit and letter of the securities laws" to impose on the columnist "a duty to
non-readers" who were harmed by the effect his manipulation had on the stock's
price.594 F. 2d at 1270 & n.16.
19
<PAGE>
Non-disclosure of the practice of scalping stock recommended to Whisper
Newsletter subscribers certainly violated a duty of ordinary care under SA ss.
17(a)(2)-(3 The non-disclosure operated as fraud or deceit on subscribers who
purchased stock in connection with the recommendations appearing in the
Newsletter. Id. at 181.
Furthermore, scienter is evident in Terry's pattern of active scalping
over a period of two years, thus violating SA ss. 17 (a) (1) SEA ss. 10(b) and
Rule 10b-5. Engaging in the well known fraud of scalping is an "extreme
departure from the standard of ordinary care". SEC v. Steadman, 967 F.2d at 641.
Terry trust have been aware of the danger of misleading subscribers since he
continued this practice with more stocks and more writing responsibility over a
two year period. Moreover, actual knowledge of the fraud he was perpetrating is
strongly suggested by Terry's effort to keep his trading activity secret by
purchasing Dunbar holdings a shell corporation in the Bahamas, and by trading
the stocks he scalped under the name of Dunbar Holdings through a Canadian
brokerage account
Terry's main response is that he did not write all of the articles
appearing in the Whisper Newsletter which recommended stocks he later sold He
argues that Defendant Melcher had final editorial control over any article Terry
wrote, and that Terry was generally unaware of what information appeared in the
Whisper Newsletter. (See Defs. Response at P. 11-35.) Although Terry tries to
create an issue of fact about what he knew and did not know, his attempts must
fail. Assuming for purposes of summary judgment that
20
<PAGE>
he did not know about every article in the Newsletter and that he did not have
editorial control, those facts are immaterial to the SEC's charges. What is
material for purposes of this motion for summary judgment is what Terry did not
disclose to subscribers -that he knew he was selling stocks while recommending
that everyone buy those stocks -- and therefore he is not saved from liability
under SA 17(a), SEA ss. 10(b) or Rule 10b-5
First, Terry's argument concedes that he did author and cc author
articles promoting stock which he then sold. Since Terry's actions were done
with scienter, as this Court has already found this admission is enough to hold
Terry in violation of SA ss. 17(a)ss. 10 (b) or Rule 10b-5. Second, Terry admits
that he was on a daily basis for assembling and disseminating the Newsletter to
subscribers and was aware of the information contained therein. He also faxed
the Newsletter to subscribers called potential subscribers, and was responsible
for editorial changes when Melcher was not in the office The fact that Melcher
or any other person was also aware of the contents of the Newsletter does not
diminish Terry's responsibility to disclose refrain from selling contrary to his
own recommendations. Third, nowhere does Terry suggest that he disclosed or
attempted to disclose his intent to sell contrary to the recommendations
appearing in the Newsletter. Thus, the factual issues raised by Terry are not
material, and do not preclude summary judgment.
Terry, once again, alleges that the "disclaimer" appearing Newsletter
was adequate disclosure; and once again, he is
21
<PAGE>
incorrect The Court finds no wording in the disclaimer to suggest, that Terry or
any of the SGA "personnel" --which at all relevant times consisted solely of
Terry and Melcher would sell stocks despite the recommendations to buy appearing
in the Newsletter. Rather, the statement that personnel "may own" shares doesn't
even suggest to readers that Terry or Melcher may actively "trade" those same
shares especially in the short term after writing articles that promote the
stock as a "Buy" a "Strong Buy" an "Aggressive Buy" or as "an excellent . long
term portfolio holding".6 See also SEC v. Blavin, 760 F.2d at 712 (disclaimer
that an investment advisor "may" trade in recommended securities can itself be a
"material misstatement") Since the practice of scalping is not disclosed, as a
matter of law, the disclaimer appearing in the Whisper Newsletter does not
constitute "disclosure" within meaning of the securities laws, nor does it
divest Terry of scienter.
3. Fraudulent Sale of Subscriptions
Having found that Terry engaged with extreme recklessness in the frauds
of touting and scalping stocks over a two year period, the Court must also find
that Terry's failure to disclose these practices when soliciting subscribers is
a "practice" and "course of business which operates as a fraud or deceit upon"
prospective subscribers to the Newsletter. SEC Rule 10b-5(3).
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17 These examples are typical of language appearing in the Whisper
Newsletter before Terry commenced selling stock in these same companies. For
these and other examples, see Pls. Stat. Of Mat. Uncontested Facts atP. 11-27.
22
<PAGE>
The Court first turns to Terry's statutory arguments first argues that
he did not violate section 17(b) because he disclosed being compensated for his
promotional writing addressed previously, the disclaimer appearing in the
Whisper Newsletter does not indicate that Terry received any consideration in
exchange for promoting stock. Thus, Terry did not "disclose" that he received
consideration for describing stocks. SA ss. 17(b).
Terry's second statutory argument is that he did not in fact receive
"consideration" in exchange for promoting stock because SGA Goldstar "bargained
for" the consideration and in turn paid Terry for his journalistic services.
Yet, Terry "admits that he participated in negotiations with companies who
desired to retain the services of SGA....."(Defs. Response at P. 5.) Terry also
admits that he received through SGA "stock issued by the subject companies as
compensation for his services" rendered as a journalist writing articles for the
Whisper Stocks Newsletter. (Defs. Response atP.P. 5-7.)
Terry's attempt to distinguish stock received from SGA stock
received directly from the issuer ignores the plain language of the statute
which proscribes undisclosed consideration received "directly or indirectly"
for describing a security consideration Terry received was not exempted from
the disclosure obligation because it was processed through SGA. Nor can
absence of a written agreement between Terry and the issuer be dispositive.
To accept such an argument would render section 17(b)
24
<PAGE>
completely ineffective because' any person could avoid its requirements with the
most transparent evasions.
Terry's final statutory argument is that, even if this Court finds that
he violated the letter of section 17(b), the SEC must prove that he acted with
scienter. While there is no controlling authority explicitly holding that
scienter is or is not a required element of a section 17(b) violation, the
language and relevant case law strongly suggest that scienter is not required.
By its clear language, section 17(b) proscribes a certain type of conduct
undisclosed touting of securities. If Terry published his articles and disclosed
his receipt of consideration he did not violate the statute; if he published and
did not disclose his receipt of consideration, section 17(b) prohibits that
conduct whether he intended to disclose or not.
This appears to be the understanding which guided this Circuit's Court of
Appeals in Wall Street Publishing, 851 F.2d at 375-76. The Wall Street
Publishing Court treated a financial magazine's failure to disclose
consideration in exchange for publication as a per the violation of section 17
(b) ; scienter was not a necessary element of the violation, nor did the Circuit
Court consider it necessary to its analysis Id.; see also, SEC v. Wall Street
Publishing Inst., Inc., 664 F. Supp. 554, 556 (D.D.C. 1986) (finding per se
violation of section 17(b) without any discussion of scienter).
At least two earlier cases from the Southern District of New York
reached the same conclusion that scienter should be restricted
25
<PAGE>
to causes of action under SAss.17 (a) and SEA 10 (b) . Weber v. CMP Corp., , 242
F. Supp. 321, 324 (S.D.N.Y. 1965) Thele v. Shields,, 121 F. Supp. 416, 419
(S.D.N.Y. 1955). Thus, the SEC need only prove that Terry violated the conduct
proscribed in section 17 (b) , which it has done by means of Terry's own
admissions. Moreover, this Court has already held that Terry did act with
scienter. The Court holds that Terry did not disclose the consideration he
received in exchange for promoting stock and therefore, violated section 17(b).
Terry argues next that, as applied to him, the statute violates his
rights to freedom of expression under the First Amendment and to due process of
law under the Fifth Amendment. As a preliminary matter, the Court recognizes
that speech relating to the purchase and sales of securities "forms a distinct
category of communications in which the government's power to regulate is at
least as broad as with respect to the general rubric of commercial speech," Wall
Street Publishing, 851 F.2d at 373 and is therefore subject to rational basis
scrutiny. ELL; see also Dun_& Bradstreet. Ina. v. Greenmoss Builders, 472 U.S.
749, 758 (plurality opinion) (exchange of information relating to securities is
an area of permissible regulation).19
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19 Citing Reno v. ACLU,_ U.S. _, 117 S. Ct. 2329 (1997), Terry suggests
that strict scrutiny should apply because the Whisper Newsletter was distributed
on the Internet. However, strict scrutiny was triggered in Reno v. ACLU because
the Communications Act of 1934, 47 U.S.C.ss. 223 (ad) , was a regulation of the
content of communication premised on standards of obscenity, not because the
content was found on the Internet. Surely, Terry does not mean to suggest that
otherwise proscribable behavior is not saved from proscription simply because it
takes place on the
26
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In employing rational basis scrutiny, the Court need only find a
rational relationship between a substantial government interest and the behavior
proscribed by section 17(b). The government a substantial interest in the
investing public "knowing whether an apparently objective statement is motivated
, by the promise of payment." United States v. Amick, 439 F.2d 351, 365 (7th Cir
1971) cert. denied, 403 U.S 918, 403 U.S. 932, and 404 U.S 823 (1971) (upholding
section 17(b) against a challenge to the existence of disclosure requirement).
Terry argues that, as applied to him, section 17(b) violates his right
to free expression in several ways. Terry contends that section 17(b) is
unconstitutional because it gives the SEC right to censor communications he
makes as a journalist. Terry also argues that the disclosure requirement forces
affirmative communication or disclosure, thereby changing the inherent meaning
that he would otherwise intend to communicate. In these ways Terry argues that
the statute discriminates against the content and the viewpoint of his writing
Regulations which turn solely on whether consideration was paid for
publication of an article, and not the content of the article, are
constitutionally permissible. In Wall Street Publishing, a case with facts very
similar to those presented here our Court of Appeals held that it was
constitutionally permissible for the SEC to require a publisher to disclose that
it received
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Internet. Moreover, the Whisper Newsletter was distributed by facsimile, as
well as the Internet
27
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compensation for articles which otherwise would appear as mere text. 851 F.2d at
375. The Court noted that section 17(b) was "particularly designed to meet the
evils of the 'tipster sheet' as well as articles in newspapers or periodicals
that purport to give an unbiased opinion but which opinions in reality are
bought and paid for." Id, at 376 (citing H.R. Rep. No. 85, 73rd Cong., 1st Sess.
24 (1933)) The SEC "does not seek to control the content of Terry's speech, only
to require him to disclose his compensation." (Pl. Opp'n to Defs. Mot. For Summ.
Judg. at 2 [hereinafter Pl. Opp'n]) The only issue is whether Terry disclosed
the payment he received for promoting the stocks. The SEC is not telling him
what stocks to tout, what advice to give or what viewpoint to express in the
Newsletter.
Terry next argues that section 17(b) violates due process of laws under the
Fifth Amendment because it is vague and overbroad. Terry suggests that the
statuteis vague because a person "of common intelligence must necessarily guess
at its meaning and differ as to its application." Connally v. General Constr.
Co., 269 U.S. 385, 391 (1926). As proof Terry argues that the disclaimer
appearing in the Whisper Newsletter, discussed extensively supra, was a
reasonable interpretation of the requirements of section 17(b) even if it did
not "fully disclose" that he was paid to tout stock. But, applying the Connally
standard of "common intelligence", id., it is the Whisper
28
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Amendment. Nor does he have a response to the fact that section 17 (b) has been
considered valid law for 65 years. Most fatally, as applied to Terry's conduct
in the present case, it is clear that the statute accomplishes the quite
constitutional purpose for which it was "particularly designed to meet the evils
of the 'tipster sheet' as well as articles in newspapers or periodicals that
purport to give an unbiased opinion but which opinions in reality are bought and
paid for." Wall Street Publishing, 851 F.2d at 376 citation omitted)
C. Remedies for Terry's Fraudulent Conduct
Upon a finding of violation of the securities laws, the Court may
permanently enjoin the defendants from further violations. SEC v. Savoy
Industries, 587 F.2d 1149, 1168 (D.C. Cir. 1978), cert. denied, , 440 U.S 913
(1979) Under the Savoy Industries test, the Court considers whether Terry's
violation was 1 isolated or part of a pattern, (2) flagrant and deliberate or
merely technical --'-n nature, and 3) whether the defendant's business will
present opportunities to violate the law in the future. SEC v. First City Fin.
Corp., 890 F.2d 1215, 1228 (D.C Cir 1989). The determination should focus on the
propensity for future violations based on the totality of the circumstances. Id.
First, the SEC has shown in the evidence before the Court that Terry's
conduct was not isolated, but part of a pattern of behavior which continued for
a period of over two years, and finally terminated only when this Court issued a
temporary injunction Second, the nature of the fraud was not merely technical:
(1) Terry
30
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acted with scienter, deliberately misleading subscribers of the Whisper
Newsletter through the practices of touting and scalping; (2) he purposefully
established Dunbar Holdings a shell corporation, and utilized a brokerage
account in Canada to secretly conduct the trading activities related to his
scalping; and (3) he has never acknowledged any misconduct. Third, the SEC
points out that Terry's youth, his significant work and education experience
related to stock promotion, and the maintenance and control Dunbar Holdings, all
support a finding that there is a strong likelihood of future opportunities to
violate the securities laws. For example, his current occupation of preparing
web pages for a fee is substantially similar to the activity that he engaged in
at SGA.
For the foregoing reasons, the Court deems it appropriate to grant the
SEC's request for a permanent injunction against both Shannon Terry and Dunbar
Holdings, Ltd.
In the further exercise of its well established equitable power, see, e.g.
SEC v. First City Fin. Corp., 890 F.2d at 1230, the Court will also order that
Shannon Terry and Dunbar Holdings disgorge the proceeds from Terry's illegal
activities. This order is designed "to deprive [Terry] of his unjust enrichment
and to deter others from violating the securities laws." Id. Defendants Terry
and Dunbar Holdings will disgorge profits of $828,448 realized from Terry's
unlawful touting and scalping of stock, commissions earned for selling
subscriptions to the-Whisper
31
<PAGE>
Newsletter in 1995 and 1996, plus 'prejudgment interest on amounts to be
computed from November 7, 1996.
IV. CLAIM AGAINST J.S. HOLDINGS
The SEC alleges that Defendant J.S. Holdings received a $255,000 wire
transfer from one of Huttoe's accounts Because the funds are allegedly proceeds
of Huttoe's fraud, Plaintiff requests that the Court impose a constructive trust
over the funds on behalf of defrauded investors, or in the alternative, to
freeze J.S. Holdings' assets. J.S. Holdings cross-motions for an order lifting
all existing injunctive relief.
To prevail on a motion for summary judgment, Plaintiff must establish
that there is no genuine issue of material fact with respect to each element of
its prima facie case. In order to establish a constructive trust, Plaintiff must
establish that (1) there is a wrongful act; (2) specific property acquired by
the wrongdoer must be traceable to the wrongful act; and 3) there is some reason
why the party holding the property should not, in good Conscience be permitted
to keep the property. Stewart - v. O'Malley, 1998 WL 29499, at *4 (D.D.C.
1998).21 Our Court of
- ---------------
21 Defendant J.S. Holdings cites Caballero v. Anselmo, 759 F. Supp. 144
(S.D.N.Y. 1991), for the proposition that the SEC must show "i) that there was a
fiduciary duty, ii) that the money was accepted with knowledge of a fraud or
iii) for less than fair value and iv) that a promise was given and that promise
was breached." Relief Defendant J.S. Holdings, Inc.'s Memorandum in Opposition
to Plaintiff's Motion for Summary Judgment or Injunction and In Support of
Defendant's Cross-Motion for Alternative- Relief (Defendant's opposition) p. 3.
(emphasis added).
Similarly, Defendant cites three cases, Schmid, Inc. v. Zucker's
Gifts, Inc., 766 F. Supp, 118 (S.D.N.Y. 1991), Lines v.
32
<PAGE>
Appeals has additionally emphasized that "in order to obtain a constructive
trust, a plaintiff must generally connect specific property held by the
fiduciary with the property misappropriated from the partnership." TMG II v.
United States, 1 F.3d 36, 40 (D.C. Cir. 1993).
J.S. Holdings does not contest the fact that Huttoe was engaged in a
wrongful act. Where, as here, a securities fraud violator transfers fraudulently
obtained proceeds to a third party, the federal courts are empowered to exercise
traditional equitable remedies to recover the proceeds, even if the third party
is not alleged to have violated the securities laws. See Deckert v. Independence
Shares Corp., 311 U.S. 282, 287-89 (1940)
The SEC, however, fails to meet its burden of showing that the specific
property held by J.S. Holdings is traceable to Huttoe's fraud. The SEC argues
that the reason it is unable to trace
- ------------------------
Bank of America Nat. Trust & Say, Ass'n, 743 F. Supp. 176 (S.D.N.Y. 1990), and
Hutton v. Klabal, 726 F. Supp. 67 (S.D.N.Y. 1989), for the proposition that
Plaintiff bears the burden of showing that "I) defendant: had notice that the
money in question was obtained through fraud, or 2) defendant did not give fair
value for the money, and 3) that a fiduciary relationship existed and was
breached, and 4) that a promise was made and breached." Defendant's Opposition
p. 9. (emphasis added).
