IN THE MATTER OF THE SECURITIES ACT R.S.O. 1990, c. S.5,
IN THE MATTER OF
GARY SALTER, ELAINE SALTER, RODIKA FLORIKA,
921159 ONTARIO INC. AND 918211 ONTARIO INC.
1. By notice of hearing, dated December 15, 1993 and amended March 1, 1996 (the "Amended Notice of Hearing"), the Ontario Securities Commission (the"Commission") announced that it proposed to hold a hearing to consider, inter alia:
(a) whether, pursuant to section 127 of the Securities Act, R.S.O 1990, c. S.5, as amended (the "Act"), in the opinion of the Commission it is in the publicinterest to order, subject to such terms and conditions as the Commission may impose, that any or all of the exemptions contained in sections 35, 72, 73 and 93of the Act no longer apply to BelTeco Holdings Inc. ("BelTeco"), Torvalon Corporation ("Torvalon"), Gary Salter, Elaine Salter, Glen Erikson, ChristineErikson, Kai Hoesslin ("Hoesslin"), Harcourt Wilshire ("Wilshire"), Rodika Florika ("Florika"), 921159 Ontario Inc. ("921159"), 918211 Ontario Inc.("918211") and Peter Mitchell; and
(b) such further and other orders as the Commission considers appropriate.
2. The allegations against Gary Salter, Elaine Salter, Florika, 921159 and 918211 (collectively, the "Salter Group"), as set out in the statement of allegations,dated December 15, 1993 and amended March 1, 1996 (the "Amended Statement of Allegations"), were that during 1991 and 1992, they:
(a) acquired control of BelTeco and Torvalon in conjunction with nominees of Gary Salter and other individuals and entities, and engaged in distributions of thecommon shares of BelTeco and Torvalon without filing a prospectus and obtaining a receipt therefore, in circumstances where the prospectus exemptions underthe Act were unavailable or where reliance upon such exemptions constituted an abuse of the exemptions contrary to the purpose and objects of the Act;
(b) failed to file or filed inaccurate reports contrary to sections 101, 107, 108 and 109 of the Act regarding the securities of BelTeco and Torvalon; and
(c) engaged in trading, and conduct related to trading, involving the securities of BelTeco and Torvalon which was abusive of the capital markets and contrary tothe public interest. This conduct included the conduct described in subparagraphs 2(a) and (b) above, as well as the issuance and filing of misleading, exaggeratedand promotional press releases relating to the affairs of BelTeco and Torvalon, and the failure to file press releases relating to the affairs of BelTeco andTorvalon in accordance with section 75 of the Act.
II. JOINT SETTLEMENT RECOMMENDATION
3. The staff of the Commission ("Staff") and the Salter Group have entered into this settlement agreement (the "Settlement Agreement") whereby Staff agrees torecommend to the Commission that the proceedings initiated against the Salter Group be fully and finally resolved on the basis of the facts set out in Part III, theTerms of Settlement set out in Part VI and the Payment set out in Part VII. In addition, the Salter Group consents to the making of an order against them ashereinafter provided.
4. Staff and the Salter Group agree that only if, as and when the settlement is approved by the Commission, this Settlement Agreement will be released to thepublic.
III. STATEMENT OF FACTS
(a) INTRODUCTION AND ACKNOWLEDGMENT
5. For the purposes of this proceeding only, and in order to facilitate the resolution of this proceeding against the Salter Group in accordance with the terms ofthe Settlement Agreement, the Salter Group states that the facts set out in Part III are true, to the extent that they are directly aware of them, and to the extentthat they do not have direct knowledge, they are not inconsistent with their understanding.
6. Staff acknowledges that the facts contained herein are consistent with its investigation.
(b) THE PARTIES
(i) BelTeco and Torvalon
7. Belteco and Torvalon are reporting issuers in Ontario whose shares were at all material times traded over-the counter. Both BelTeco and Torvalon werequoted on the Canadian Dealing Network ("CDN") and both are currently the subjects of cease trade orders of the Commission.
(ii) The Salter Group
8. Gary Salter was at all material times an officer, director and sole shareholder of 921159. In addition, Gary Salter was at all relevant times a promoter, asignificant shareholder and the directing mind of both Torvalon and Belteco.
