Blue Sky L. Rep. P 72,221, Fed. Sec. L. Rep. P 92,035j. Don Foster, an Individual, Plaintiff-appellee, v. Jesup and Lamont Securities Co., Inc., a Corporation,defendant-appellant, Cross-appellee.j. Don Foster, an Individual, Plaintiff-appellant, Cross-appellee, v. Texas Partners '80 Ltd., a Limited Partnership, Minnickresources Management, Inc., a Corporation, F. Wendellminnick, an Individual, Jesup and Lamont Securities Co.,inc., a Corporation, and Pyron Exploration and Drillingcorp., a Corporation, Defendants-appellees, Cross-appellants, 759 F.2d 838 (11th Cir. 1985)

This securities case requires us to consider what conduct makes one a "seller" within the meaning of Sec. 12(2) of the Securities Act of 1933.¹  Because we conclude that appellant was not a "seller" of the securities in question, we reverse the district court's judgment with respect to appellee's Sec. 12(2) claim. Appellant has also been found liable under Alabama securities laws. We conclude that the legal sufficiency of these latter claims depends on important questions of state law that have not been ruled upon by the courts of Alabama. Accordingly, we certify these questions to the Alabama Supreme Court for instruction.

Facts

Foster, plaintiff below, invested in a Texas limited partnership in December, 1980 (Texas Partners '80, Ltd., hereafter "Texas Partners"). Texas Partners' ostensible business purpose was to develop oil and gas wells. In fact, no substantial drilling operations were undertaken on behalf of the partnership, and Foster lost the amount he invested.

Foster bought his interest from Minnick, sole shareholder and president of Minnick Resources Management, Inc., which was the general partner in Texas Partners.²  The only party involved with Texas Partners that defended before the district court and the only party opposing Foster before this court is Jesup & Lamont Securities Co. ("Jesup & Lamont"), a New York securities dealer whose name appeared on the Texas Partners offering document.

Jesup & Lamont first became involved in the offering in June of 1980 when its president, Curd, and its vice-president, Thors, met with Minnick to discuss the firm's participation. Minnick and Jesup & Lamont subsequently entered into an agency agreement whereby the firm promised to use its "best efforts" to sell interests in Texas Partners. Jesup & Lamont was to receive a ten percent commission for interests it sold, and a two percent commission for interests sold by Minnick. Jesup & Lamont was not required by the agreement to sell any interests, but only to use its best efforts in that regard.

Following the initial meeting with Minnick, Curd inquired of Minnick's former employers and of his banker about Minnick's standing in the investment community. These references were favorable, and reported that Minnick "had a reputation of being successful in oil and gas." 4 Rec. at 347. Jesup & Lamont did not investigate other particulars about Minnick, such as how he had fared in specific oil and gas deals or his standing with trade creditors. Jesup & Lamont also did not investigate the particulars of the Texas Partners undertaking, such as the status of the partnership's leases or the financial feasibility of the planned drilling operations.

The Texas Partners venture went forward and an offering memorandum was prepared for use in the sale of interests in the partnership. Minnick testified by deposition that he drafted the offering memorandum, but that it was reviewed by a lawyer at Shea & Gould, a New York law firm that represented Minnick in the proposed offering. Shea & Gould was also general counsel to Jesup & Lamont. Jesup & Lamont had no role in the drafting or printing of the offering memorandum, the cost of which was borne by Minnick. Three hundred copies were printed and delivered to Minnick, who sent thirty copies to Jesup & Lamont.

The offering memorandum comprises sixty pages of text and nine exhibits. The cover of the memorandum displays the limited partnership's name at the top and Jesup & Lamont's name, address, and phone number at the bottom, with the notation that the firm is a member of the New York Stock Exchange.³  The same general information about Jesup & Lamont is presented on the first inside page and a legend appears in two places early in the document stating that "These Limited Partnership Interests are being primarily distributed through Jesup & Lamont Securities Co., Inc." Pl.Ex. 1. In the text of the offering memorandum is the information that Texas Partners and Jesup & Lamont had entered into a best efforts selling arrangement, and that "In addition, other persons may receive commissions for selling Interests, including Minnick Resources Management, Inc." Id. at 4. The offering memorandum is dated July 30, 1980.

