STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
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Paul F. Gibson
Plaintiff,
FINDINGS OF FACT,
CONCLUSIONS OF
LAW, AND ORDER
FOR JUDGMENT
File No.: 98-15290
v.
SpectraScience, Inc.,
Defendant.
To: Plaintiff, through his attorney, Scott S. Payzant, Mackall, Crounse &
Moores, PLC, 1400 AT&T Tower, 901 Marquette Ave., Minneapolis, MN
55402; defendant, through its attorney, Peter M. Lancaster, Dorsey &
Whitney, LLP, Pillsbury Center South, 220 South Sixth Street,
Minneapolis, MN 55402.
On March 13, 2000, Judge Isabel Gomez, of this District Court, heard a
trial of the above-captioned lawsuit. Plaintiff Paul F. Gibson appeared with his
attorney, Scott S. Payzant. Defendant was represented by its attorney, Peter M.
Lancaster. Final written submissions of the parties were received by the Court
on April 17, 2000.
Based upon the evidence admitted at trial, and upon the contents of its
own file in the matter, the Court makes the following
FINDINGS OF FACT
1. Plaintiff Paul Gibson is a resident of Clearwater, Florida; at times
relevant to this lawsuit, he lived in Minnesota.
2. Defendant SpectraScience, Inc., is a corporation based in
Minneapolis, Hennepin County, Minnesota.
3. SpectraScience is a publicly traded company.
4. On November 3, 1999, this Court granted plaintiff's motion for
partial summary judgment, finding that on October 24, 1994, Gibson and
SpectraScience entered into a Settlement Agreement granting
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Gibson the option to purchase 50,000 shares of SpectraScience common stock at
the price of $2.50 per share.
5. In its summary judgment, this Court concluded that, on or about
November 27, 1997, SpectraScience breached its Agreement with Gibson, when it
denied that he had any stock options, thus thwarting his attempt to exercise
them.
6. The trial referenced here was, therefore, limited to the issue of
determining Gibson's damages resulting from SpectraScience's breach of the
Agreement.
7. On the day of trial, defendant made a motion "For Judgment on the
Pleadings," claiming, for the first time, that the underlying Agreement here is
void, because it is a contract for compensation claimed by Gibson for work he
did as a securities broker when he was not registered, as brokers must be,
pursuant to 15 U.S.C. ss.780(a)(1) and (b).
8. Notwithstanding its title, defendant's motion does not rest on the
pleadings, but depends upon Gibson's testimony at trial.
9. Concerning the work he performed for SpectraScience, Gibson
testified as follows:
a. "...I prepared the work product and presentation that was used
for all the prospective investors in the company, which would
include Perkins." Trial transcript, p. 52,P. 22-25.
b. Q. And you were the person who developed the
presentation with respect to strategy, and the
business, and the market capitalization to use with
Perkins and other companies?
A. Correct
Q. And you did all the numbers, all the forecasts, is
that correct?
A. I didn't punch the keys in the word processor, but I
did the numbers manually.
Q. And your materials were used with each potential
investor?
A. They were.
Q. And it wasn't just Perkins, it was a number of other
investors, is that correct?
A. Correct.
Q And it wasn't just Perkins, it was a number of other
investors, is that correct?
A. Correct.
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Q. And you, in fact, traveled to New York in order to
pitch this project to other investors, is that
correct?
A. Yes." Trial transcript, p. 53, P. 1-18.
c. Q. You discussed and negotiated the price with Perkins,
is that true?
A. Did I negotiate the price, no.
Q. Well, Perkins gave you their proposal for the price,
and wanted your comments and thoughts on it before
they presented it to Brian McMahon, didn't they?
A. Correct.
Q. And so they discussed the pricing and other terms of
the deal with you before they talked to Mr. McMahon
about the, is that correct?
A. On one or two occasions, yes.
Q. And as a result of your presentation, Perkins made a
decision to invest, is that correct?
A. I think it's fair to say on favorable terms to the
company, my presentation had an awful lot to do with
where they ended up.
Q. Well, in fact, your view is that without your
efforts, there would have been no Perkins' money, is
than [sic] true?
A. I think that -
The answer is "YES".
Q. You were the person who closed the deal?
A. No.
Q. Would you take a look at page 149 of your deposition.
And you see that I asked you the question
beginning on line 14, about whether you had a sophisticated
understanding of the issue in question, and your answer was:
"Most certainly, as evidenced by the fact that the deal I sold
closed, e.g., Perkins Capital."
And that was true, right?
A. Yes.
Q. Now, would it be fair to say that, in substance, you
brokered this deal?
A. No, it wouldn't be fair to say.
Q. How would you characterize it?
A. I represented the company in the initial
negotiations.
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Let me back up.
I created the package that was used to sell
Perkins on the transaction. And I believe I sold one
transaction." Trial transcript, pp.54-P. 9-25, 55-P.
1-25.
10. The evidence in this matter does not establish that Paul Gibson
functioned as a broker when working on Spectra`s behalf.
