-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IwcmM4T89YnE6+bzELOa+J8lhQ+8OqiSDD2vn6lIvqjzmOf8qypCvZ+NJ9UPVhVW 2ksO1PMjxFFnhb7BxPtkLw== 0000912057-01-518235.txt : 20010601 0000912057-01-518235.hdr.sgml : 20010601 ACCESSION NUMBER: 0000912057-01-518235 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20010531 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SALES ONLINE DIRECT INC CENTRAL INDEX KEY: 0001017655 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 731479833 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-51413 FILM NUMBER: 1652041 BUSINESS ADDRESS: STREET 1: 4 BRUSSELS STREET STREET 2: SUITE 220 CITY: WORCESTER STATE: MA ZIP: 01610 BUSINESS PHONE: 5166254040 MAIL ADDRESS: STREET 1: 7633 EAST 63RD PL STREET 2: SUITE 220 CITY: TULSA STATE: OK ZIP: 74133 FORMER COMPANY: FORMER CONFORMED NAME: SECURITIES RESOLUTION ADVISORS INC DATE OF NAME CHANGE: 19980814 FORMER COMPANY: FORMER CONFORMED NAME: ROSE INTERNATIONAL LTD DATE OF NAME CHANGE: 19960627 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: STENGEL MARC CENTRAL INDEX KEY: 0001081229 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: C/O SECURITIES RESOLUTION ADVISORS INC STREET 2: 4 BRUSSELS STREET CITY: WORCESTER STATE: MA ZIP: 01610 BUSINESS PHONE: 5087530945 MAIL ADDRESS: STREET 1: C/O SECURITIES RESOLUTION ADVISORS INC STREET 2: 4 BRUSSELS STREET CITY: WORCESTER STATE: MA ZIP: 01610 SC 13D/A 1 a2050850zsc13da.txt 13D_2007 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D (RULE 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO 13d-2(a) (AMENDMENT NO.1)* Sales Online Direct, Inc. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock of the Par Value of $0.001 Per Share - -------------------------------------------------------------------------------- (Title of Class of Securities) 794661108 - -------------------------------------------------------------------------------- (CUSIP Number) Alan Richard Sachs, Esquire; West Road Corporate Center, Suite 227, 110 West Road, Towson, MD 21204; (410)847-9100 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) May 29, 2001 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13D to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box / /. NOTE: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. (Continued on following pages) (Page 1 of 11 Pages) - ------------- *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page. The information required in the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D
- ------------------------------------------------ ------------------------------------ CUSIP NO. 794661108 PAGE 1 OF PAGES ----- ---- - ------------------------------------------------ ------------------------------------ - ----------- --------------------------------------------------------------------------------------- -------------------------------- 1 NAME OF REPORTING PERSON S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Marc L. Stengel - ----------- --------------------------------------------------------------------------------------- -------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / / (b) /X/(1) - ----------- --------------------------------------------------------------------------------------- --------------------------------
(1) Marc L. Stengel ("Stengel"), the Reporting Person, is a party defendant in the case of SALES ONLINE DIRECT, INC. V. MARC STENGEL, ET AL., filed in the United States District Court for the District of Maryland, Civil Action No. WMN-00-1621 (the "Maryland Case"). In the Maryland Case, the plaintiff, Sales Online Direct, Inc. (the "Company"), filed a Complaint against Stengel in June 2000. The Company amended its Complaint on October 11, 2001, to add new parties as defendants and to make new allegations against Stengel and the other defendants (the "Amended Complaint"). The Amended Complaint alleged that Stengel made various misrepresentations of material fact upon which the Company relied in entering into various transactions with Stengel, as a result of which Stengel acquired Stengel's 12,925,119 shares of the common stock of the par value of $0.001 per share (the "Common Stock") of the Company. The Amended Complaint further alleged common law fraud, violations of the Maryland Securities Act, breach of contractual warranties, breach of employment contract and conversion of assets and personnel. The Company sought rescission under the fraud and securities act claims. In addition, the Company claimed damages ranging from $500,000 in compensatory damages to $50,000,000 in compensatory damages and $50,000,000 in punitive damages in the various damage counts of the Amended Complaint. Subsequent to filing the Amended Complaint, the Company filed a Motion for Preliminary Injunction in which the Company sought to enjoin