Jesup & Lamont and Minnick rescinded their sales agency agreement shortly after this date.⁴  In his deposition, Minnick testified that he had been unhappy with Jesup & Lamont's performance. At trial, Curd testified that Jesup & Lamont had decided "the item was basically not marketable." 4 Rec. at 348. Although the principals agreed to rescind the best efforts agreement, they disagreed about who should pay for the offering documents. Minnick wanted Jesup & Lamont to pay the printing costs because the firm's lack of success had resulted in rescission of the agreement. Jesup & Lamont took the position that it had no responsibility to pay because the agreement only required "best efforts," which the firm felt it had given. There is no dispute in the record that Minnick told Curd he was going to remove Jesup & Lamont's name from the document. Minnick testified he attempted to do so for several offering documents by using scissors to cut out at least some of the references to Jesup & Lamont. Jesup & Lamont did not attempt to have Minnick surrender to the firm the offering documents in his possession.

Foster was first introduced to Texas Partners by his accountant, Jordan, who had met Minnick in May of 1980. Jordan testified by deposition that he traveled to New York in November of 1980 on business not related to Texas Partners, but which involved Jesup & Lamont. Jordan took advantage of this opportunity to question Curd about Minnick's prior activities. Curd reassured him about Minnick even though, unknown to Jordan, Jesup & Lamont had already withdrawn from the Texas Partners offering. Jordan testified that at the November meeting, Curd told him "We are involved in this offering document and we know of nothing that would effect [sic] our relationship with Mr. Minnick." 3 Rec. at 195. At trial, Curd denied the occurrence of the meeting at which this statement allegedly was made.

Minnick and Foster were brought together for the first time by Jordan at a meeting attended by the three in Jordan's Alabama office in late December of 1980. The meeting lasted for one to two hours and focused on Foster's possible purchase of an interest in Texas Partners. Foster questioned Minnick about his background and about the particulars of the undertaking. Minnick made representations about the amount of money that had already been raised by Texas Partners, and told Foster that the money was to be used in drilling numerous wells. Foster was given a copy of the offering memorandum, which bore Jesup & Lamont's name. He testified he studied the document after the meeting and relied on it in eventually deciding to buy one-half of an interest in Texas Partners. Foster did not communicate directly with anyone at Jesup & Lamont before he invested in Texas Partners.

The specific representations in the offering memorandum Foster said he relied on that later proved false were: (1) that Jesup & Lamont was involved in the offering; (2) that the proceeds of the offering would be used by Texas Partners in development drilling for oil and gas; (3) that the general partner, Minnick Resources Management, Inc., would contribute five percent of the drilling costs; and (4) that investments would be refunded if a minimum amount were not raised.

Jordan's association with Minnick continued after Foster's purchase. Jordan learned from work he did for the drilling company, Pyron Exploration and Drilling Corp., that Texas Partners had not raised the required minimum in investments. Further, Jordan discovered that the money raised by Texas Partners had not been applied to development drilling as promised. When Jordan notified Foster of these facts, Foster called Minnick, who assured him that the money he had invested would be refunded. When Minnick failed to refund his money, Foster filed suit in federal district court claiming violations of both state and federal securities laws.

Proceedings Before the District Court

Foster presented four counts in his first complaint. In Count I, he claimed damages for the sale of an unregistered security, which is made unlawful by Sec. 5 of the Securities Act of 1933,⁵  and actionable by Sec. 12(1) of that Act.⁶  The district court dismissed this federal registration claim as time barred and that decision has not been appealed. Count I also stated a registration claim under Alabama law. We discuss this latter claim in the section of this opinion addressed to certification of controlling state law questions.