Upon reading of these cases, it is apparent that none of them stand for
the propositions for which they are cited. In particular, none of the cited
cases place the burden of establishing non-bona fide purchaser status upon the
plaintiff, as J.S. Holdings asserts. In short, Defendant has seriously
misrepresented the holdings of these cases on an issue of substantial
significance. This is the kind of misrepresentation that warrants referral to
the disciplinary authorities and undermines confidence in the integrity of the
bar.
<PAGE>
specific funds is because of Jeffrey Szur's22 exercise of his Fifth Amendment
right not to testify regarding the transactions underlying the funds in
question. The SEC asks the Court to draw an adverse inference against J.S.
Holdings as a result of Szur's silence.
Plaintiff correctly asserts that "the Fifth Amendment does not forbid
adverse inferences against parties to civil actions when they refuse to testify
in response to probative evidence offered against them...." Baxter v.
Palmigiano, 425 U.S. 308, 318(1976). The Court is not, however, required to draw
an adverse inference based on an individual's exercise of his Fifth Amendment
right not to testify. It is in the Court's discretion whether to draw such an
adverse inference, and the Court declines to do so in this case. To do so where,
as here, the government seeks to compel testimony from an individual against
whom a collateral criminal action is pending would be to undermine the very
purpose of the Fifth Amendment and to penalize those who assert their rights
under that Amendment.
Even if this Court were to grant an adverse inference against J.S.
Holdings, summary judgment would still be inappropriate The Supreme Court, in
permitting a court to draw adverse inferences in civil cases, specifically
limited its holding to the facts of Baxter. Baxter involved a challenge to
prison administrative disciplinary hearing procedures. In deciding that there
was no
- -------------------
22 Principal of J.S. Holdings.
34
<PAGE>
constitutional error in drawing an adverse inference from the defendant's
exercise of his Fifth Amendment rights, the Supreme Court specifically noted
that there were no criminal proceedings pending against the defendant at the
time he exercised his Fifth Amendment right. The Court also emphasized that
under the Rhode Island prison discipline procedure, the defendant "is not in
consequence of his silence automatically found guilty of the infraction with
which he has been charged....[D]isciplinary decisions must be based on
substantial evidence manifested in the record of the disciplinary proceeding. It
is thus undisputed an inmate's silence in and of itself is insufficient to
support an adverse decision...." Id. at 317-18 (citations omitted). Because the
defendant's silence was merely one consideration among many other evidentiary
factors, the Supreme Court concluded that "this does not smack of an invalid
attempt by the State to compel testimony without granting immunity or to
penalize the exercise of the privilege." Id. at 318.23 Thus, it is clear from
both the factual context of Baxter and the Court's analysis that it does not
compel the drawing of an adverse inference in this case, where there are
criminal proceedings pending against Jeffrey Szur.
- --------------------
23 The Supreme Court further explained its holding in Baxter in Lefkowitz
v. Cunningham, 431 U.S. 801 (1977). There, the court wrote "Baxter did no more
than permit an inference to be drawn in a civil case from a party's refusal to
testify. Respondent's silence inBaxter was only one of a number of factors to he
considered by the finder of fact in assessing a penalty, and was given no more
probative value than the facts of the case warranted...." Id. at 808 n.5.
35
<PAGE>
The Seventh Circuit Court of Appeals addressed nearly the same issue in LaSalle
Bank Lake View v. Seguban, 54 F.3d 387 (7th Cir 1995). In LaSalle, the district
court entered summary judgment in a civil RICO case against defendants who
exercised their Fifth Amendment right not to testify. The Court of Appeals, in
reversing the lower court, wrote that 'even in a civil case a judgment imposing
liability cannot rest solely upon a privileged refusal to admit or deny at the
pleading stage. -(T1he entry of judgment based only on the invocation of the
privilege and 'without regard to the other evidence' exceeds constitutional
bounds. U at 391.
This Court declines to draw an adverse inference from Jeffrey Szur's
exercise of his Fifth Amendment right not to testify.24 Such an adverse
inference would not, in any case, support a grant of summary judgment without
additional evidence that J.S. Holdings, funds are traceable to Huttoe's wrongful
act. Because the SEC has failed to demonstrate that there are no genuine issues
of material fact with respect to its prima facie case, summary judgment against
J.S. Holdings is denied.25
J.S. Holdings has filed a cross motion to lift all existing injunctive
relief. Plaintiff requests, in the alternative, an extension of the preliminary
injunction freezing J.S. Holdings,
- -----------------
24 Because the Court declines to draw an adverse inference, it is not
necessary to address Plaintiff Is contention that a corporate entity may not
assert the Fifth Amendment rights of its principals
25 Because Plaintiff has not satisfied its burden of showing a prima facie
case, the Court need not reach the question of J.S. Holdings' status as a bona
fide purchaser
36
<PAGE>
assets. In order for this Court to extend the preliminary injunction, Plaintiff
must be able to demonstrate a substantial probability of success on the merits.
The Court is now unable to make such a finding for the reasons stated herein
Thus, there is no justification on the record as it now stands for extending the
preliminary injunction. Accordingly, J.S. Holdings' cross motion to lift current
injunctive relief is granted.
V. CONCLUSION
Defendant Terry is clearly liable for violating ss.ss. SA 17(a) and (b), SEA ss.
10(b) and Rule 10b-5 because (1) he failed to disclose to subscribers that he
was paid for touting stock, and (2) he failed to disclose that at the time he
was recommending that subscribers buy the stock, he was selling that same stock
at a higher value because of the recommendations he made. There are no material
facts in dispute regarding these issues. Consequently, the failure to make
adequate disclosure under the applicable case law entitles the SEC to summary
judgment as a matter of law As such, Plaintiff's Motion for Summary Judgment
with respect to Defendants Terry and Dunbar Holdings is granted. Plaintiff's
Motion for Summary Judgment with respect to Defendant J.S. Holdings
37
<PAGE>
Jeffrey P. Weiss
William McGovern
Attorneys for Plaintiff
U.S. Securities and Exchange Commission
Mail Stop 8-8
450 Fifth Street, N.W.
Washington, D.C. 20549-0808
(202) 942-4797 (Kidney)
(202) 942-9581 (Kidney Fax)
[email protected]
<PAGE>
TABLE OF CONTENTS
INTRODUCTION 2
SUMMARY OF ALLEGED FACTS 3
I. THE STANDARDS OF REVIEW 6
A. Rule 12(b)(6) 6
B. Rule 9(b) 6
II. THE COMPLAINT ALLEGES FRAUD WITH SUFFICIENT
PARTICULARITY 8
A. Specific Allegations in the Complaint 8
B. Veitia, Spratt and Skalko May be Held Liable for the
Acts of CRG, Stratcomm. and Gulf Atlantic 9
C. Defendants' Rule 9(b) Arguments Are Without Merit 12
1. The Defendants Are Not Impermissibly "Lumped" 12
2. The Complaint is Pled In Sufficient Detail 16
III. THE COMPLAINT PROPERLY STATES CAUSES OF ACTION UNDER
THE SECURITIES LAWS 18
A. The Elements of a Securities Fraud Claim 18
B. The Complaint Adequately Alleges Scalping by the CRG
Defendants 19
1 . Each Defendant Was a Primary Violator of the
Antifraud Laws 20
2. The Omissions and Misrepresentations Were Material 21
3. The Fraud Was "In Connection With' ' the Purchase
or Sale of Securities 22
4. The Complaint Clearly Alleges Willful Acts
Constituting Scienter 23
5. Whether the Purported Disclaimers in CRG Publications
Constituted Sufficient Disclosure Under Either the
Antifraud or Anti-Touting Provisions Are Questions of
Disputed Material Fact Not Appropriate for Resolution
At this Time 24
IV. ASSESSING THE REQUESTED RELIEF IS PREMATURE 28
CONCLUSION 29
<PAGE>
TABLE OF AUTHORITIES
Federal Cases
Anthony Distributors, Inc. v. Miller Brewing Co., 904 F.Supp. 1363
(M.D. Fla. 1995)............................................................7
Basic v. Levenson, 485 U.S. 224 (1988)....................................18,22
Beck v. Manufacturers Hanover Trust Co., 820 F.2d 46 (2nd Cir. 1987).........23
Bill Buck Chevrolet v. GTE Florida, Inc., 54 F.Supp.2d 1127 (M.D. Fla.
1999) ......................................................................7
Brooks v. Blue Cross Blue Shield, 116 F.3d 13 64 (11th Cir. 1997) .......15, 16
Bryant v. Avado Brands, Inc., 187 F.3d 1271 (11th Cir. 1999) ................23
Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 11 U.S.
164 (1994)............................................................20,21,28
Conley v. Gibson, 355 U.S. 41 (1957)..........................................6
Ernst & Ernst v. Hochfelder, 425 U.S. 18 5 (1976)............................18
Friedlander v. Nims, 755 F.2d 8 10 (11th Cir. 1985) ..........................7
Future Tech International, Inc. v. Tae Il Media, Ltd., 944 F.Supp.
1538 (S.D. Fla. 1996) .......................................................6
Harper v. Blockbuster Entertainment Corp., 139 F.3d 1385 (11th Cir. 1998)
cert. denied -U.S, -, 119 S. Ct. 509 (1998) .................................6
Herman & MacLean v. Huddleston, 459 U.S. 375 (1983) .........................23
Howry v. Nisus, Inc., 910 F.Supp. 576 (M.D. Fla. 1995) .......................6
In re Apple Computer Securities Litigation, 886 F. 2d 1109 (9th Cir. 1989)...22
In re Blech Securities Litigation, 961 F. Supp. 569 (S.D. N.Y. 1997) .....21,24
In re Checkers, 858 F.Supp. 1168 (M.D. Fla. 1994) ........................10,13
In re MDC Holdings Securities Litigation, 754 F. Supp. 785 (S.D. Cal. 1990)..10
In re Sahlen & Associates, Inc. Securities Litigation, 773 F. Supp. 342
(S.D. Fla. 199 1) ........................................................7,10
In re Southeast Banking Corp., 69 F.3d 1539 (11th Cir. 1995) .................6
In re U.S. Oil and Gas Litigation, 1988 WL 28544 (S.D. Fla. 1988) ............7
Kowal v. MCI Communications Corporation, 16 F. 3d 1271 (D.C. Cir. 1994) ......8
Merrill Lynch v. Del Valle, 528 F. Supp. 147 (S.D. Fla. 198 1)................7
Miller v. U.S. Dept. of Agric. Farm Servs Agency 143 F.3 d 1413
(11th Cir. 1998) ............................................................6
Metrahealth Insurance Company v. Anclote Psychiatric Hospital
Ltd., 1997 WL 728084, *3 (M.D. Fla. 1997)...................................14
Midwest Grinding v. Spitz, 976 F.2d 1016 (7th Cir. 1992).....................15
Ong v. Brown, Rudnick, Freed, Gesmer, P.A., 1994 WL 143075 (M.D. Fla. 1994)...7
Raber v. Osprey Alaska, Inc., 187 F.R.D. 675 (M.D. Fla. 1999) ................6
Rickman v. Precisionaire, Inc., 902 F.Supp. 232 (M.D. Fla. 1995) .............6
Scheuer v. Rhodes, 416 U.S. 232 (1974) .......................................6
Schultz v. Rhode Island Hosp. Trust Nat. Bank, 94 F.3d 721 (1st Cir. 1996) ..16
SEC v. Adler, 137 F.3d 1325 (11th Cir. 1998) ................................23
SEC v. Capital Gains Research Bureau, Inc., 374 U.S. 180 (1963) .............18
SEC v. Fischbach Corp., 133 F. 3d 170 (1997) ................................29
SEC v. Huttoe, Civ. Action 96-2543 (unpublished)(D.D.C.
Sept. 14, 1998) .......................................................18,21,27
SEC v. Manor Nursing Center, Inc., 458 F. 2d 1082 (2d Cir. 1972) ............29
<PAGE>
SEC v. Palmisano 135 F. 3d 860 (2nd Cir. 1998)...............................29
SEC v. Physicians Guardian Unit, 1999 WL 997317 (M.D. Fla. 1999)..............7
SEC v. Texas Gulf Sulphur Co., 401 F. 2d 833 (1968)..........................28
SEC v. U.S, Environmental, Inc., 897 F.Supp. 117 (S.D.N.Y. 1995)..........7, 17
Shields v. Citytrust Bancorp., Inc., 25 F.3d 1124 (2nd Cir. 1994)............24
Stem v. Leucadia National Corp., 844 F.2d 997 (2nd Cir.), cert. denied,
488 U.S. 852 (1988).........................................................23
Summer v. Land & Leisure, Inc., 571 F. Supp. 3 80 (S.D. Fla. 1983) ...........7
TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976)...............18,21
U.S. v. Eisenberg, 773 F. Supp. 662 (D.N.J. 1991) ...........................21
U.S. v. Funt, 896 F.2d 1288 (11th Cir. 1990) ................................14
U.S. v. Magellan Health Services, Inc., 1999 WL 10513 10 (M.D.
Fla. 1999) ..............................................................15,16
Vicinisch v. Paine, Webber, Jackson & Curtis, Inc., 739 F. 2d 1434
(9th Cir. 1984) ............................................................22
Woodward v. Metro Bank of Dallas, 522 F.2d 84 (5th Cir. 1975) ...............14
Wool v. Tandem Computers, Inc., 818 F.2d 1433 (9th Cir. 1987) ...............10
Zweig v. Hearst Corp., 594 F.2d 1261 (9th Cir. 1979) ............18,21
SEC Administrative Actions
In the Matter of Sky Scientific, Inc., et al.,1999 WL 114405, *29-*30 (SEC ALJ
Initial Decision, March 5, 1999).............................................27
Federal Statutes
15 U.S.C.ss.78j(b) ...........................................................4
15 U.S.C.ss.77q(b) ...........................................................4
15 U.S.C.ss.77e ..............................................................4
15 U.S. C.ss.77q(a) ..........................................................4
Federal Regulations
17 C.F.R.ss.240.10b-5.........................................................7
Other Authorities
Fed. R. Civ. Proc. 8(a) ......................................................6
Fed. R. Civ. Proc. 9(b) .....................................1,3,6,7,9,12,13,20
Fed. R. Civ. Proc. 12 (b)(6) .......................................1,3,6,19,24
Restatement of the Law Second, Agencyss.348..................................11
<PAGE>
UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
(Orlando Division)
- ------------------------------
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,
Plaintiff, C.A. No. 99-1222-CV-22-A
Hon. Anne C. Conway,
Judge
Hon. Karla R. Spaulding,
v. Magistrate Judge
CORPORATE RELATIONS GROUP, INC.,
ET AL.,
Defendants.
- --------------------------------
PLAINTIFF'S MEMORANDUM IN OPPOSITION TO MOTIONS TO DISMISS BY
DEFENDANTS CRG, STRATCOMM, GULF ATLANTIC, VEITIA, SPRATT, SKALKO
AND POW WOW
Plaintiff, the Securities and Exchange Commission ("Commission"),
submits this memorandum in opposition to motions to dismiss the Complaint
pursuant to Fed. R. Civ. P. 9(b) and Fed. R. Civ. P. 12(b)(6), filed by
defendants Corporate Relations Group, Inc. ("CRG'), Stratcomm Media Ltd.
("Stratcomm"), Gulf Atlantic Publishing, Inc. ("Gulf Atlantic"),
Roberto E. Veitia ("Veitia"), James W. Spratt III ('Spratt"), James A-Skalko
("Skalko") and Pow-Wow, Inc. ('Pow Wow"). Collectively, these are "the
CRG defendants."1
1
- --------
1 See the opening paragraphs of plaintiff's memorandum in opposition to the
motions to dismiss of Veitia, Stratcomm, CRG and Gulf Atlantic for a complete
breakdown of the issues addressed by the plaintiff in its three memoranda
opposing the defendants' six memoranda.
<PAGE>
INTRODUCTION
The Commission alleges that each individual and- corporate defendant
engineered a garden variety stock scalping scheme in which they unlawfully
realized millions of dollars over a two-year period. The defendants obtained
large blocks of discounted stock -- often unregistered -- directly from issuers
in exchange for agreements to tout the stocks to the public. Unregistered stock
was sold unlawfully in the United States with the knowing and active
participation of Jose Antonio Gomez Cortes and two offshore entities, Fondo de
Adquisiciones E Inversiones Internacionales XL, S.A., and C.A. Oportunidad,
S.A., hereinafter "the Gomez defendants." This stock, along with registered
securities received by CRG, the Gomez defendants and other non-moving
defendants, was then sold in contravention of CRG's recommendations to U.S.
investors. The defendants' failure to disclose this scheme in connection with
their purchase and sale of securities constitutes fraud. The Complaint describes
the use of this scheme by the defendants in connection with 14 different
issuers.1
The Complaint is the result of a painstaking three-year investigation
in which the Commission pieced together the tangled trading relationships among
the defendants, including those who have not filed motions to dismiss. This
investigation was conducted without the cooperation of any of the individual
movants. The individual CRG defendants Veitia, Spratt and Skalko -- each
asserted his right not to testify when subpoenaed by the Commission. Gomez, a
Costa Rican against whom an investigative subpoena by an administrative agency
is
2
- --------
2 Different allegations involving a fifteenth issuer, defendant
Stratcomm, are also in the Complaint.