Stengel from selling any of his shares of Common Stock of the Company. Stengel filed a Cross Motion for Injunctive Relief seeking an order directing the Company to immediately instruct the Company's agents to take all steps necessary to effectuate the sale of Stengel's shares of Common Stock of the Company pursuant to Rule 144 under the federal Securities Act of 1933 ("Rule 144") and to enjoin the Company from interfering with, or in any way preventing, future sales of shares of the Common Stock of the Company owned by Stengel under Rule 144. Stengel also filed a counterclaim (the "Counterclaim") against the Company alleging that the Company intentionally and unintentionally violated Section 8-401 of the Maryland Uniform Commercial Code and violated Delaware law, 8 Del.C. Section 158; and including claims for trespass to chattels, intentional interference with prospective advantage and conversion. The Countercliam sought relief in the form of an order substantially similar to the order sought by Stengel in Stengel's Cross Motion for Injunctive Relief, compensatory damages of $500,000 and interest and costs for each violation and claim. The Counterclaim has been opposed by the Company and is pending and at issue. Stengel also filed a motion to dismiss (the "Motion to Dismiss") the fraud and Maryland Securities Act claims of the Amended Complaint on the ground that they failed to state claims upon which relief could be granted. After extensive evidentiary hearings, Judge William M. Nickerson by Order dated March 19, 2001, denied the Company's Motion for Preliminary Injunction and granted Stengel's Cross Motion by enjoining ". . . [the Company], its officers, directors, shareholders, agents, servants and employees from blocking, preventing, or interfering with any sale of [Common] [S]tock [of the Company] by [Stengel] consistent with SEC Rule 144 during the pendency of this action . . .". By Memorandum opinion dated March 19, 2001, Judge Nickerson found, among other things, that Stengel and Stengel's aunt, Mrs. Hannah Kramer ("Kramer") were ". . . acting `in concert' in the disposition of their shares . . ." of the Common Stock of the Company. Despite such finding, Stengel denies that he was ever "acting in concert" with Kramer in the disposition of their respective shares of Common Stock of the Company. Although Stengel, a former officer and director of the Company, and Kramer, a former director of the Company, acquired their respective shares of Common Stock in the Company in the manner described in Item 3 of their original Schedule 13D filed with the SEC on March 8, 1999 (the "Original Schedule 13D"), which Item 3, insofar as it relates to Stengel, is incorporated by reference herein ("Original Item 3"), Stengel disclaims membership (continued...) - ----------- --------------------------------------------------------------------------------------- ------------------------------- 3 SEC USE ONLY - ----------- --------------------------------------------------------------------------------------- ------------------------------- 4 SOURCE OF FUNDS* OO - ----------- --------------------------------------------------------------------------------------- ------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) / / - ----------- --------------------------------------------------------------------------------------- ------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES OF AMERICA - ----------- --------------------------------------------------------------------------------------- ------------------------------- - ----------- --------------------------------------------------------------------------------------- ------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 12,250,119 ------------------------------------------------------------------------------------------------ OWNED BY EACH REPORTING PERSON WITH -------- ------------------------------------------------------------------------------------------------ -------- ------------------------------------------------------------------------------------------------ 8 SHARED VOTING POWER -0- -------- ------------------------------------------------------------------------------------------------ 9 SOLE DISPOSITIVE POWER 12,250,119 -------- ------------------------------------------------------------------------------------------------ 10 SHARED DISPOSITIVE POWER -0- - ------------------------- -------- ------------------------------------------------------------------------------------------------ 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 12,250,119 - ----------- ----------------------------------------------------------------------------------------------------------- ----------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / - ----------- ----------------------------------------------------------------------------------------------------------- ----------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 21.6%(2) - ----------- ----------------------------------------------------------------------------------------------------------- -----------
