UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-6034
STANSBURY HOLDINGS CORPORATION
(Exact name of small business issuer as specified in its charter)
Utah 87-0281239
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
20 Battle Ridge Place, Atlanta, GA 30342
(Address of principal executive offices)
(404) 845-0473
(Registrant's telephone number)
11515 Amanda Drive, Studio City, California 91604
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15 (d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes __XX__ No ____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes ____ No __XX__
APPLICABLE ONLY TO CORPORATE ISSUERS
As of September 30, 1995, the number of shares outstanding was: 19, 092, 968
Transitional Small Business Disclosure Format (check one);
Yes ____ No __XX__
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Stansbury Holdings Corporation (referred to herein as either the
"Registrant", the "Company" or "Stansbury") is a development-stage mining
company, which has not commenced operations and has no revenue.
The Company is presently unable to file financial statements in this
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1995, and
the Company is also presently unable to file audited, annual financial
statements as an amendment to the Company's Annual Report on Form 10-KSB, which
was filed on October 17, 1995, for the reasons described below.
The Company last filed, in July 1992, an Annual Report on Form 10-K for the
fiscal year ended June 30, 1991. The current Board of Directors and management
of the Company are the result of a successful proxy contest to elect a new Board
of Directors at a special shareholders' meeting held on December 12, 1994. Since
that time, the Board has focused on (a) raising money in the form of loans from
existing shareholders, on terms previously disclosed, to fund a factual and
legal investigation, retention of Arthur Andersen LLP ("Arthur Andersen") as the
Company's independent public accountants and preparation of an Annual Report on
Form 10-KSB; (b) payment of selected creditors, including Arthur Andersen, which
was owed approximately $20,000 for the 1991 audit; and (c) negotiation and
documentation of short-term forbearance agreements with other creditors. On
September 18, 1995, the Company paid Arthur Andersen for its previous work in
1991 and entered into an
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engagement letter for the 1995 audit.
For the reasons discussed below, the audit work is at a very preliminary
stage. The Company has paid an initial retainer to Arthur Andersen for the June
30, 1995 engagement. The Company believes that it will be able to borrow
sufficient funds from existing shareholders to fund the completion of the audit
by Arthur Andersen.
The Company hopes to complete this process over the next sixty (60) days.
No assurance, however, can be given that Arthur Andersen will be able to
complete the audit and render the opinion required by regulations of the U.S.
Securities and Exchange Commission for the additional reasons discussed below.
During the quarter, the Company obtained $131,000 in loans from existing
shareholders, on terms previously disclosed. These monies were used to pay
attorneys' and accountants' fees, to pay the salary and expenses of the
Company's CEO, to reimburse directors for travel and expenses, to pay a
contractor to do reclamation work at the site of the proposed mine and to pay
utility bills, to make payment on a mineral lease and to pay other routine
expenses.
On September 30, 1995, the Company had $8,379.61 on deposit and available
to pay expenses. The Company is presently confronting two sets of interrelated
problems:
1. lack of cash flow since it has never been an operating company and has
no assets which can be readily converted to cash to fund the activities
necessary to complete the audit and Annual
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Report on Form 10-KSB; and
2. lack of corporate books and records, including financial records which
will afford the auditors sufficient, competent evidential material to enable
Arthur Andersen LLP to complete an audit and render an opinion.
The first class of problems was referred to above. The Company believes
that it will likely be able to raise sufficient funds from shareholder loans to
overcome this problem. Nevertheless, even if the additional $50,000 - $100,000
estimated to be necessary over the next sixty days is raised, there are certain
factors which could make these monies insufficient.
These are:
1. two members of former management who hold alleged second mortgages on
the Company's mineral claims have threatened, pursuant to a letter dated
September 19, 1995 received from their counsel, to institute a foreclosure
action on these second mortgages if the Company does not pay a judgment obtained
against them by a former lender to the Company approximating $90,000.00; and
2. the Company has several money judgments against it.
Two of the four judgment creditors have been requested to enter into
forbearance agreements by the Company to facilitate completion of the audit and
Form 10-KSB process.
The Company has little or no liquidity, although it has been paying new
obligations accruing since December 12, 1994 as they come due. To date, no
judgment creditor has sought to execute on any judgment. Because of these
judgments, however, any or all of
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these creditors has the ability to levy on corporate assets, cause a sheriff's
sale of the Company's mineral claims or attach any corporate bank account. The
Company is in discussions with some of the recent judgment creditors to avoid
this result. No assurance can be given, however, that a favorable outcome will
be obtained.
With respect to the second class of problems, although the Company believes
that the four (4) judgments referred to above result from mismanagement by the
former officers and directors, the Company is presently confronting the
following obstacles:
1. the Company is unable to find financial statements prepared by former
management for any periods during the fiscal years 1992, 1993, 1994 or 1995 (and
such may not exist);
2. the Company will have to prepare financial statements for these years
before Arthur Andersen can audit them;
3. other than escrow account records, no bank accounts or financial records
have been located for those years;
4. most of the members of former management are refusing to co-operate in
furnishing requested information or to make themselves available to the auditors
for an interview;
5. former management on December 12, 1994, issued 1,973,066 million shares
of the Company's stock and $342,295.23 in demand notes to themselves; and
6. the Company believes no valid legal consideration or grossly inadequate
consideration existed for the issuance of these 1,973,066 shares and the demand
notes; and has requested documentation supporting it; and has received
incomplete
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information. The Company's investigation is continuing; and on October 16, 1995,
the Company filed suit against former management in the United States Districxt
Court for the District of Utah. (See Part Two, Item 1 below (Legal Proceedings).
In light of the foregoing problems and despite the loans from shareholders
and the best efforts of management and Arthur Andersen, it is certain that any
audit report - if rendered - will contain a "going concern" qualification. The
1991 audit report did as well. This is because it is impossible for the Company
to be able to commence construction or operations or to begin the development
work on its mineral property without raising very substantial additional
capital. This is estimated to include $2 to $3 million in new equity, and
permanent financing of $15 to $20 million. Without being in full compliance with
the SEC regulations and having a "bankable" feasibility study, these monies
probably cannot be raised and the Company will simply have to go out of
business.
