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After securing LaSalle's consent to the $1 million payment,
Messrs. Espy and Rahn collaborated in the preparation of the
following resolution for Norcom’s Board of Directors:
WHEREAS, certain employees of Quest Capital
Corp. have conducted meetings with and given
consultations to * * * [Norcom's] management,
provided advisory services in marketing, strategic
planning, systems, and technical operations,
advised the Corporation's employees and negotiated
on behalf of * * * [Norcom] in connection with
numerous bank transactions, reviewed and analyzed
monthly financial statements and the annual
operating budget for 1996, and acted as general
consultant to * * * [Norcom] as to its
productivity and profitability; and
WHEREAS, the president has proposed to the
board that * * * [Norcom] pay a management fee to
Quest Capital Corp. in the amount of $1,000,000.00
in consideration for the aforementioned services;
THEREFORE IT IS RESOLVED, that the president
is authorized and directed by the board of
directors to pay the amount of $1,000,000.00 to
Quest Capital Corp. for the consulting services
described herein.
On December 14, 1995, Mr. Arnold, Norcom's sole director at the
time, executed the resolution. On December 29, 1995, Norcom paid
$1 million to Quest as a management fee.
As part of its audit of Norcom’s 1995 books, Norcom’s
outside accountants advised petitioners that they should treat a
portion of the payment as a dividend to obtain the benefits of
certain tax credits. In response to this suggestion, Norcom and
Quest reiterated their intention that the entire payment was
compensation for services rendered and should be treated as such.
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