In Count II, Foster claimed damages for the sale of a security by means of false written or oral communications in violation of Secs. 17 and 12(2) of the 1933 Act⁷  and in violation of various Alabama code sections. The district court dismissed Foster's federal Sec. 17 claim on the ground that the section does not afford a private right of action. That decision has not been appealed. Jesup & Lamont's liability founded on Sec. 12(2) of the 1933 Act is the main subject of this opinion. The state law claims raised in Count II are discussed below, where we certify questions to the Alabama Supreme Court.

In Count III, Foster alleged violation of Sec. 10(b) of the Exchange Act of 1934⁸  and of Rule 10b-5 promulgated by the Securities and Exchange Commission ("SEC").⁹  As construed by the courts, these provisions provide a cause of action for fraudulent practices undertaken in connection with the purchase or sale of a security. Finally, in Count IV, Foster sought compensatory and punitive damages for common law deceit. Foster learned after he filed his complaint that Jesup & Lamont and Minnick had rescinded their sales agency agreement before he invested in Texas Partners. He subsequently amended his complaint to exclude Jesup & Lamont as a defendant with respect to Counts III and IV relating to fraud under Sec. 10(b) of the Exchange Act and for common law deceit. Thus, there are no federal or state claims against Jesup & Lamont under Counts III or IV.

The only federal claim, the Sec. 12(2) claim in Count II, and the several state law claims in Counts I and II were tried before a jury in the United States District Court for the Southern District of Alabama. Foster testified in his own behalf and introduced into evidence the pretrial depositions of Jordan and Minnick. Foster also presented an expert witness, Krebs, a former Alabama securities commissioner who testified about the customary duty of underwriters to control distribution of offering documents in private offerings. Jesup & Lamont presented two witnesses in its own behalf at trial--Curd, its president, and Thors, its vice-president and syndicate manager.

The case was submitted to the jury on special interrogatories, all of which were answered unfavorably to Jesup & Lamont.¹⁰  The district court entered judgment against Jesup & Lamont based on the jury's answers, and Jesup & Lamont subsequently appealed from the judgment and from denial of its various post-trial motions.¹¹ 

Foster's Section 12(2) Claim

The sole federal securities law claim against Jesup & Lamont remaining at trial was brought under Sec. 12(2) of the Securities Act of 1933.¹²  The only element of that claim at issue here is whether Jesup & Lamont was a "seller" within the meaning of Sec. 12(2). The section provides that " [a]ny person who ... offers or sells a security ... by means of a prospectus or oral communication, which includes an untrue statement of a material fact ... shall be liable to the person purchasing such security from him." 15 U.S.C.A. Sec. 77l (2) (West 1981).

At first blush, Jesup & Lamont appears plainly beyond the reach of Sec. 12(2). The firm did not sell anyone an interest in Texas Partners and had no direct contact with Foster. Moreover, Foster actually bought his interest from Minnick, who met with Foster and touted the security to persuade him to invest. Courts have generally recognized, however, that defendants who do not actually sell the security in question may nonetheless be liable under Sec. 12.¹³ 

In delimiting the scope of Sec. 12, authority controlling in this circuit¹⁴  has sought to determine whether a defendant's role "constituted him a seller for purposes of that section." Junker v. Crory, 650 F.2d 1349, 1360 (5th Cir. July 17, 1981). Liability of secondary participants has been held to depend on whether "the injury to the plaintiff flow [ed] directly and proximately from the [defendant's] actions." Hill York Corp. v. American International Franchises, Inc., 448 F.2d 680, 693 (5th Cir. 1971) (quoting Lennerth v. Mendenhall, 234 F. Supp. 59, 65 (N.D. Ohio 1964)). Section 12 will reach those "whose participation in the buy-sell transaction is a substantial factor in causing the transaction to take place." Pharo v. Smith, 621 F.2d 656, 667 (5th Cir. 1980).