(...continued) in any group with Kramer or in any group with any other person. Judge Nickerson's Order of March 19, 2001, also denied Stengel's Motion to Dismiss. Subsequently, Stengel answered the Amended Complaint, denying all material allegations thereof. The Court has set a trial date in December 2001. (2) Assumes 56,626,655 shares of Common Stock of the Company are outstanding, as reported by the Company in the Company's Form 10-QSB filed with the SEC for the Company's fiscal quarter ended March 31, 2001. - ----------- ----------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN - ----------- -----------------------------------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION STATEMENT PURSUANT TO SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED ITEM 1. SECURITY AND ISSUER This statement on Schedule 13D relates to the shares of common stock of the par value of $0.001 per share (the "Common Stock") of Sales Online Direct, Inc. (the "Company"), a Delaware corporation. The address of the Company's principal executive offices is 4 Brussels Street, Worcester, Massachusetts 01610, as reported by the Company in the Company's Form 10-QSB filed with the SEC for the Company's fiscal quarter ended March 31, 2001. ITEM 2. IDENTITY AND BACKGROUND (a) Marc L. Stengel. (b) 3743 Birch Lane, Owings Mills, Maryland 21117. (c) Stengel is unemployed, but has rendered consulting services, from time-to-time to Silesky Marketing, Inc. ("Marketing"), a Maryland corporation all of the outstanding capital stock of which is owned of record and beneficially by Stengel's spouse. Marketing's principal business is marketing and public relations. Marketing's address is 110 Painters Mill Road, Suite 21, Owings Mills, Maryland 21117. (d) No. (e) No. (f) United States of America. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION The source and the amount of funds or other consideration used by Stengel in making Stengel's purchase of the Common Stock of the Company are as described in Original Item 3 and in the first two sentences of Item 4 and in Item 5 (a) of the Original Schedule 13D, that, insofar as such first two sentences of Item 4 and Item 5 (a) relate to Stengel, are incorporated by reference herein. ITEM 4. PURPOSE OF TRANSACTION As a result of the "Share Exchange" (as defined in Original Item 3), Stengel acquired 12,925,119 shares of the Common Stock of the Company and was elected a director of the Company. The board of directors of the Company elected Stengel a vice-president of the Company. In or about May 2000, Stengel was removed as a vice president of the Company by 5 Gregory Rotman, the president and a director of the Company, and Stengel was removed as a director of the Company by vote of the stockholders at a special meeting held on September 19, 2000. On June 16, 2000, Stengel filed an action under 8 DEL.C. Section 225 against the Company and Gregory Rotman in the Court of Chancery of the State of Delaware in and for New Castle County, styled, MARC STENGEL V. GREGORY ROTMAN, ET AL., No. C.A. 18109 (the "Section 225 Delaware Case"). In the Section 225 Delaware Case, Stengel sought a declaration that the actions taken by the stockholders of the Company to remove Stengel as a director of the Company and by Gregory Rotman to remove Stengel from all employment at the Company were illegal. Stengel also sought an order from the Court of Chancery directing the Company to pay Stengel's back pay from June 2000 to whenever Stengel was properly removed as an officer and director of the Company. By its opinion dated February 26, 2001, the Court held, among other things, that Stengel was properly removed as a director of the Company. In that opinion, the Court refused to order the Company to issue Stengel's back pay, even though the effect of the Court's ruling was that Stengel was not removed from office until September 19, 2001. Stengel filed an appeal to the Delaware Supreme Court on April 4, 2001, designated No. 151, 2001. Briefing on that appeal is ongoing. On October 24, 2000, Stengel filed an action against the Company in the Court of Chancery of the State of Delaware in and for New Castle County, styled, MARC STENGEL V. SALES ONLINE DIRECT, INC., No. C.A. 18448 (the "Delaware Advancement Case"). In the Delaware Advancement Case, Stengel sought an order directing the Company to advance Stengel's litigation expenses in the Section 225 Delaware Case, the Delaware Advancement Case and in the Maryland Case under the Company's bylaws. The