11. SpectraScience agreed that Gibson was to receive freely tradeable
registered shares of common stock if and when he exercised his options under the
Settlement Agreement.
12. The Settlement Agreement did not provide that Gibson's options had
any expiration date.
13. From the time of the Settlement Agreement, Gibson kept a close
watch on the price of SpectraScience stock.
14. In October of 1997, SpectraScience stock reached a point where it
was being traded, in small amounts, at $9.00 and $10.00 per share, its highest
price since Gibson received his options.
15. Through his broker, Gibson attempted to exercise his options, in
order to begin selling stock at the favorable price it had reached.
16. Gibson's decision to begin to exercise his options in October of
1997 was a reasonable financial move, based on the performance of SpectraScience
stock.
17. SpectraScience thwarted Gibson's exercise of his stock options,
claiming he had none; and the instant lawsuit resulted.
18. SpectraScience is a "smallcap" company whose stock has been thinly
traded at all relevant times.
19. In October, 1997, Gibson owned outright 6400 shares of
SpectraScience stock, for which he had placed a sell order with his broker at
$7.88. He was never able to sell the stock at that price and eventually disposed
of it at $4.50 to $5.00.
20. Gibson did not establish at trial that his expectation that his
three-year-old options could be exercised and traded within a 48-or-72 hour
window was reasonable.
21. Gibson did not establish at trial how many shares of SpectraScience
the October 1997, market could have absorbed at $9.00 or above without their
price being depressed.
22. The market for SpectraScience shares has at all relevant times been
volatile; the stock price fluctuates significantly from day to day.
23. Gibson's analysis of his damages, even with the benefit of
hindsight, is speculative and unpersuasive.
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24. SpectraScience has yet to yield any product for sale; unless and
until it does so, it will remain, as it has been throughout its existence, cash
poor.
25. SpectraScience was unable to pay any of its twelve employees their
earned bonuses for 1999, because of its cash shortage.
26. SpectraScience hopes to achieve relisting with NASDAQ, a
relationship that all parties agree is valuable; it needs all of its available
cash in order to do so.
27. At the time of trail, SpectraScience shares were trading for around
$7.50, a value higher than that Gibson obtained for the SpectraScience shares he
actually sold and representing a substantial premium over his option price.
28. SpectraScience would be damaged seriously be being required to pay
Gibson cash damages.
29. At the time of trial, SpectraScience intended to file a
registration statement with the SEC in order to issue additional registered
stock, which it did not have available either in October of 1997 or at the time
or trial.
30. Ninety (90) days is a reasonable time frame in which to file for,
and effect, the issuance of registered stock.
31. Seventy-two (72) business hours is a reasonable time frame within
which SpectraScience can make Gibson's options exercisable, once sufficient
registered stock is available.
Based upon these facts, the Court draws the following
CONCLUSIONS OF LAW
1. Because the evidence does not establish that Paul Gibson functioned
as a broker in serving SpectraScience, or that he was required to be registered
with the SEC, the Settlement Agreement herein is not voided by any illegality
pursuant to 15 U.S.C.ss.780(a)(1).
2. Under this Court's view of the facts, the interesting procedural
questions raised by the defendant's motion for judgment on the pleadings are
moot, and therefore, remain undetermined.
3. Paul Gibson made a reasonable business decision to exercise his
SpectraScience options in October of 1997 and he is, therefore, not culpable
under a laches theory.
4. Paul Gibson will be fairly compensated by SpectraScience's provision
of at least 50,000 shares of registered stock to be available so that Gibson may
exercise his options in paperless transactions, with 72-hour notice, at any date
he elects. In other words, it is fair that he have the full benefit of the
Settlement Agreement: specific performance.
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5. If SpectraScience does not make his stock option exercisable in a
timely fashion, Gibson will not be adequately compensated for his damages by
specific performance.
6. SpectraScience, Inc. is liable to Paul Gibson for his costs in
bringing this lawsuit. It is, therefore,
ORDERED
1. That, no later than August 31, 2000, SpectraScience, Inc., have
available sufficient registered stock so that Paul Gibson may exercise his
options for any part of 50,000 shares at $2.50 per share.
2. That there be no expiration date on Paul Gibson's SpectraScience
options.
3. That, on any date when Paul Gibson chooses to exercise
SpectraScience options, SpectraScience shall provide him with registered shares
to be freely traded within seventy-two (72) business hours.
4. That SpectraScience do nothing to impede Gibson's trading of
SpectraScience shares in paperless transactions.
5. That, for each day by which SpectraScience, Inc. breaches the time
provisions set forth in paragraphs one (1) and three (3), supra, SpectraScience
shall pay Paul Gibson $3,000.00 in cash damages.
6. That Judgment be entered for the plaintiff, Paul Gibson, for
specific performance and statutory costs.
LET JUDGMENT BE ENTERED ACCORDINGLY.
BY THE COURT:
Dated this 2nd day of June 2000.
HON. ISABEL GOMEZ,
JUDGE OF DISTRICT COURT