<PAGE>
unenforceable, declined the Commission's request for an interview and to produce
documents on behalf of himself and Fondo and Oportunidad. None of the CRG or
Gomez defendants took advantage of the Commission's "Wells" procedure to present
statements in their defense when the Commission was determining whether to
authorize the Complaint.
Each of the CRG and Gomez defendants has moved to dismiss the Complaint on
grounds that the Commission has not alleged fraud with sufficient particularity
under Fed. R. Civ. P. 9(b) and that the Complaint does not state a claim under
Fed. R. Civ. P. 12(b)(6). As this Memorandum demonstrates, neither of these
arguments has merit. All of the motions should be denied in their entirety
forthwith so that discovery can commence.
SUMMARY OF ALLEGED FACTS
The allegations of the well-pleaded Complaint are that each of the CRG
defendants participated in a scheme to defraud and violated the registration
requirements of the federal securities laws and other provisions of those
statutes. They did so by enlisting poorly capitalized issuers of public
securities to use the CRG defendants to promote their stocks to the public.
(Complaint, P. P. 1, 27, 3 0).3 Because these client companies had little cash,
CRG and its codefendants were generally compensated with stock, which both the
CRG and the Gomez defendants sold while CRG was promoting the same stock to the
public. (P. P. 2, 27, 30, 32, 41).
Frequently, CRG's client companies did not even have enough freely
tradable registered stock with which to compensate CRG. In those instances, CRG
arranged for the company to sell stock to the Gomez defendants, purporting to
take advantage of Regulation S, an exemption to
- ------------
3 Hereinafter, paragraph symbols alone shall refer to paragraphs of the
Complaint.
<PAGE>
the usual registration requirements of the Securities Act available if certain
conditions are met, including that stock be sold to a non-U.S. investor. (P. P.
40-44). These transactions with the Gomez defendants did not comply with
Regulation S, either because CRG arranged for itself and other U.S. residents to
fund purchases by the Gomez defendants (P. P. 41), or because the CRG defendants
schemed with the Gomez defendants to time the sales of the Regulation S stock to
take advantage of CRG's touting of the stocks in CRG publications. (P. P. 42).
Both the CRG and the Gomez defendants violated Section 5 of the Securities Act
by selling stock which was not registered with the Commission and was not
subject to any valid exemption from registration.
Each of the CRG and Gomez defendants sold stocks of U.S. securities in
a coordinated fashion while those stocks were being promoted by the CRG
defendants to the public. (P. P. 27, 30- 35-37, 41-42, 55, 59-60, 66, 68-84,
87-88, 92-94, 97, 101-103, 108-121, 125-131, 134-137, 141-142, 145-148, 152-154,
157-160, 163-166, 169-171, 174-175, 178-18 1). The CRG and Gomez defendants'
failure to disclose the scalping scheme and, because it was part of the scheme,
the purchase or control by CRG of securities bought by the Gomez defendants, to
issuers or investors in connection with the purchase or sale of securities was
material, and constituted a violation of Section 17(a) of the Securities Act [15
U.S.C. ss. 77q(a)], Section 10(b) of the Exchange Act [15 U.S.C. ss. 78j(b)] and
Rule 10b-5 thereunder [17 C.F.R. ss. lOb-5]. (P. P. 62-63 85-86, 105-106,
122-123, 132-133, 138-139, 143-144, 149-150, 155-156, 161-162, 167-168, 172-173,
176-177, 182-183). The failure of the CRG defendants adequately to disclose that
they were being compensated for touting stock, and how much they were being
compensated, violated Section 17(b) [15 U.S.C. ss. 77q(b)] of the Securities
Act. The purchase or sale of unregistered securities by the CRG defendants
through the Gomez defendants violated Section 5 of the
4
<PAGE>
Securities Act [ 15 U. S. C.ss.77e] because the defendants sold stock
which was neither registered nor subject to a lawful exemption from
registration.
Although even a cursory review of the CRG publications appended to
Spratt's motion and quoted in the Complaint discloses that florid prose,
exaggeration, and unlimited optimism were hallmarks, of the CRG publications,4
it is important to note that the Complaint does not allege the contents of the
articles are false or fraudulent. Rather, the contents constitute touting, for
which compensation was inadequately disclosed as required by Section 17(b) of
the Securities Act. As important, the articles are incontrovertible evidence of
the "pumping" of the stock by the CRG defendants while they and the Gomez
defendants were selling the stock. Promoting stock to potential investors
without disclosing the promoter is at the same time selling the stock is
fraudulent, and is called "scalping." Thus, the repeated contentions by the
defendants that the Complaint fails to identify statements in the CRG
publications constituting fraud are beside the point. The fraudulent conduct in
this case reflected in the CRG publications largely is one of omission, not
affirmative misrepresentation. 5 Affirmative misrepresentations2 material to the
fraud and to buyers and sellers of securities occurred when the Gomez defendants
were represented as legitimate offshore purchasers under Regulation S to acquire
more stock for scalping purposes, but these misrepresentations occurred outside
the CRG publications.
5
- ---------------------
4 The small, undercapitalized companies which retained CRG often were
trumpeted in CRG publications as, for example, the next McDonald's or Microsoft.
(P. P. 60, 84, 103, 121, 131, 137, 142, 148, 154, 160, 166, 171, 175, 181).
5 However, as described at pp. 24 to 28 herein, language which the CRG
defendants claim to be exculpatory in CRG publications was in fact misleading.
<PAGE>
LEGAL ARGUMENT
I. THE STANDARDS OF REVIEW
A. Rule 12(b)(6)
A motion filed under Fed. R. Civ. Proc. 12(b)(6) challenges the legal
sufficiency of the allegations of the Complaint. "[A] complaint should not be
dismissed for failure to state a claim unless it appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim which would entitle
him to relief " Conley v. Gibson 355 U.S. 41 (1957); Harper v. Blockbuster
Entertainment Corp., 139 F.3d 1385 (11th Cir. 1998) cert. denied, U.S. , 119
S.Ct. 509 (1998). In deciding a motion to dismiss, the Court must accept the
plaintiff's factual allegations as true and construe the complaint in the light
most favorable to the plaintiff. Scheuer v. Rhodes 416 U.S. 232 (1974); Miller
v. U.S. Dept. of Agric. Farm Servs. Agency, 143 F.3d 1413 (11th Cir. 1998);
Howry v. Nisus, Inc., 910 F.Supp. 576 (M.D. Fla. 1995). The court may examine
only the four comers of the Complaint in deciding a motion to dismiss. Raber v.
Osprey Alaska, Inc., 187 F.R.D. 675 (M.D. Fla. 1999), citing Rickman v.
Precisionaire, Inc., 902 F.Supp. 232 (M.D. Fla. 1995). The test a complaint must
meet to survive a motion to dismiss is exceedingly low. In re Southeast Banking
Corp., 69 F.3d 1539, 1551 (11th Cir. 1995). Rule 12(b)(6) motions are viewed
with disfavor and rarely granted. Future Tech International, Inc. v. Tae 11
Media, Ltd., 944 F. Supp. 153 8 (S.D. Fla. 1996).
B. Rule 9(b)
Fed. R. Civ. Proc. 8(a) embodies the principle of notice pleading, which
requires only that a complaint include "a short and plain statement of the claim
showing that the pleader is entitled to relief " Fed. R. Civ. Proc. 9(b)
provides that "in all averments of fraud. the circumstances constituting fraud.
shall be stated with particularity." The two rules must be read together.
<PAGE>
"Rule 9(b) must not be read to abrogate Rule 8. [A] court considering a motion
to dismiss for failure to plead fraud with particularity should always be
careful to harmonize the directives of Rule 9(b) with the broader policy of
notice pleading." Friedlander v. Nims, 755 F.2d 810, 813 n. 3 (11th Cir. 1985).
Therefore, a complaint need allege fraud only with sufficient particularity to
permit "the person charged with fraud. [to] have a reasonable opportunity to
answer the complaint and adequate information to frame a response." In re U.S.
Oil and Gas Litigation, 1988 WL 28544 (S.D. Fla. 1988); SEC v. Physicians
Guardian Unit, 1999 WL 997317 (M.D. Fla. 1999). Judge Kovachevich of the Middle
District of Florida has stated that the "law in this jurisdiction is clear, the
particularity requirements of Fed. R. Civ. P. 9(b) are satisfied when the
plaintiff provides a reasonable delineation of the underlying acts and
transactions constituting fraud." Ong v. Brown, Rudnick, Freed, Gesmer, P.A.,
1994 WL 143075 (M.D. Fla. 1994), quoting In re Sahlen & Associates, Inc., 773
F.Supp. 342 (S.D. Fla. 1991). See also Merrill Lynch v. Del Valle, 528 F. Supp.
147 (S.D. Fla. 198 1) ("pleading of detailed evidentiary matter" is not
necessary to satisfy Rule 9(b)).
The degree of specificity required by Rule 9(b) will vary according to the
background of the parties and the information available to them at the time of
pleading. In re Sahlen & Associates, Inc. Securities Litigation, , 773 F. Supp.
342 (S.D. Fla. 199 1), quoting Summer v. Land & Leisure, Inc., 571 F. Supp. 3 80
(S.D. Fla. 1983). Less specificity is required when the alleged fraud occurred
over an extended period of time and involved numerous overt acts. Anthony
Distributors, Inc, v. Miller Brewing Co., 904 F.Supp. 1363 (M.D. Fla. 1995);
Bill Buck Chevrolet v. GTE Florida- Inc., 54 F.Supp.2d 1127 (M.D. Fla. 1999).
When, as here, the chief defendants decline to testify on constitutional
grounds, the leniency granted the plaintiff is even broader. Indeed, pleadings
on information and belief are permitted when "the necessary
7
<PAGE>
information lies within defendants' control." Kowal v. MCI Communications
Corporation, 16 F.3d 1271, 1279 (D.C. Cir. 1994).
II. THE COMPLAINT ALLEGES FRAUD WITH SUFFICIENT PARTICULARITY
A. Specific Allegations in the Complaint
The Complaint alleges that Veitia, Spratt and Skalko, as principal
managers at CRG (including Stratcomm and Gulf Atlantic), "designed, developed
and implemented a fraudulent scheme. by causing CRG's corporate clients to
distribute securities, to CRG and its nominees at deep discount to the
prevailing market price. CRG then promoted these securities to the public
through CRG publications and directly to brokers. CRG realized profits by
selling the securities while recommending that the public buy the stock." (P.
27). The Complaint also alleges that the fraudulent scheme was advanced when the
Gomez defendants allowed "CRG to direct trading and other transactions in Fondo
and Oportunidad brokerage and bank accounts and by acting at the direction of
CRG, Veitia and Spratt." (P. 37).
The Complaint also describes in detail the publications produced by CRG
to tout stocks (P. 28), the use of broker relations executives who were paid to
"develop" interest in a stock (P. 29), CRG's receipt of unregistered securities
from its clients as compensation for promotional services (P. 30), CRG's
practice of selling the stock it received from its clients while touting it to
the public at great profit (P. P. 31-32), and CRG's effort to bribe brokers to
push stocks on their clients (P. P. 35-36, 61). Of course, all of this occurred
in the absence of any meaningful disclosure to the investing public. (P. P. 28,
32, 39).
After describing the contours of the fraudulent scheme, the Complaint
proceeds to show precisely how it was implemented with respect to 14 different
issuers between 1994 and 1996. The components of the scheme are identical or
nearly identical with respect to each issuer: (1)
<PAGE>
CRG was compensated for touting stock; (2) CRG, sometimes with the help of Fondo
and Oportunidad, sold shares of stocks that were being touted, some of which was
neither registered with the Commission nor subject to a valid exemption; and (3)
CRG failed to disclose any of these practices the compensation received, the
scalping, or the use of the Gomez defendants -- in its publications.6
There can be no doubt that these allegations provide each defendant
with notice of what is alleged against him sufficient to prepare a response the
Rule 9(b) standard. The defendants cite no authority in which a complaint with
the degree of specificity alleged here has been dismissed on Rule 9(b) grounds.
Rather, they focus solely on those paragraphs in the Complaint which mention an
individual defendant by name, ignoring that Veitia, Spratt and Skalko are
alleged to have been primary participants in the activities of the corporate CRG
defendants and, therefore, direct participants in the scheme to defraud by CRG,
Stratcomm. and Gulf Atlantic.
B. Veitia, Spratt and Skalko May be Held Liable for the Acts of CRG,
Stratcomm and Gulf Atlantic
The individual defendants - each of whom asserted his Fifth Amendment privilege
not to testify when subpoenaed during the investigation of this matter - argue
that the Complaint fails to comply with Rule 9(b) because it does not, in their
view, sufficiently distinguish the role of each of them in the fraudulent
scheme. In fact, the Complaint frequently attributes to individual defendant's
actions taken in furtherance of the fraudulent scheme. These allegations, such
as soliciting new clients, entering into contracts, managing CRG's investment
accounts and bribing
- ----------------------
6 See Tracker P. P. 46-55, 62; Delta P. P. 65-85; Ammonia Hold P. P.
87-105; IMTECH P. P. 108-122; Foreland P. P. 125-132; Atlas Pacific P. P.
135-138; EC02 P. P. 140-143; Global Intellicom. P. P. 145-149; Global Spill P.
P. 152-155; Golf Ventures P. P. 157-161; Jreck Subs P. P. 163-167; Vector
Automotive P. P. 174-176; Viking Management P. P. 178-182.
9
<PAGE>
brokers, make clear that Veitia, Spratt and Skalko were primary actors at CRG
and can be held accountable for its fraud. See P. P. 13-14, 28, 33-37, 42, 65,
76, 88, 97, 104, 110, 19, 128, 13 140, 145, 159, 169, 174.
Even where allegations are made generally against corporate defendants CRG,
Stratcomm or Gulf Atlantic, individual defendants Veitia, Spratt and Skalko are
liable for those allegations. The Court may not dismiss the Complaint merely
because the Commission was not present at CRG during the fraud and cannot always
identify which individual defendant did which fraudulent act on a particular
day, which is the sort of detail the defendants demand. The law recognizes the
difficulty inherent in specifying individual conduct in corporate fraud cases. A
plaintiff may seek to hold corporate officers, directors and employees
accountable for acts attributed to the corporate entity. In In re Checkers, 858
F.Supp. 1168 (M.D. Fla. 1994), a case involving a group which published
documents similar to Money World, Judge Kovachevich adopted the following
language from In re Sahlen & Associates, Inc. Securities Lit., 773 F.Supp. 342,
362 (S.D. Fla. 1991):
No specific connection between the fraudulent representations and
particular defendants is necessary in cases of corporate fraud brought
against insiders and affiliates where the false information is
disseminated in group published documents. As long as the complaint
describes the fraudulent acts in detail and provides the defendants
with sufficient information to respond, a court may presume that these
acts have been committed by the officers and directors.
Other courts have similarly held that it is reasonable to presume that a
group of persons controlling the day-to-day operations of a corporation have the
ability to control the transactions giving rise to a securities violation and
thus should be held individually liable for the violation. Wool v. Tandem
Computers, Inc., 818 F.2d 1433 (9th Cir. 1987); In re MDC Holdings Securities
Litigation, , 754 F. Supp. 785 (S.D. Cal. 1990) (officers and directors of a
broker-dealer
10
<PAGE>
individually liable for misrepresentations in the firm's published research
reports). Moreover, it is black letter law that an agent who assists in a fraud
on behalf of a principal is individually liable. The Restatement of the Law
Second, Agency, ss. 348 states the rule:
An agent who fraudulently makes representations, uses duress, or
knowingly assists in the commission of a tortious fraud or duress by
his principal or by others is subject to liability in tort to the
injured person although the fraud or duress occurs in a transaction on
behalf of the principal.
Thus, Spratt, Skalko and Veitia cannot be absolved of liability by
arguing that they were working on behalf of CRG or Stratcomm. or that the
Commission is unable to allege with greater detail the specific actions taken by
each in violating the law under a corporate aegis.
The Complaint makes plain that the publication of Money World and the
other CRG magazines and newsletters used to tout stocks was a group effort.
Roberto Veitia was the named publisher and both Spratt and Skalko wrote articles
for the publications, bribed brokers, executed trades on behalf of themselves
and CRG, and otherwise were fully participant in the scheme to defraud. Since
they each had the ability to make management decisions and conduct CRG's
business affairs, they can each be held accountable for omissions in the
published documents and the resulting fraud. It is immaterial that the Complaint
does not describe this conduct in further detail. To hold otherwise, as these
defendants wish, would mean that no individuals could be defendants in a fraud
carried out under a corporate veil, since few plaintiffs would have been present
at the time of the fraud to detail which defendant undertook which fraudulent
act.
