Rebuttal Part III
Link to Rebuttal Part I and Part II
Message 5417792
Message 5424310
Continuation of Poisontasters "Comprehensive Report Part V (a)
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The Cornerstones of His Argument Are Fatally Wrong
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There are two cornerstones to his argument.
Cornerstone number 1: the 5 million dollar loan is for show only.
Cornerstone number 2: Gordon sold his 6,480,000 in the open market.
Both of them are distortions.
Poisontaster, You have assessed properly one of the two cornerstones of my argument. Mr. Gordon's sale of 6,480,000 shares.
However you are incorrect with your assessment of cornerstone #1.
My #1 cornerstone argument has always been TSIG's severe cash crisis, and the potentially negative impact that this could have on TSIG investors. Cash is King. Without it the best idea's, hopes and dreams go unrealized. This was obviously the case with "Phoenix". I have no doubt that the goals, hopes, dreams, and plans for "Phoenix" were very lofty, and perhaps attainable sometime in the future.
However, the fact remains that all of these noble aspirations were extinguished due to lack of cash neccessary to implement the plan to it's completion.
The argument that I have presented regarding the validity of the 5 million dollar note is merely a sub-chapter to the cash crisis theme.
Supportive background
My first substantive post on the thread was in answer to Nigel. Nigel, asked:
"BTW what kind of investigating did you do to come up with your decision?"
To: Nigel (862 )
From: JEFF BERRY Monday, Jun 1 1998 6:35PM ET
Reply # of 3302
<<<Nigel, My decision to pass on tsig is based on a number of factors.The foremost being short term cash requirements.It is no doubt apparent to anyone reading the 10q and the 10k that liquidity poses a serious risk to the sustained operation of the company. With revenues virtually non-existent cash continues to be consumed at an alarming rate. Where will the cash come from to sustain operations? The tsig bulls are convinced that management will continue to fuel the cash furnace until the company is able to sustain self. I agree that it is a positive sign to see management and in particular Mr Gordon putting their own money on the table, and I would not expect to see them throw in the hand if they do have a mountain of cash waiting in the wings. However there is nothing to indicate to me that cash will be available. On the contrary I am convinced that indications point to a drying up of cash that could result in negative consequences for all tsig investors. One such indication is the obligations due the I.R.S. as of 12/31/97. It is apparent that this obligation is not for income taxes. At the very least it represents an obligation for the companies portion of F.I.C.A. At the very worst (and in my opinion most likely it) it represents failure to pay federal payroll withholding taxes. It is quite common for cash strapped companies to fall into this trap. If this is the case it is cause for serious concern. For one,such obligations carry stiff penalties and are rarely excused against responsible officers of the company. Even in the event of corp.bankrupcy responsible officers remain personally responsible for these obligations.......If the obligations due the IRS were strictly related to the company's portion of fica the amount, although carrying stiff penalties as well, it would not have been a huge sum and I believe it would have been paid prior to year end so as to not show up in the notes. The 10k published in May does not indicate (as it could have in the notes)that the 12/31/97 oblligation has been satified. This leads me to conclude that it is a sizable sum.
The question that concerned me most: If the company has available cash resources available from its management,why would management allow such a potentially damaging obligation with continuing penalties to go unpaid?....Especially so when you consider the personal responsibillity of the responsible officers?......
Respectfully, JAB>>>
Poisontaster, As a side note: My speculations concerning the IRS obligations for payroll withholding was the first time that this important DD had ever been raised on the thread. After raising this issue, questions regarding it were posed to Mr. Gordon in a CC with Gambler and Beebs...... Mr. Gordon confirmed the obligations for payroll withholding. This DD was thus valuable to TSIG investors as it resulted in added knowledge of the risks associated with the investment.