At the present time, the Company believes that there is a substantial risk
that Arthur Andersen will be unable to render any audit opinion - even one
including a "going concern" qualification. This is because the Company may not
be able to obtain sufficient, competent evidentiary materials to prepare
financial statements, including balance sheets and income statements for the
last four (4) fiscal years, resulting in restrictions which will make it
impossible for Arthur Andersen to perform an audit in compliance with Generally
Accepted Auditing Standards or to express an opinion
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that any financial statements of the Company are consistent with Generally
Accepted Accounting Principles.
For the reasons set forth above, the Company's inability to file a timely
and complete Quarterly Report on Form 10-QSB for the quarter ended September 30,
1995 could not be eliminated by the Company. Information is included in this
necessarily interim and incomplete Quarterly Report on Form 10-QSB insofar as it
is known or reasonably available to the Company, in accordance with SEC Rule
12b-21 and SEC Rule 13a-13(c)(3).
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
The Company is not liquid. Should any of the current judgment creditors
(see Part Two, Item 1) attach the Registrant's assets, the efforts now underway
to revive Stansbury would be imperiled. In the absence of forbearances or
negotiated settlements with judgment creditors, the Company's revival is
unlikely.
Since taking office in December 1994, the new Board of Directors ("New
Board") has continued to implement the platform of the Committee for New
Management of Stansbury Holdings (the "Committee") set forth in the Committee's
proxy materials for the December 12, 1994 special meeting of shareholders.
Pursuant thereto, the New Board has:
- placed "on hold" all actions approved by former management which had not
been fully implemented, pending a thorough review;
- attempted to identify, locate and take possession of the assets, books
and records of Stansbury;
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- begun evaluating Stansbury's assets, including the status of its mineral
claims and leases, permits and environmental impact statement; and
- begun conducting an investigation of, and instituted litigation
involving, the activities of prior management.
Since the New Board was elected, the Company has (a) made the required
annual filings with the State of Utah's Division of Corporations (b) registered
to do business as a foreign corporation in Montana; (c) paid trade and tax
creditors, including redeeming the Field Office Property in Victor, Montana,
which had been sold at a tax sale. A principal executive office address and a
telephone number have been established. Since December 1994, Stansbury has been
filing required periodic reports with the U.S. Securities and Exchange
Commission.
In addition, the New Board has:
- engaged Arthur Andersen as the Company's independent public accountant to
perform an audit of the Company's financial statements for the year ended June
30, 1995;
- identified, prioritized and begun paying trade debts, liens and
judgments;
- paid all real estate taxes and tax accountants' fees;
- engaged an experienced mining executive as a consultant (since September
18, 1995, the Company's Chief Executive Officer) to perform a review of the
assets, permits, financial records and a prior feasibility study of the Company;
and
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- started to develop a business plan to maximize shareholder value.
It is expected that any auditor's reports, if obtained, will be qualified
in nature and will include, among other things, a "going concern" qualification.
The Company is a development stage company which is not presently engaged in
business operations. Management anticipates that commencement of mining
operations will require the Company to raise $2 to 3 million of equity capital
and also an additional $15 to 20 million in permanent financing.
The following activities are currently "on hold" until the above goals are
achieved:
- seeking a re-listing of the Company's shares of common stock on the
national quotation system of the National Association of Securities Dealers; and
- studying other avenues for growth and profitability.
The Company has to date raised over $240,000 by way of interim financing.
The financing is in the form of loans from existing shareholders of the Company
and two non-shareholders, who either already are or thereby became members of
the Committee. The terms of the loans were previously disclosed in Form 10-QSB
of March 31, 1995, which is repeated and incorporated by reference herein.
The Company's fundraising effort is on-going, as the Company is seeking to
raise approximately $50,000 per month over the next six months (i.e., October,
1995 - March, 1996). Only $17,000 was raised in October. Only $1,500 has, to
date, been raised in November. Additional monies to be raised in the future will
be
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principally devoted to:
(a) paying for preparation of a 1994 and 1995 corporate income tax return
and for Arthur Andersen's audit of the Company's financial statements for the
year ended June 30, 1995;
(b) preparation and filing of an amended Annual Report on Form 10-KSB for
the year ended June 30, 1995 (i) so that the Company may become current with the
SEC in its public filings and (ii) so that the Company may then apply to the
National Association of Securities Dealers to have its shares re-listed for
trading on the NASDAQ system;
(c) payments of attorneys' fees (for Montana, Utah and corporate counsel);
(d) payment of the CEO's salary and expenses; and
(e) payment of directors' expenses.
Because of the shortfall in fundraising in October and November, 1995, Item (c),
(d) and (e) are presently in arrears.
In May 1995, the Insurance Commissioner of the State of Utah, as liquidator
of two insurance companies, (the "State") offered, in principal, to enter into
an agreement with the Company (a) to amend the State's mortgage on the Company's
mineral claims so as to allow the Committee's members to have an equal, first
lien security interest in those claims as long as the State's position was not
adversely affected and (b) to enter into a forbearance agreement with the
Company regarding (i) sale of the State's shares of Stansbury's stock and (ii)
any foreclosure on its mortgage.
In July 1995, the Company discovered that a set of second
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mortgages - not previously know to the Board or corporate officers existed on
the Company's mineral claims, including two in the name of members of former
management. In light of the dispute with former management (See Part Two, Item
1), the State and the Company have not implemented their agreement in principle.
Among other things, the State has concluded that it is not possible at this time
to amend its first mortgage so as to permit the Committee Members to take an
equal, first lien position without jeopardizing its first lien priority
vis-a-vis former management's second mortgages (if valid). Counsel for the
Company concurs with this conclusion. Issuance of notes evidencing the Company's
indebtedness to various Committee members is, therefore, "on hold" pending
resolution of the dispute, and litigation, with former management. (See Part
Two, Item 1).