The defendants are merely attempting to shield their misconduct with a
corporate smoke screen. The wisdom which denies defendants this shield when
trying to dismiss a complaint is especially compelling when, as here, the
defendants chose not to describe their activities under oath when subpoenaed to
do so. To this day, the defendants have not informed the Commission of their
specific duties in CRG and its associated entities. But neither have they
<PAGE>
presented any evidence to the Court, in the form of sworn declarations or
testimony under oath, contesting that they each had a substantial role in the
fraudulent scheme. The Commission, on the other hand, has fairly described the
general responsibilities of each individual defendant, and identified them as
principal managers of the fraud. At this stage of the proceedings, the Court is
obliged to take the allegations of the Complaint, and inferences fairly to be
drawn from them, as true and deny the motions to dismiss.
C. Defendants' Rule 9(b) Arguments Are Without Merit
The defendants make essentially the same set of arguments that the Complaint
fails to plead fraud with sufficient particularity and they support these
arguments by cobbling together a seemingly random collection of cases from
various circuits. The defendants' principal arguments are that the Complaint
unfairly lumps them together without establishing that each defendant is a
primary violator" and that it fails to allege sufficient detail about dates and
times of fraudulent acts. These arguments have no merit.7
1. The Defendants Are Not Impermissibly "Lumped"
Each of the defendants argues that the Complaint improperly lumps them
together. Skalko adds the closely related argument that in lumping the
defendants the Complaint fails to establish that each is liable as a "primary
violator." Both arguments are wrong.
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7 Stratcomm also argues that it is not liable as a control person for CRG's
conduct. This issue is addressed in the plaintiffs companion memorandum opposing
the motions to dismiss filed by CRG, Stratcomm, Gulf Atlantic and Veitia.
12
<PAGE>
First, as described in Section II.B. above, Veitia, Spratt and Skalko
are liable as principal managers for the fraudulent actions of the corporate
defendants. Second, also as described above, since all three declined to testify
when subpoenaed to do so, and more specific information about their
responsibilities at CRG is in their control, the plaintiff is entitled to
additional latitude when the Court assesses the pleadings for particularity.
Third, the Complaint itself puts the lie to contentions that the plaintiff has
merely lumped all defendants together. The Gomez defendants, for example, are
alleged to have participated in the fraudulent scheme with respect to only eight
of the 14 issues in which the CRG defendants participated. (P. 200). Defendants
Ammonia Hold, Michael Parnell and Jack R. Rodriguez are alleged to have schemed
to defraud with respect to only one issuer each. (P. P. 207, 202).8
Rule 9(b) and the relevant case law require only that the Complaint contain
allegations about an individual's violative conduct in connection with the fraud
in order to establish primary violator liability. It does not require that an
individual commit every act in a scheme to defraud. Individuals may each Commit
separate acts of fraud that, when taken together, constitute a scheme to commit
fraud. In re Checkers Securities Litigation, , 858 F. Supp. 1168 (M.D. Fla.
1994) ("Any person or entity who employs a manipulative device or makes a
material misstatement or omission on which a purchaser or seller relies may be
liable as a primary violator. "). Silence or inaction may constitute substantial
assistance sufficient for primary
- -------------------------
8 The Complaint also is not faulty for grouping Stratcomm, CRG and Gulf
Atlantic. Stratcomm owns CRG and Gulf Atlantic, all three companies operated
from the same facilities and all three were operated by Veitia, Spratt and
Skalko, who declined to testify about the differences in operations, if any,
among the three companies. (1110-15). No meaningful gain resultsfrom detailing
with greater precision which of these companies committed a particular
fraudulent act on a particular day, even if that were possible, since there is
no meaningful distinction between the companies and none is asserted by the
defendants.
13
<PAGE>
liability if the party has a conscious intent to further the fraudulent
activity. Metrahealth Insurance Company v. Anclote Psychiatric Hospital Ltd.,
1997 WL 728084, at *3 (M.D. Fla. 1997), quoting Woodward v. Metro Bank of
Dallas, 522 F.2d 84, 96-97 (5th Cir. 1975). See also U.S. v. Funt, 896 F.2d 1288
(11th Cir. 1990) (personal involvement is not required after a defendant
involves himself in a fraudulent scheme-, he may be liable for the acts of his
co-schemers).
The Commission's Complaint pleads facts that establish that Veitia,
Spratt and Skalko each committed essential, violative acts sufficient to make
them principal violators under the securities laws. The acts they committed,
taken together, comprise a wide-ranging fraudulent scheme. For example, the
Complaint alleges that Spratt executed agreements to perform public relations
work with CRG's clients in exchange for stock (P. 178), scalped stock for
personal profit (P. 180), scalped stock for the benefit of CRG (P. P. 46, 182),
bribed brokers to push the stock of CRG's clients (P. 61), shorted Delta stock
while CRG was promoting it to lock in profits (P. P. 65, 66, 70-71, 78, 82-83),
wrote an article for Rumor Mill touting Delta stock without disclosing his or
CRG's financial interest (P. P. 84-85), shorted Ammonia Hold while CRG was
promoting it to lock in profits (P. P. 88, 92), received finders fees from CRG
for bringing in new clients to keep the scheme going (P. 94), and touted Ammonia
Hold in Money World without making proper disclosures (P. P. 103-105).
The Complaint alleges that Skalko executed agreements to perform public
relations work with CRG's clients in exchange for stock (P. 174), scalped stock
for personal profit (P. 180), scalped stock for the benefit of CRG (P. P. 46,
182), bribed brokers to push the stock of CRG's clients (P. 61), received
finders fees from CRG for bringing in new clients to keep the scheme going (P.
94), and touted Global Spill in Money World without disclosing his financial
interest (P. P.
14
<PAGE>
53-155).9 These allegations are sufficiently particular under Rule 9 even
without considering the fact that the trio of individual defendants declined to
shed light on their own roles by testifying.
Authorities relied upon by the CRG defendants involve complaints in
which boilerplate was substituted for pleading of facts. The complaint in Brooks
v. Blue Cross Blue Shield, 116 F.3d 1364 (11th Cir. 1997), alleged misconduct
"during the last 12 years, since 1983" and provided no details about the
individual defendants.10 The Eleventh Circuit merely held that a Complaint must
include allegations that are sufficiently detailed to "reasonably notify the
defendants of their purported role in the fraud." Brooks, 116 F.3d at 1382,
quoting Midwest Grinding v. Spitz, 976 F.2d 1016 (7th Cir. 1992). The
Commission's Complaint in the instant matter does precisely that. Veitia, Spratt
and Skalko are charged as principals of the CRG corporate defendants jointly and
severally liable for the fraudulent conduct undertaken in the names of those
companies. The fact that the Commission was unable to identify specific conduct
by the individual actors in some instances does not mean the defendants are not
liable for the overall conduct of the companies which they jointly directed.
Likewise, the complaint in United States v. Magellan Health Services, Inc.,
1999 WL 10513 10 (M.D. Fla. 1999), lacked any detail. It identified the
defendants only as "Norththrop employees" without identifying any individual or
claim involved in the fraud. The complaint was
- ------------------
9 For additional descriptions of Spratt's violative acts see, P. P. 4,
27-28, 3 5, 52-5 5, 5 8, 110, 113, 119, 125-131, 134, 136, 141, 143, 145, 153,
155, 161, 184, 187; for Skalko see, P. P. 4, 27-28, 36, 52-55, 58, 34, 136, 169,
184, 187.
10 The defendants fail to point out that the Brooks Court never reached the
Rule 9(b) issue. The case was dismissed on a summary judgment motion for reasons
unrelated to the defects of the Complaint.
15
<PAGE>
equally deficient with respect to identifying the time period of the fraud,
alleging that it took place "beginning on an unknown date prior to 1989 and
continuing to the date of this complaint." Magellan 1999 WL 1051310 at *16. 11
2. The Complaint Is Pled In Sufficient Detail
The defendants also argue that the Complaint includes conclusory
allegations rather than detailed allegations of the fraudulent acts. For
example, Veitia argues that "to satisfy Rule 9(b), [he] is entitled to be
informed of the time and place each statement was made which contained an
omission, what statements were made, the manner in which they were made and what
the defendants received from the alleged fraud." Veitia Mem. p. 23. CRG and Gulf
Atlantic echo this lament when they allege that the "times and content of the
representations are not alleged." CRG Mem. p. 4. 12
The Complaint provides sufficient detail about each defendant's role in
a stock scalping scheme to allow him to frame a response. The cover dates of the
various CRG publications in which issuers were "pumped" are identified. The time
frames in which stock was bought and sold are similarly described. Contentions
that the Commission must identify "the place, manner or
- -----------------
11 Veitia's reliance on Schultz v Rhode Island Hosp. Trust Nat. Bank, 94
F.3 d 721 (1" Cir. 1996),to support his "lumping" argument is equally misplaced
but requires even less analysis. The Court dismissed RICO claims against an
innocent escrow agent because the complaint failed to establish the agent was
connected in any way to the alleged fraud. The Commission's Complaint clearly
establishes such a connection in the case of each of the defendants.
12 Skalko asserts that the Complaint "fails to identify any person who
relied on the article in purchasing or selling a security. Indeed, the Complaint
does not identify even one reader of the article, much less any investors at all
who were misled by any of the publications..." Skalko Mem. p. 9. However, as is
described more fully at pp. 22 of the Plaintiffs Memorandum in Opposition to the
Gomez defendants' motion to dismiss, such reliance is not even an element of a
securities fraud claim brought by the Commission based on material omissions and
misrepresentations.
16
<PAGE>
recipient of the alleged misrepresentations" in greater detail and other claimed
flaws constitute nothing more than a demand for detailed evidence, something the
Federal Rules clearly do not require. There is no requirement, for example, that
the Complaint identify the date of each of hundreds (perhaps thousands) of
securities purchases and sales in 14 different securities in which the
defendants failed to disclose their fraudulent conduct. As noted at pp. 4-5, 8-9
and 21-22, herein, the alleged fraud is largely one of material omissions, not
affirmative misrepresentation, but specific language used by CRG to promote each
issuer is included in the Complaint. The defendants cannot claim they have
insufficient notice of what is alleged against them.
Defendants' citation to SEC v. U.S. Environmental. Inc., 897 F.Supp. 117
(S.D.N.Y. 1995), is yet another instance in which the defendants inadvertently
highlight the strength of the instant Complaint compared to those which have not
passed muster. No paragraph in the U.S. Environmental complaint alleged facts
relating the defendant to the claimed violation. Id. at 12 1, This is not a case
in which summary allegations have been made without also alleging facts to
support the allegation, as is thoroughly evident from the body of the Complaint,
which alleges numerous published statements in which the defendants failed to
disclose their fraudulent conduct.
In short, the defendants demand a level of precision in drafting that
was never anticipated by the Federal Rules of Civil Procedure. The defendants
have sufficient notice of what is alleged against them, and are themselves the
source of additional detail if they need it. The Complaint meets all relevant
pleading standards and the Court should deny defendants' wasteful efforts to
dismiss this case.
17
<PAGE>
III. THE COMPLAINT PROPERLY STATES CAUSES OF ACTION UNDER
THE SECURITIES LAWS
A. The Elements of a Securities Fraud Claim
Material misrepresentations and omissions in connection with the purchase or
sale of any security are unlawful under Section 10(b) of the Exchange Act and
Rule 10b-5 promulgated thereunder. An omission is "material" if there is a
substantial likelihood that a reasonable investor would consider an omitted fact
significant in making his or her decision to buy, sell or hold a security. Basic
v. Levenson, 485 U.S. 224, 232 (1988); TSC Industries, Inc. v. Northway, Inc.,
426 U.S. 438 (1976). Scienter, or a "mental state embracing intent to deceive,
manipulate, or defraud," is required. Ernst & Ernst v. Hochfelder, 425 U.S. 185
(1976).
The failure to disclose a practice of selling stock while touting the stock
to the public has long been held to operate as a fraud or deceit upon investors
as defined by Rule 10b-5. In SEC v. Capital Gains Research Bureau, Inc., 374
U.S. 180 (1963), the Supreme Court held that scalping," a practice whereby the
owner of shares of a security recommends that security for investment and then
immediately sells those shares, is a fraud on a client or prospective client of
an investment adviser. Similarly, in Zweig v. Hearst Corp., 594 F.2d 1261 (9th
Cir. 1979), the Ninth Circuit held that a financial columnist's failure to
reveal his practice of "scalping" the stocks of companies he wrote about was a
material nondisclosure creating liability under Rule 10b-5. See also SEC v.
Huttoe, Civ. Action 96-2543 (D. D.C. Sept. 14, 1998), Ex. 1, hereto (holding
that the employee of a newsletter violated Rule 10b-5 when he failed to disclose
that he sold stock in contravention of recommendations to the public in a
newsletter for which he wrote).
18
<PAGE>
Failure adequately to disclose compensation for promoting securities violates
Section 17(b) of the Securities Act. Touting becomes part of a fraudulent scheme
when accompanied by the tout's undisclosed selling of the securities he is
recommending to the public.
B. The Complaint Adequately Alleges Scalping by the CRG Defendants
The Complaint, in its detailed description of CRG's scalping scheme, alleges
facts sufficient to establish each of the elements of securities fraud with
respect to 14 different issuers. Defendants contend that (i) the Complaint fails
to allege facts sufficient to hold them as "primary" fraud defendants; (ii) that
it does not establish that any omission was "material"; (iii) that it fails to
allege facts sufficient to show the fraud was "in connection with" the purchase
or sale of securities; and (iv) that it fails to allege that the defendants
possessed the requisite "scienter." In the alternative, the defendants argue
that adequate disclosures were made to defeat a fraud claim based largely on
omissions of material information. 13
In asserting that the Complaint fails to set forth the elements of
securities fraud, the defendants misconstrue the law and ignore their exposure
as managers of the corporate defendants. Their alternative contention -that
their activities were adequately disclosed -proves how obtuse the defendants are
to their own wrongs and raises issues of disputed fact which are inappropriate
for resolution under Rule 12(b)(6).
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13 CRG, Gulf Atlantic and Stratcomm. also argue that the violations of
Regulation S fail to state a claim and, along with Veitia, that Section 17(b) is
unconstitutional. These arguments are addressed in the Commission's separate
memorandum in opposition to the motions by these defendants.
19
<PAGE>
1. Each Defendant Was a Primary Violator of the Antifraud Laws
The leading argument of each individual CRG defendant is that hell's not
alleged to have personally made an actionable misrepresentation or omission.
This argument shares the fallacies offered in the defendants' Rule 9(b) attack.-
Relying only on those paragraphs in which a defendant is specifically named, the
defendants assert that since only a part of the fraudulent conduct is ascribed
to them, they cannot be a primary defendant. As was fully described at section
II.B., herein, the Complaint alleges that each of the individual CRG defendants
had a significant managerial role at the CRG companies and the law permits a
plaintiff to ascribe generally the unlawful conduct of the corporate defendants
to such individuals.
This is not a case, as Spratt and Skalko would have the Court believe,
that alleges a conspiracy" among the defendants. Spratt argues that "the law in
the civil securities law arena does not provide for what is tantamount in
substance to thinly-veiled allegations of secondary liability based upon a
conspiracy theory," while Skalko asserts that the "SEC's reliance on such
allegations is but a transparent attempt to hold defendant Skalko liable on [a]
discredited conspiracy theory of liability." Spratt Mem. at 11-12; Skalko Mem.
at 13-14. Spratt and Skalko, in a classic demonstration of the rhetorical
technique of defeating the straw man, wrongly characterize the Commission's
Complaint in this fashion so that they can spend several paragraphs arguing the
irrelevant proposition that the securities laws do not entertain causes of
action based on conspiracy.
The Complaint alleges that each of the CRG defendants is a primary violator
of the securities laws and describes willful acts undertaken by them in
furtherance of the fraud. This is not a case of aiding and abetting a principal
wrongdoer, as was addressed in Central Bank of Denver, N.A. v. First Interstate
Bank of Denver, N.A., 511 U.S. 164, 177-78 (1994), cited by the
20
<PAGE>
defendants. Rather, the CRG defendants willfully violated the securities laws
directly by recruiting companies whose stock they then touted and sold, with and
through other defendants. The fact that Veitia, Spratt and Skalko acted "in
concert with and at the direction of" each other does not shield them from
liability as principal violators of the securities laws. In re Blech Securities
Litigation, 961 F Supp. 569, 581 (S.D.N.Y. 1997). As the Supreme Court
recognized in Central Bank, "secondary actors" in a securities fraud may be held
liable as primary violators if they employ a manipulative device or make a
material misstatement or omission on which a purchaser or seller of securities
relies. The court noted that "in any complex securities fraud, moreover there
are likely to be multiple violators..." Central Bank, 511 U.S. at 191. The
complaint states primary violations by each of the CRG defendants by both
alleging individualized conduct when known group conduct on behalf of the
corporate entities they managed.