Nigel, responded to my TSIG cash concerns:
To: JEFF BERRY (905 )
From: Nigel Monday, Jun 1 1998 8:17PM ET
Reply # of 3302
Jeff,
>>>Where will the cash come from to sustain operations?<<<
That's the big question and the one thing that also bothers me about TSIG, I think that is also the reason we are trading at .40 and not 4.00. That being said Mr. Gordon has put up $5,000,000 of his own money, that's a start.
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Poisontaster, My post #910 that you herein refer to as my #1 cornerstone argument was in response to Nigel's understanding that Mr. Gordon had already put up 5 million toward satisying the existing cash crisis.
Since you have taken two words from my post #910 to center much of your claim that I am a nefarious distorter of facts, I will post the message in it's entirety.
To: Nigel (909 )
From: JEFF BERRY Monday, Jun 1 1998 11:21PM ET
Reply # of 3303
Nigel,
Thanks for your post.......You make mention that Mr. Gordon has put up $5 mill of his own money. I assume you are referring to the revolving credit note signed in April as referenced in the 10q. While the money could very well be there and available to tsig to help satify short term liquidity needs, it is by no means guaranteed to be there. Mr. Gordon has not parted with 5 mill of his own money. The note specifically states that the borrower may not be indebted in aggregate by more then 1 million at any given time. It also says that Mr. Gordon at his sole discretion may choose to veto any draws that the corp. may deem neccessary to make. Additionally, the note allows Mr. Gordon the option of converting any indebtedness incurred under the loan at any time into tsig shares at .15 a share.......Nigel,when I examined the note in detail I became suspicious of the nature of the transaction.....While Mr Gordon could be the knight in shining that will rescue tsig from cash starvation, it is also possible that Mr Gordon does not of 5 mill left to his name and the note is nothing more then a ploy to provide security to investors who may have tanked the stock when the 10q was released with the absence of short term cash plan........According to their filings tsig is pusuing a business combination or roll up. In speaking with Bill Kabesh last friday he indicated that a private placement that has been rumored was either delayed or derailed. He indicated that his discussions with Mr Gordon centered on a 200 million roll-up as the hope for tsig's bright future. If such a roll-up were to ever occur the value of tsig stock would determine the percentage of the new roll-up company that tsig investors would own. With management holding a sizable number of outstanding shares they can not afford to see the stock tank during these discussions. Would maintaining stock price stability be in the best interest of the rest of tsig shareholders as well?.....Perhaps, if such a roll-up were to actually come to fruition over the next few months.....(In my opinion unlikely since transactions of this size involving multiple companies rarely go as smoothly and quickly as contemplated.) However, the foregoing renders the 5 mill note as nothing more then window dressing. In fact it could even viewed as a stock option for Mr. Gordon. under the terms of the note he can choose to to loan money at his own discretion and then choose to convert the indebtedness into shares at .15 a share.(potentially illegal under sec laws).....Thus even if my bearish suspicions are off target I am still concerned with the nature of the transaction that provides Mr Gordon with all the beneficial options to be excercised at his discretion at any time to acquire stock at .15 that is being purchased by everyone else at nearly three times his option. No doubt he is in a better position to value the stock then you or I.....After reviewing the terms of the note it would seem that if someone were truly bullish on tsig there best bet would be to contact the company direct and loan money to the corp under the same terms as Mr Gordon then convert the indebtedness into .15 shares.........Respectfully, JAB
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Poisontaster, The issues that I addressed in Post #910 were in response to Nigel's feeling of security that the short cash crisis was not a major issue, in view of the 5 million that Nigel felt had been put up by Mr. Gordon.
Others on the thread had also expressed their understanding that Mr. Gordon had already ante'd up with the 5 million.
I raised a number of valuable issues, that had never been raised on the thread previously:
a)The note did not mean that Mr. Gordon had loaned 5 million to TSIG
b)The note did not require Mr Gordon to provide a guaranteed means to ensure that funding of the note would be available.
c)Mr. Gordon was not obligated by the note to provide TSIG funds against it. ....Based on his sole authority, perogative and opinion, he could veto all requests for draws against the note.
d)The terms of the note clearly indicate that TSIG could not be indebted to Mr. Gordon by more then $1,000,000 at any given time. Thus in practicality rendering it a 1 million loan facility.
e)Mr. Gordon had the option of converting indebtedness under the note into .15 TSIG shares.