Court of Chancery held a hearing on the issue on January 2, 2001, and ruled that Stengel was not entitled to advancement under the terms of the Company's bylaws. An appeal was filed by Stengel to the Delaware Supreme Court, No. 23, 2001. Briefing was completed, and oral argument was held on May 8, 2001. The parties are awaiting a decision from the Delaware Supreme Court. On April 26, 2001, Stengel obtained a written opinion of securities counsel to the substantial effect that Stengel is lawfully entitled to sell his shares of the Common Stock of the Company under Rule 144(k) in "brokers' transactions," within the meaning of Rule 144(g) (the "Opinion"). On April 26, 2001, Stengel tendered, among other things, the Opinion and Stengel's two stock certificates representing all of Stengel's 12,925,119 shares of the Common Stock of the Company to the Company's transfer agent to have the restrictive legends thereon removed to facilitate the sale of Stengel's shares of Common Stock of the Company under Rule 144(k) in "brokers' transactions," within the meaning of Rule 144(g) . On May 18, 2001, Stengel received from the Company's transfer agent, unlegended stock certificates representing all of Stengel's 12,925,119 shares of the Common Stock of the Company. Stengel presently plans to sell shares of the Common Stock of the Company to pay for Stengel's past, present and future legal fees and expenses in the Maryland Case, the Delaware Advancement Case and the Section 225 Delaware Case. Stengel also presently plans to sell shares of the Common Stock of the Company to pay for Stengel's past, present and future living expenses, and those of his immediate family, because 6 of Stengel's continued unemployment. Stengel may at any time, or from time-to-time, reevaluate Stengel's plans for Stengel's shares of Common Stock of the Company based on such factors as, but not limited to, the decision of the Delaware Supreme Court in the Delaware Advancement Case and in the Section 225 Delaware Case; the ongoing status of the Maryland Case; Stengel's state of employment; and the market for shares of the Common Stock of the Company. Except as set forth above in this Item 4, Stengel has no present plans or proposals which relate to or would result in: (a) the acquisition by any person of additional securities of the Company, or the disposition of securities of the Company; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (d) any change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; (e) any material change in the present capitalization or dividend policy of the Company; (f) any other material change in the Company's business or corporate structure; (g) changes in the Company's charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any person; (h) causing a class of securities of the Company to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) a class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934; or (j) any action similar to any of those enumerated above. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER (a) As of the close of business on May 29, 2001, Stengel beneficially owned 12,250,119 shares of the Common Stock of the Company, that represented as of the close of business on May 29, 2001, 21.6% of the issued and outstanding Common Stock of the Company, based on the 56,626,655 shares of Common Stock outstanding, as reported by the Company in the Company's Form 10-QSB filed with the SEC for the Company's fiscal quarter ended March 31, 2001. (b) Stengel has sole power to vote and sole power to dispose of all shares of Common Stock of the Company beneficially owned by Stengel. (c) A description of all transactions in the Common Stock of the Company that were effected by Stengel during the past 60 days or since the most recent filing on Schedule 13D, whichever is less, is set forth on Schedule A attached hereto and incorporated by reference herein. (d) No other person is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, Stengel's shares of Common Stock of the Company. (e) Not applicable. 7 ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER Except for Stengel's plans to sell shares of Stengel's Common Stock of the Company to pay for Stengel's past, present and future legal fees and expenses incurred in the Maryland Case, the Delaware Advancement Case and the Section 225 Delaware Case, as described in Item 4, above, Stengel has no contracts, arrangements, understandings or relationships (legal or otherwise) with any other person with respect to any securities of the Company. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
EXHIBIT NO. DESCRIPTION 1 Memorandum opinion of Judge William M. Nickerson dated March 19, 2001, in the Maryland Case. 2 Order of Judge William M. Nickerson dated March 19, 2001, in the Maryland Case.