9. Elaine Salter is the wife of Gary Salter. Elaine Salter was throughout most of the relevant period, an officer, director and sole shareholder of 918211, anofficer, director and a significant shareholder of BelTeco and a significant shareholder of Torvalon.
10. Florika is the daughter-in-law of Gary Salter. Florika was a significant shareholder of BelTeco during the relevant period.
11. 921159 is a private company incorporated pursuant to the laws of Ontario and was a shareholder of BelTeco and a significant shareholder of Torvalon duringthe relevant period.
12. 918211 is a private company incorporated pursuant to the laws of Ontario and was a significant shareholder of BelTeco and Torvalon during the relevantperiod.
(iii) The Salter Control Group
13. During the relevant period, a number of individuals and entities were nominees of, or otherwise acted in combination and in concert with the Salter Group toacquire control of BelTeco and Torvalon. Those individuals and entities included Christine Erikson, Hoesslin, Wilshire, John Bennett ("Bennett"), AlbertineMadeiros ("Madeiros"), 916567 Ontario Inc. ("916567"), 916574 Ontario Inc. ("916574"), Jepead Holdings Inc. ("Jepead"), WM&JM Holdings Inc.("WM&JM"), Texas B.J. Holdings Ltd. ("Texas B.J."), Inculo Holdings Limited ("Inculo") and HOJ Holdings Limited ("HOJ"), (collectively, the "Salter ControlGroup").
(c) FACTUAL BACKGROUND TO THE RELEVANT TRANSACTIONS
(i) The Build-Up Period
14. Prior to December 1990, the total issued and outstanding shares of BelTeco, a corporation without assets of any significance, totalled 717,799. On or aboutDecember 21, 1990, 439,299 common shares of BelTeco were sold by Krater Minerals Inc. ("Krater") to 916567 at a price of $0.193 per share for a total valueof $84,784.707 (the "BelTeco Takeover"). Krater was a private company controlled by Christine Erikson, and had held the 439,299 BelTeco shares forapproximately a month prior to the BelTeco Takeover.
15. As a result of the BelTeco Takeover, 916567 held 61.20% of the issued and outstanding shares of BelTeco.
16. A press release published at this time identified 916567 as the promoter of BelTeco, but no mention was made of Gary Salter. At no time did 916567 act as apromoter of BelTeco.
17. The sole shareholder of 916567 at the time of the BelTeco Takeover was a lawyer (the "Lawyer"). Within days of the BelTeco Takeover, the Lawyerdisposed of his interest in 916567 to Jepead. At the same time, shares of 916567 were issued from treasury to Jepead, WM&JM and 918211. Following theseevents, the shareholders of 916567 were Jepead as to 37.5%, WM&JM as to 37.5% and 918211 as to 25%. The 439,299 shares of BelTeco sold by Krater weresurrendered and reissued to Jepead, as to 164,737 shares, WM&JM, as to 164,737 shares and 918211, as to 109,825 shares.
18. Jepead and WM&JM were part of the Salter Control Group, and accordingly, the Salter Control Group controlled 100% of the BelTeco shares received by916567. Therefore, following the BelTeco Takeover, the members of the Salter Control Group collectively were the owners of 61.20% of the issued andoutstanding shares of BelTeco.
19. A law firm (the "Law Firm") incorporated Jepead and WM&JM in June of 1990, and 916567 and 918211 in October and November 1990 respectively. Theprincipal of that law firm was the Lawyer, who served as an officer and director of 918211 and 916567 at the time of their incorporation, and was, at all materialtimes, directly involved with and participated in the transactions described at paragraphs 14 to 37 herein. An employee of the Law Firm served as an officer anddirector of Jepead and WM&JM at the time of their incorporation.
20. On or about January 10, 1991, BelTeco acquired, on a non-cash basis, rights to two toys stated in a press release to be owned by W.N.D. Inc. of Kent, Ohio.In return, it issued 350,000 shares from treasury to W.N.D. Inc. at a value of $0.05 per share for a total value of $17,500 (the "WND Transaction").
21. The shares issued to W.N.D. Inc. were to be held in escrow by the Lawyer and none were to be released until the acquired rights generated a net profit forBelTeco. The acquired rights never generated any such profit for BelTeco.