By way of a business plan, should the additional $300,000 referred to above
be obtained, the New Board would then intend to file an amended Annual Report on
Form 10-KSB; to issue shares of Stansbury stock to Committee members, as agreed,
as additional consideration for their loans; to seek a re-listing of the
Company's shares on NASDAQ; and thereafter, to call a regular annual
shareholders' meeting.
At such annual meeting, the New Board presently expects to ask the
shareholders to take some or all of the following actions:
(a) elect the nominees of the New Board;
(b) ratify and approve a stock option plan for management for the next
year;
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(c) ratify the selection of an independent public accountant for the next
year;
(d) approve a class of preferred stock;
(e) approve amendments to the Company's articles of incorporation; and
(f) act on such other matters as may properly come before an annual
meeting.
The New Board would then propose that the Company seek new equity to pay
off remaining debts incurred under the former management and to furnish working
capital. With the net proceeds of such a $2 to 3 million "best efforts" offering
in hand, the Company would then seek debt and equity financing to fund
construction of $15 to 20 million. If - and only if - such financing is
obtained, construction of the proposed open-pit vermiculite mine could begin in
or about mid-1996.
This is a very ambitious program, especially in light of the problems
facing the Company. No assurance can be given that any of the above goals can be
achieved. The Company's shareholders (and any person considering purchasing
shares of Stansbury stock) should specifically note the following:
1. There are material ongoing disputes, and litigation, with former
management. See Part Two, Item 1.
2. Even with the filing of this Report, Stansbury is still not in
compliance with the periodic reporting requirements of the SEC, which may impair
or prevent the Company's ability to raise capital because no Annual Report on
Form 10-KSB has been filed for
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any fiscal year after June 30, 1991 (except the Annual Report on Form 10-KSB
filed in the fiscal year ended June 30, 1995, which did not contain audited
financial statements.
3. The New Board expressly disclaims any responsibility for and denies any
express or implied representation as to the truth or completeness of any part of
the 1991 Annual Report filed by former management in July 1992.
4. Exploration, development and mining of mineral properties involve unique
and greater risks than those generally associated with other industries. The
Company's operations are subject to all the hazards and risks normally incident
to the exploration, development and mining of mineral properties, including the
particular risks described herein.
5. The mining industry is subject to extensive federal, state and local
laws and regulations covering exploration, development, operations and
production, taxes, labor standards, occupational health, waste disposal,
environmental protection, reclamation, mine safety, toxic substances and other
matters. Environmental, operating, water, dust and other federal and state
permits are essential to any mining operation. The nature of the mining business
is such that mining companies are frequently in the process of applying for
additional permits or modifications to existing permits at any given time. There
can be no assurance that such permits will be granted in the future as needed,
and, if such permits are not granted, the Company or any mining venture in which
it is a participant could be required to curtail or cease its
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development plans or operations with serious adverse consequences to its
liquidity and profitability. Amendments to current laws and regulations
governing operations and activities of mining companies or more stringent
implementation thereof or additional taxes could have a material adverse impact
on the Company.
6. Any development of Stansbury's leases or mineral resources will require
applications for issuance of permits from federal and state authorities,
including the U.S. Forest Service and the State of Montana's Department of
Environmental Quality.
7. There exists an unknown quantum of environmental and community
opposition to any mining activity by Stansbury in Ravalli County, Montana where
the proposed mine would be located. Last year, a newspaper article published in
Montana stated that a "concerned citizens coalition" was seeking to raise funds
to initiate litigation to block issuance of permits as part of a "No Stansbury"
campaign. No assurance can be given that any such environmental and citizens
litigation, if instituted, would not succeed in blocking Stansbury's development
of its mineral leases.
8. As of December 31, 1994, members of the Committee were collectively owed
$1,062,768 by Stansbury. The members of the Committee are now owed an additional
$245,100. The New Board is seeking at least an additional $300,000 from current
or future members of the Committee which, if obtained, will result in a total
indebtedness by the Company to members of the Committee of approximately $1.6
million.
The liquidator for Southern Insurance Company, a member of the
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Committee, holds a recorded first mortgage for $796,435 on the mineral leases of
Stansbury securing a debt of $881,435, which is included in the above totals.
9. A successful resolution of any or all of the above matters will require
substantial injections of new capital. No assurance can be given that such
capital can be raised.
10. A successful resolution will also require cooperation and concessions
among members of the New Board, the former management of Stansbury, the State of
Utah, members of the Committee and Stansbury's creditors. Four (4) creditors of
the Company have judgments against the Company upon which they could seek to
execute. (See Part Two, Item 1 (Legal Proceedings).
If a business plan with a reasonable likelihood of success, including
provision for new capital, appears unachievable, any or all the New Directors,
as well as the Company's Executive Officers, may elect to resign from the Board,
to cause Stansbury to file for reorganization under federal bankruptcy laws, to
adopt a plan of recapitalization, to adopt a plan of liquidation or to seek a
purchaser for Stansbury. The foregoing list is not intended to be exhaustive.
The New Board believes that no current shareholder or prospective
investor should buy or sell shares of Stansbury stock in reliance on the 1991
Annual Report.
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PART TWO - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is unaware of any open, pending lawsuits brought against it.
As a result of the Company's review of court dockets and the record of its
(non-closed) bankruptcy case, the Company is aware of the following outstanding
and unsatisfied judgments:
Herd v. Stansbury Holdings Corporation,
(District of Salt Lake, Utah)
$63,360.00
Bauernfiend v. Stansbury Holdings Corporation,
(Bergen County Ct.) $ 8,163.82
Dorsey & Whitney v. Stansbury Holdings Corporation,
(D. Mont.) $85,310.10
Martineau & Assoc. v. Stansbury Holdings Corporation,
(District of Salt Lake, Utah) $5,845.41
The Company has now been able to confirm that other, prior judgments listed on
the Company's Annual Report on Form 10-KSB filed on October 17, 1995 were, in
fact, discharged in the bankruptcy.
