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SMITH, JACKSON & CO. v. NEOTEC CORP.

July 1, 1977

SMITH, JACKSON & COMPANY, INCORPORATED, Plaintiff,
v.
NEOTEC CORPORATION, Defendant



The opinion of the court was delivered by: DUFFY

KEVIN THOMAS DUFFY, D.J.

 The plaintiff, Smith, Jackson & Company, Incorporated, acted as underwriter in connection with an April 24, 1969 public offering of common stock by defendant Neotec Corporation. At the time, Neotec was a designer and manufacturer of sophisticated audio and optical equipment which it sold for governmental and industrial use. Contemporaneous with the public offering, Neotec engaged Smith, Jackson to act as its financial consultant. Smith, Jackson now sues for breach of that agreement. A trial has been held and this opinion constitutes my findings of fact and conclusions of law.

 The parties do not dispute the existence and validity of the consultation agreement which is embodied in an April 24, 1969 letter to Smith, Jackson, signed by Neotec, and accepted and signed by Smith, Jackson. It is undisputed that the language of the contract was substantially formulated by Smith, Jackson. It provides as follows:

 
"This will serve to confirm the arrangement under which we have retained you to act as Financial Consultant to the undersigned:
 
"1. Your engagement hereunder shall be for a term of four years commencing as of April 24, 1969.
 
"2. You will receive a fee of $12,500 per annum as compensation for your services. Such fee is to be paid at the beginning of each engagement year. Your signature at the bottom of this letter will serve to acknowledge (1) the receipt by you of $12,500 being your fee for the engagement year ending April 23, 1970; and (2) your agreement not to incur any individual disbursement in excess of $25 or disbursements in the aggregate of $250 without our prior consent.
 
"3. Your services as Financial Consultant shall include consultations with officers and directors relative to financial matters concerning the Company, financings, mergers, acquisitions, relations and dissemination of financial and other information to the financial community and to the public at large.
 
"4. It is understood and agreed that you shall devote to your services hereunder such amount of time as you in your discretion deem necessary and further that you shall have the absolute right to determine which of your officers or employees shall render such services on your behalf.
 
"5. You agree that any information concerning the Company's operations or related matters which you obtain or are otherwise advised of as a result of your acting as our Financial Consultant shall be kept in the strictest confidence by you and shall only be used by you to enable you to render your services to us hereunder.
 
"6. It is agreed that in the event you shall bring to our attention any company, firm or business for acquisition or merger, or in the event you shall arrange for us any financing, whether of equity or debt, or sell for us on our behalf any of our securities, you shall receive compensation therefore separate from the above mentioned remuneration, which compensation shall be mutually agreed to between us."

 There is no dispute that Neotec has paid Smith, Jackson in full for the period from April 24, 1969 to April 23, 1972, the first three years of the contract but has paid nothing for the fourth year. Originally, defendant sought to recover the $37,500 paid during the first three years but withdrew the counterclaim at trial.

 As a defense to plaintiff's claim for compensation for the fourth year, Neotec asserts that Smith, Jackson failed to perform services during the third and fourth years despite numerous demands.

 At trial, Stephen Smith, the principal force behind plaintiff, testified that in fulfillment of the corporation's obligations he reviewed financial press releases and annual reports of Neotec, mailed data on Neotec to customers of Smith, Jackson and to broker-dealers, assisted in locating potential purchasers of Neotec products and responded to telephone inquiries from Robert D. Rosenthal, president of Neotec. He admitted that during the fourth year of the contract he performed no services for Neotec other than reviewing its annual report.

 Smith produced the press releases which he had reviewed from October 1969 through August 1970 (Plaintiff's Exhibit D); no press releases were produced for the third and fourth years. In the first year of the contract, Smith assisted Neotec with an issuance of subordinated debentures (Plaintiff's Exhibits E and F). There is also proof that in April 1970 and again in September 1970, Smith provided leads to Neotec on potential customers (Plaintiff's Exhibits H-J). In 1970, Smith assisted in having Neotec stock quotations listed through the National Association of Securities Dealers (N.A.S.D.). ...


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