22. On or about January 17, 1991, BelTeco acquired, on a non-cash basis, intangible rights to certain films stated to be owned by Crystal Group Inc.. In return, itissued 750,000 shares from treasury to Crystal Group Inc. at a value of $0.05 per share for a total value of $37,500 (the "Crystal Transaction").
23. The shares issued to Crystal Group Inc. were to be held in escrow by the Lawyer and none were to be released until the acquired rights generated a net profitfor BelTeco. The acquired rights never generated any such profit for BelTeco.
24. On or about January 24, 1991, BelTeco acquired, on a non-cash basis, all the shares of Pearl Entertainment Inc. ("Pearl"), a private company. In return, itissued 750,000 shares from treasury at a value of $0.05 per share for a total value of $37,500 (the "Pearl Transaction"). 390,375 of these shares were issued toElaine Salter, and 359,025 were issued to Madeiros. A press release reported that Pearl owned a 51% interest in the Baptist Journal, a publisher which intendedto begin publishing certain periodicals within a short period of time. Notwithstanding this press release, no such periodicals were published during the relevantperiod, that period extending from January 1991 to early 1992.
25. The Law Firm incorporated Pearl in December 1989, and an associate of the Lawyer served as its first officer and director.
26. 250,000 of the shares issued pursuant to the Pearl Transaction were subject to an escrow agreement similar in all material aspects to those entered into inrespect of the WND Transaction and the Crystal Transaction. The Lawyer acted as the escrow agent. At no time did Pearl ever generate any net profit forBelTeco, and the shares were therefore never released from escrow.
27. On or about February 1, 1991, BelTeco issued 400,000 shares from treasury at $0.05 per share for a total value of $21,875 (the "February 1 Transaction").200,000 of those shares were issued to Elaine Salter and 200,000 shares were issued to Madeiros. No consideration was given for the 400,000 shares issued,other than the cancellation of debt allegedly owing to Elaine Salter and Madeiros.
28. Public filings with the Commission indicated that the shares issued in the February 1 Transactions had been issued to Elaine Salter and Madeiros as thepromoters of BelTeco. At no time did Elaine Salter or Madeiros act as the promoters of BelTeco.
29. On or about February 12, 1991, BelTeco acquired, on a non-cash basis, all the shares of 906851, a private company. In return, it issued 1,000,000 sharesfrom treasury at a value of $0.05 per share for a total value of $50,000 (the "906851 Transaction"). 600,000 of these shares were issued to Florika, and 400,000were issued to Hoesslin.
30. 500,000 of the shares issued pursuant to the 906851 Transaction were subject to an escrow arrangement similar in all material aspects to those entered intowith respect to the WND Transaction, the Crystal Transaction and the Pearl Transaction. The Lawyer again acted as the escrow agent, and again these shareswere never released from escrow.
31. The only asset owned by 906851 was stated to be a 100% interest in a company located in the United States called "Audio Publications Inc.". At the time,Audio Publications Inc. was a company with which Gary Salter was associated. Neither 906851 nor Audio Publications Inc. generated any net profit during therelevant period.
32. On or about February 18, 1991, 75,000 shares were issued to Christine Erikson, and on March 15, 1991, 100,000 shares were issued to each of Bennett andWilshire. All of these shares were issued at $0.10 per share pursuant to the exercise of employee stock options granted to each of these individuals, who werestated to be full or part time employees of Pearl.
33. At the time of the transactions referred to in the paragraph above, Bennett was an employee of BelTeco, Christine Erikson was a director and officer ofBelTeco and Wilshire was associated with Audio Publications and the Baptist Journal. However, none of these individuals were full or part time employees ofPearl, but were only indirectly associated with Pearl by virtue of their respective associations with BelTeco, Audio Publications and the Baptist Journal. Further,both Bennett and Wilshire financed the exercise of the employee stock options by way of a loan from a private company owned by Gary Salter.
34. By this time, 3,525,000 shares had been issued by BelTeco since the BelTeco Takeover. The total number of issued and outstanding shares of BelTeco stoodat 4,242,799.