The Company has no funds on hand to pay these judgments and is seeking
forbearance from some of the judgment creditors. To date, none has been
obtained. In the Company's judgment, this difficulty has resulted solely from
the actions of former management.
On October 16, 1995, the Company filed suit against its former management
in the United States District Court for the District of Utah, Central Division.
Stansbury Holdings Corporation v. Murton, et al., Case No. 2:95CV 0947G (D.
Utah). A copy of the complaint
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is attached hereto as Exhibit "99.1". On October 19, 1995, after a hearing, the
Company obtained a preliminary injunction against former management. A copy of
the injunction is attached hereto as Exhibit "99.2".
Since August 1, 1995, the Company has made four attempts to settle all
disputes between it and former management on a basis that would also resolve the
Herd claim. However, the defendants have refused to settle. Indeed, on November
15, 1995, Dr. Samani and Mr. DeRosa refused to execute a fully negotiated
settlement agreement or to meet with the Company's counsel. On November 17,
1995, the Company filed a motion to enter a default judgment against Dr. Samani,
Peter Samani and Thomas DeRosa. If successful, the Company's suit will result in
the cancellation of 1,973,066 shares of stock belonging to former management and
permanent injunctive relief.
ITEM 2. Changes in Securities
None.
ITEM 3. Default Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
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ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27. - Because this Quarterly Report on Form 10-QSB does not include
financial statements, the Financial Data Schedule is omitted.
(b) Reports on Form 8-K. The Registrant filed a Report on Form 8-K dated
September 18, 1995, reporting information under Item 5, Other Events.
99.1 - Verified Complaint, Stansbury Holdings Corporation v. Murton, et
al., Case No. 2:95CV 0947G (D. Utah)
99.2 - Preliminary Injunction Order, Stansbury Holdings Corporation v.
Murton, et al., Case No. 2:95CV 0947G (D. Utah)
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SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
STANSBURY HOLDINGS CORPORATION
BY: /s/ DAVID RACHER
--------------------------
DAVID RACHER
Treasurer
(Chief Financial Officer and
duly authorized corporate
officer)
DATED: November 28, 1995
EXHIBIT 99.1
JAMES G. WILES, ESQUIRE
LAW OFFICES OF JAMES G. WILES
Pa. I.D. No. 40496
Analisa Sondergaard
Pa. I.D. No. 74223
Two Penn Center Plaza
1500 JFK Boulevard
Suite 200
Philadelphia, PA 19102
Telephone: (215) 854-6360
JOSEPH E. HATCH, ESQ. [USB #1415]
JOSEPH E. HATCH, P.C.
341 South Main Street, Suite 201
Salt Lake City, Utah 84111
Telephone: (801) 532-2707
Attorneys for Plaintiff
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
STANSBURY HOLDINGS CORPORATION, : COMPLAINT FOR INJUNCTION
a Utah corporation, : AND DAMAGES
:
Plaintiff, : CASE NO. 2:95CV 09476G
:
v. :
:
ROBERT V. MURTON; THOMAS J. DEROSA; : JUDGE: J. Thomas Green
DR. SAMI SAMANI; PETER SAMANI; and :
CHARLES L. MCLAUGHLIN, :
:
Defendants. :
VERIFIED COMPLAINT
Plaintiff Stansbury Holdings Corporation, for its complaint against
defendants, alleges as follows:
1. This is a complaint for: (a) temporary, preliminary and permanent
injunctive relief enjoining (i) violations of Sections 13(d) and 10(b) of the
Securities Exchange Act of 1934, (ii)
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fraudulent transfers of stock and (iii) commencement of meritless foreclosure
litigation in a jurisdiction outside the United States District Court for the
District of Utah; and (b) monetary damages to recover for defendants' injury to
Stansbury by reason of their acts of breach of fiduciary duty, negligence, gross
negligence and fraud while serving as its management.
JURISDICTION AND VENUE
2. This Court has subject matter jurisdiction both (a) pursuant to 15
U.S.C. ss. 78aa in that plaintiff's claims in Counts I and II arise under the
laws of the United States, to wit: the Securities Exchange Act of 1934 and (b)
pursuant to 28 U.S.C. ss. 1332 in that plaintiff is a citizen of Utah and none
of defendants are citizens of Utah. There is complete diversity between the
parties; and the amount in dispute exceeds $50,000.
3. Venue is proper in this District because plaintiff is domiciled here and
defendants have committed acts within this District and outside this District
causing injury within this District; and defendants are being sued in their
personal capacities for wrongful acts committed while serving as officers and
directors of a Utah corporation, to wit: plaintiff.
PARTIES
4. Plaintiff Stansbury Holdings Corporation ("Stansbury") is a Utah
corporation whose shares are registered with the United
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States Securities and Exchange Commission pursuant to Section 12(g) of the
Securities Exchange Act of 1934. Stansbury has more than 4,000 shareholders,
with approximately 19,392,000 shares outstanding. Stansbury's shares are traded
on the over-the-counter market, although the shares are currently de-listed by
NASDAQ (the National Quotation System of the National Association of Securities
Dealers) because of the acts of mismanagement by defendants detailed below.
5. Defendant Robert V. Murton, at times relevant hereto, served as a
Director and as President and Chief Executive Officer of Stansbury. He is
presently believed to reside c/o M. Hobby, Ltd., 270 Sunset Road, Suite D-1, Las
Vegas, Nevada, 89120.
6. Defendant Thomas J. DeRosa, at times relevant hereto, served as a
Director and as Treasurer of Stansbury. He is believed to reside at 21 Fairmount
Terrace, West Orange, New Jersey.
7.Defendant Dr. Sami I. A. Samani is a dentist and, at times relevant
hereto, served as a Director of Stansbury. He is believed to reside at 146 Ridge
Road, North Arlington, New Jersey.
8.Defendant Peter Samani is the son of defendant Dr. Sami Samani and, at
times relevant hereto, served as a Director of Stansbury. He is an accountant
and is believed to reside at 146 Ridge Road, North Arlington, New Jersey.