8 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Date: May 30, 2001 By: /s/ MARC L. STENGEL ---------------------------------- Marc L. Stengel 9 SCHEDULE A Schedule of Transactions in the Shares of Common Stock of the Company
No. of Price Per Name Date Shares Sold Share(1) - --------------------------- --------------------------- ----------------- ------------------ Common Stock May 21, 2001 5,000 $0.090 13,500 0.085 10,000 0.075 11,500 0.065 21,000 0.056 30,000 0.055 5,000 0.051 43,000 0.050 5,000 0.520 6,000 0.053 Common Stock May 22, 2001 104,000 $0.060 10,000 0.055 16,000 0.065 Common Stock May 23, 2001 75,000 $0.060 10,000 0.065 15,000 0.055 Common Stock May 24, 2001 25,000 $0.050 35,000 0.051 31,000 0.055 9,000 0.048 Common Stock May 25, 2001 15,000 $0.048 5,000 0.050 4,000 0.051 5,000 0.053 16,000 0.054
10
No. of Price Per Name Date Shares Sold Share(1) - --------------------------- --------------------------- ----------------- ------------------ 39,000 0.055 1,000 0.060 Common Stock May 29, 2001 19,000 0.035 11,000 0.037 45,000 0.040 24,000 0.041 1,000 0.045 10,000 0.048
- --------------------------- (1) Does not include any brokerage commissions. 11 EX-1 2 a2050850zex-1.txt EX1_2007 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND SALES ONLINE DIRECT, INC. : : v. : Civil Action No. WMN-00-1621 : MARC STENGEL, et al. : : MEMORANDUM Before the Court are cross motions for preliminary injunction. Paper Nos. 22 (Plaintiff's) and 27 (Defendant Stengel's). The motions are fully briefed and an extensive evidentiary hearing, stretching over several days, was held on the motions. Having considered all of the evidence and pleadings presented by the parties, the Court determines that Plaintiff's motion will be denied and Defendant Stengel's motion will be granted in part and denied in part. Plaintiff Sales Online Direct, Inc. (SOLD) is a Delaware corporation that is engaged in various enterprises related to the on-line sale of "collectibles" and memorabilia. The company is publicly held, with shares of its common stock traded on the NADSAQ Bulletin Board. Currently, about 80% of the stock is owned by four individuals: approximately 40% by Greg and Richard Rotman, the President and Vice President, respectively, of SOLD (hereinafter, the Rotmans); and approximately 40% by Defendants Mark Stengel and Hannah Kramer, Mark Stengel's aunt. The remaining 20% of the stock is held by about 4000 other small investors. The total value of the stock at the time it was originally issued was in excess of $30 million dollars. Since that time, the value of the stock has fluctuated widely and it is now worth significantly less. The reason for the decline in value, as with most of the issues addressed in this lawsuit, is the subject of profound disagreement among the parties. This lawsuit arises out of a series of transactions, including a "reverse merger," that led to the initial formation of SOLD. While the forms of the transactions were somewhat complex, the primary aspects of the deal entailed, from the Rotmans's side, the contribution of "Rotman Auctions," a collectible auction business, and some inventory from another family business, and from the Stengel/Kramer side, the contribution of "World Wide Collectors Digest, Inc." (WWCD), a internet website dealing with collectibles, along with some additional collectable inventory. The integration of WWCD into the new business entity was originally anticipated to have occurred through a merger until it was discovered, on the eve of the closing of the transaction, that WWCD's corporate charter had lapsed for failure to pay corporate taxes. In lieu of a merger, WWCD was conveyed into the new entity by a Bill of Sale of all of WWCD's assets. Plaintiff alleges in the Complaint that Defendants Stengel and Kramer misrepresented the value of WWCD and the other inventory contributed to SOLD. These alleged misrepresentations include, inter alia, the amount of web traffic on the WWCD website; the quality of the computer equipment used to host the site; WWCD's ownership of certain domain names that Stengel now represents as belonging to himself; and the value of the collectible inventory contributed. Plaintiff also alleges that, after the formation of SOLD, Stengel failed to devote this time and energy in a manner consistent with the best interests of SOLD. In fact, Plaintiff maintains that Stengel operated a business in direct competition with SOLD, "Whirl Winds Collaborative Designs," using the resources and employees of SOLD in conducting that business. The Complaint includes claims of both common law and securities fraud and seeks as remedy both damages and rescission. Shortly after filing the Complaint, Plaintiff filed the 2 instant motion for a preliminary injunction, asking