35. Several trades to the public occurred in February and March of 1991 by members of the Salter Control Group, at a sale price ranging from $0.10 per share to$0.27 per share. After accounting for these trades, the number of BelTeco shares held by the Salter Control Group as at March 18, 1991 was at least 2,815,299,representing 66.35% of the issued and outstanding shares of BelTeco. A number of these shares remained in escrow, subject to the escrow agreements referredto above.
36. On or about December 23, 1991, BelTeco conducted a private placement with 918211, and issued to 918211 232,342 units, comprised of 1 common shareand a warrant at $1.076 for an aggregate consideration of $250,000. At this time, BelTeco owed various amounts directly or indirectly to Gary Salter and/orElaine Salter. These debts were reduced by $250,000 in exchange for the issuance of the private placement securities. The public disclosure with respect to thistransaction, however, suggested that these transactions had a positive effect on BelTeco's cash situation.
37. On or about April 30, 1992, BelTeco issued 200,000 shares each to Bennett and Elaine Salter, and 23,000 to Robert Petry ("Petry"), a director of BelTeco,at $0.70 per share. These shares were issued pursuant to the exercise of employee stock options granted to Bennett and Petry as directors of BelTeco, and toElaine Salter as an employee of BelTeco. Both Bennett and Petry financed the exercise of the employee stock options by way of loans from Elaine Salter and/orGary Salter.
38. At no time was Elaine Salter an employee of BelTeco. Further, although Bennett and Petry were stated to be directors of BelTeco, BelTeco did not have anoperative board of directors. No meetings of the directors were ever convened during the relevant period and no annual and general meetings of the shareholdersof BelTeco were held during the relevant period.
39. None of the trades outlined in the paragraphs above were accompanied by a prospectus.
40. On or about June 25, 1991, the Salter Control Group obtained control of Torvalon, a corporation without significant assets (the "Torvalon Takeover").Control was gained in the following manner: 4,868,145 common shares, representing roughly 87% of the 5,594,295 issued and outstanding shares of Torvalonwere sold at $0.0287 per share to HOJ, as to 4,000,000 shares and Inculo, as to 868,145 shares. HOJ held its shares as trustee for Texas B.J., 916574 and918211 in equal amounts. In a press release, Texas B.J. was stated to be controlled by Bennett and Inculo was stated to be controlled by Madeiros. Further, inother documentation filed with the Commission, 916574 was stated to be controlled by Peter Rooney. In fact, each of these companies was controlled by andwithin the Salter Control Group and accordingly, members of the Salter Control Group were the beneficial owners of the Torvalon shares received pursuant tothe Torvalon Takeover.
41. The Law Firm incorporated HOJ, Inculo, 916574 and Texas B.J. in October of 1990 on behalf of Gary Salter and/or Elaine Salter. The Lawyer served as anofficer and director of these companies at the time of their incorporation, and was, at all material times, directly involved with and participated in the transactionsdescribed in paragraphs 40 to 51 herein.
42. The vendors of the Torvalon shares sold to HOJ and Inculo were Amalgamated Plat-Au Resources ("Amalgamated Plat-Au"), Lode Star Inc. and HarryHans Jedig. Amalgamated Plat-Au was the result of the amalgamation of Plat-Au Resources Inc., 787679 Ontario Inc., Helix Capital Corp. and Ayriane HoldingsInc. on November 20, 1990. All of the amalgamating companies held shares in Torvalon at the time of the amalgamation. Accordingly, the effect of theamalgamation was to reduce the number of selling shareholders from six to three prior to the Torvalon Takeover.
43. On or about July 9, 1991, Torvalon issued a number of shares to various individuals and entities through a series of transactions. First, Torvalon acquired, ona non-cash basis, rights to certain toys from Kent Toys Inc. ("Kent Toys"). In return, Torvalon issued 2,500,000 shares from treasury to Kent Toys at a value of$0.05 per share for a total value of $125,000 (the "Kent Toys Transaction"). Petry was the controlling shareholder of Kent Toys, as well as its director andPresident. The shares issued to Kent Toys were subject to a resale restriction for two years. Further, no annual and general meetings of the shareholders ofTorvalon were called during the relevant period, nor were any formal meetings of the directors convened. Accordingly, de facto control of Torvalon remainedunaffected by this transaction.