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9.Defendant Charles L. McLaughlin, at times relevant hereto, served as a
Director and President of Stansbury. He is believed to reside at 247 East
Tahquitz Canyon Way, #25-27, Palm Springs, California.
FACTS COMMON TO ALL COUNTS
10.Stansbury is a development-stage mining company whose shares have traded
over-the-counter for approximately fifteen years. At times relevant hereto,
Stansbury maintained an office in Salt Lake City.
OVERVIEW
11. At times relevant hereto, defendant Murton served as the President,
Chief Executive Officer and a Director of Stansbury. The other defendants served
as members of the Board of Directors. For a time period presently unknown, but
believed to include 1993 - 1994, defendant McLaughlin served as President of
Stansbury.
12.Pursuant thereto, as directors and officers of Stansbury, defendants
owed to Stansbury and its shareholders fiduciary duties of good faith, undivided
loyalty, due care and fair dealing. As detailed below, defendants breached each
and every one of these duties, proximately resulting in compensable injury to
Stansbury.
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13.In addition, as detailed below, defendants are presently engaged in a
fraudulent scheme to commit the following wrongful acts:
(a)failure to make required filings individually or as a Section 13(d)
"group" in violation of Section 13(d) of the Securities Exchange Act of 1934, 15
U.S.C. ss. 78m(d);
(b)sale to innocent investors of stock of Stansbury illegally issued
by the defendants to themselves for no consideration or for grossly inadequate
consideration; and
(c)institution of a foreclosure suit in the State of Montana on second
mortgages on the Company's mineral claims there in an attempt to extort monies
from Stansbury to pay personal debts of certain defendants, which second
mortgages were entered into by defendants, acting on behalf of Stansbury, for no
consideration or for grossly inadequate consideration.
14.Plaintiff has no adequate remedy at law; and immediate irreparable
injury will result to Stansbury and the investing public if the illegal acts of
defendants are not temporarily, preliminarily and permanently restrained while
this Court holds a full trial on the merits on the issues, to wit:
(a)whether Dr. Samani individually or defendants collectively are
required to make filings pursuant to Section 13(d) of the Exchange Act;
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(b) whether any of the shares presently standing in the names of the
defendants are validly owned by them or were issued for legal consideration; and
(c) whether defendants have any valid and enforceable second mortgages
on Stansbury's mineral claims in Montana and, if so, how much was paid as
consideration for such mortgages.
Summary of Defendants' Wrongful Acts
15. From 1988 through December 12, 1994, Stansbury was under the control
and domination of defendants.
16.Throughout that time, defendants regularly and routinely solicited funds
from the investing public, including current shareholders of Stansbury, on the
basis of false promises regarding the use of the proposed funds.
17.Among other things, defendant Murton and others used their control of
two insurance companies headquartered in this District, Commercial Surety
Insurance Company and Southern American Insurance Company, to cause a first
mortgage on Stansbury's mineral claims to be issued in favor of those insurance
companies.
18.In or about January, 1991, the Commissioner of Insurance of the State of
Utah obtained a state court order declaring the insurance companies insolvent
and appointing the Commissioner as liquidator for those companies.
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19.As a result, the liquidator succeeded to the first mortgage; and
defendant Murton and others were ousted from their positions with those
insurance companies.
20.Nevertheless, defendants continued to mismanage Stansbury and to engage
in acts of negligence, gross negligence and self-dealing, including but not
limited to the following:
(a)failure to maintain Stansbury's corporate registration so that the
Stansbury ceased to legally exist in 1991;
(b)failure to keep corporate books and records as required by Utah
state law and the record keeping provisions of the Securities Exchange Act of
1934 so that, to date, no corporate books and records, including bank accounts,
books of account, balance sheets or income statements have been located for
years subsequent to June 30, 1991;
(c)failure to maintain Stansbury's qualification to do business as a
foreign corporation in Montana;
(d)failure to make required filings with the SEC, resulting in the
stock's de-listing by NASDAQ, the collapse of Stansbury's stock price and the
elimination of an efficient market for Stansbury's shares;
(e)failure to hold a shareholder meeting as requested by certain
shareholders, and as required by law;
(f) failure to pay Stansbury's debts when they came due;
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(g)failure to defend suits brought against Stansbury, resulting in the
entry of default judgments against Stansbury;
(h)failure to pay property and employment taxes when due, resulting in
distraints and tax sales of Stansbury's property;
(i) failure to file corporate income tax returns; and
(j)acts of self-dealing, including payment of grossly excessive
compensation to themselves and issuance of stock to themselves for no
consideration or for grossly inadequate consideration.
The Shareholders vote defendants out of office.
21.From 1990-1994, Stansbury did not hold a shareholders meeting. Its last
public filing with the SEC was an Annual Report on Form 10-K, for the year
ending June 30, 1991, filed in July, 1992.
22.In or about April 1994, a group of shareholders filed a Schedule 13D
announcing the formation of the Committee for New Management of Stansbury
Holdings Corporation (the "Committee").
23.The Committee demanded a copy of the shareholders list and requested
that a special shareholders meeting be called.
24.Instead, defendants refused and sought to frustrate the Committee's
attempt to elect a new board of directors.
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25.Initially, defendants refused to set a meeting date for a shareholder
meeting, as requested, or to furnish the shareholder list.
26.Defendants stated they would only call a shareholders meeting if the
Committee, and Stansbury, gave them general, unlimited releases absolving them
of all wrongdoing and an indemnification for all claims by Stansbury or others
arising out of defendants' tenure.
27.The Committee, therefore, instituted suit in Utah state court for an
order setting a meeting date and requiring production of the shareholder list.
28. An order granting the relief requested was entered on August 5, 1994.
29.Thereafter, the Committee conducted a proxy solicitation and held a
special meeting of Stansbury's shareholders on December 12, 1994.
30.The Committee's nominees were elected; and the Committee's nominees then
became the new Board of Directors of Stansbury, thereby ousting defendants from
all positions with plaintiff.
Defendants' Wrongful Acts Since the Shareholders Meeting.