2. The Omissions and Misrepresentations Were Material
CRG's practice of scalping stocks is clearly "material information" because
it is information that a reasonable investor would want to consider when
deciding whether to purchase or sell a stock. A reasonable investor would
presumably give greater credence to a recommendation to purchase stock made by a
disinterested party than a recommendation made by someone who is paid to promote
the stock at the same time he is selling it. Indeed, as described above, the
Courts have long held that such an omission is material. See Huttoe, Ex. 1,
hereto, po. 13; Zweig, 594 F.2d at 1266; U.S. v. Eisenberg, 773 F. Supp. 662
(D.N.J. 1991)("That the defendants were materially interested in the securities
at issue would certainly be viewed as material by the investing public because
such information would reflect on the credibility of the statements"). The
complaints repeated descriptions of the nature of CRG's scalping scheme, and the
failure to disclose the scheme, adequately establishes the materiality standard
<PAGE>
for Rule lOb-5 and Rule 12(b)(6) purposes. In any event, whether an omission is
material is normally a question of fact, not subject to a motion to dismiss. In
re Apple Computer Securities Litigation, 886 F. 2d 1109, 1113 (9th Cir. 1989),
citing Basic, Inc. v. Levinson 485 U.S. 224 (1988); Vicinisch v. Paine, Webber,
Jackson & Curtis, Inc., 739 F. 2d 1434, 1436 (9th Cir. 1984).
3. The Fraud Was "In Connection With" the Purchase or Sale of
Securities
CRG's omissions were made "in connection with" the purchase or sale of
securities because the CRG defendants for at least a two-year period (1) were
buying stock, directly and through the Gomez defendants, from issuers and on the
market; and (2) were selling stock in their own names and those of their
co-defendants, all without informing actual or potential buyers and sellers
either that they were selling stock while touting it or were using the Gomez
defendants to "wash" unregistered stock which they, in effect, owned or
controlled, to increase the amount of stock they could scalp.
Additionally, the Complaint alleges that CRG published Money World and
other publications that were designed "to showcase recommendations to investors
of securities that CRG was paid to promote." (P. 28). The plain meaning of the
phrase, the prevailing case law and common sense compel the conclusion that
publication of a monthly magazine that touts stocks to investors is done "in
connection with" the purchase of securities.
The Complaint contains specific allegations of buying and selling
securities with respect to each of the 14 issuers that establish the "in
connection with" element of Rule lOb-5. (P. P. 27, 30-33 35-37, 41-42, 55,
59-60, 66, 68-84, 87-88, 92-94, 97, 101-103, 108-121, 125-131, 134-137, 141-142,
145-148, 152-154, 157-160, 163-166, 169-171, 174-175, 178-181).
22
<PAGE>
4. The Complaint Clearly Alleges Willful Acts Constituting Scienter
The actions alleged in the Complaint -- recruiting customers, bribing
brokers, arranging for the Gomez defendants to purchase stock, buying and
selling stock, promoting stocks in CRG publications and disguising or minimizing
disclosure of compensation are willful acts that evidence the defendants'
extreme recklessness and conscious disregard of the securities laws. These facts
establish the requisite scienter for securities fraud. See Bryant v. Avado
Brands Inc., 187 F.3d 1271, 1286 (11th Cir. 1999) (a securities fraud plaintiff
must plead scienter with facts that give rise to a strong inference that the
defendant acted in a severely reckless fashion); Beck v. Manufacturers Hanover
Trust Co., 820 F.2d 46, 50 (2d Cir. 1987) (a plaintiff need only identify
circumstances that indicate conscious behavior by the defendants to satisfy the
pleading requirements of scienter).
Certainly, the allegations in the Complaint constitute circumstantial
evidence of scienter, and it is well settled that scienter may be inferred from
circumstances. "The proof of scienter required in [securities] fraud cases is
often a matter of inference from circumstantial evidence. Me have noted
elsewhere that circumstantial evidence can be more than sufficient." Herman &
MacLean v. Huddleston, 459 U.S. 375, 390-91 n. 30 (1983). See SEC v. Adler, 137
F.3d 1325, 1340 (11th Cir. 1998) (evidence of suspicious timing of
communications and trading may support an inference of bad faith and scienter).
Moreover, as noted, supra, Rule 9(b) does not require that scienter be pled with
particularity. Stem v. Leucadia National Corp., 844 F.2d 997, 1003-04 (2nd
Cir.), cert. denied, 488 U.S. 852 (1988) (knowledge and intent may be alleged
generally; great specificity not required in pleading scienter). "A strong
inference of scienter can be established by showing conscious misbehavior or
recklessness on the part of the defendant."
23
<PAGE>
In re Blech Securities Litigation, , 961 F. Supp. 569, 581 (S.D. N.Y. 1997),
citing Shields v. Citytrust Bancorp., Inc., 25 F.3d 1124 (2 d Cir. 1994) (sham
transactions "in concert with and under direction of' another defendant held to
sufficiently allege scienter' ,
Finally, the Complaint sufficiently establishes scienter by alleging
that the defendants engaged in the same willful, reckless conduct not just once,
but in connection with 14 different securities over a two year period. As such,
scienter is alleged 14-fold.
5. Whether the Purported Disclaimers in CRG Publications
Constituted Sufficient Disclosure Under Either The
Antifraud or Anti-Touting Provisions Are Questions of
Disputed Material Fact Not for Resolution at this Time
Defendants contend that CRG's publications contained language that informed
readers that CRG was paid to promote and scalp stock. They also purport to rely
on filings by CRG clients disclosing compensation to CRG as a shield against the
touting and antifraud violations. That is, the defendants contend that they (or
their clients) disclosed their fraud (or, at least, compensation for touting)
and, therefore, the defendants cannot be found liable under what are essentially
disclosure statutes. Where their arguments are not false on their face, they at
best raise issues of disputed material fact which are not appropriate for
resolution as either a Rule 12(b)(6) motion or, at least at this time, a Rule 56
motion for summary judgment.
In support of their argument the defendants attached 13 different
copies of Money World and Commission filings by seven of the fourteen issuers
whose stock was scalped by the defendants. The defendants argue that their
practice of labeling certain articles in Money World as a "Special Advertorial
Feature" in conjunction with their general disclosure at the end of certain
articles that CRG was "retained as investor relations counsel" adequately convey
that CRG was compensated for publishing recommendations contained in the issue.
Further they
<PAGE>
argue that the phrase "[o]fficers, directors and employees, may from time to
time have a position in the securities mentioned [in Money World]" contained in
some CRG publications adequately informs readers of their stock scalping
practice. At the least, they claim, disclosure of compensation to CRG by its
clients in Commission filings constitutes disclosure attributable to the
defendants.
The defendants' arguments fail on legal and factual grounds for many
reasons. Among them are:
1 The word "advertorial" is not commonly used and conveys no meaning to
the typical reader. If anything, the word, which apparently blends
"advertisement" and "editorial," tends to disguise rather than to illuminate the
commercial nature of the articles. Overall, the Money World publications are a
somewhat sophisticated deception in which use of editorial type, headlines and
graphics, repeated reference to the touted security in articles not labeled
"advertorials," including in the publisher's note, and even devotion of the
front cover of Money World to the subject of "advertorials," are intended to
minimize and hide what is, at most, niggardly disclosure that an article is, in
fact, paid advertising. The defendants' willful, refusal to simply label the
"articles" advertisements evidences deceptive intent. Certainly, use of the term
"advertorial' is not a talismanic shield against touting. At a minimum, whether
the use of the term, and the overall editorial context in which it is used,
constitutes meaningful disclosure of payment for antifraud purposes is a
material contested matter for determination by the finder of fact based on the
evidence and not a matter for dismissal on defendants' motion.
2. In any event, the term "advertorial' does not disclose compensation
in detail sufficient to pass muster under the anti-touting provision of Section
17(b) of the Securities Act, which requires not merely disclosure of the receipt
of compensation, but also the amount.
25
<PAGE>
3 Nor does the term "advertorial" in any fashion disclose that
the CRG defendants are selling securities they are touting as "advertorials"
and elsewhere in their publications (i.e., committing scalping fraud).
4. Many articles touting stocks named in the Complaint were not
identified as "advertorials.
5. CRG's "disclosure" that it was retained as "investor relations
counsel" for its client issuers is itself deceptive and is by no means a defense
to either scalping fraud or touting. It is extremely doubtful that the average
investor would believe that an "investor relations counsel" was being paid to
tout the company, or that he was being paid in company stock, or that he was
selling the stock while promoting it to his readers. In fact, the clear import
of an "investor relations counsel" urging a reader to acquire a stock is that
the "investor relations counsel" must think the stock is a good investment to
acquire, not one that should be dumped onto the market for immediate
profit-taking. Defendants only hurt their own cause by relying on this language.
6. For similar reasons, stating that CRG "may from time to time have a
position in the securities mentioned" discloses neither that CRG was compensated
in stock for its touting (rather than investing in a stock because it believes
it to be a sound investment) or that the stock is sold while it is being
recommended. Again, the opposite impression is created, also as part of the
somewhat sophisticated package CRG creates to hide its fraud. Presumably one who
has a position "in the securities mentioned" would have a long position, since
the CRG articles are so favorable. As the Complaint alleges, however, CRG
usually created a short position in the stock, locking in profits even before
obtaining the stock, which it then used to "cover." This is an extraordinarily
"bearish" tactic, not the kind of "position in the securities mentioned" one
would expect from an honest counselor recommending the stock. Without exception,
the Complaint
<PAGE>
alleges the defendants took bearish positions in their own accounts while
boisterously promoting bullish positions in the same securities for others. This
is nowhere hinted at in any of the copies of Money World submitted to the
Court.14
7 Many of CRG/Stratcomm/Gulf Atlantic's publications contain none of
the language on which the defendants rely. These, too, were used to pump stock
as part of the scalping scheme and in violation of the anti-touting provision of
Section 17(b) of the Securities Act.
Defendants' contention that filings by its clients with the Commission
disclosing payment of fees to CRG somehow shields the CRG defendants is perhaps
the most preposterous among many such arguments in the defendants' memoranda.
Section 17(b) puts the He to the argument by its terms:
it shall be unlawful for any person. . . to publish ... for a
consideration received or to be received directly or indirectly from an
issuer ... without fully disclosing the receipt, whether past or
prospective of such consideration and the amount thereof
Emphasis supplied. Clearly, the person who touts is the "any person" obliged to
disclose the compensation. It cannot be delegated to others. Nor would the
statute be rationally applied if the disclosure obligation could be satisfied in
a manner not reasonably calculated to reach the tout's audience. Disclosure of
material information must be effective to overcome fraudulent omissions.
- ---------------
14 The Court in Huttoe concluded that language such as "personnel... may
own shares" or "providing consulting advice" (ellipses in original) did not
adequately disclose that newsletter publishing defendants were compensated for
touting. Ex. 1, hereto, p. 14. See also In the Matter of Sky Scientific. Inc.,
et al., 1999 WL 114405, *29-*30 (SEC ALJ Initial Decision, March 5, 1999) (Fine
print disclaimer that "the publisher and its affiliates may have a position in
[the touted stock] or receive compensation for dissemination of information on
the company" held not to satisfy full disclosure requirement of Section 17(b)).
27
<PAGE>
SEC v. Texas Gulf Sulphur Co., 401 F. 2d 833, 854 (1968). There is no evidence,
and no rational reason to believe, that the readers of Money World and its
sister publications are also. perusing the SEC filings of CRG's advertisers.
Money World knows who its subscribers are and where it circulates. It is Money
World's obligation to make sure those same readers learn the touting is paid for
and how much is paid. The cases relied on by the defendants are totally
inapposite. This is not a "fraud on the market" case by an issuer. This is a
case in which specific fraud is alleged by virtue of material omissions from
specific publications used as a vehicle to scalp stock. The omissions cannot be
deemed "corrected" by others in separate publications not likely to reach the
reader of CRG publications.
Although no amount of disclosure by issuer-customers would excuse the
defendants from their obligations, the filings with the Commission proffered by
the defendants are proof of how issuers and investors were misled by the
defendants' fraud. For example, in October 1995, Delta reported to the
Commission that CRG held a large amount of Delta stock, without also disclosing
that CRG had a substantial short position it created by selling company stock
while promoting Delta, or that ownership attributed to Fondo should have been
attributed to CRG. Compare Spratt Ex. 27(a) and P. 65-66 of the Complaint.
Reliance on the filings of CRG's customers fails as a defense to both
fraud and touting as a matter of law and of fact. The filings are instead
evidence of fraud and violations of Section 5.
IV. ASSESSING THE REQUESTED RELIEF IS PREMATURE
CRG and Gulf Atlantic argue that the relief requested in the Complaint
is beyond the enumerated relief available in the Securities Act and the Exchange
Act. However, they acknowledge that such ancillary relief has been won in other
cases. They contend that Central Bank v. First Interstate Bank, 51 U.S. 164
(1994), which addressed aiding and abetting liability
28
<PAGE>
under the statutes, not relief, and involved only private parties, not the
Commission, requires a limitation on the equity powers of this Court. This
argument is purely fictional. Nothing in Central Bank purports to limit the
power of a court to use its equity powers to fairly correct a wrong, including
to require defendants to disgorge all profits from any unlawful activity. SEC v.
Manor Nursing Center, Inc., 458 F. 2d 1082 (2d Cir. 1972). Courts have ordered
such relief in many cases since Central Bank. See, e.g., SEC v. Fischbach Corp.,
133 F. 3d 170 (2d Cir. 1997) (disgorgement of fraudulently obtained profits is a
proper remedy in securities fraud cases); SEC v. Palmisano, 135 F. 3d 860 (2d
Cir. 1998) (disgorgement remedy is within the equity powers of the district
court).
In any event, it is premature to assess the appropriate remedy. Such
issues should await a finding of liability.
CONCLUSION
The Complaint far exceeds the particularity requirements of Rule 9(b)
and plainly states causes of action for the securities law violations alleged.
The motions to dismiss contending otherwise should be denied.
Respectfully submitted,
James A. kidney (Trial Counsel)
Jeffrey P. Weiss
William McGovern
Attorneys for Plaintiff
U.S. Securities and Exchange Commission
Mail Stop 8-8
450 Fifth Street, N.W.
Washington, D.C. 20549-0808
(202) 942-4797 (Kidney)
(202) 942-9581 (Kidney Fax)
Date: January 28, 2000 [email protected]
29
<PAGE>
UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
(Orlando Division)
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,
Plaintiff, C.A. No. 99-1222-CV-22-A
Hon. Anne C. Conway, Judge
V. Hon. Karla R. Spaulding,
Magistrate Judge
CORPORATE RELATIONS GROUP, INC., ET AL.,
Defendants.
PLAINTIFF'S MEMORANDUM IN OPPOSITION TO MOTIONS TO DISMISS BY
DEFENDANTS GOMEZ. FONDO AND OPORTUNIDAD
James A. Kidney (Trial Counsel)
Jeffrey P. Weiss
Attorneys for Plaintiff
U.S. Securities and Exchange Commission
Mail Stop 8-8
450 Fifth Street, N.W.
Washington, D.C. 20549-0808
(202) 942-4797 (Kidney)
(202) 942-9581 (Kidney Fax)
Date: January 28, 2000 [email protected]
<PAGE>
TABLE OF CONTENTS
I. PROCEDURAL HISTORY 2
II. FACTS ALLEGED IN THE COMPLAINT 3
A. Transactions in Tracker Securities 4
B. Transactions in Delta Securities 5
C. Transactions in Ammonia Hold Securities 6
D. Transactions in IMTECH Securities 7
E. Transactions in Foreland Securities 8
F. Global Intellicom, Jreck Subs and Sobik's Subs
Transactions 9
III. THIS COURT PLAINLY HAS PERSONAL JURISDICTION OVER GOMEZ 10
A. The Applicable Standards 10
B. Gomez' Conduct Requires the Exercise of This Court's
Jurisdiction 11
IV. THE COMPLAINT PROPERLY ALLEGES A SCHEME TO DEFRAUD
BY THE GOMEZ DEFENDANTS 15
A. The Applicable Legal Standards 15
1 . Rule 12(b)(6) 15
2. Rule 9(b) 16
B. The Complaint States a Cause of Action Against the
Gomez Defendants 17
C. The Complaint Alleges Facts Sufficient to Plead
Scienter 21
D. Market Impact Is Not Required Where Market
Manipulation Is Not Alleged 22
E. The Complaint Pleads Fraud With Particularity 23
F. Violations of Registration Statutes Are
Sufficiently Alleged 25
CONCLUSION 27
<PAGE>
TABLE OF AUTHORIMS
Federal Cases
Anthony Distributors, Inc. v. Miller Brewing Co., 904 F. Supp. 1363 (M.D.
Fla. 1995).................................................................17
Beck v. Manufacturers Hanover Trust Co., 820 F.2d 46 (2nd Cir. 1987).........21
Bill Buck Chevrolet v. GTE Florida, Inc., 54 F.Supp.2d 1127 (M.D. Fla.
1999)......................................................................17
Brooks v. Blue Cross and Blue Shield of Florida, Inc., 116 F. 3d 1364
(11th Cir. 1997)...........................................................24
Bryant v. Avado Brands, 187 F.3d 1271 (11th Cir. 1999).......................10
Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985)..........................10
Calder v. Jones, 465 U.S. 783 (1984).........................................13
Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A-,
511 U.S. 164 (1994).....................................................20,21
Chase & Sanborn Corp. v. Granfinanciera, S.A., 83 5 F.2d 1341 (11th Cir.