44. In order for Torvalon to maintain its rights in the toys acquired in the Kent Toys Transaction, Torvalon was required, among other things, to raise $250,000U.S. within six months of July 4, 1991, to develop the rights acquired. The $250,000 U.S. was never raised by Torvalon, a fact not disclosed to the public.
45. On or about July 9, 1991, Torvalon issued 1,522,000 shares at $0.05 per share for a total value of $76,100 to 921159, a company whose sole shareholderwas Gary Salter (the "921159 Transaction"). The 921159 Transaction did not provide Torvalon with an infusion of cash; rather, the shares were purportedlyissued to 921159 in satisfaction of debts in the aggregate amount of $76,100 owed by Torvalon to 921159.
46. 921159 was incorporated by the Law Firm in November 1990, and the Lawyer served as its first director.
47. Christine Erikson became the assistant secretary-treasurer of Torvalon on June 26, 1991. On or about July 9, 1991, Torvalon issued 100,000 shares, at $0.05per share for a total value of $5,000, to Christine Erikson pursuant to the exercise of a stock option plan granted to Christine Erikson as an officer of Torvalon.Christine Erikson resigned shortly after the exercise of the stock options.
48. On or about July 15, 1991, Torvalon purportedly acquired, on a non-cash basis, all of the shares of 949032 Ontario Inc. ("949032") from Stall Universal Inc.of Ohio ("Stall"), a company controlled by Petry. In return, it issued 1,000,000 shares at $0.05 per share to Stall for a total value of $50,000 (the "StallTransaction").
49. 949032 was incorporated by the Law Firm on July 8, 1991, and the Lawyer served as its first director. 949032 was in fact not controlled by Stall; rather itwas a corporation owned and controlled by Gary Salter.
50. In a press release regarding the Stall Transaction, 949032 was falsely stated to have held an inventory of various items valued at $300,000 U.S..
51. On or about July 16, 1991, Torvalon issued 100,000 shares at $0.05 per share to Christine Erikson and 200,000 shares each to Bennett, Madeiros, Petry andKellie Bailey ("Bailey") at $0.10 per share pursuant to the exercise of employee and director stock option plans.
52. At the time of the exercise of the options, the status of the relevant individuals were as follows: Bennett and Madeiros were officers and directors ofTorvalon, and Petry was a director of Torvalon. Christine Erikson would resign from her position as assistant secretary-treasurer of Torvalon within days of theexercise of the options. Bailey was an employee of Kent Toys, and was at no time an employee, officer or director of Torvalon.
53. Bennett and Madeiros, all paid for the exercise of the options by way of loans, directly or indirectly from Gary Salter and/or Elaine Salter.
54. None of the trades outlined in the paragraphs above were accompanied by a prospectus.
(C) Summary of Relevant Share Issuances
55. Prior to the BelTeco Takeover on or about December 21, 1990, the total number of issued and outstanding shares of BelTeco was 717,799. Following theissuance of the employee stock options on or about April 30, 1992, the total number of issued and outstanding shares of BelTeco had increased to 4,898,141. Aswell, the prices at which the BelTeco shares were traded went from a low of $0.05 in or about January 1991 to a high of $1.70 per share in November 1991.There was no legitimate business reason for such a dramatic increase in the price of these shares.
56. Prior to the Torvalon Takeover on or about June 25, 1991, the total number of issued and outstanding shares of Torvalon was 5,594,295. Following theTorvalon Options Transaction on or about July 16, 1991, the total number of issued and outstanding Torvalon shares stood at 11,616,295. As well, the prices atwhich the Torvalon shares were traded went from a low of $0.0287 in or about June 1991 to a high of $1.95 in April and May 1992. There was no legitimatebusiness reason for such a dramatic increase in the price of these shares.
(ii) Trades Outside the Salter Control Group
57. From February 1991 to September 1991, trading accounts were opened by a salesperson registered with the Commission (the "Salesperson") at the firm ofLevesque Securities Inc. ("Levesque") in the names of 921159 and Gary Salter. In addition, trading accounts were opened at Levesque in the following names:Bennett, Madeiros, Florika, 918211, Elaine Salter, Wilshire, Hoesslin, WM&JM, Jepead and 916574 (collectively, the "Salter Control Group Accounts"), as aresult of introductions which were made by Gary Salter.
