Deliberative Council of Colina do Sol Letter #XXX-2004 7 August, 2004 Subject: CNCS Legal Situation The current Deliberative Council of your club promised, right after being elected, to share with you all information about subjects that may interest our members. We have been working for five months only. Our concern during this time has been to balance our budget. The enclosed letter details the situation as it is now. The letter describes the most recent step taken for increasing the Club's revenue, without selling off the only asset it possesses. We plan to maintain the decision made. The most common question we hear is “how is the Club?” In this letter we offer our response, discussing certain facts that most of the Councillors became aware of for the first time during the last few months, and which had until now been kept out of general knowledge, though they were known to a small group. To start we quote from a document titled PUBLIC DEED OF CONDITIONAL DONATION, WITH USE RIGHTS RESERVED, etc., made between Celso Rossi, Paula Andreazza and Luiz Rossi on the one hand, and the Naturist Club Colina do Sol on the other. For simplicity we will call it the “DONATION CONTRACT”. It is a nine-page document and we can't send out a copy to everyone free, but any interested member can obtain it by paying the cost of photocopying and postage. Just contact the Club's central office, or send email to the Council at conselhodeliberativo@colinadosol.com.br. What follows is a summary of the document's content. First comes the specification of the donors and the donee (the Club). Next comes the description of the land that is the subject of the contract. For some of the land (roughly speaking, 40%) the donors had definitive title; for the rest (roughly 60%) there was a situation involving squatter's rights (usucaption). All this takes six pages of the Donation Contract. On page 7 we read: “ CNCS promises to accept this donation, with all its conditions and responsibilities, including the right-of-way specified below, from this day on. The donors keep for themselves and for their heirs the right of USE and USUFRUCT over 380 residential spaces and 40 commercial concessions at the points shown in the attached diagram, which, having been signed by the parties, is incorporated into this contract; they also keep exclusive rights over the building or subcontracting of new buildings over the whole area...” At the bottom of page 7 and top of page 8 we read: Since the area of the restaurant and the planned inn is enclosed, it keeps a right-of-way, which encompasses access through Colina do Sol roads and the provision of the basic infrastructure needed for the operation of the restaurant and the planned inn, including electric power, water supply and sewer lines. In terms of article 700 of the Brazilian Civil Code, it is established that the costs of construction and maintenance of the internal road network of Colina do Sol will be supported exclusively by CNCS. Next the contract discusses the number of residential and commercial concessions in Colina do Sol and says: “ Of the commercial concessions, the CNCS receives, through this contract, only those for the telephone service, cable TV and winter club, which will from now on be administrated by the Club. The Club is not allowed to create or negotiate new commercial concessions. The revenue from transfer fees for all residential, commercial and dwelling concessions will go to CNCS, except for concessions transferred from the donors, which are exempt from taxation at all times. The CNCS will collect maintenance fees, electricity bills and phone bills, and oversee the operation of the corresponding departments. There will be no maintenance fee on use concessions that are not tied to a dwelling. The CNCS or any other entity that may be created in the same area, only with purposes compatible with the practice of naturism, are not allowed to create or market, under any name or form, any residential concessions, commercial concessions, dwelling concessions, or patrimonial titles other than those described here, in order to avoid the multiplication and devaluation of the rights of use hereby reserved. All expenses related to the formalization of this deed, such as diagrams, registration fees, and taxes will be paid by the CNCS. The CNCS will also be solely responsible for the drawing of diagrams and documents needed in case of court proceedings regarding the usucaption of the land. All municipal, state and federal taxes that now or in the future fall on the real property that is the subject of this deed will be paid by the CNCS. The contract closes as follows: If the Club does not fulfill the conditions or responsibilities hereby specified, the donation may be rescinded (annulled). The conclusion one reaches after reading all of this is, plainly put, that the donors keep the revenue and