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Replies to post #4146 on Velatel Global Comm. (fka VELA)
12/25/13 7:23 PM
12/25/13 8:11 PM
The Company is subject to the following legal proceedings that arise in the ordinary course of its business.
The Fischer Litigation
On May 22, 2009, a complaint was filed by Michael Fischer (“Fischer”) against the Company in the Central District of California of the United States District Court, identified as Case No. CV09-3682 VBF. The complaint alleged a claim for breach of contract relating to the Company’s default of a Convertible Note in favor of Fischer. The complaint requested damages in the amount of $1,000,000 plus interest, court costs and attorneys’ fees. The Company settled this case for $960,000. Through the date of this Report, the Company has paid $560,000 of the settlement amount. The Company intends to complete the settlement when sufficient funds are available to do so.
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The Gomez Litigation
On July 17, 2009, a complaint was filed by Edgar Pereda Gomez (“Gomez”) against the Company in the County of San Diego Superior Court of the State of California, identified as Case No. 37-2009-00094247-CU-BC-CTL. The complaint alleged a claim for breach of contract relating to the Company’s default of a Convertible Note in favor of Gomez. The complaint requested damages in the amount of $525,000 plus interest, court costs and attorneys’ fees. The Company settled this case for approximately $684,000. Through the date of this Report, the Company has paid approximately $455,950 of the settlement amount. The Company intends to complete the settlement when sufficient funds are available to do so.
The Olaechea Litigation
On December 13, 2010, a complaint was filed by Estudio Olaechea SOC. Civil DE R.L. (“Olaechea”) against the Company in the County of San Diego Superior Court of the State of California, identified as Case No. 37-2010-00105897. The complaint alleged a breach of contract arising from the Company’s default under a promissory note in favor of Olaechea in the amount of approximately $149, 500. The complaint requested damages in the amount of approximately $149,500 plus interest, court costs and attorneys’ fees. The Company settled this case for approximately $188,500. The Company has paid $47,500 of the settlement. The Company intends to complete the settlement when sufficient funds are available to do so.
The Chinacomm Litigation
On November 18, 2011, the Company and TCP (collectively, “Plaintiffs”), filed a complaint against Chinacomm Limited, Thrive Century International Limited, Newtop Holdings Limited, Smart Channel Development Limited, Mong Sin, Qiu Ping, Yuan Yi, Chinacomm and CECT Chinacomm Shanghai Co. Ltd. (collectively, “Defendants”) in The High Court of the Hong Kong Special Administrative Region, Court of First Instance, Action No. 1978 of 2011 (“Chinacomm Litigation”). The complaint was later amended to add Feng Xiao Ming as a defendant.
The Chinacomm Litigation arises out of the breach of numerous agreements between Plaintiffs and some Defendants, including, but not limited to, the Framework Agreement and the Subscription and Shareholders Agreements, related to the joint venture between the parties to those agreements for the deployment of the Chinacomm Network. In addition, the Chinacomm Litigation arises out of the deceitful representations by certain Defendants in connection with the issuance of licenses by certain regulatory agencies in China for the operation of the Chinacomm Network. Finally, the Chinacomm Litigation involves the unauthorized removal of Colin Tay as an authorized signatory to a joint bank account Chinacomm Cayman has with Standard Chartered Bank (HK) Limited (“Standard Chartered”), one of three Standard Chartered bank accounts in the name of Chinacomm Cayman and into which Plaintiffs deposited $4,749,599. The Chinacomm Litigation seeks injunctive relief to prevent Defendants from utilizing or dissipating the deposited funds pending the trial of the action and compensatory damages in excess of $1 million plus interest and court costs. Injunction orders have been issued and remain in place prohibiting Defendants from utilizing or dissipating the deposited funds. The parties are currently engaged in discovery related to their respective positions in the case.
The Sino Crossings Arbitration
On July 13, 2012, Azur served a notice of arbitration against the Company. On July 31, 2012, Azur filed a Notice of Arbitration with the Hong Kong International Arbitration Centre (“HKIAC”). The Notice of Arbitration alleged that Azur suffered damages and losses due to breaches by the Company in implementing the terms of the Sino Crossings Agreements. In the claim, Azur demanded acknowledgment of termination and a declaration of rescission of the Sino Crossings Agreements. Further, it demanded indemnification by the Company for Azur’s claimed damages, including $2,000,000 Azur paid to YYNT pursuant to the first Sino Crossings Agreement. On August 11, 2012, the Company responded to the allegations of Azur. It asserted counterclaims against Azur and named additional parties, including YYNT. The Company requested HKIAC to permit the Company to join YYNT and others into the arbitration proceeding. An arbitrator has been appointed, but there have been no rulings on the Company’s request to join additional parties or on any substantive matters.