58. Notwithstanding the foregoing, other than the accounts opened in the name of Gary Salter and 921159, the Salter Control Group Accounts' openingdocuments did not identify that the account holders were associated with Gary Salter.
59. Beginning in or about February 1991 until early 1992, shares of BelTeco were traded through the Salter Control Group Accounts. Torvalon shares weresimilarly traded from July 1991 to early 1992. In addition BelTeco shares were traded by the Lawyer and Christine Erikson.
60. During this period, numerous orders were placed through the Salesperson to sell shares of Belteco and Torvalon from the Salter Control Group Accounts.These orders were filled almost equally by buy orders from the accounts at Levesque of two securities dealers who at all material times were registered with theCommission (the "Securities Dealers").
61. At all material times, the Salesperson was the registered representative for the Securities Dealers' trading accounts at Levesque.
62. All of the transactions between the Securities Dealers on the one hand, and the Salter Control Group, on the other, were pre-arranged and the Salesperson'srole was to simply execute the trades. The Securities Dealers in turn sold the shares to the general public as principal. All trades were conducted at pricessignificantly in excess of the acquisition prices. At all material times, Gary Salter, Elaine Salter, Florika, 921159 and 918211 knew or ought to have that theshares would be sold by the Securities Dealers to the public at such prices.
63. In total, from March 1991 to December 1991, at least 2,063,574 shares of BelTeco and 3,755,230 shares of Torvalon had been sold by the Salter ControlGroup, through the Salter Control Group's Accounts and through the Salesperson. Of these sales, 2,054,000 shares of BelTeco and 3,560,000 shares ofTorvalon were sold to the Securities Dealers, in an almost equal proportion, at an average price of approximately $.59 and $0.72 for BelTeco and Torvalonrespectively.
64. In addition, in or about September 1991, Gary Salter, through 921159, disposed of 200,000 Torvalon shares directly to one of the Securities Dealers,documenting the transaction as the consequence of a default on a loan agreement between Gary Salter, Elaine Salter and the Security Dealer, purportedly enteredinto on April 24, 1991, wherein the shares were pledged as security for a loan. In April, 1991, however, neither Gary Salter nor Elaine Salter owned any sharesof Torvalon.
65. In addition, in or about August 1991, 921159 sold 50,000 shares of Torvalon directly to one of the Securities Dealers at a price of $1.00 per share.
66. In addition, from February 1992 to April 1992, 921159 sold 500,000 shares of Torvalon directly to each to the Securities Dealers, for a total of 1,000,000shares, though its accounts with the Securities Dealers, at a price of $.50 per share.
67. Commencing in or about July 1991, the Securities Dealers began to sell, as principals, a significant volume of BelTeco shares to its clients at an average priceof $1.30 per share, with the price rising to a high of $2.00 per share that month. By the following month, and continuing throughout September, October andNovember of 1991, the average price of BelTeco shares had increased to $1.70 per share. Following November 1991, the average selling price for BelTecoshares began to decrease, and by the end of 1992, the shares of BelTeco were publicly trading at an average price of $0.03.
68. The Securities Dealers, as principals, began to sell significant volumes of Torvalon shares to its clients in or about August of 1991. At that time, the averageselling price was $1.05 per share, and ultimately, the price rose to a high of $1.95 in April and May of 1992. Prices began to decrease in May of 1992, and by theend of December 1992, the shares of Torvalon were publicly trading at an average price of $0.05 per share.
69. There was no legitimate business reason relating to the affairs of BelTeco and/or Torvalon that would justify the initial selling prices by the Securities Dealersto their clients, nor any other further increases in price.
IV. THE POSITION OF THE SALTER GROUP
70. The Salter Group states that they do not have direct knowledge of many of the facts set out in Part III, but admit that they are not inconsistent with theirunderstanding.
71. Notwithstanding the use of the term "Salter Control Group", as defined in paragraph 13 above, the Salter Group states that none of Gary Salter, Elaine Salteror Rodika Florika actually controlled the actions of the remaining shareholders or any of them. The Salter Group does admit that at the various times described inthe Agreed Statement of Facts, that they acted in combination and in concert with the members of the defined Salter Control Group.