Poisontaster, All of these issues were and are valid concerns that were worthy of consideration on the thread. They do qualify as DD for all TSIG investors who are truly concerned with evaluation of investment risk. My raising of these issues resulted in further valuable discussion on this subject by others on the thread. It also resulted in questions to Mr. Gordon regarding these issues.
Mr. Gordon's never addressed the actual issues that were raised. Instead he summarily dismissed all of these issues by stated that the loan was not going to be needed since the 7.5 million PP was already fully committed and due to be completed by mid-July.
To: Gennaro (1011 )
From: Beeblebrox Thursday, Jun 4 1998 4:40PM ET
Reply # of 3304
******ALL*******
Gambler and I had a conference call today with Robert Gordon, the CEO of TSIG.
The following are answers to various questions we posed to Mr. Gordon that we gathered according to questions and concerns on the thread.
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1-The private placement is in final negotiations and they have had commitments for entire $7.5 million dollars already.....Gordon anticipates full completion by mid July.
6-Gordon's 5 million dollar line of credit is a non-issue as well. Gordon says the 5 million dollar loan is not going to be needed due to the private placement. Again, the PP is in final negotiations and they have commitments for the entire 7.5 million. The deal will be complete by mid -July but that does not mean that they will not receive cash before then Mr. Gordon was quick to point out.
I hope this helps alleviate some of the concerns expressed on the thread.
Take care all.
Best regards,
Beeblebrox
Gambler
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Poisontaster, My DD on the 5 million loan issue was a valuable contribution to the thread. However, in your efforts to malign me as a nefarious liar, and distorter of facts, you never once acknowledge that value of the issues that were raised. Instead you choose to focus in on two words contained in my post as a basis for your condemnation of me as someone who is wicked and vile.
You have blown these two words up, way out of proportion. You claim that those "two words" are the basis for the cornerstone of my #1 argument... That, is complete misrepresentaion on your part!
The fact is, that I have never addressed the conversion of Mr.Gordon's loan into shares since I first raised the issue in Post #910. This is due to Mr. Gordon's claim that the loan would never be utilized. Hence a "non-issue"
Yet you have taken those "two words" and have made them the foundation for presenting a substantial portion of your argument against me.
That said, Lets examine your argument regarding those "two words"
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Cornerstone #1: $5 Million Loan
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Please open Exhibit 5B : Revolving Credit Loan Agreement
----JAB's Reply 910, paragraph 1:
".....While the money could very well be there and available to TSIG to help satisfy short term liquidity needs, it is by no means guaranteed to be there. Mr. Gordon has not parted with 5 mil of his own money. The note specificially states that the borrower may not be indebted in aggregate by more than 1 million at any given time. It also says that Mr. Gordon at his sole discretion may choose to veto any draws that the corp. may deem necessary to make. Additionally, the note allows Mr. Gordon the option of converting any indebtedness incurred under the loan at ANY TIME into TSIG shares at $0.15/share........"
=== [fact #1] ===
In Section (1.c.) the agreement does say:
" ...; at no time shall the aggregate obligation of Borrower (TSIG) to Lender (Gordon) exceed One Million U.S. Dollars (US$ 1,000,000)."
=== [fact #2] ===
In Section (1.c) the agreement does say:
"Advances under the Revolving Credit may be made, at the discretion of Lender (Gordon) in accordance with the terms of this Agreement, at any time prior to Repayment Date upon receipt by Lender of oral or written request therefor from Borrowere (TSIG).