31.On or before the time that the special shareholders meeting was being
held on December 12, 1994 to vote them out of office, defendants caused
Stansbury's transfer agent to issue to
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themselves approximately 1,973,066 shares of stock (the "December 1994 Stock").
32.Upon information and belief, the December 1994 Stock was issued for no
consideration or for grossly inadequate consideration.
33.The issuance of the December 1994 Stock also independently violated, and
constituted a contempt of, the Utah state court's order appointing the
Commissioner of Insurance as liquidator of the above-mentioned insurance
companies in that it had the effect of diluting the value of the liquidator's
interest in Stansbury.
34.A certified extract from the minutes of the directors meeting, signed by
Mr. McLaughlin as President of Stansbury, states that the December 1994 Stock
was issued in full satisfaction of all debts owed to defendants by Stansbury and
in lieu of payment in money.
35.As a result of learning of this stock issuance, plaintiff has placed
"stop orders" against all shares owned by defendants for a total of 4,228,109
shares, pending a factual and legal investigation.
36.Plaintiff has also learned that, on or about December 1, 1994,
defendants purported to issue to themselves Demand Notes in the total amount of
$342,295.23 (the "Demand Notes"). Issuance of the Demand Notes is, of course,
directly contrary to the above certified extract from the minutes.
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37.Since that time, plaintiff has repeatedly requested and demanded
information and documentation to support the legality of this issuance of the
December 1994 Stock and the Demand Notes.
38. To date, no complete or satisfactory information has been obtained.
39.Since December 12, 1994, the new Board of Directors has expended nearly
$200,000 in payments to creditors and legal, consulting and accounting fees
simply to begin to clean up the mess left behind at Stansbury by defendants,
including:
(a)reinstituting Stansbury's corporate status in Utah and registration
to do business as a foreign corporation in Montana;
(b) resuming public filings with the SEC;
(c)paying tax liens, redeeming corporate property from tax sales and
paying "priority" trade creditors; and
(d) negotiating forbearances with other creditors.
40. Repeatedly, since December 12, 1994, plaintiff has sought the
assistance and cooperation of defendants in this effort.
41. Defendants have refused to furnish any cooperation.
42. Among other things, plaintiff has asked defendants:
(a) to furnish copies of corporate books and records; and
(b)to make themselves available for interview by Stansbury's auditors.
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43.In or about September 18, 1995, plaintiff engaged Arthur Andersen & Co.,
L.L.P. ("AA"), to perform a GAAP audit of Stansbury's financial statements for
the year ended June 30, 1995.
44. Plaintiff has asked defendants to cooperate with AA in this audit.
45.Defendants have refused unless (a) they are released from all liability
to Stansbury; (b) certain of their debts are assumed by Stansbury; and (c) they
are allowed to keep all shares of Stansbury ostensibly owned by them and the
Demand Notes and the second mortgages.
46.After the change in management, the New Board learned that three
judgments had been entered against Stansbury in 1993 and 1994 while it was under
the defendants' management.
47.The first judgment, in the amount of $71,473, was entered in Utah in
1994 in favor of Mr. & Mrs. James Herd and subsequently registered in Montana
and New Jersey.
48.The second judgment was entered in Montana in 1994 in favor of the law
firm of Dorsey & Whitney in the amount of $85,310.10.
49.The third judgment was entered in New Jersey in 1993 in favor of a Mr.
Bauernfiend in the amount of $8,163.32.
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Facts Necessitating This Emergency Application
50.Recently, defendants DeRosa and Dr. Samani had personal judgments
entered against them in New Jersey (where they live) by the Herds upon personal
guarantees which they gave. An attempt to appeal the judgments was denied.
51. The Herds are now attempting to execute on DeRosa and Dr. Samani's
assets.
52.In or about June, 1995, an attorney for Dr. Samani and DeRosa presented
Stansbury shares believed to have been illegally issued to them to Stansbury's
transfer agent with a request that all transfer restrictions be removed.
53. On or about August 31, 1995, the transfer restrictions were removed and
the shares were reissued.
54.In or about September, 1995, upon information and belief, Dr. Samani
sold or offered his shares for sale on the open market to innocent third parties
who were unaware that those shares were not validly issued and were, in fact,
voidable at Stansbury's option.
55. At the same time, execution proceedings on the Herds' judgment against
Dr. Samani and DeRosa are underway.
56.Upon information and belief, DeRosa has transferred his assets into his
wife's name in an attempt to defraud the Herds of their judgment.
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57.By letter dated September 19, 1995, counsel for Dr. Samani and DeRosa
stated that his clients will commence a suit within thirty (30) days, or by
October 19, 1995, to foreclose on the second mortgages which they may hold
unless Stansbury agrees to pay Dr. Samani and DeRosa's debt to the Herds.
58.Counsel's letter was in response to a proposal by Stansbury dated August
29, 1995 to settle or pay such judgment in exchange for:
(a) defendants' cooperation with the audit;
(b) defendants' cancellation of the shares issued on December 12,
1994; and
(c) defendants' turnover to Stansbury or AA of all corporate books and
records in their possession.
59. Defendants have failed and refused to do any of the above items.
60.Plaintiff believes, and therefore alleges, that defendants will, unless
enjoined by this Court, commit the following wrongful acts:
(a)sell more shares of Stansbury to third party purchasers which do
not belong to them or which were issued for inadequate consideration; and
(b)file a foreclosure action in Montana to cause a sheriff's sale on
the Company's mineral claims.
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61.Should these acts come to fruition without court intervention, plaintiff
will immediately sustain the following irreparable injuries:
(a)it will be impossible to unscramble the stock sales and to recover
invalidly issued shares from bona fide holders in due course; and
(b)a sheriff's sale will trigger actions by other creditors which may
result in Stansbury's loss of its mineral assets or a corporate bankruptcy
filing.
62.In other words, defendants are threatening to blow up Stansbury - and
injure its 4,000 + shareholders - if they are not paid off.