72. As to the facts set out at paragraph 31, the Salter Group states that Audio Publications Inc. held the rights to over 120 audio books, including a full lengthreading of the New Testament by James Earl Jones. BelTeco ceased operations prior to any of these projects being completed.
73. With respect to the facts set out in paragraph 34, the Salter Group states that many of the 4,242,799 BelTeco shares outstanding by March 1991 were held inescrow.
74. The transactions described in paragraphs 36 and 37 represented a conversion of debt to equity for BelTeco.
75. With respect to the July 9, 1991 share issuance from Kent Toys, the Salter Control Group states that the shares which were subject to resale restrictionswere, in fact, never resold.
76. With respect to the facts set out at paragraph 44, the Salter Group states that Torvalon received several extensions by Kent Toys and Torvalon was out ofbusiness while these extensions were still in effect.
77. With respect to the facts set out at paragraph 50, the Salter Group states that the status of 949032's inventory was based on information received from Petry.
78. With respect to the facts set out in sub-paragraph 80(a) below, the Salter Group states that most of the profit made from the Scheme (as defined below) wasreinvested in BelTeco and Torvalon.
79. With respect to the facts set out in sub-paragraph 80(d) below, the Salter Group states that they relied on the Lawyer to properly advise them of all reportsto be filed under the Act, and relied on the Lawyer to ensure that all reports filed were accurate.
V. CONDUCT CONTRARY TO THE PUBLIC INTEREST
80. The Salter Group engaged in conduct abusive of the capital markets and contrary to the public interest involving the securities of BelTeco and Torvalon, inparticular:
(a) Gary Salter, Elaine Salter, 921159 and 918211 were active and knowing participants in a series of transactions to create a significant number of outstandingshares through a series of non-arm's length transactions, and to dispose of them for a profit to the Securities Dealers, which in turn, sold the shares to the generalpublic at a significant mark-up (the "Scheme");
(b) Gary Salter, as the directing mind of BelTeco and Torvalon, and Elaine Salter, as an officer and director of BelTeco, authorized, permitted or acquiesced inthe reliance by these corporations upon various exemptions contained in section 72 of the Act, in circumstances where such exemptions were not available orwhere reliance thereupon was not in the public interest and constituted an abuse of the exemptions contrary to the purposes and objects of the Act;
(c) Gary Salter, Elaine Salter, 921159 and 918211 engaged in or otherwise participated in distributions of BelTeco and Torvalon without filing with theCommission a prospectus and obtaining a receipt therefore, contrary to section 53 of the Act, or alternatively, improperly relied upon various exemptionscontained in section 72 of the Act where such exemptions were not available or where reliance thereupon was not in the public interest and constituted an abuseof the exemptions contrary to the purposes and objects of the Act;
(d) the Salter Group failed to file the reports required under sections 101, 107, 108 and 109 of the Act for transactions involving BelTeco and/or Torvalon, asrequired by those provisions, or alternatively, filed inaccurate reports;
(e) Gary Salter, as the directing mind of BelTeco and Torvalon, and Elaine Salter, as an officer and director of BelTeco, authorized, permitted or acquiesced inpromotional activities of the relevant corporations which included exaggerating the significance of corporate activities and events, so as to create a false andmisleading impression of the level of corporate activity in the two companies, and which may have suggested a greater value for their respective shares than wasactually the case. Specifically:
(i) in announcing various corporate activities or anticipated future activities or acquisitions, corresponding press releases or announcements ought to have beenissued when those anticipated activities and/or opportunities did not materialize; and
(ii) press releases when describing corporate activities failed to disclose the non-arms length relationship of the parties involved; and
(f) Florika permitted herself to participate in the activities described above when she ought to have investigated whether such activities were or were not in thepublic interest.
VI. TERMS OF SETTLEMENT
81. Gary Salter, Elaine Salter, 921159 and 918211 agree that they shall not be "market participant"(s), as that term is defined in subsection 1(1) of the Act fromthe date of the issuance of an order with respect to this matter by the Commission.
82. Gary Salter, Elaine Salter, 921159 and 918211 consent to an order pursuant to section 127 of the Act that none of the exemptions provided for underOntario Securities law shall apply to them, directly or indirectly, including any company of which they are associates, from the date of the issuance of an orderwith respect to this matter by the Commission, until further order of this Commission.