In Hill York, Sec. 12 liability attached to defendants who engineered a franchise sales scheme, but who did not execute the sales in question. Through the sales scheme, capital was attracted to corporations that purportedly would market restaurant franchises. Shares in the corporations were marketed by means of sales brochures that omitted to inform buyers that similar operations by the same defendants were targets of pending SEC investigations. 448 F.2d at 690. Even though the defendants had not sold to the plaintiffs, the court in Hill York considered them to have been "the motivating force" behind the sales scheme:

They sought out the original incorporators of Florida Franchise and then trained them to solicit additional capital for the corporation. They provided the sales brochures designed to secure this additional capital. They rendered advice on every aspect of the corporate formation and subsequent development. In fact, the defendants did everything but effectuate the actual sale.

Id. at 693. Given this pervasive involvement of the defendants, the court had little difficulty concluding that "the plaintiffs would not have purchased this stock had the defendants not traveled to Florida carrying their bag of promotional ideas," id., and that consequently the defendants were "persons who sold or offered to sell" within the meaning of Sec. 12. Id.

In Junker, Sec. 12(2) liability attached to a lawyer who suggested a merger between two related corporations. The lawyer attended shareholders' meetings of the disappearing corporation and urged approval of the merger terms. The merger was consummated to the detriment of a minority shareholder, a result that would have been apparent in advance had the two corporations been properly valued. The court in Junker found the evidence sufficient to establish that the lawyer was a "key participant" and an "active negotiator" in the transaction, and the court concluded that he was therefore brought within "the scope of the seller definition under Section 12(2)." 650 F.2d at 1360.

Finally, in Croy v. Campbell, 624 F.2d 709 (5th Cir. 1980), the court declined to hold a tax lawyer liable as a Sec. 12(2) seller after a real estate investment he recommended failed to produce expected tax benefits. The court relied on the fact that the lawyer did not make representations concerning the project's advisability, except as a tax matter, and further that the lawyer did not prepare the sales brochure or attempt to persuade the plaintiffs to invest in the project. Id. at 714. The court also observed that the plaintiffs decided to invest only after talking with the project's developer and obtaining independent advice. Id. The court in Croy v. Campbell concluded that " [a]pplying these findings to the 'seller' concept ... we cannot say that the defendant's participation in this transaction proximately caused the plaintiffs' injury, or that they would not have purchased the security 'but for' his actions." Id.

Foster presented sufficient evidence in the present case to establish that he relied on Jesup & Lamont's apparent role in the offering when he decided to invest in Texas Partners. There is no dispute that Jesup & Lamont's name was prominently displayed on the offering document Minnick gave to Foster. In weighing this fact, we have been mindful that the identity of an underwriter associated with an offering often affects particular investment decisions.¹⁵  Jesup & Lamont held itself out in the Texas Partners offering document as the "best efforts" underwriter for the offering, and of course we must assume that the jury credited Foster's testimony that he relied on the existence of that relationship in deciding to invest in Texas Partners.

We have concluded, however, that Jesup & Lamont's role as an underwriter and Foster's reliance on that fact are insufficient to make the firm a "seller" within the meaning of Sec. 12. The different schemes of liability provided in Sec. 11 and Sec. 12 of the 1933 Act show that Congress did not intend Sec. 12 to make underwriters liable simply because they are underwriters. Section 11 extends liability to "every underwriter with respect to [a given] security," 15 U.S.C.A. Sec. 77k(a) (5) (West 1981).¹⁶  Section 12, on the other hand, extends liability only to one who "offers or sells a security." Id. at Sec. 77l. Further, a seller under Sec. 12 is liable only to "the person purchasing such security from him." Id. If an underwriter were a "substantial factor" in the sale of a security simply by virtue of an investor's reliance on the underwriter's participation in a given offering, underwriters would always be subject to liability as Sec. 12(2) "sellers". The fact that Congress made every underwriter liable in Sec. 11, but not in Sec. 12, suggests that underwriters are not to be liable under Sec. 12 solely by virtue of their status as underwriters.