63. Plaintiff has no adequate remedy at law.
COUNT I
[Violation of Section 13(d) of the Exchange Act]
64.Plaintiff repeats and incorporates herein by reference Paragraphs 1 - 63
of this Complaint as if fully set forth herein.
65. Plaintiff brings this Count pursuant to Section 13(d) of the Exchange
Act.
66. Defendants are beneficial owners of the following amounts and
percentages of shares of Stanbury's stock:
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Shares %
Murton 630,428 3.3%
DeRosa 430,720 2.3%
Dr. Samani 2,418,440 12.7%
Peter Samani 171,000 0.9%
McLaughlin 578,005 3.0%
------- ---
TOTAL 4,228,593 22.2%
67.Dr. Samani individually, and defendants collectively, all own in excess
of 5% of Stansbury's stock and have agreed to act jointly to buy, sell, vote and
hold such stock.
68.On or about December 12, 1994, defendants combined and agreed to hold,
buy, sell and vote their shares as a group, as defined in Section 13(d) of the
Exchange Act and SEC Regulations 15 C.F.R. ss.240.13d-1.
69.Pursuant to said Section 13(d) and SEC regulations, defendants are
required to file, but have failed to file, a Schedule 13D with the SEC and
Stansbury.
70. Defendants are, accordingly, in violation of Section 13(d) and 15
C.F.R.ss.240.13d-1.
71. Plaintiff has no adequate remedy at law.
72. Plaintiff and the investing public will sustain irreparable injury if
the relief prayed for is not granted.
WHEREFORE, plaintiff prays that the Court:
(a)grant temporary, preliminary and permanent injunctive relief (i)
enjoining defendants from selling, transferring, voting or offering for sale any
of their shares
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until defendants comply with Section 13(d) of the Exchange Act; and (ii)
enjoining defendants from commencing a foreclosure action in any court other
then the United States District Court for the District of Utah; and
(b)after full trial on the merits, cancel and forfeit to Stansbury all
shares of Stansbury standing in the name of defendants, as partial damages for
the injury done to plaintiff by defendants.
COUNT II
[Violation of Section 10(b) of the Exchange Act]
73.Plaintiff repeats and incorporates herein by reference Paragraphs 1 - 72
of this Complaint as if fully set forth herein.
74.Defendants' issuance of stock to themselves on or about December 12,
1995 for no consideration or for grossly inadequate consideration constituted a
fraud and deceit upon:
(a) Stansbury; and
(b)the Insurance Commissioner of the State of Utah, as liquidator for
Commonwealth Surety Insurance Company and Southern America Insurance Company.
75.Defendants' sale of invalidly issued securities to the investing public,
without appropriate disclosure, is a fraud and deceit upon their buyers.
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76.Defendants, therefore, have violated Section 10(b) of the Exchange Act
and SEC Rule 10b-5(c), proximately resulting in injury to plaintiff.
77. In so doing, defendants acted either recklessly or with actual intent
to defraud.
78. Plaintiff and the investing public will sustain irreparable injury if
the relief prayed for is not granted.
79. Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff prays that the Court:
(a)grant temporary, preliminary and permanent injunctive relief (i)
enjoining defendants from selling, transferring, voting or offering for sale any
of their shares; and (ii) enjoining defendants from commencing a foreclosure
action in any court other then the United States District Court for the District
of Utah; and
(b)after full trial on the merits, cancel and forfeit to Stansbury all
shares of Stansbury standing in the name of defendants, as partial damages for
the injury done to plaintiff by defendants.
COUNT III
[Breach of Fiduciary Duty]
80.Plaintiff repeats and incorporates herein by reference Paragraphs 1 - 79
of this Complaint as if fully set forth herein.
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81.As detailed above, defendants served, at relevant times hereto, as
officers and directors of Stansbury. At that time, they owed undivided fiduciary
duties of good faith, undivided loyalty, due care and fair dealing to Stansbury.
82. As detailed above, defendants breached each and every one of these
duties; and are today continuing to take further action intended to injure, and
having the effect of injuring, Stansbury and its shareholders.
83. Plaintiff has no adequate remedy at law.
84. Plaintiff and the investing public will sustain irreparable harm if the
relief prayed for is not granted.
WHEREFORE, plaintiff prays that the Court:
(a) grant temporary, preliminary and permanent injunctive relief (i)
enjoining defendants from selling, transferring, voting or offering for sale any
of their shares; and (ii) enjoining defendants from commencing a foreclosure
action in any court other then the United States District Court for the District
of Utah; and
(b)after full trial on the merits, cancel and forfeit to Stansbury all
shares of Stansbury standing in the name of defendants, as partial damages for
the injury done to plaintiff by defendants.
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COUNT IV
[NEGLIGENCE]
85.Plaintiff repeats and incorporates herein by reference Paragraphs 1 - 84
of this Complaint as if set forth in full herein.
86. As detailed above, defendants, at times relevant hereto, owed a duty of
due care to Stansbury.
87.As detailed above, defendants repeatedly breached this duty, proximately
resulting in loss and other compensable injury to plaintiff.
88. Plaintiff has no adequate remedy at law.
89. Plaintiff will sustain irreparable injury if the relief prayed for is
not granted.
WHEREFORE, plaintiff prays that the Court:
(a) grant temporary, preliminary and permanent injunctive relief (i)
enjoining defendants from selling, transferring, voting or offering for sale any
of their shares; and (ii) enjoining defendants from commencing a foreclosure
action in any court other then the United States District Court for the District
of Utah; and
(b)after full trial on the merits, cancel and forfeit to Stansbury all
shares of Stansbury standing in the name of defendants, as partial damages for
the injury done to plaintiff by defendants.
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COUNT V
[Gross Negligence]
90.Plaintiff repeats and incorporates herein by reference Paragraphs 1 - 89
of this Complaint as if set forth in full herein.
91.As detailed above, defendants, at times relevant hereto, owed a duty of
due care to Stansbury, and its shareholders.
92.As detailed below, defendants repeatedly breached this duty by
committing acts of gross negligence, proximately resulting in loss and other
compensable injury to plaintiff.