83. Notwithstanding the above, after the expiration of a two (2) year period commencing from the date of the issuance of the Commission Order described inparagraph 82 above, Elaine Salter may trade in certain securities for the account of her registered retirement savings plans (as defined in the Income Tax Act(Canada)), and Gary Salter may otherwise trade in certain securities so long as:
(a) the trades are in securities referred to in clause 1 of subparagraph 35(2) of the Act; or
(b) in the case of securities other than those referred to in (a):
(i) the securities are listed and posted for trading on the Toronto Stock Exchange;
(ii) neither Gary Salter nor Elaine Salter nor any member of their family is an insider, partner or promoter of the issuer of the securities;
(iii) Gary Salter or Elaine Salter do not own directly or indirectly through another person or company or through any person or company acting on their behalf,independently or in aggregate more than two and one-half (2-1/2) percent of the outstanding securities of the class or series of the class in question; and
(iv) the law governing such trades is otherwise complied with.
84. Florika agrees that she will not be "market participant", as that term is defined in subsection 1(1) of the Act, for two years from the date of the issuance of anorder with respect to this matter by the Commission.
85. Florika consents to an order pursuant to section 127 of the Act that none of the exemptions provided for in Ontario securities law shall apply to her nor anycompany of which she is an associate, for two years from the date of the issuance of an order with respect to this matter by the Commission.
86. For the sake of clarity, the parties agree that the Salter Group shall be at liberty at any time to apply to the Commission for a specific exemption from therestrictions described above, or any one of them.
87. The Salter Group will cooperate with Staff in any further investigation of the allegations contained in the Amended Notice of Hearing.
88. Upon approval by the Commission of the Settlement Agreement, the Salter Group shall collectively pay forthwith a total of $25,000 to the Minister ofFinance (Ontario) by certified cheque or money order dated the date of the Commission order being a contribution on account of the costs incurred by theCommission in connection with its investigation.
89. The Salter Group hereby consent to an order of the Commission incorporating the provisions of the parts entitled "Terms of Settlement" and "Payment"above in the form annexed hereto as Schedule "A".
IX. STAFF COMMITMENT
90. If this Settlement Agreement is approved by the Commission, Staff will not initiate any complaint to the Commission or request the Commission to hold ahearing or issue any order or initiate any other proceeding or prosecution against the Salter Group, including any proceedings under section 128 of the Act, inrespect of any conduct or alleged conduct of the Salter Group in relation to the facts set out in Part III of this Settlement Agreement.
X. PROCEDURE FOR APPROVAL OF SETTLEMENT
91. The approval of the settlement as set out in the Settlement Agreement shall be sought at a public hearing of the Commission in accordance with proceduresdescribed herein and further procedures which may be agreed upon by the Salter Group and Staff. Staff and the Salter Group agree that if the SettlementAgreement is approved by the Commission, they waive their rights to a full hearing of this matter under the Act.
92. The terms of this Settlement Agreement will be treated as confidential by all parties hereto until approved by the Commission. Any party compelled by legalprocess to communicate information concerning the Settlement Agreement in contravention of the foregoing shall first advise the other party of the relevantcircumstances.
93. If, for any reason whatsoever, the Settlement Agreement is not approved by the Commission:
(a) this Settlement Agreement shall terminate (except for the preceding paragraph) and Staff will be entitled to proceed with a hearing of the allegations in theNotice of Hearing, unaffected by this Settlement Agreement or the settlement negotiations;
(b) the terms of the Settlement Agreement will not be raised in any other proceeding or disclosed to any person except with the written consent of the SalterGroup and Staff, or as may otherwise be required by law; and
(c) the Salter Group agrees that they will not raise in any proceeding the Settlement Agreement or the negotiation or process of approval thereof as a basis forany attack on the Commission's jurisdiction, alleged bias, alleged unfairness or any other challenge that may otherwise be available.
94. This Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement and a facsimile copy of anysignature shall be effective as though it were an original signature.
March 14th, 1997.
SIGNED IN THE PRESENCE OF:
"921159 ONTARIO INC.
per Gary Salter
"918211 ONTARIO INC."
per Elaine Salter
per Larry Waite