that the Court issue an order enjoining Defendants Kramer and Stengel from selling any of their SOLD stock until the final resolution of this litigation. Defendant Stengel responded with a motion for preliminary injunction of his own, asking that the Court enjoin Plaintiff from interfering or blocking his efforts to sell his stock. Apparently, Plaintiff has been able, for the most part, to unilaterally prevent the Defendants' sale of stock without the requested injunctive relief by instructing its agents not to remove the "restricted" designation on Defendants' shares. When ruling on a request for a preliminary injunction, a district court must consider four factors originally set forth in BLACKWELDER FURNITURE CO. V. SEILIG MANUFACTURING CO., 550 F.2d 189 (4th Cir. 1977). Those factors are: (1) the likelihood of irreparable harm to the plaintiff if the preliminary injunction is denied, (2) the likelihood of harm to the defendant if the requested relief is granted, (3) the likelihood that the plaintiff will succeed on the merits, and (4) the public interest. RUM CREEK COAL SALES, INC. V. CAPERTON, 926 F.2d 353, 339 (4th Cir. 1991); (internal quotation marks omitted). After deciding whether the plaintiff will suffer irreparable harm if an injunction is denied and determining the nature of the harm, if any, that defendant will suffer if the injunction is granted, the district court must balance these hardships against one another. See DIREX ISRAEL, LTD. V. BREAKTHROUGH MED. CORP., 952 F.2d 802, 812-13 (4th Cir. 1991). The result of this balancing determines the degree to which the plaintiff must establish a likelihood of success on the merits. If the balance of harms "tips decidedly in favor of the plaintiff," it is only necessary for the plaintiff to "raise[ ] questions going to the merits to serious, substantial, 3 difficult and doubtful, as to make them fair ground for litigation and thus for more deliberate investigation." ID. at 813 (internal quotation marks omitted). If, however, the balance of harms is in equipoise or does not favor the plaintiff, the plaintiff must make a correspondingly higher showing of the likelihood of success. SEE ID. Plaintiff's claim that it will be harmed if the injunction is not granted is two-fold. First, it alleges that the price of SOLD stock would be adversely affected were Defendants permitted to sell significant portions of their holdings. While there is some evidence of temporary dips in the price of SOLD stock after Kramer sold small portions of her holdings, the evidence is not conclusive that additional sales would further and permanently depress the stock price. There have been dips in the price of the SOLD shares during periods when no shares were sold by Defendants. The Court is also well aware that internet related stocks, in general, have experienced wild fluctuations in price, many in a negative direction, during this same time period. Furthermore, as Defendants note, under SEC Rule 144, Defendants are expressly permitted, even as "insiders" or "affiliates," to periodically sell a certain percentage of their stock.(1) At the time that these parties entered into the subjected transaction, they were undoubtedly aware that the SEC Rules would permit the sale of some stock, and that sales by - ---------------------------- (1) Rule 144, 17 C.F.R.ss.230.144, provides that sales by "affiliates" of the issuer of securities are limited to one percent of outstanding shares within any three month period. 17 C.F.R.ss.230.144(e)(1)(i). If two or more affiliates "agree to act in concert for the purpose of selling securities" their sales are aggregated for the purpose of Rule 144. ID.at ss.230 144(e)(3)(vi). It is undisputed that Defendants were subject to the provisions of Rule 144 at the time Plaintiff's motion was filed. Defendants contest that they have acted in concert. 4 insiders might have an effect on stock prices. Nonetheless, the parties included no contractual limitations on insider sales, which they certainly could have done had they believed it necessary. The primary argument that Plaintiff advances for not allowing Defendants to sell any of its stock is to preserve the possibility of a rescission remedy. Were Defendants allowed to sell their stock, Plaintiff argues that it would be harmed to the extent that it is deprived of that potential remedy. The Court, however, is skeptical that rescission was ever a reasonable remedy. Given the nature of the transactions and the changes in the condition of the contributed assets since the merger was consummated, it would be difficult, if not impossible to undo the transaction. For example, while the parties may squabble as to the actual value of WWCD as an ongoing business prior to the merger, the Court has not doubt that it