The Ace Litigation
On January 15, 2013, a complaint was filed by Ace American Insurance Company (“Ace”) against the Company in in the County of San Diego Superior Court of the State of California, identified as Case No. 37-2013-00029913. The complaint alleged breach of contract for the Company’s failure to pay $37,603 as premium due on a commercial general liability insurance policy in force from March 30, 2012 through May 30, 2012, plus interest. The Company is waiting for Ace to provide a copy of the insurance policy it issued to the Company and the amount allegedly due thereunder.
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The Westmoore Receiver Litigation
On March 22, 2013, David Gill (“Receiver Gill”), in his capacity as Court-Appointed Receiver for Westmoore Management, LLC, Westmoore Investment, LP, Westmoore Capital Management, Inc., Westmoore Securities, Inc., Westmoore Capital, LLC, Westmoore Lending Opportunity Fund and Westmoore Holdings, Inc. (collectively, the “Westmoore Entities”), et al. filed a First Amended Complaint against Active Resources, Inc., Ceralta Medical Institute, Inc., Sam J. Arrietta, Michael Wall, Hodgson Russ, LLP, Mobile Truss, Inc., Trussnet Delaware, Trussnet Nevada, the Company, Capital Truss, Inc., George Alvarez, Changestar Corporation, Primetech Consulting, Inc., Servimax Financial, Inc., Servimax Financial, LLC, Waters Winery, LLC, The Tippet Fund, LP, TSB Company, Inc., Craig Brod, Factory MX Parts, LLC, Maplewood Solutions, LLC, Jason D. Huntley, Fix N Flex, LLC, Christine Hasir, Lighthorse Ventures, LLC, Paul Bickford, Linas Kleiza, Nita Criswell, Scott Leventhal, Sugarman Family Partners L.P., and Quartz Rock, LLC. The First Amended Complaint was filed in the Central District of California of the United States District Court, identified as Case No. SACV-12-02236 AG. It arises out of an alleged “Ponzi scheme” by the Westmoore Entities pursuant to which the Westmoore Entities transferred funds to one or more of the defendants while the Westmoore Entities were insolvent. The First Amended Complaint seeks damages in an undisclosed amount, injunctive relief and foreclosure of a real estate lien related to Active Resources, Inc. The Company has voluntarily produced documents to Receiver Gill in an effort to show that the alleged claims against the Company, Mr. Alvarez and others are without merit and has formally requested Receiver Gill voluntarily dismiss the claims against them.
The China Holdings Arbitration
On July 20, 2013, the Company and Gulfstream Seychelles (collectively, “Claimants”) commenced an arbitration proceeding (“China Holdings Arbitration”) by filing a Notice of Arbitration with Hong Kong International Arbitration Centre against the sellers (collectively “Respondents”) from whom the Company acquired its equity interest in China Motion. The terms of the stock purchase agreement (“SPA”) and related transaction documents (“China Motion SPA Documents”) between Claimants and Respondents for the Company’s acquisition of 100% of the capital stock of China Motion are further described in Note 18 – Acquisition). Claimants alleged Respondents breached the China Motion SPA Documents by interfering in the day-to-day management of China Motion in various ways that exceeded the limited oversight granted to Respondents while a portion of the purchase price remains unpaid, pursuant to the terms of the China Motion SPA Documents. Such interference by Respondents includes: (i) delaying and interfering with China Motion’s processing of the Company’s invoices for technical services rendered to China Motion; and (ii) refusing to change signature authority on the bank accounts maintained by China Motion in a manner that would allow the Company’s representatives to approve or issue payments from those accounts without also obtaining the authority or counter-signature of a representative of the Seller. Claimants sought the following relief in the arbitration: (iv) declaring Respondents had breached the China Motion SPA Documents; (v) enjoining Respondents from future interference in the management of China Motion; and (vi) for recovery of Claimants past and future damages caused by Respondents’ breach of the China Motion SPA Documents. The Notice of Arbitration did not quantify Claimants’ damages, but Claimants alleged such damages may include the following categories of damage: (a) additional audit and legal fees associated with restating the Company’s past financial statements, (b) diminution in value of Claimants’ equity or capital raising ability as a result of restating the Company’s past financial statements or inability to include the current financial results of China Motion in the Company’s future consolidated financial statements; (c) diminution in value of China Motion’s equity; (d) harm to China Motion’s business reputation, corporate opportunities or potential concession opportunities; (e) other incidental and consequential damages; and (f) attorney fees and other costs and disbursements Claimants incurred in prosecuting the Arbitration.
The China Holdings Arbitration was resolved and dismissed as a result of transactions with Respondents and others that occurred after the period ending September 30, 2013, which events are described in Note 18 – Acquisition.