Since Sec. 12 does not provide for underwriter liability per se, an underwriter must also be a seller of the security in question to be liable under the section. This view is consistent with cases holding that where there is more than one underwriter of an issue, each underwriter may be liable under Sec. 12 only to plaintiffs to whom it sold. In re Itel Securities Litigation, 89 F.R.D. 104, 121 (N.D. Cal. 1981); see also Unicorn Field, Inc. v. The Cannon Group, Inc., 60 F.R.D. 217, 222-23 (S.D.N.Y. 1973). Presumably, other underwriters in a multiple underwriter offering might also be Sec. 12(2) "sellers," but to support this result, our precedent would require that their participation be a "substantial factor" in the particular sale in question.

The Texas Partners offering document, on which Foster relied, presented a sales arrangement contemplating more than one seller. The offering memorandum said: "In addition, other persons may receive commissions for selling Interests, including Minnick Resources Management, Inc." Pl.Ex. 1 at 4. There is no dispute that Foster actually bought his interest from Minnick. On these facts, we conclude that something more than Jesup & Lamont's apparent role as underwriter must be shown to make the firm liable under Sec. 12.

Foster presented the deposition testimony of his accountant, which tended to show something more than mere underwriter status on the part of Jesup & Lamont. Jordan's testimony was sufficient to prove that Curd reassured the accountant about Minnick even after Jesup & Lamont had withdrawn from the offering. As noted, Curd was alleged to have said "We are involved in this offering document and we know of nothing that would effect [sic] our relationship with Mr. Minnick." 3 Rec. at 195. We have carefully considered the likely impact of this statement on Foster's decision to buy, and we have concluded as a matter of law that the statement does not amount to the active participation in a sale that is necessary for Jesup & Lamont to be liable as a Sec. 12 "seller".¹⁷ 

We note that there was no direct communication between Foster and Jesup & Lamont, and that the only communication between Jesup & Lamont and the accountant, Jordan, was a single, casual comment concerning the firm's involvement with the offering and its continued good opinion of Minnick. The statement was not addressed directly to the merit of Texas Partners or to the critical question of whether to invest in the venture.

The primary role Minnick played in the transaction further persuades us that Jesup & Lamont was not a "substantial factor" in the sale. Minnick met with Foster in Alabama in the final days of 1980 to discuss Texas Partners at length. In this face-to-face meeting, Foster questioned Minnick about his background and about the proposed offering. While such an encounter is no substitute for an underwriter's independent investigation, the meeting in this case appears to have given Foster sufficient confidence in Minnick and in Texas Partners that he did not see a need to confer further with Jesup & Lamont.

Having concluded that the role of underwriter per se is not sufficient, by itself, to impose liability under Sec. 12, we also conclude on the basis of the totality of the circumstances in this case, that the very limited additional involvement in the form of the single comment to Foster's accountant is not sufficient "participation in the buy-sell transaction ... [to be] a substantial factor in causing the transaction to take place." Pharo v. Smith, 621 F.2d at 667. The extensive and active involvement in bringing about the buy-sell transaction which was present in Hill York and Junker has simply not been shown on these facts. This case is more similar to Croy v. Campbell, in which the defendant did not attempt to persuade the plaintiff to buy, and in which the plaintiff invested his money only after meeting the developer himself and otherwise obtaining independent advice. The court in Croy v. Campbell decided the defendant in that case was not a Sec. 12(2) seller, and we reach the same conclusion with respect to Jesup & Lamont in the present case.

Other Federal Issues on Appeal

Jesup & Lamont asks us to review three of the district court's evidentiary rulings. First, the district court allowed Krebs, a former Alabama securities commissioner, to testify for Foster that customarily in a private offering the underwriter is responsible for controlling the offering documents. Krebs testified further that Jesup & Lamont had been reckless and had failed to comply with industry standards in its management of the Texas Partners documents. Jesup & Lamont argues that this testimony was not relevant to any issue before the jury and that the testimony unfairly prejudiced its case by confusing the jury.