had significantly more value than it has now. Given the shell of WWCD back to Stengel in exchange for his stock in SOLD would not place the parties back into the position in which they began. As Defendants also note, Plaintiff is not seeking a full rescission, but simply a partial one. Plaintiff has expressed no willingness to undo the Rotman side of the transaction. While not absolutely ruling out, at this time, the possibility of some modified form of rescission as an equitable remedy, the Court is not convinced that the preservation of that remedy is sufficient grounds upon which to grant the requested injunction. On the Defendants' side of the damage equation, Defendants argue that unless they are able to sell some of their stock, they will be without the means to fund their defense of this litigation. Judging just from the preliminary injunction proceedings, it is readily apparent that this litigation will be fiercely fought, exceedingly protracted, and terribly expensive. The evidence presented at the hearing also indicates that proceeds from the sale of a portion of 5 Defendants' SOLD stock is the only significant asset that could be made available to either Defendant to pay for the defense of the claims against them. The Court concludes that the balance of harms, if not in equipoise, probably tips in favor of Defendants, and thus, Plaintiff bears a higher burden showing a likelihood of success on the merits. This burden, the Court finds, Plaintiff has not met. The likelihood of success on the merits is the most interesting aspect of this motion. Rarely are such diametrically opposed versions of a single series of events presented to the Court. The parties flatly contradict one another as to almost every significant aspect of the transaction. Plaintiff presented its case primarily through the testimony of Greg Rotman and Abba Poliakoff, the attorney retained to represent the interests of the Rotmans, Stengel, and Kramer in this transaction and to create the documentation supporting the transaction.(2) Defendants presented their case primarily through their own testimony. Rotman and Poliakoff claim, and Stengel disputes, that Stengel made certain representation about the revenues, client base, and assets of WWCD. Rotman and Poliakoff also claim never to have heard many of the things that Stengel asserts that he told them regarding his other business interests and the use of SOLD personnel for those other enterprises. In additional, the parties disagree as to the reasonable assumptions that should have been made about the transaction that formed SOLD, e.g., what clients, intellectual property, and employees were to come over with WWCD into the new entity. The Court's determination of the likelihood of success on the merits turns, therefore, in larger part on the Court's assessment of the credibility of the witnesses. In assessing credibility, the Court finds problems in both camps. Mr. Stengel has demonstrated a propensity to fabricate information whenever convenient. He has employed several aliases and established a pattern of - ------------------------- (2) Poliakoff considered his client to be "Internet Auction, Inc." and its shareholders. Internel Auction, Inc. was a company formed by the Rotmans, Stengel and Kramer that was rolled into the entity that became SOLD. 6 registering domain names to fictitious companies and individuals. Many elements of his narrative are simply difficult to believe. While perhaps not quite as numerous, there are elements of the Rotmans' story that also do not ring true. For example, Greg Rotman testified that he initially believed that SOLD had purchased the "Internet Collectable Awards" website along with the assets of WWCD. He also testified, however, that when he learned from Stengel that SOLD did not own the site, he simply instructed Stengel to negotiate a sale whereby SOLD paid $50,000 plus 200,000 shares of SOLD stock for something Rotman had thought SOLD already owned. That course of conduct is not particularly consistent with Greg Rotman's portrayal of himself as a sophisticated and thorough businessman. The Rotmans' justification of a raid that they conducted on Stengel's office while Stengel was on his honeymoon also appears somewhat pretextual. Beyond general concerns about credibility, the Court finds that one of the central elements of Plaintiff's claims is largely unsupported by the evidence developed thus far, that is, the materiality of the alleged misrepresentations of Stengel. The current record reveals a picture of four individuals and their counsel who were incredibly anxious to get the deal done because they all stood to make a great deal of money. The parties and their counsel rushed to closing with little or no consideration for due diligence. Whether WWCD had $100,000 in annual revenues or $200,000, or $50,000, did not make a critical difference to anyone. As Defendants note, the fact that most of the details that Plaintiff now represents as so important were completely omitted from the documentation associated with the transaction, is indicative of their lack of materiality. Recission. This is not to say that Plaintiff may not be able to develop, through additional discovery and evidence, a fraud claim that would allow it to prevail on a claim for some damages. But, 7 there is simply not enough evidence at this stage of the litigation to support the extraordinary remedy of a preliminary injunction.