93. Plaintiff has no adequate remedy at law.
94. Plaintiff will sustain irreparable injury if the relief prayed for is
not granted.
WHEREFORE, plaintiff prays that the Court:
(a) grant temporary, preliminary and permanent injunctive relief (i)
enjoining defendants from selling, transferring, voting or offering for sale any
of their shares; and (ii) enjoining defendants from commencing a foreclosure
action in any court other then the United States District Court for the District
of Utah; and
(b)after full trial on the merits, cancel and forfeit to Stansbury all
shares of Stansbury standing in the name of
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defendants, as partial damages for the injury done to plaintiff by defendants.
COUNT VI
[Conspiracy]
95.Plaintiff repeats and incorporates by reference Paragraphs 1 - 94 of
this Complaint as if set forth in full herein.
96.Beginning in or about 1988, defendants combined, conspired and agreed to
enrich themselves through the diversion of stock and other assets of Stansbury
to themselves.
97.As and for a part of that conspiracy, which is continuing, defendants
committed, or aided-and-abetted, some or all of the overt acts alleged in
Paragraphs 13 and 20 and Counts III - V.
98.As and for a further part of said conspiracy, defendants willfully or
recklessly committed and/or aided-and-abetted the overt acts alleged in Count I.
99.As and for a further part of said conspiracy, defendants willfully or
recklessly committed the overt acts alleged in Count II.
100. In so doing, defendants acted with scienter, recklessness or gross
negligence.
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101.Said wrongful acts by defendants proximately resulted in compensable
injury to plaintiff in an amount in excess of $50,000.
102. Plaintiff has no adequate remedy at law.
103. Plaintiff will sustain irreparable harm if the relief prayed for is
not granted.
WHEREFORE, plaintiff prays that the Court:
(a) grant temporary, preliminary and permanent injunctive relief (i)
enjoining defendants from selling, transferring, voting or offering for sale any
of their shares; and (ii) enjoining defendants from commencing a foreclosure
action in any court other then the United States District Court for the District
of Utah; and
(b)after full trial on the merits, cancel and forfeit to Stansbury all
shares of Stansbury standing in the name of defendants, as partial damages for
the injury done to plaintiff by defendants.
COUNT VII
[Monetary Damages]
104.Plaintiff repeats and incorporates herein by reference Paragraphs 1 -
103 of this Complaint as if set forth in full herein.
105.As detailed above, defendants have engaged in violations of Section
13(d) of the Exchange Act, Section 10(b) of
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the Exchange Act and in breaches of fiduciary duty, negligence and gross
negligence, all in breach of their duties to Stansbury and its shareholders.
106.As a proximate result thereof, plaintiff has sustained injury in an
amount conforming to proof at trial but not less than $50,000.
WHEREFORE, plaintiff prays that the Court:
(a)cancel and forfeit all shares of Stansbury standing in the name of
defendants, as partial damages for the injury to plaintiff by defendants; and
(b) after full trial, award plaintiff its lawful damages, together
with costs, interest and such other relief as may be just.
DATED this 16th day of October, 1995.
LAW OFFICES OF JAMES G. WILES
By: /s/ James G. Wiles
-----------------------------
James G. Wiles
Analisa Sondergaard
Two Penn Center Plaza
Suite 200
1500 JFK Boulevard
Philadelphia, PA 19102
(215) 854-6360
JOSEPH E. HATCH, P.C.
By: /s/ Joseph E. Hatch
-----------------------------
Joseph E. Hatch
341 South Main Street
Suite 201
Salt Lake City, Utah 84111
(801) 532-2707
Attorneys for Plaintiff
Stansbury Holdings
Corporation
EXHIBIT 99.2
JAMES G. WILES, ESQ. (PA. #40496)
LAW OFFICES OF JAMES G. WILES
Analisa Sondergaard (PA. #74223)
Two Penn Center Plaza
1500 JFK Boulevard, Suite 200
Philadelphia, PA 19102
Telephone: (215) 854-6360
JOSEPH E. HATCH, ESQ. (USB #1415)
JOSEPH E. HATCH, P.C.
341 South Main Street, Suite 201
Salt Lake City, Utah 84111
Telephone: (801) 532-2707
Attorneys for Plaintiff
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
STANSBURY HOLDINGS CORPORATION, :
a Utah corporation, : PRELIMINARY INJUNCTION
:
Plaintiff, :
:
v. : Case No. 2:95CV 0947G
:
ROBERT MURTON; THOMAS J. DEROSA; : JUDGE J. THOMAS GREENE
DR. SAMI SAMANI; PETER SAMANI; and :
CHARLES L. MCLAUGHLIN, :
:
Defendants. :
The Motion for Temporary Restraining Order filed by Plaintiff Stansbury
Holdings Corporation was heard before the Honorable J. Thomas Greene on October
18, 1995. The Plaintiff was represented by counsels, Joseph E. Hatch and James
G. Wiles. A record was made of the attempts to convey notice of the hearing to
the Defendants. Defendants Thomas J. Derosa, Dr. Sami Samani and Peter Samani,
were represented by counsel Ben Zander, who
<PAGE>
appeared by telephone. The Court, upon receiving argument and proffers of
evidence, and being familiar with the contents of the Court's file, made its
findings on the record and enters the following:
IT IS ORDERED, ADJUDGED AND DECREED THAT:
1. Until further order of this Court, defendants are PRELIMINARY ENJOINED
AND RESTRAINED from buying, selling, transferring, encumbering, pledging,
hypothecating, voting or offering for sale any and all shares of Stansbury
Holdings Corporation standing in their name or in the name of any affiliate;
2. That no bond shall be required for this Preliminary Injunction; and
3. Plaintiff shall serve this Order upon defendants forthwith and file an
Affidavit of Service with this Court.
DATED this 19th day of October, 1995.
BY THE COURT
/s/ J. Thomas Greene
-----------------------------------
THE HONORABLE J. THOMAS GREENE
UNITED STATES DISTRICT COURT
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