We believe the district court did not abuse its discretion in admitting testimony about customary duties of underwriters in private offerings. The evidence concerned the manner in which offering documents are normally controlled and thus was relevant in determining whether Jesup & Lamont was a "substantial factor" in the sale, the federal standard, or whether Jesup & Lamont "materially aided" the sale, the state standard discussed below.

Jesup & Lamont also objected to the admission of Foster's testimony about reliance on Jesup & Lamont's name. We believe the testimony is relevant to whether the misrepresentation of Jesup & Lamont's role was material,¹⁸  and we therefore conclude that its admission was not error.

Finally, Jesup & Lamont objected to limits the district court placed on its cross-examination of Foster. Jesup & Lamont sought to explore the tax motives behind Foster's investment in Texas Partners. The district court allowed Jesup & Lamont to establish that one factor motivating Foster's investment decision was anticipated tax benefits. The court prevented Jesup & Lamont from questioning Foster about the specific amounts he had deducted. We believe these rulings were well within the district court's discretion.¹⁹ 

Certification of Determinative State Law Questions

We turn therefore to the various state law claims against Jesup & Lamont since we have concluded that the firm is not subject to liability as a Sec. 12(2) seller under federal law. As noted, Counts I and II remained against Jesup & Lamont in Foster's amended complaint, and Foster alleged violations of Alabama law in each of these counts.

In Count I, Foster claimed damages for the sale of an unregistered security, which is made unlawful by Sec. 8-6-4 of the Alabama Code,²⁰  and which is made actionable by Sec. 8-6-19²¹  ("Section 19" or "Sec. 19"). Section 19 extends liability to one who "sells or offers to sell" a security, and also to "every broker-dealer or agent who materially aids in the sale." Ala.Code Sec. 8-6-19(a), (b) (West 1984). The district court instructed the jury that "materially aided" is equivalent to "substantial factor." 4 Rec. at 489. At trial, Foster objected to this instruction. Because the jury returned a verdict in favor of Foster, that objection is moot. However, with respect to the issue of exactly how much evidence is legally sufficient to support the jury verdict, Foster contends on appeal that less participation is needed to meet Alabama's "materially aided" standard than is needed to show that a defendant was a "substantial factor" in a sale and thus a "seller" under federal law. Apparently, Foster bases his argument on the language of Sec. 19, which refers to "the nonseller who is so liable."²²  Unlike federal Sec. 12, which limits liability to sellers, the Alabama provision imposes liability on a broader range of participants in securities transactions. In this respect, Sec. 19 is similar to Sec. 11 of the 1933 Act,²³  which also lists specific participants who are subject to liability.

We have found no Alabama case discussing the level of participation required for secondary liability under Sec. 19. Because this point has become determinative in the present case, we certify the following question to the Alabama Supreme Court for instruction pursuant to Ala.R.App.P. 18:

Question One: Has a securities firm "materially aided" an unlawful sale of a security within the meaning of Alabama Code Sec. 8-6-19(b) under the following circumstances:

(a) The firm's name was displayed prominently on an offering document used in connection with the sale, and the firm was presented in the document as the issue's primary best efforts underwriter, even though the firm had withdrawn from the offering;

(b) The buyer relied on the firm's participation in the offering in reaching his decision to purchase an interest;

(c) There is substantial evidence in the record from which we must infer that the jury found that an underwriter customarily is responsible for controlling distribution of the offering documents in a private offering;

(d) The firm's president told the buyer's accountant that the firm was "involved" in the offering document after the firm had rescinded its agreement to help sell the security;

(e) The buyer did not directly communicate with the brokerage firm in reaching his decision to invest;

(f) The buyer met with the promoter of the issue to discuss the promoter's background and to discuss various business aspects of the venture before deciding to invest;

(g) The buyer delivered his check to the promoter in exchange for the security.

Count II of Foster's complaint contains two state law claims for damages based on the sale of a security by means of false written or oral communications. The first of these is grounded on Ala.Code Sec. 8-6-19(a) (2). We believe that the disposition of this Alabama claim would be determined by the same question we have certified above with respect to Foster's state law registration claim. The viability of each of these claims depends on the Alabama Supreme Court's application of the "materially aided" standard to the facts of this case.