(3) As to Defendant Stengel's motion for preliminary injunction, Plaintiff argues that the motion is futile. "Should the Court deny plaintiff's requested injunction, defendant Stengel will be free to sell or otherwise dispose of his shares of SOLD common stock in accordance with the applicable statutes and federal securities regulations." Plaintiff's Opp. to Stengel's motion at 2-3. While this might be true, theoretically, Plaintiff appears to have been able to frustrate any further sales by Kramer and Stengel notwithstanding the lack of injunctive relief from this Court. Thus, for the same reasons that the Court will deny Plaintiff's motion, it will grant Defendant Stengel's motion, at least in part. The Court shall issue an order enjoining Plaintiff from continuing to prevent Defendants from selling stock consistent with SEC Rule 144. The Court, however, will not disturb the finding of Plaintiff's corporate counsel that Defendants Stengel and Kramer are acting "in concert" in the disposition of their shares. The evidence clearly supports such a finding.(4) - -------------------------- (3) Both Kramer and Stengel have filed motions to dismiss certain claims brought against against them. Paper No. 33 (Stengel's) and No. 35 (Kramer's). While the motions are not without some merit, the Court cannot conclude at this juncture that "it appears beyond doubt that the plaintiff can prove no set of facts in support of [its claims] which would entitle [it] to relief." CONLEY V. GIBSON, 355 U.S. 41, 45-46 (1957). The motions will be denied. (4) Kramer asserted in one of her pleadings that the Rule 144 restriction will lift entirely two years after the date of the Plan of Reorganization. Kramer Opp. to Motion for Preliminary Injunction at 12. At oral argument, there was some question as to whether that was an accurate conclusion. As the issue of the applicability of Rule 144 is only before this Court in a peripheral manner, the Court expresses no binding opinion as to whether Rule 144 is still applicable. The Court simply holds that Plaintiff cannot use the pendency of this action as grounds for preventing Defendants from selling shares of SOLD. 8 The Court will also order that a telephone scheduling conference be held in this matter on March 28, 2001, at 9:15 a.m., to be initiated by counsel for Plaintiff.(5) The parties should be prepared at that time to advise the Court what remains to be done to prepare this case for trial. /s/ WILLIAM M. NICKERSON ------------------------------------ William M. Nickerson United States District Judge Dated: March 19, 2001. - -------- (5) On January 17, 2001, the Court suspended its Scheduling Order pending the completion of the preliminary injunction proceedings. 9 EX-2 3 a2050850zex-2.txt EX2_2007 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND SALES ONLINE DIRECT, INC. : : v. : Civil Action No. WMN-00-1621 : MARC STENGEL, et al. : : ORDER In accordance with the foregoing Memorandum and for the reasons stated therein; IT IS this 19th day of March, 2001, by the United States District Court for the District of Maryland, ORDERED: 1. That Plaintiff's Motion for Preliminary Injunction, Paper No. 22, is hereby DENIED; 2. That Defendant Stengel's Motion for Preliminary Injunction, Paper No. 27, is hereby GRANTED insofar as Plaintiff, its officers, directors, shareholders, agents, servants and employees are enjoined from blocking, preventing, or interfering with any sale of stock by Defendants consistent with SEC Rule 144 during the pendency of this action; 3. That Defendant Stengel's Motion to Dismiss, Paper NO. 33, is hereby DENIED; 4. That Defendant Kramer's Motion to Dismiss, Paper No. 35, is hereby DENIED; 5. That a telephone scheduling conference will be held in this matter on March 28, 2001, at 9:15 a.m., to be initiated by counsel for Plaintiff; and 6.That the Clerk of the Court shall mail or transmit copies of the foregoing Memorandum and this Order to all counsel of record. /s/ WILLIAM M. NICKERSON ------------------------------------- William M. Nickerson United States District Judge 2 -----END PRIVACY-ENHANCED MESSAGE-----