the Club must pay the expenses. Not discussed in this document is that fact that 100 patrimonial titles were created and kept in the possession of the donors to be sold, each corresponding to the ownership of 1/100th of the Club. When close to 50 titles had been sold the number of patrimonial titles was increased to 200 to guarantee that the donors would keep majority power. The minutes of the General Assembly where this doubling was approved are absent from the minutes file. [COLIN: MY UNDERSTANDING FROM A CONVERSATION WITH FRITZ IS THAT THE 100 TO 200 SHIFT HAPPENED together with THE "DONATION". THAT IS, BEFORE THE "DONATION" A PATRIMONIAL TITLE MEANT 1/100 OF A CLUB THAT HAD NO ASSETS WHATSOEVER; AFTERWARD, IT MEANT 1/200 OF A CLUB THAT HAD ASSETS AND DEBTS. I really would like to know exactly what the donation contract says about the number of patrimonial titles; this portion is not quoted above. -- Silvio] It is also important to stress that no Transfer Tax is charged on sales of titles by the donors. We will try to summarize the foregoing so you can understand the situation your Club is in. We need to provide some historical context and discuss how things were in the beginning Celso and Paula came to Colina and negotiated the use and/or possession of the land covered by the Donation Contract. Their purchase was financed and they soon started to sell patrimonial titles and residential and dwelling concessions to pay for the financing. In other words, they did not spend their own money. [COLIN: THIS LAST SENTENCE IS A DANGEROUS CLAIM TO MAKE.] As time went by they realized that they needed to settle the usucaption rights and shift the civil responsibility of the land to others. That's when the Donation Contract was prepared and signed. What does it all mean? Plainly put, that Celso and Paula continue to sell patrimonial titles and concessions (without any commission accruing to the Club), they are exempt from all responsibility, and they made the Club responsible for all expenses without revenues to cover them. (The relevant bits of the Donation Contract are in boldface above.) Moreover, if any of the terms of the Contract is not obeyed, “the donation may be annulled”. Where does all this lead us? This is where the attached letter comes in. It deals with the Club's financial situation and the reason why we need more revenue. A disastrous administration on the part of the Cooperative - of which Celso Rossi was the designer, planner and, for a long time, the administrator - led the Club to an hard-to-manage financial situation. The contracts initially signed between the Club and The Cooperative stated that 50% of the Club's gross revenue would be passed on to the Cooperative, which would take care of the CNCS. The key point is that no new revenue was created, but new salaries were paid and the Cooperative arranged to buy a building and a concession belonging to Celso Rossi and Paula Andreazza. This is shown in contracts that the Council has. Where would the money to pay for all of this come from? In actuality no new money came in, and as a result, the Club's financial situation, which at the beginning of 2003 was even, deteriorated rapidly, and at the end of the year there was a large deficit. Moreover, in spite of repeated warnings from the Fiscal Council at the time, members of the Cooperative were hired without the required labor laws being followed. This left the Cooperative open to labor lawsuits. And this is exactly what has happened. In early August, the Club was served papers from a lawsuit by an employee/member of the Cooperative. The Club is a co-defendant together with the Cooperative; but to make matters worse the Cooperative was never registered as a legal entity after it was formed, and so it officially does not exist. What are our original problems? According to the donation contract, we must regularize the situation of the land that is under usucaption. We must also modify the Club's statutes according to legislation that was passed early in 2003 and never followed by the Club. All this costs money. We also see that the Club needs standing legal assistance, like any other any organization the wants to protect the interests of its members. We don't have that now. Where to go? The question is open. The Deliberative Council has the difficult talks of putting the Club on the right track and make it a viable and solvent organization, capable of attracting new members. For this two things are needed: above all the participation of its members, and next sufficient revenue. We have no unnecessary expenditures. Our books are available for consultation by anyone. There are no more secrets. We need more more resources to improve the Club, to offer more to members and visitors. For this we need additional revenue. . _________________________________________________________ Clube Naturista Colina do Sol