Foster's other basis under state law for his Count II false communication claim is Ala.Code Sec. 8-6-17.²⁴  The district court treated this section as affording a private right of action and concluded on the basis of an analogy to federal Rule 10b-5 actions that scienter must be shown to support recovery under the section. Jesup & Lamont contends on appeal that the section does not afford a private right of action, while Foster appeals contending that an action under the section does not require scienter. We have found no Alabama case addressing either of these questions. Because they may determine Foster's right to recover if he is not successful with his other claims under Alabama law, we certify the following additional questions to the Alabama Supreme Court for instruction under Ala.R.App.P. 18:

Question Two: Does Alabama Code Sec. 8-6-17 afford a private right of action?

Question Three: If a private cause of action is available under Alabama Code Sec. 8-6-17: (a) is proof of scienter necessary to maintain the action? and (b) would severe recklessness meet the scienter requirement?²⁵ 

The particular phrasing used in the certified questions is not to restrict the Alabama Supreme Court's consideration of the problems involved and the issues as the Alabama Supreme Court perceives them to be in its analysis of the record certified in this case.

Conclusion

We have concluded that Jesup & Lamont was not a "seller" of an interest in Texas Partners, and consequently we reverse the district court's judgment holding the firm liable under Sec. 12(2) of the Securities Act of 1933, 15 U.S.C.A. Sec. 77l (2) (West 1981). We have certified three questions of Alabama securities law to the Supreme Court of Alabama for instruction pursuant to Ala.R.App.P. 18. Accordingly, our final decision with respect to Foster's state law claims will await answer from the Alabama Supreme Court. The several other claims on appeal are without merit.²⁶ 

AFFIRMED in part, REVERSED in part, AND QUESTIONS OF STATE LAW CERTIFIED TO THE ALABAMA SUPREME COURT.

EXHIBIT 'A' TEXAS PARNTERS '80 LTD. Jesup & Lamont Securities Co., Inc. ESTABLISHED 1877 100 Park Avenue, New York, NY 10017 TELEPHONE (212) 573-6800 TELEX 233478 MEMBER 62890 NEW YORK STOCK EXCHANGE, INC. APPENDIX A Selected pages from the Term Special Use Permit ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- States Department a. Record No. (1-2) b. Region (3-4) c. Forest (5-6) of Agriculture Forest Service 7 0 Eastern 0 9 White 2 2 - - - - - - Mountain --------------------------------------------------------- TERM SPECIAL USE d. District (7-8) e. User No. (9-12) f. Kind (13-15) PERMIT Andro 0 2 4007 Winter 161 - - ---- ----- Act of March 4, Sports Resort 1915, Sec. 7 --------------------------------------------------------- (Ref. FSM 2710) g. State (16-17) h. County (18-20) k. Card No. (21) 3 3 Coos 0 0 7, 1 - - - - - - -------------------------------------------------------------------------------

Permission is hereby granted to Meadow Green - Wildcat Corporation

of Pinkham, Notch, Jackson, New Hampshire 03846, hereinafter called the permittee, to use subject to the conditions set out below, the following described lands or improvements for the period of 20 years from the date thereof:

Approximately 61 acres of portions of U. S. Tracts #16, 31, and 68 lying on the northwest slope of Wildcat Mountain near Pinkham Notch in the White Mountain National Forest as shown on Drawing No. MH-3-296,022 titled "Term & Permit Areas" and also described on two pages numbered M-11-3-302,013 titled "Term Special-Use Permit Area - Description of Tract" both prepared by E.N. Roberts, Engineer, Concord, New Hampshire, and dated "10 Sept. 1962", which drawing and description are attached and made a part of this permit, and drawings 2a, 2b, 2c, and 2d of the Wildcat General Development Site Plan (Master Development Plan) dated October 1976 by Kiley-Tyndall-Walker, which drawings are attached and made a part of this permit.