1988)......................................................................13
Conley v. Gibson, 355 U.S. 41 (1957)......................................15,18
Dietrich v. Bauer, 1999 WL 126438 (S.D.N.Y. 1999)............................26
Francosteel Corp. v. M/V Charm, 19 F.3d 624 (11th Cir. 1994).................10
Friedlander v. Nims, 755 F.2d 8 10 (11th Cir. 1985) .........................16
Future Tech International, Inc. v. Tae II Media, Ltd.,
944 F. Supp. 1538 (S.D. Fla. 1996) .......................................16,17
Harper v. Blockbuster Entertainment Corp., 139 F.3d 1385, 1387 (11th Cir.
1998) cert.denied, U. S.) 119 S.Ct. 509 (1998).............................15
Herman & MacLean v. Huddleston, 459 U.S. 375 (1983)..........................21
Howry v. Nisus, Inc., 9 10 F. Supp. 576 (M.D. Fla. 1995).....................16
In re Blech Securities Litigation, 928 F. Supp. 1279 (S.D.N.Y. 1996).........22
In re Blech Securities Litigation, 961 F. Supp. 569 (S.D.N.Y.
1997).............................................................20,21,22,24
In re First Merchants Acceptance Corp. Securities Litigation,
1998 WL 781118 (N.D. M. 1998)..................................... .........17
In re Sahlen & Associates, Inc. Securities Litigation, 773 F. Supp. 342
(S.D. Fla. 1991)...........................................................17
In re Southeast Banking Corp., 69 F.3d 1539 (11th Cir. 1995) ................16
In re U.S. Oil and Gas Litigation, 1988 WL 28544 (S.D. Fla. 1988) ...........16
In the Matter of Enforcement of an SEC Subpoena v. Knowles, 87 F.3d 413
(10th Cir. 1996)........................................................13,14
Kowal v. MCI Communications Corporation, 16 F. 3d 1271 (D.C. Cir. 1994) .....17
Merrill Lynch v. Del Valle, 528 F. Supp. 147 (S.D. Fla. 198 1) ..............17
Miller v. U.S. Dept. of Agric. Farm Svcs. Agency, 143 F3d 1413 (11th
Cir. 1998)................................................................16
Perez-Rubio v. Wyckoff 718 F. Supp. 217 (S.D.N.Y. 1989) .....................14
Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437 (1952)..............13
Pinter v. Dahl, 406 U.S. 622 (1988) .........................................18
Raber v. Osprey Alaska, Inc., 187 F.R.D. 675 (M.D. Fla. 1999) ...............16
Rickman v. Precisionaire, Inc., 902 F. Supp. 232 (M.D. Fla. 1995) ...........16
Scheuer v. Rhodes, 416 U.S. 232 (1974) ............................ .........16
Sculptchair, Inc. v. Century Arts, Ltd., 94 F.3d 623 (11th Cir.
1996) ...........................................................10,12,14,15
<PAGE>
Sears v. Liken, 912 F. 2d 889 (7th Cir. 1990) ...............................24
SEC v. Adler, 13 7 F.3 d 13 25 (11th Cir. 1998) .............................21
SEC v. Blavin, 760 F.2d 706 (6th Cir. 1985) .................................22
SEC v. Carrillo, 115 F.3d 1540 (11th Cir. 1997) ..............10,11,12,13,14,15
SEC v. Musella, 678 F. Supp. 1060 (S.D.N.Y. 1988)............................22
SEC v. Physicians Guardian Unit 1999 WL 997317 (M.D. Fla. 1999) .............16
SEC v. Rana Research, Inc., 8 F. 3 d 13 5 8 (9th Cir.. 1993) ................22
SEC v. Softpoint, Inc., 958 F. Supp. 846 (S.D.N.Y. 1997), aff'd,
159 F. 3d 1348 (2d Cir. 1998) .............................................25
Shields v. Citytrust Bancorp., Inc., 25 F.3d 1124 (2d Cir. 1994) ............22
Stem v. Leucadia National Corp., 844 F.2d 997 (2d Cir.), cert.
denied, 488 U.S. 852 (1988) ...............................................21
Summer v. Land & Leisure, Inc., 571 F. Supp. 380 (S.D. Fla. 1983) ...........17
United States v. Charnay, 537 F. 2d 341 (9th Cir.), cert. denied,
429 U.S. 1000 (1976) ......................................................22
United States v. Mulheren, 938 F. 2d 364 (2d Cir. 1991) .....................26
United States v. Naftalin, 441 U.S. 768 (1979) ..............................18
Regulatory Decisions
In the Matter of Candie's Inc., SEC Rel. No. 33-7263, 1996 WL 75741 .........26
Federal Statutes
Section 2(a)(3) of the Securities Act, 15 U.S.C. 77b(a)(3)...................18
Section 20 of the Securities Exchange Act, 15 U.S.C. 78t.....................23
Federal Regulations
17 C.F.R.ss.230.901 (Regulation S)...................................4,6,7,8,24
Other Authorities
Fed. R. Civ. Proc. 8(a) ..................................................16,19
Fed. R. Civ. Proc. 9(b) .......................................2,15,16,19,21,23
Fed. R. Civ. Proc. 12(b)(6) .........................................2,10,15,18
<PAGE>
UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
(Orlando Division)
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,
Plaintiff, C.A. No. 99-1222-CV-22-A
Hon. Anne C. Conway, Judge
V. Hon. Karla R. Spaulding,
Magistrate Judge
CORPORATE RELATIONS GROUP, INC., ET AL.,
Defendants.
PLAINTIFF'S MEMORANDUM IN OPPOSITION TO MOTIONS TO DISMISS BY
DEFENDANTS GOMEZ. FONDO AND OPORTUNIDAD
According to the well-pleaded Complaint, defendants Jose Antonio Gomez
Cortes ("Gomez"), Fondo de Adquisiciones E Inversiones Internacionales XL, S.A-
("Fondo") and C.A. Oportunidad, S.A. ("Oportunidad") (collectively, "the Gomez
defendants") were essential partners with other defendants in a scheme to
violate the registration and antifraud provisions of the federal securities
laws. In carrying out this scheme, the defendants unlawfully sold securities
which were required to be registered with the United States Securities and
Exchange Commission. The Gomez defendants bought and sold securities of United
States companies in the United States, reaped substantial profits from those
sales to United States investors, maintained bank and brokerage accounts in the
United States, and otherwise directed their activities toward the United States
and took advantage of the laws of the United States such that jurisdiction over
each of them by this Court unquestionably meets the minimum contacts
<PAGE>
requirements of the Due Process Clause of the Fifth Amendment and associated
principles of justice and fairness.
Further, the Complaint plainly describes unlawful conduct by the Gomez
defendants which puts them on fair notice of the allegations against them,
consistent with Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure.
The plaintiff, the United States Securities and Exchange Commission
("the Commission"), submits this memorandum of law to establish why this Court
has jurisdiction over Gomez and why the motions to dismiss the Complaint filed
by all of the Gomez defendants should be denied.1
I. PROCEDURAL HISTORY
The Complaint is the result of an extensive investigation by the
Commission which lasted over three years. The Commission staff was required to
track the tangled interplay among the defendants with little assistance from the
major individual schemers. All of the principals of defendants Stratcomm Media
Ltd. ("Stratcomm"), Corporate Relations Group, Inc. ('CRG') and Gulf Atlantic
Publishing, Inc. ("Gulf Atlantic") asserted their constitutional right not to
testify when they were subpoenaed during the investigation. Investigative
subpoenas are unenforceable in Costa Rica, but the Commission Solicited the
cooperation of Gomez, Fondo and Oportunidad by asking Gomez to submit to a
telephone interview and to produce documents. Gomez rejected the request. The
- --------------------
1 Gomez filed a memorandum to dismiss separately from Fondo and
Oportunidad, although once past his challenge to personal jurisdiction, the
arguments and even the sentences in the two memoranda are nearly identical. This
memorandum is in opposition to both of the memoranda of the Gomez defendants.
The Gomez defendants also purported to adopt any arguments of other defendants
moving to dismiss (Memoranda in Support of Motions, fn. 1 at p. 1). 'To the same
extent,the plaintiff incorporates herein its memoranda opposing the motions to
dismiss of other defendants. Plaintiff is filing a separate memorandum opposing
the motions to dismiss filed by CRG, Stratcomm, Gulf Atlantic, Veitia, Spratt,
Skalko and Pow Wow, and a third memorandum opposing the constitutional arguments
raised in a memorandum filed by Veitia and Stratcomm.
<PAGE>
Gomez defendants made no effort to assist the investigation and offered no
information. Nor did any of these CRG or Gomez defendants take advantage of the
Commission's "Wells" process by submitting explanations of their behavior for
consideration by the Commission when determining whether to authorize the
instant Complaint.
Not surprisingly, the failure of these defendants to provide the
Commission with any explanation of their roles in the unlawful conduct alleged
in the Complaint is never mentioned in 144 pages of memoranda filed in support
of their motions to dismiss. Yet, central to their contentions is a claim that
the Commission has not adequately identified the precise role of each schemer in
the fraud. Despite the defendants' refusal to testify, the Complaint plainly
identifies each defendant as having a significant role in the scheme to defraud
and puts him on fair notice for purposes of defending himself. The absence of
additional detail is entirely attributable to the defendants' refusal to come
forward and provide truthful sworn testimony about the business operations of
CRG, Stratcomm., Gulf Atlantic, Fondo and Oportunidad.2 II. FACTS ALLEGED IN THE
COMPLAINT
The Complaint describes a scheme to violate the registration and
antifraud provisions of the federal securities laws in which, for many
transactions, the Gomez defendants were indispensable. Gomez, who controlled
both Fondo and Oportunidad (Complaint, P. 4)3, worked with defendants who
controlled or were essential to the operations of defendants Stratcomm and
- ----------------
2 We pause only to note the irony of the defendants claiming they need more
detail while at the same time bemoaning the length of the Complaint -- a
complaint which encompasses fraudulent schemes involving at least 15 different
issuers. Had the defendants engaged in less fraudulent activity, the Complaint
would have been shorter.
3 Hereinafter, paragraph symbols alone shall refer to paragraphs of the
Complaint
3
<PAGE>
Gulf Atlantic defendants Roberto E. Veitia ("Veitia"), James W. Spratt III
("Spratt") and James A- Skalko ("Skalko") (collectively, "the CRG- defendants")
The scheme involved use of Fondo and Oportunidad to disguise CRG's control or
ownership of securities, many of which were issued pursuant to Regulation S on
the basis that they were owned and controlled by the Costa Rican defendants.
(E.g., P. 30, 33, 37, 41). The Gomez defendants, along with the CRG defendants,
realized substantial gains as CRG touted the stocks to investors while Gomez and
CRG were selling the same issues on the market.
A. Transactions in Tracker Securities
In September 1994, Veitia and Fondo (controlled by Gomez, P. 4)4
arranged for Fondo to appear to purchase 785,000 shares of stock in Tracker
Corporation of America ("Tracker") in a Regulation S transaction (which is
supposed to be restricted to offshore investors) at a substantial discount from
the market price. Part of the agreement was for Fondo to pay Tracker's $450,000
bill to CRG. (P. 47). Leonard Aronoff ("Aronoff'), who was both CRG's corporate
counsel and "attorney-in-fact" for Fondo and Oportunidad, opened U.S. and
Canadian bank and brokerage accounts for the Gomez defendants to use to trade
U.S. securities, beginning with the Tracker transactions. (P. 49). The
securities were deposited in Fondo brokerage accounts in Fannie's name. However,
Fondo paid nothing for the Tracker stock. Instead, the purchase was funded by
defendants Arnold Zousmer, Charles J. Lidman and three of their associates in a
manner arranged by CRG (P. 48), and by the proceeds of sales of the stock. (P.
53). Roughly 40 days later,
- -------------------
4 Paragraph 4 of the Complaint warrants some emphasis since Gomez failed to
mention it in his motion or memorandum for the proposition that Gomez controlled
Fondo and Oportunidad. Instead, the paragraph is mentioned once only for the
proposition that Fondo worked at CRG's direction. (Gomez Mem., p. 5).
4
<PAGE>
Aronoff caused 516,400 shares of the stock to be registered in CRG's name and
58,560 shares in the names of the five U.S. investors who funded Fannie's
seeming purchase. Some of CRG's shares were later deposited with Spratt and
Skalko. (P. P. 50-52). CRG, Spratt and Skalko realized profits of approximately
$1.8 million by selling unregistered stock in the United States (P. 55), profits
which could not have been realized without the active cooperation of Fondo and
Gomez in allowing Fondo to be used as a cover for ownership of Tracker stock by
U.S. defendants.
The Complaint also alleges that Fondo again "fronted" for CRG by
appearing to purchase Form S-8 Tracker stock, which is stock used to compensate
employees, among others. Tracker purported to sell Fondo 170,000 of these shares
for $1 per share, but 11 days later, CRG and its associates compensated Fondo
for the purchase. A few days later, Fondo sold the stock and delivered the
proceeds nearly $420,000 -- back to CRG and its associates. (P. P. 56-59).
Again, Fannie's willing participation was essential so that CRG could disguise
its ownership of Tracker stock in order eventually to take advantage of CRG's
promotional activities and sell the securities.
B. Transactions in Delta Securities
Fondo and Oportunidad shared in $2.5 million realized selling Delta
Petroleum Corp. ("Delta") securities. (P. 66). In September 1995, Delta issued
CRG 256,000 shares of Delta stock which was restricted, limiting resale to
certain specified conditions under Rule 144 of the Securities Act for two years.
Two months later, CRG "sold" 117,000 shares of the stock to Fondo, as an
offshore purchaser. The purpose of this transaction was to appear to convert the
Delta stock to Regulation S stock, which eliminated the more restrictive Rule
144 holding period. In a blatant example of the fraudulent nature of this
scheme, and in violation of the specific provisions of Regulation S, CRG and
Aronoff provided Delta with a $702,000 canceled check 5 from Fondo to CRG as
evidence the sale of stock to Fondo was lawful. However, on the same day Fondo
1
<PAGE>
wrote a check to CRG, CRG wrote a check to Fondo for the identical amount. In
other words, the purported Regulation S sale was a sham. (P. P. 67-69). This
sham transaction was essentially duplicated a few weeks later so that all of the
remaining Rule 144 stock sold to CRG by Delta could be converted to Regulation S
stock and sold in the market more quickly. In this instance, however, even the
formalities of stock ownership were not followed, as the stock was converted to
free-trading in CRG's name, not Fannie's without a peep of protest from Fondo.
(P. P. 75-76).
Oportunidad was used, as a front for CRG in early 1996 when, at CRG's
suggestion, Delta sold Oportunidad 115,000 shares of stock, purportedly under
Regulation S. This stock, too, was converted to CRG's use to cover short
positions in Delta which CRG took while promoting Delta in its publications.
Oportunidad collected over $703,000 from the sale of the stock, including a
profit of nearly $154,000. These proceeds were used to purchase $1.6 million of
Delta convertible stock, in which Fondo and Oportunidad realized profits of over
$800,000. (P. P. 177-83). One may fairly infer that the profits from these sales
likely were a payoff to the Gomez defendants for joining the CRG defendants in
violating the securities laws in the sale of Tracker, Delta and other
securities.
C. Transactions in Ammonia Hold Securities
CRG promoted Ammonia Hold from February 1996 through at least December
1996. During that time, CRG acquired and then sold over one million shares of
Ammonia Hold securities in a series of transactions utilizing Fondo and
Oportunidad to unlawfully avoid registration requirements of the securities
laws. CRG, Spratt, Skalko, Fondo and Oportunidad
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jointly realized profits of more than $4.7 million trading Ammonia Hold. (P. P.
87). CRG utilized Fondo in several unlawful Regulation S transactions to secure
more than 300,000 shares of purportedly free-trading stock as payment under the
marketing contract it signed with Ammonia Hold. (P. P. 88-90, 91-94). CRG also
used Fondo as a front to buy nearly 500,000 shares of stock at an 85 percent
discount to the market price, in purported reliance on Regulations D and S (P.
P. 95-99), and another 100,000 heavily discounted shares in purported reliance
on Regulation S. (P. P. 100-102). These complicated and unlawful schemes were
designed to provide defendants with freely tradable Ammonia Hold stock. Fondo,
CRG, Spratt and Skalko all realized substantial profits from the sale of such
stock, taking advantage of CRG's touting and the scalping scheme.
D. Transactions in IMTECH Securities
The role of the Gomez defendants in the scheme to violate the
securities laws in the sale of the stock of Information Management Technologies
Corp. ("IMTECH") was similar to their role in the Delta scheme: Appear to be the
purchaser of securities as offshore entities to meet the requirements of
Regulation S, and avoid Commission registration requirements, while CRG actually
paid for the stock.