=== [distortion #1]===
JAB said (Reply #910) ".. the note allows Mr. Gordon the option of converting any indebtedness incurred under the loan at ANY TIME into TSIG shares at $0.15 shares." That is an absolute lie, manipulation, and misinformation.
Poisontaster, lets talk about the real distortion.
You have presented a quotation from me as evidence to support your claim that I have willfully and insidiously distorted facts. However let me copy the actual words that were posted to the thread.
"the note allows Mr. Gordon the option of converting any indebtedness incurred under the loan at any time into tsig shares at .15 a share."
In your quotation of me, you have CAPITALIZED the words any time. Although it is readily provable by any who look at the evidence, that I did not use CAPITAL letters.
Your use of ALL CAPS in quoting me is a crafty misrepresentation on your part. Your use of ALL CAPS in quoting me is a very insidious attempt on your part to support your argument of me as a nefarious liar and distorter of facts.
Your use of ALL CAPS conveys to the readers of your propaganda, the message that I deliberately chose to make those words stand out, so as to give them greater weight and to leave a deeper and stronger impression.
That is an absolute falsehood! And a complete misrepresentation!
With the foregoing background complete, lets now examine the two words "any time", and determine if they were properly used or as claimed by Poisontaster, an insidious and blantant attempt of willful distortion.
In Section (4), the agreement says:
"....Repayment of Principal and Interest in Common Stock of Borrower at Option of Lender. Lender shall have the right to demand payment from Borrower of all principal and interest due and payable hereunder and under the Note, inwhole or in part, in the form of restricted shares of Common Stock of the Borrower. The number of shares of Common Stock of the Borrower that would be issued to Lender in payment of any amount due to Lender would be determined by totaling all principal and interest due (the "Amount Due") as of the date that payment is due and demand for payment may be made under this Agreement (the"Demand Date") and dividing the Amount Due by fifteen cents ($.15)."
The due date of this loan is stated in Section (1.a)
"a. The term of the Revolving Credit shall begin on the datehereof and shall end on April 22, 1999, unless accelerated pursuant to Section 5 hereinbelow (the "Repayment Date")."
So the loan is due on April 22, 1999, unless TSIG defaults on the loan. See Section 5.
Therefore, contrary to JAB's claim, Gordon could not have converted these debts, if any, into $0.15 per share until April 22, 1999 or when TSIG defaults.
Poisontaster, The key phrase in your conclusion is "or when TSIG defaults".
When examining any contract for binding validity, especially between related parties, the most crucial elements are the "backdoor" clauses, and which party do they favor.
As you have correctly stated, Mr. Gordon has the legal right under the terms of the contract to convert his indebtedness into .15 shares if TSIG is in default as described in the Section #5 of the loan document.
What are some of the events that would result in TSIG's default,resulting in acceleration of TSIG's obligations to Mr. Gordon?
From the loan document, Section 5
5. Events of Default; Acceleration. Any or all of the liabilities of Borrower to the Lender in connection with the Revolving Credit shall, at the option of Lender, be immediately due and payable upon the occurrence of any of the following events of default (each of which shall be hereinafter referred to
as an "Event of Default"):
d) issuance of any injunction or of an attachment or judgment against any property of Borrower that is not discharged within thirty (30) days after issuance;
e)....or the failure by Borrower generally to pay Borrower's debts, as the case may be, as they become due
f) a change in the condition or affairs (financial or otherwise) of Borrower that in the opinion of the Lender increases Lender's risk in connection with the Revolving Credit or impairs the prospect of timely payment of the Revolving Credit
h) failure of a "Condition of Lending" described hereinafter in Section 7. For purposes of the Section 5, an Event of Default by any subsidiary of Borrower shall be deemed an Event of Default by Borrower
Poisontaster, As contracts with "backdoor" provisions go, this one is so large, a herd of elephants could march through it! With room to spare!