This permit covers 61 acres and is issued for the purpose of:

Construction, operation, and maintenance of a year-round outdoor recreational development to provide services necessary and desirable for the reasonable comfort and convenience of the public. Structures, facilities and appurtenant improvements to be authorized by this permit are as shown on the approved development plan as required in Clause 23.0 of this permit.

This permit is supplemented by a terminable (annual) special use permit dated 10/23/86for 842 acres for appurtenant improvements, structures, and facilities to be used in conjunction with the privileges granted by this permit.

This permit supersedes a special use permit designated 2720, Wildcat Mountain Corporation, January 10, 1974, Winter Sports Area.

1. Construction or occupancy and use under this permit shall begin

immediately. This use shall be actually exercised at least 365 days each year,

unless otherwise authorized in writing.

3. This permit is accepted subject to the conditions set forth herein, and

to conditions 20 to 27 attached hereto and made a part of this permit.

4. Development plans; layout plans; construction, reconstruction, or

alteration of improvements: or revision of layout or construction plans

for this area must by approved in advance and in writing by the Forest

Supervisor. Trees or shrubbery on the permitted area may be removed or

destroyed only after the Forest Officer in charge has approved, and has

marked or otherwise designated that which may be removed or destroyed.

Timber cut or destroyed will be paid for by the permittee as follows:

Merchantable timber at appraised value; young-growth timber below

merchantable size at current damage appraisal value ; provided that the

Forest Service reserves the right to dispose of the merchantable timber

to others than the permittee at no stumpage cost to the permittee.

Trees, shrubs, and other plants may be planted in such manner and in

such places about the premises as may be approved by the Forest Officer

in charge.

5. The permittee shall maintain the improvements and premises to standards

of repair, orderliness, neatness, sanitation, and safety acceptable to

the Forest Officer in charge.

6. This permit is subject to all valid claims.

7. The permittee, in exercising the privileges granted by this permit,

shall comply with the regulations of the Department of Agriculture and

all Federal, State, county, and municipal laws, ordinances, or

regulations which are applicable to the area or operations covered by

this permit.

8. The permittee shall take all reasonable precaution to prevent and

suppress forest fires. No material shall be disposed of by burning in

open fires during the closed season established by law or regulation

without a written permit from the Forest Officer in charge or his

authorized agent.

9. The permittee shall exercise diligence in protecting from damage the

land and property of the United States covered by and used in

connection with this permit, and shall pay the United States for any

damage resulting from negligence or from the violation of the terms of

this permit or of any law or regulation applicable to the National

Forests by the permittee, or by any agents or employees of the

permittee acting within the scope of their agency or employment.

10. The permittee shall fully repair all damage, other than ordinary wear

and tear, to national forest roads and trails caused by the permittee

in the exercise of the privilege granted by this permit.

11. No Member of or Delegate to Congress or Resident Commissioner shall be

admitted to any share or part of this agreement or to any benefit that

may arise herefrom unless it is made with a corporation for its general

benefit.

12. Except as provided in Clause 16 below, upon abandonment, termination,

revocation, or cancellation of this permit, the permittee shall remove

within a reasonable time all structures and improvements except those

owned by the United States, and shall restore the site, unless

otherwise agreed upon in writing or in this permit. If the permittee

fails to remove all such structures or improvements within a reasonable

period, they shall become the property of the United States, but that

will not relieve the permittee of liability for the cost of their

removal and restoration of the site.

13. This permit is not transferable. If the permittee through voluntary

sale or transfer, or through enforcement of contract, foreclosure, tax

sale, or other valid legal proceeding shall cease to be the owner of

the physical improvements

APPENDIX A--Continued

Fees

----

* * *

Definitions, Graduated-Rate Fee System

We, the Jury, on the claims brought by the plaintiffs against defendants in the above entitled case, find for the plaintiff(s)F.R.G. Inc. and ____________________ and against defendant(s) Robert F. Mangillo and ____________________ in amount of $ 2.3 million.

/s/ signature