On September 26, 1995, five days after retaining CRG as its public
relations agent, IMTECH agreed to sell Fondo a debenture convertible to IMTECH
stock at a substantial discount to the market price. Spratt began shorting
IMTECH stock in anticipation of covering the short with the cheap IMTECH stock
which Fondo would obtain by converting the debenture. CRG and defendant New
Concepts, both domestic entities, covered Fannie's costs of the debentures. (P.
P. 109-11). In December, Fondo exercised its right to convert the debenture to
stock pursuant to Regulation S, obtaining the stock at a 63 percent discount to
the market price.
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Spratt continued building the CRG/New Concepts short position. In mid-February,
IMTECH and Aronoff had the Regulation S restriction lifted from the stock and
nearly all of it was "sold" to Spratt to cover the short position in the CRG/New
Concepts account. CRG and New Concepts split approximately $430,000 in the
IMTECH transaction. (P. P. 112-15).
Virtually the same scheme was employed again beginning in December
1995, only the IMTECH stock was bought directly pursuant to Regulation S in the
name of Oportunidad, rather than through a debenture sold to Fondo. Again, CRG
and New Concepts covered the cost of acquisition of the stock. Again, the
restrictive legend was cancelled two months later and the stock used to cover a
short position created by Spratt on behalf of CRG and New Concepts. This time,
CRG and New Concepts split profits of over $446,000. (11116-20). Again, the
Gomez defendants were integral to CRG and New Concepts being able to sell short
IMTECH securities while promoting the company, confident they had the stock
(which should have been registered, but was not) in hand to cover the short when
it became prudent to do so.
E. Transactions in Foreland Securities
In April 1996, Foreland Corporation ("Foreland") retained CRG to
perform promotional activities, which it did from approximately June 1996
through at least December 1996. During the period in which CRG was promoting
Foreland, CRG, Fondo and Spratt realized a combined profit of over $1.5 million
selling Foreland securities. (1125).
Fondo acquired 650 convertible preferred shares with Regulation S
restrictions from Foreland, half of which it soon converted into 15 1,73 5
purportedly unrestricted shares, most of which Spratt used to cover an existing
short position in Foreland common stock and Skalko used to cover a short
position maintained by Pow Wow. After Foreland's registration statement was
8
2
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declared effective, Fondo converted its remaining 325 share of convertible
preferred stock into another 15 1,73 5 shares of common stock, most of which
Spratt used again to cover a short position. By acting as a front for the CRG
defendants, who therefore, had a ready supply of securities they controlled to
cover their short positions while promoting Foreland, Fondo realized a net
profit of approximately $585,000. (P. P. 127-130).
F. Global Intellicom. Jreck Subs and Sobik's Subs Transactions
The Gomez defendants, operating at the direction of the CRG defendants, also
purchased securities of Global Intellicom, Inc. ("Global Intellicom"), Jreck
Subs, Inc. ("Jreck") and Sobik's Subs, Inc. ("Sobik's") in order to provide the
defendants more profits from CRG's scalping scheme than CRG realized in its own
name. Thus, the defendants realized a net profit of over $500,000 from the sale
of Global Intellicom through Oportunidad and Fondo (P. 147), netted nearly
$740,000 selling Jreck stock through Fondo (P. 164), and Oportunidad realized
over $1.2 million in profits from selling 233,000 shares of free or steeply
discounted Sobik's stock which Oportunidad was provided by Skalko's investment
entity, defendant Pow Wow. (P. 170). In each of these instances, the stocks were
sold in the name of the Gomez defendants while the CRG defendants were promoting
the stocks in CRG publications. The highly coordinated nature of these
transactions, as well as the apparently free transfer of Sobik's stock to
Oportunidad, permit the inference that these activities were coordinated as part
of the overall scalping scheme to promote securities through CRG publications
while selling stock through New Concepts, CRG, Fondo and Oportunidad.
9
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III THIS COURT PLAINLY HAS PERSONAL JURISDICTION OVER GOMEZ
Only Gomez, among the Gomez defendants, asserts an absence of "minimum contacts"
with the forum - in this case, the United States to warrant jurisdiction over
him under the Fifth Amendment to the United States Constitution. The short
answer to this contention is that Gomez, through the Costa Rican corporate
defendants which he controlled, bought and sold securities of United States
companies on exchanges in the United States, maintained brokerage and bank
accounts in the United States, and reasonably expected to enjoy the protection
of U.S. laws in these securities and banking transactions. These "contacts" are
more than ample to sustain the jurisdiction of this Court. "Traditional notions
of fair play and substantial justice" would be offended by not requiring Gomez
to stand before the bar of this Court to defend himself against allegations that
this very conduct undermined the securities laws of this country.
A. The Applicable Standards
The applicable standards in establishing whether the court has jurisdiction over
a defendant consistent with Due Process are whether (a) the nonresident has
"purposefully directed" his activities so as to establish minimum contacts with
the forum; (b) whether the litigation arises from those activities; and (c)
whether the exercise of jurisdiction would offend "traditional notions of fair
play and substantial justice." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472
(1985); SEC v. Carrillo, 115 F.3d 1540, 1542 (11th Cir. 1997); Sculptchair. Inc.
v Century Arts, Ltd., 94F.3d623, 63 (11th Cir.1996). In essence, the inquiry is
whether the defendant's contacts with the forum are such that he "should
reasonably anticipate being haled into court there. ' Sculptchair , 94 F.3d at
63 1, citing Francosteel Corp. v. M/V Charm, 19 F.3d
10
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624, 627 (11th Cir. 1994). In addressing these issues, the court "must
construe all reasonable inferences in favor of the plaintiff." Carrillo,
115 F.3d at 1542.
The applicable forum for minimum contacts purposes in a case brought
under the federal securities laws is the United States. Carrillo, 115 F.3d at
1544.
B. Gomez' Conduct Requires the Exercise of this Court's Jurisdiction
The allegations of the Complaint, and all reasonable inferences which may be
construed therefrom, plainly establish the jurisdiction of this Court over
Gomez.5 As described in Section II above, Gomez controlled Fondo and Oportunidad
which, in turn, opened and maintained bank and brokerage accounts in the United
States, acquired securities directly from U.S. corporations in the United
States, retained Aronoff as an agent in the United States, and enjoyed the
benefits of U.S. securities laws and U.S. exchanges by buying and selling
securities in the United States. Gomez, as the person alleged to have controlled
Fondo and Oportunidad, is subject to this Court's jurisdiction because he
directed these activities in the United States.6
Gomez intentionally caused these activities to be undertaken in the
United States. They could not have been undertaken elsewhere, since the
activities involved securities traded on U.S. exchanges. There is no question
that these activities "involved some purposeful availment of the privilege of
conducting activities within the forum, thereby invoking the benefits and
protections Of its laws." Sculptchair , 94 F.3d at 63 1. Nor can Gomez complain
that after enjoying the profits and privileges of buying and selling U.S.
securities on U.S. exchanges he could not reasonably anticipate being hated into
a U.S. court to answer charges based on that buying and selling. Id.
- ------------
5 None of the Gomez defendants has come forward with affidavits or other
evidence to contest Jurisdiction. The defendants' jurisdictional arguments are
based entirely on the adequacy of the Complaint. Affidavits and any other
extra-complaint evidence should have been offered by the defendants in their
moving papers, when the plaintiff could respond, and should be ignored if
offered as part of the defendants' reply.
6 Corporate insiders such as Gomez are liable for the unlawful activities
undertaken by the corporate entity. See Plaintiff's Mem. in Opposition to
Motions of CRG, Stratcomm, Gulf Atlantic, Veitia, Spratt, Skalko and Pow-Wow,
pp. 9-12, and incorporated herein by reference.
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Far fewer "minimum contacts" sustained jurisdiction against a Costa
Rican corporation and two of its officers who were charged with fraudulent sales
of unregistered securities of the Costa Rican company in the United States. SEC
v. Carrillo, 115 F.3 d 1540 (11th Cir. 1997). The only "contacts" alleged by the
Commission were that the defendants placed advertisements promoting the
securities in the in-flight magazines of two airlines that served the United
States (one of them a Costa Rican airline) and arranged for two favorable
articles about the securities to be written in the Costa Rican airline's
magazine. The District Court also found that the defendants mailed information,
including prospectuses and offering materials, to persons in the United States
who initially bought the defendant's securities in Costa Rica, and that payments
for later investments were deposited in accounts at the Miami branch of a Costa
Rican bank. At least one stock certificate was mailed to a U.S. investor.
Carrillo, 115 F. 3d at 1544. These relatively limited contacts were held
sufficient to establish jurisdiction because they were "related to, and gave
rise to, the causes of action for fraudulent offer and sale of unregistered
securities because they were the means by which the alleged offers and sales
were carried out." Id. at 1545.
Maintenance of U.S. bank and brokerage accounts employed in the allegedly
fraudulent transactions also were deemed "availment and invocation of the
benefits of the forum's laws." Carillo, 115 F.3d at 1546, citing Chase & Sanborn
Corp. v. Granfinanciera, S.A., 835 F.2d 1341,
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1345-47 & n. 10 (11th Cir. 198 8)7; Perkins v. Benguet Consolidated Mining
Co., 342 U.S. 437, 448 (1952) (maintaining bank accounts in the forum); In the
Matter of Enforcement of an SEC Subpoena v. Knowles, 87 F.3d 413, 419 (10th Cir.
1996).8
The conduct in Carrillo involved Costa Rican securities, with
apparently only sporadic and limited sale's in the United States. Gomez, by
contrast, ordered extensive buying and selling of multiple U.S. securities in
the United States, often purchased directly from U.S. companies, over a period
of at least two years. These transactions were on U.S. exchanges, executed
through U.S, brokers, and the proceeds were deposited in U.S. banks. In
addition, the Complaint alleges that the companies Gomez controlled enjoyed a
profitable, although unlawful, relationship with CRG a company whose principal
headquarters are in the Middle District of Florida. All of the unlawful acts
alleged in the Complaint arose directly from these multiple U.S. contacts.
The Eleventh Circuit also disposed of arguments by the individual
defendants in Carrillo that there was no jurisdiction over them. They, like
Gomez, argued that "mere employees" are not subject to suit merely because
jurisdiction lies against the corporation that employs them citing, as does
Gomez, Calder v. Jones, 465 U.S. 783 (1984). Also, as in Carrillo, Gomez's
argument "overlooks the clear import of the Supreme Court's decision.. "
Carrillo, 115 F.3d at 1547. In Carrillo, as here, "construing all reasonable
inferences in favor of the SEC," reveals that Gomez "effectively controlled the
operations of the corporation." Id. To paraphrase Calder, 465
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7 "[Defendants] conducted numerous international business transactions
utilizing their bank accounts in Miami, New York, Chicago and San Francisco. . .
Sufficient contacts exist in this case with the entire United States and with
the forum state."
8 "Those contacts admitted by Knowles involve an ongoing business
relationship and a brokerage account. They are sufficient to support the
exercise of specific personal jurisdiction because the underlying SEC
investigation concerns these admitted contacts."
13
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U.S. at 790, in this case, Gomez is a primary participant in an alleged
wrongdoing directed at U.S. residents, and jurisdiction over him is proper on
that basis. As in Knowles, the contacts by Gomez with the United States,
individually and as he directed the activities of his companies, "involve
activities that are the very source of the SEC's interest in the two
corporations." Personal jurisdiction over Gomez "would extend at least as far as
matters relating to the activities of the two corporations in the forum in which
he was a primary participant." 87 F.3d at 418. See also Perez-Rubio v. Wyckoff,
718 F. Supp. 217, 230 (S.D. N.Y. 1989) (Because off-shore individuals knew their
conduct in connection with company operations would have effects in the United
States, personal jurisdiction was proper).
There is no case for the proposition that exercise of jurisdiction over
Gomez would offend traditional notions of fair play and substantial justice.
Gomez injected his companies into the stream of securities trading in the United
States. He was a central player in a major fraud involving millions of dollars,
many of which went to Gomez through the companies he controlled. "Modem methods
of transportation and communication" have substantially ameliorated the burden
on Gomez to litigate in the United States, Carrillo, 115 F.3d at 1547, quoting
Sculptchair , 94 F.3d at 632. The Eleventh Circuit also has recognized the
forum's "obvious interest in stamping out the type of nefarious economic
chicanery alleged." Carrillo, 115 F.3d at 1547 quoting Sculptchair , 94 F.3d at
632. Additionally, the Commission has a strong interest in litigating this case
in this forum because it has no other means of obtaining relief against Gomez.
Carrillo, 115 F. 3d at 1547.
Gomez' claim that jurisdiction over him is unconstitutional is based on
an obvious fallacy. He relies for his proposition solely on the paragraphs of
the Complaint which specifically mention
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Gomez by name, and ignores both the many other paragraphs that identify
activities by Fondo and Oportunidad and paragraph four, which plainly alleges
that Gomez controlled both Fondo and Oportunidad. Neither Fondo nor Oportunidad
contests this Court's jurisdiction, and Gomez has not offered any evidence, in
the form of affidavits, for example, to overcome the allegations of paragraph
four in the Complaint that he controlled Fondo and Oportunidad.9
Under the authorities of this Circuit, this Court plainly has
jurisdiction over Gomez.
IV THE COMPLAINT PROPERLY ALLEGES A SCHEME TO DEFRAUD
BY THE GOMEZ DEFENDANTS
The Gomez defendants move to dismiss the Complaint pursuant to Rules
12(b)(6) (failure to state a claim) and 9(b) (failure to plead fraud with
particularity). Neither argument is meritorious.
A. The Applicable Legal Standards
1. Rule 12(b)(6)
A motion filed under Fed. R. Civ. Proc. 12(b)(6) challenges the legal
sufficiency of the allegations of the complaint. "[A] complaint should not be
dismissed for failure to state a claim unless it appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim which would entitle
him to relief " Conley v. Gibson 355 U.S. 41 (1957); Harper v. Blockbuster
Entertainment Corp., 139 F.3d 1385, 1387 (11th Cir. 1998) cert. denied, _U.S. _,
119 S.Ct. 509 (1998). In deciding a motion to dismiss, the Court must accept the
plaintiffs factual
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9 Gomez' contention at p. 5 of his memorandum that "the SEC does not claim
that Mr. Gomez directed, controlled, or knowingly participated in the alleged
fraudulent scheme" is dead wrong. The Complaint alleges that Gomez controlled
Fondo and Oportunidad and describes an active role by both companies. Although
Veitia masterminded the scheme, there is no law, and none cited by Gomez, for
the proposition that active accomplices are not liable for fraud merely because
they carry out a scheme devised by another. See pp. 17-20 herein.
15
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allegations as true and construe the complaint in the light most favorable to
the plaintiff. Scheuer v. Rhodes, 416 U.S. 232 (1974); Miller v. U.S. Dept. of
Agric. Farm Services Agency, 143 F.3d 1413, 1414 (11th Cir. 1998); Howry v.
Nisus, Inc., 910 F. Supp. 576 (M.D. Fla. 1995). The court may examine only the
four comers of the complaint in deciding a motion to dismiss. Raber v. Osprey
Alaska, Inc., 187 F.R.D. 675 (M.D. Fla. 1999), citing Rickman v. Precisionaire,
Inc., 902 F. Supp. 232 (M.D. Fla. 1995). The test a complaint must meet to
survive a motion to dismiss is exceedingly low. In re Southeast Banking Corp.,
69 F.3d 1539, 1551 (11th Cir. 1995). Rule 12(b)(6) motions are viewed with
disfavor and rarely granted. Future Tech International, Inc. v. Tae E Media,
Ltd., 944 F. Supp. 1538 (S.D. Fla. 1996).
2. Rule 9(b)
Fed. R. Civ. Proc. 8(a) embodies the principle of notice pleading, which
requires only that a complaint include "a short and plain statement of the claim
showing that the pleader is entitled to relief " Fed. R. Civ. Proc. 9(b)
provides that "in all averments of fraud ... the circumstances constituting
fraud. shall be stated with particularity." The two rules must be read together.
"Rule 9(b) must not be read to abrogate Rule 8. [A] court considering a motion
to dismiss for failure to plead fraud with particularity should always be
careful to harmonize the directives of Rule 9(b) with the broader policy of
notice pleading." Friedlander v. Nuns, 755 F.2d 810, 813 n. 3 (11th Cir. 1985).
Therefore, a complaint need allege fraud only with particularity sufficient to
permit "the person charged with fraud. [to] have a reasonable opportunity to
answer the complaint and adequate information to frame a response." In re U.S.
Oil and Gas Litigation 1988 WL 28544 (S.D. Fla. 1988); SEC v. Physicians
Guardian Unit, 1999 WL 997317 (M.D. Fla. 1999). The complaint must include "some
delineation of the underlying acts and transactions
16
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which are asserted to constitute fraud." Future Tech, 944 F. Supp. 1538 quoting
Merrill Lynch v. Del Valle, 528 F. Supp. 147 (S.D. Fla. 198 1), but "pleading of
detailed evidentiary matter" is not necessary. In re First Merchants Acceptance
Corp. Securities Litigation, 1998 WL 781118 (N.D. Ill. 1998).
The degree of specificity required by Rule 9(b) will vary according to the
background of the parties and the information available to them at the time of
pleading. In re Sahlen & Associates, Inc. Securities Litigation, , 773 F. Supp.