At the time of the loan filing TSIG was already in violation of 5(d)
From Poisontasters "Comprehensive Report" 5(G):
6. Camino Real Associates, Inc. and Brian D. Chipman filed a lawsuit against the Registrant's subsidiary, VSIC (under its prior name, Visitors Services, Inc.), in the District Court, El Paso County, State of Colorado, on June 20, 1997, claiming damages of approximately $100,000 for alleged payments owed under a Trade License Agreement with the Plaintiffs that was assumed by
VSIC when it acquired the assets of Global Reservation Systems, Inc. A Default Judgment was entered on January 8, 1998, and VSIC has been making payments to Plaintiffs in accordance with an informal payment schedule.
Fact The judgement against TSIG's subsidiary was made on 1/28/98. The Revolving credit note was signed 4/23/98. The debt from the underlying judgement had not been discharged as of 5/20/98 (The day of the 10QSB filing) Thus, TSIG was already in violation of of default provision (b)
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At the time of the loan filing TSIG was already in violation of 5(e)
From the 10Q filed 5/20/98
13) Creditor Delinquencies
The Company is materially delinquent on payment of various creditor obligations including various obligations to the Internal Revenue Service.
Failure to pay these balances due could result in the inability of the Company to continue in business.
Also from the 10Q filed 5/20/98
Limited Working Capital; Financial Instability
As of March 31, 1998, the Registrant had a negative stockholder's
equity of ($5,873,256), an accumulated deficit of ($28,093,769), and a working capital deficit of ($6,247,685).
Various factors effecting the Registrant's operations raise doubt as
to the Registrant's ability to continue as a going concern. There can be no assurance that the Registrant will be able to continue as a going concern, or achieve material revenues and profitable operations. The Registrant is dependent upon sufficient cash flows from operations to meet its short term and long-term liquidity needs. These operations have not and are not expected to provide sufficient cash flows, and as such the Registrant requires additional financing.
Facts As of 4/23/98 (date of 5 million note) TSIG was not generally paying it's debts, as they become due.
The "limited working capital,financial instability" statement clearly indicates that this pattern will continue until adequate additional financing is acheived.
The additional financing has not been met by virtue of Mr. Gordon's signing of the 5 million note. The 5 million note was filed as part of the 10Q filing on 5/20/98. If the note provided sufficient financing the additional financing need would not have been neccessary.
Has the adequate additional financing been completed? Not according to Mr. Gordon. During the conference call on 8/5 he indicated the PP had not been completed. He also indicated that the IRS debt was still unpaid. He has indicated in the 6/30 CC that paying the IRS obligation is a top priority. Thus, If obligations to the top priority creditor remains delinquent. lower priority creditors would fare no better.
Thus based on all the evidence we must conclude TSIG remains in default under the provisions of 5(e), of failing to "generally" pay it's debts as they become due.
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The "backdoor" is blown off it's hinges when you consider the nature of 5(f)
f) a change in the condition or affairs (financial or otherwise) of Borrower that in the opinion of the Lender increases Lender's risk in connection with the Revolving Credit or impairs the prospect of timely payment of the Revolving Credit.
Who's opinion?.....Mr. Gordon's!
Mr. Gordon not only controls the "frontdoor" by virtue of his veto power to reject any request for funds under the note. He also completely controls the "backdoor"! In Mr. Gordon's exclusive and sole opinion, he has the unyielding authority to invoke his opinion priviledge and declare TSIG in default at "any time".
As a condition of default Mr. Gordon may at his option, convert any and all indebtedness into .15 shares of TSIG stock.
The bottom line is this:
Mr. Gordon under the terms of the loan document has the authority to convert any indebtedness in .15 shares at "any time".
For the benefit of Poisontaster, I will rephrase the above statement.
Mr. Gordon under the terms of the loan document has the authority to convert any indebtedness in .15 shares at "ANY TIME"!
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This concludes Part III of my rebuttal. I will continue with Part IV where I have left off in this document, and will begin with a consideration of:
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poisontaster's assessment of Cornerstone #1
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Best Regards, JAB |