3 42 (S.D. Fla. 199 1), quoting Summer v. Land & Leisure, Inc., 571 F. Supp. 380
(S.D. Fla. 1983). Less specificity is required when the alleged fraud occurred
over an extended period of time and involved numerous overt acts. Anthony
Distributors, Inc. v. Miller Brewing Co., 904 F. Supp. 1363 (M.D. Fla. 1995);
Bill Buck Chevrolet v. GTE Florida, Inc., 54 F.Supp.2d 1127 (M.D. Fla. 1999).
When, as here, the chief defendants decline to testify on constitutional grounds
or, in the case of Gomez, decline to provide testimony or documents when they
are beyond the plaintiffs subpoena power, the leniency granted the plaintiff is
even broader. Indeed, pleadings on information and belief are permitted when
"the necessary information ties within defendants' control." Kowal v. MCI
Communications Corporation, 16 F. 3d 1271, 1279 (D.C. Cir. 1994).
B. The Complaint States a Cause of Action Against the Gomez Defendants
The Gomez defendants all argue that the Commission has failed to state
facts sufficient to allege that they engaged in a scheme to defraud in
connection with the purchase or sale of securities in violation of the antifraud
provisions of the securities laws. (Gomez Mem. p. 10;
17
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Fondo and Oportunidad Mem. p. 3).10 This proposition is based on the false and
unsupported contention that because the Commission called Fondo and Oportunidad
"nominees" of CRG, these defendants could not also be buyers or sellers of
securities. This false proposition then forms the basis of another: That since
neither Fondo nor Oportunidad (nor Gomez, because Gomez never recognizes he is
alleged to be in control of Fondo and Oportunidad) were buyers or sellers of
securities, neither could make a false statement or material omission in
connection with the purchase or sale of a security or otherwise be a primary
violator of the securities laws.
Of course, a review of the Complaint establishes that the Commission
has alleged that Fondo and Oportunidad, under Gomez's control, bought and sold
securities in their own names, albeit as part of the fraudulent scheme directed
by CRG. Fondo and Oportunidad are not alleged to be fictional or paper entities,
but real companies controlled by Gomez. There is no suggestion that Fondo and
Oportunidad failed to take title to the securities bought and sold in their
name, only that, as part of the scheme, they acted at the direction of Veitia,
Spratt, Skalko and CRG. The Supreme Court has long made clear in applying the
antifraud and registration provisions of the securities laws "that transactions
other than traditional sales of securities are within the scope" of the
definitions of buy, sell and offer in the securities laws. See, e.g., Section
2(a)(3) of the Securities Act [15 U.S.C. 77b(a)(3)]; Pinter v. Dahl, 406 U.S.
622, 643 (1988), citing United States v. Naftalin, 441 U.S. 768, 773 (1979). In
this case, Fondo and Oportunidad retained title to the securities in brokerage
accounts in their names until they were sold, a traditional, but not
indispensable, element of "purchase" and "sale." Id.
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10 Beginning at these pages, the Gomez and Fondo/Oportunidad memoranda make
identical arguments.
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As is most dramatically described in the cases of Delta and IMTECH but
replicated in other transactions, Fondo and Oportunidad permitted CRG and its
associated defendants to pay for and direct trading in stocks bought by the
Costa Rican companies, and coordinated their purchases and sales to maximize
mutual profit from the scalping scheme. Any fair reading of the Complaint, let
alone one affording all inferences in favor of the plaintiff, as is required,
makes plain that the scheme described is one in which Fondo, Oportunidad and, as
the defendant directly controlling them, Gomez, were active participants who
willfully bought and sold stock to forward the unlawful scheme. In the course of
making these purchases and sales of securities, Fondo and Oportunidad omitted to
disclose to sellers, including issuers, and to buyers their participation in the
fraudulent scheme. Among the omissions were that (a) Fondo and Oportunidad were
acting on behalf of CRG, a domestic U.S. company; (b) that, therefore, the
securities Fondo and Oportunidad purchased should not have been restricted under
Regulation S, but should have been registered with the Commission or not sold at
all; and (c) that these purchases and sales of unregistered (and registered)
securities were part of a coordinated effort in conjunction with CRG in which
securities were promoted to the public by CRG while the CRG and Gomez defendants
sold the promoted securities and shared the profits. The Gomez defendants also
affirmatively misrepresented to issuers that they were offshore purchasers of
securities entitled to the benefits of Regulation S when in fact CRG either paid
for the securities or coordinated the timing of their purchase and sale to
maximize profits on the scalping scheme.
Ail of the above is sufficiently described in the Complaint. The Gomez
defendants are alleged to have engaged in a fraudulent scheme with respect to
the offer, purchase and sale of eight specific securities (1200) and the
unlawful sale of unregistered securities of six issuers
19
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(P. 214). There is no impermissible "bunching" of the defendants as claimed in
the Gomez defendants' memorandum. Rather, appropriate distinctions are made
based on the facts alleged. Thus, the CRG defendants are alleged to be liable
for fraud in connection with the purchase or sale of 14 securities (P. 199), but
defendants Michael Parnell, Ammonia Hold, Inc. and Jack R. Rodriguez are alleged
to be liable in connection with only one. (P. P. 206, 202).
The Complaint alleges that the Gomez defendants are primary violators
of the securities laws and describes willful acts undertaken by them in
furtherance of the fraud. This is not a case of aiding and abetting a principal
wrongdoer, as was addressed in Central Bank of Denver, N.A. v. First Interstate
Bank of Denver, N.A., 511 U.S. 164, 177-78 (1994), cited by the defendants.
Rather, the Gomez defendants willfully violated the securities laws directly in
the purchase and sale of securities through their own accounts, even if
coordinated and directed with or by other defendants. The fact that some
defendants acted "in concert with and at the direction of' codefendants does not
shield them from liability as principal violators of the securities laws. In re
Blech Securities Litigation, 961 F. Supp. 569, 581 (S.D. N.Y. 1997). As the
Supreme Court recognized in Central Bank, "secondary actors" in a securities
fraud may be held liable as a primary violator if they employ a manipulative
device or make a material misstatement or omission on which a purchaser or
seller of securities relies. The court noted that "in any complex securities
fraud, moreover, there are likely to be multiple violators. " Central Bank, 511
U.S. at 19 1. The Complaint alleges such activity by the Gomez defendants, even
if they were working under the coordination of CRG.
20
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C. The Complaint Alleges Facts Sufficient to Plead Scienter
The actions alleged in the Complaint - misrepresenting to issuers that
Fondo and Oportunidad were the true buyers of unregistered securities and
coordinating sales with the CRG defendants to share with them the scalping
profits -- are willful acts that evidence the defendants' extreme recklessness
and conscious disregard of bedrock securities laws. These facts establish the
requisite scienter for securities fraud. See Bryant v. Avado Brands Inc., 187
F.3d 1271, 1286 (11th Cir. 1999) (a securities fraud plaintiff must plead
scienter with facts that give rise to a strong inference that the defendant
acted in a severely reckless fashion); Beck v. Manufacturers Hanover Trust Co.,
820 F.2d 46, 50 (2d Cir. 1987) (A plaintiff need only identify circumstances
that indicate conscious behavior by the defendants to satisfy the pleading
requirements of scienter).
Certainly, the allegations constitute circumstantial evidence of scienter,
and it is well settled that scienter may be inferred from circumstances. "The
proof of scienter required in [securities] fraud cases is often a matter of
inference from circumstantial evidence. [W]e have noted elsewhere that
circumstantial evidence can be more than sufficient." Herman & MacLean v.
Huddleston, 459 U.S. 375, 390-91 n.30 (1983). See SEC v. Adler, 137 F.3d 1325,
1340 (11' Cir. 1998) (evidence of suspicious timing of communications and
trading may support an inference of scienter). Moreover, Rule 9(b) does not
require that scienter be pled with particularity. Stem v. Leucadia National
Corp., 844 F.2d 997, 1003-04 (2d Cir.), cert. denied, 488 U.S. 852 (1988)
(knowledge and intent may be alleged generally; great specificity not required
in pleading scienter). "A strong inference of scienter can be established by
showing conscious misbehavior or recklessness on the part of the defendant." In
re Blech Securities Litigation, , 961 F. Supp. 569, 581 (S.D. N.Y. 1997), citing
Shields v. Citytrust Bancorp., Inc., 25
21
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F. 3d 1124, 1128 (2d Cir. 1994) (sham transactions "in concert with and
under the direction of' another defendant held to sufficiently allege
scienter).
The Complaint adequately alleges scienter by describing willful,
reckless conduct not just once, but in connection with eight different
securities over a two year period. Scienter is adequately alleged eight-fold. 11
D. Market Impact Is Not Required Where Market Manipulation is Not
Alleged
The Gomez defendants assert that the Commission must allege a specific
market impact by the defendants' wrongful conduct. The defendants are wrong. The
cases they cite for the proposition, United States v. Charnay, 537 F. 2d 341
(9th Cir.), cert. denied, 429 U.S. 1000 (1976), and In re Blech Securities
Litigation, 928 F. Supp. 1279 (S.D.N.Y. 1996), each involved complaints alleging
the defendants unlawfully manipulated a market for securities. The courts there
held that market manipulation requires market impact. The instant Complaint does
not allege that any defendant was actually able to manipulate the market price
of any security, and manipulation is not part of the alleged fraud. In a case
such as this one, in which the fraudulent scheme is based on material
misrepresentations or omissions, the Commission "is not required to prove that
any investor actually relied on the misrepresentations or that the
misrepresentations caused any investor to lose money." SEC v. Blavin, 760 F.2d
706, 711 (6 th Cir. 1985); -SEC V. Rana Research, Inc., 8 F. 3 d 13 5 8, 13 64
(9th Cir. 1993).
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11 The Gomez defendants assert repeatedly that the Complaint alleges
"passive" roles. In fact, while the Complaint alleges they worked at the
direction of the CRG defendants, they were active in the fraud, as by appearing
to be purchasers of unregistered stock while accepting payment from CRG,
instructing brokers to buy and sell stock in coordination with CRG, and serving
as the bank for CRG trading profits from time to time in anticipation of the
next fraudulent scheme, as was the case in Delta securities. (P. P. 80).
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E. The Complaint Pleads Fraud With Particularity
The Complaint alleges violations of the antifraud provisions by the
Gomez defendants in the purchase or sale of eight securities. With respect to
each security, the participation of Fondo and/or Oportunidad - both of which are
alleged to be controlled by Gomez - are described with reasonable particularity.
Certainly, the allegations are sufficient to put the Gomez defendants on notice
as to what conduct is being alleged against them, which is the standard for
application of the particularity standard of Rule 9(b).
The contention that "there are simply no allegations that Fondo and
Oportunidad knew of the touting scheme or that their transactions were a part of
it" is controverted by a fair reading of the Complaint, which alleges eight
transactions in which Fondo or Oportunidad bought and sold securities on their
own behalf or that of CRG timed specifically to take advantage of CRG's stock
promotions and scalping. In nearly every instance, Fondo and Oportunidad were
introduced to the issuers through CRG. None of the Gomez defendants has come
forward with affidavits or admissible evidence to contest knowledge of the
fraud, which is both specifically alleged and fairly inferred in the Complaint.
The Complaint never alleges that CRG Veitia, Spratt or Skalko are
liable for the acts of the Gomez defendants as "control persons" under Section
20 of the Exchange Act [15 U.S.C. ss. 78t]. Gomez controlled Oportunidad and
Fondo. The Gomez defendants acted willfully to associate with CRG and coordinate
the fraud at CRG's overall direction', as the Complaint alleges. Since "control
person" liability is not alleged, it is irrelevant that the Complaint does not
claim that Fondo or Oportunidad were established or owned by CRG or that Fondo
or Oportunidad are not alleged to have been created solely for the purpose of
effecting Regulation S transactions.
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The Gomez defendants are direct violators of the securities laws, as alleged in
the Complaint, as are the CRG defendants. Neither is alleged to be a "control
person" of the other.12
The specific allegations against the Gomez defendants are in stark contrast
to the pleadings described in the cases cited by the defendant in which motions
to dismiss under Rule 9(b) were granted. "Plaintiffs have pleaded no facts
linking Jofen directly to any individual 'fraudulent' trades on behalf of the
Edward Blech Trust and in furtherance of the alleged scheme," the Court declared
in In re Blech Securities Litigation, 961 F. Supp. 569, 581 (S.D. N.Y. 1997).
"The Complaint also fails to allege any particular facts indicating the direct
participation of Wen, or the trust of which he was the trustee... in the scheme
to defraud." Id. The "complaint is bereft of any detail concerning who was
involved in each allegedly fraudulent activity, how the alleged fraud was
perpetrated, or when the allegedly fraudulent statements were made." Sears v.
Liken, 912 F. 2d 889, 893 (7th Cir. 1990). "The Amended Complaint is devoid of
specific allegations with respect to the separate Defendants." Brooks v. Blue
Cross and Blue Shield of Florida, Inc., 116 F. 3d 1364, 1381 (11th Cir. 1997).
The same plainly cannot be said of the instant Complaint, which
describes in fair detail the participation of the Gomez defendants in fraudulent
practices with respect to eight securities. This action is more in keeping with
the pleadings against another defendant in Blech which were
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12 Stratcomm and Veitia are alleged to be liable for securities law
violations both directly and as control persons of CRG.
24
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deemed sufficient.13
F. Violations of Registration Provisions Are Sufficiently Alleged
The attack on allegations that the Gomez defendants violated Section 5 of
the Securities Act by selling unregistered securities is a confused mess. The
defendants state the elements of the offense with reasonable accuracy, and
acknowledge that scienter is not among those elements. (Gomez Mem., p. 16; Fondo
and Oportunidad Mem., pp. 10- 11). They then proceed to contend that,
nevertheless, scienter is required because the defendants employed the offer and
sale of unregistered stock as part of their scheme to defraud.
Of course, the offer and sale of unregistered stock stands alone as a
violation of the securities laws, without regard to the companion
misrepresentations and omissions about the relationship between the Gomez and
the CRG defendants which were instrumental to the fraudulent scheme involving
the scalping of unregistered and registered securities. The leading case cited
by the Gomez defendants eviscerates their contrary contentions. In SEC v.
Softpoint, Inc., 958 F. Supp. 846, 859-61 (S.D.N.Y. 1997), aff'd, d, 159 F. 3d
1348 (2d Cir. 1998), the defendant was found to have violated Section 5 without
reference to issues of scienter, despite the fact that he sold
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13 "The Second Amended Complaint, as it relates to Madonia, does not suffer
from the same problems that plague the complaint against Jofen. While the trust
controlled by Jofen and those controlled by Madonia are included in general
references to the 'Blech Trusts' in some of (the] paragraphs of the Complaint,
the Complaint does set forth particular acts of the Madonia trusts that indicate
direct participation in a scheme to manipulate the price of The Blech
securities. These allegations against Madonia are not merely 'lumped' together
with the general allegations against the 'Blech Trusts,' and thus the policy
concerns that counsel dismissal of the claims against Wen do not apply to
Madonia." Blech, 961 F.Supp. at 581,
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unregistered, non-exempt securities as part of a larger fraudulent scheme.14 The
remaining district court cases cited by the defendants are simply irrelevant to
any issue because they did not involve violations of Section 5 of the Securities
Act. In United States v. Mulheren, 938 F. 2d 364, 368 (2d Cir. 199 1), the Court
reversed a criminal conviction for violating Rule label, an offense for which
scienter is required, holding that scienter had not been proven. No sales of
unregistered securities were involved in the case. The same is true of the
conduct and ruling in Dietrich v. Bauer, 1999 WE 12643 8 at * 13 (S.D.N.Y.
1999). The last authority cited by the defendants, In the Matter of Candie's
Inc., SEC Rel. No. 33-7263, 1996 WL 75741 (S.E.C.) at *4, merely describes
conduct similar to that of the Gomez defendants and explains in announcing a
settlement with the respondents that such conduct violates Section 5.
To the extent that the misrepresentations and omissions related to the
offer and sale of unregistered securities are part and parcel of the defendants'
fraudulent conduct, scienter has been sufficiently alleged, as described above
in Section IV.C. In any event, violations of Section 5 as alleged in the
Complaint do not require scienter, as the defendants acknowledge, and stand
separately from the fraud allegations.
CONCLUSION
For the reasons stated above, as well as those in companion memoranda
filed this date opposing other motions to dismiss the Complaint, the motions of
the Gomez defendants to
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14 Later in the opinion, the court described the fraudulent scheme as
one "facilitating the sale of unregistered shares." Softpoint, , 961 F. Supp.
at 863.
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dismiss should be denied.
Respectfully submitted
____________________________________
James A. Kidney (Trial Counsel)
Jeffrey P. Weiss
William McGovern
Attorneys for Plaintiff
U.S. Securities and Exchange Commission
Mail Stop 8-8
450 Fifth Street,N.W.
Washington , D.C. 20549-0808
(202)942-4797 (Kidney)
(202)942-9581 (Kidney fax)
Date: January 28,2000 [email protected]
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