Free Amended Complaint - District Court of Arizona - Arizona

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Christopher R. Kaup State Bar No. 014820 Robert Royal, Esq. State Bar No. 010434 Jeffrey A. Sandell State Bar No. 020658
Third Floor Camelback Esplanade II 2525 East Camelback Road PHOENIX, ARIZONA 85016B4237 TELEPHONE: (602) 255-6000 FACSIMILE: (602) 255-0103

Counsel for Biltmore Associates, Trustee of the Visitalk.com Creditors' Trust UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA

BILTMORE ASSOCIATES, as Trustee for the Visitalk Creditors' Trust, Plaintiff,v. PETER THIMMESCH and CYNTHIA THIMMESCH, husband and wife; MICHAEL O'DONNELL and MARSHA O'DONNELL, husband and wife; MICHAEL CARDWELL and MARGARET MAHONEY, husband and wife; RAY GASTON and JANE DOE GASTON, husband and wife; STEPHEN BEST and JANE DOE BEST, husband and wife; STEPHEN A. BEST, P.C.; JEFFREY HIRSCHBERG and JANE DOE HIRSCHBERG, husband and wife; ALAN KAPLAN and JANE DOE KAPLAN, husband and wife; MICHAEL COONEY and JANE DOE COONEY, husband and wife; ROBERT CORRY and JANE DOE CORRY, husband and wife; GILES SOMERVILLE and JANE DOE SOMERVILLE, husband and wife; ERNST & YOUNG, LLP, a limited liability partnership; SNELL & WILMER, LLP, a limited liability partnership; MP3.COM, INC., ("MP3"), is a foreign corporation; BLACK CORPORATIONS 1-10; and JOHN DOES 1-20, Defendants.

Case No. 02-2405-PHX (HRH) SECOND AMENDED COMPLAINT

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VISITALK, INC. (the "Plaintiff"), for its Complaint, hereby alleges as follows: JURISDICTION AND VENUE. 1. The Plaintiff filed a voluntary petition for relief under Title 11, United States

Code, in the District of Arizona on November 28, 2000, Bankruptcy Case No. 00-13035-PHXRTB. 2. This action is a civil proceeding related to a case arising under Chapter 11 of Title

11, United States Code. This Court has jurisdiction over this matter, pursuant to 28 U.S.C. §§157 and 1334. 3. Venue is proper in the District of Arizona, pursuant to 28 U.S.C. §§1408 & 1409.

PARTIES. 4. The Plaintiff is the Debtor and Debtor-in-Possession in Bankruptcy Case No. 00-

13035-PHX-RTB. 5. The Plaintiff maintains its business at 14647 S. 50th Street, Phoenix, Arizona. and,

on all dates material to the allegations contained herein, maintained its principal place of business in the State of Arizona. 6. Defendants Peter Thimmesch and Cynthia Thimmesch are husband and wife and, at

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all material times, were residents of the State of Arizona and all actions alleged herein to have been taken by either Peter Thimmesch or Cynthia Thimmesch were done with the intention of benefiting their marital community and did, in fact, benefit their marital community. 7. Peter Thimmesch is a former chief executive officer and director of the Plaintiff and

Cynthia Thimmesch is a former treasurer of the Plaintiff. 8. Defendants Michael O'Donnell and Marsha O'Donnell are husband and wife and,

at all material times, were residents of the State of Arizona and all actions alleged herein to have been taken by Mark O'Donnell were done with the intention of benefiting their marital community and did, in fact, benefit their marital community. 9. Michael O'Donnell is a former president and director of the Plaintiff.

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10.

Defendants Mark Cardwell and Margaret Mahoney are husband and wife and, at all

material times, were residents of the State of Arizona and all actions alleged herein to have been taken by Mark Cardwell were done with the intention of benefiting their marital community and did, in fact, benefit their marital community. 11. 12. Mark Cardwell is a former vice-president and director of the Plaintiff. Defendants Ray Gaston and Jane Doe Gaston are husband and wife and, at all

material times, were residents of the State of Arizona and all actions alleged herein to have been taken by Ray Gaston were done with the intention of benefiting their marital community and did, 8 in fact, benefit their marital community. 9 10 11 12 13 14 15 16 17 18 19 20 21 community and did, in fact, benefit their marital community. 22 23 24 25 26 18. 19. Jeffrey Hirschberg is a former director of the Plaintiff. Defendants Alan Kaplan and Jane Doe Kaplan are husband and wife and, at all 13. Ray Gaston is a former Chief Financial Officer and/or Controller of the Plaintiff

and the brother-in-law of Peter Thimmesch. 14. Defendants Stephen Best and Jane Doe Best are husband and wife and, at all

material times, were residents of the State of Arizona and all actions alleged herein to have been taken by Stephen Best were done with the intention of benefiting their marital community and did, in fact, benefit their marital community. 15. Stephen Best is a former in-house general counsel of the Plaintiff. Mr. Best also did

business as and under the name "Stephen A. Best, P.C." 16. Defendant Stephen A. Best, P.C., is, upon information and belief, a professional

corporation and an affiliate of Stephen Best. 17. Defendants Jeffrey Hirschberg and Jane Doe Hirschberg are husband and wife and,

at all material times, were residents of the State of Arizona and all actions alleged herein to have been taken by Jeffrey Hirschberg were done with the intention of benefiting their marital

material times, were residents of the State of Arizona and all actions alleged herein to have been taken by Alan Kaplan were done with the intention of benefiting their marital community and did, in fact, benefit their marital community. Document 289 -3Filed 11/30/2005 Page 3 of 55

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20. 21.

Alan Kaplan is a former director of the Plaintiff. Defendants Michael Cooney and Jane Doe Cooney are husband and wife and, at all

material times, were residents of the State of Arizona and all actions alleged herein to have been taken by Michael Cooney were done with the intention of benefiting their marital community and did, in fact, benefit their marital community. 22. Michael Cooney, upon information and belief, became the Chief Operating Officer

and/or the President of the Plaintiff in October of 1999 and served in one or both of those capacities thereafter. 8 23. 9 10 11 12 13 14 15 16 17 18 19 20 21 27. 22 23 24 25 26 Peter Thimmesch, Cynthia Thimmesch, Michael O'Donnell, and Mark Cardwell, are referred to collectively herein as the "Founder Defendants." 28. Ernst & Young, LLP, ("E&Y") is a limited liability partnership and an accounting Defendants Robert Corry and Jane Doe Corry are husband and wife and, at all material times, were residents of the State of Arizona and all actions alleged herein to have been taken by Robert Corry were done with the intention of benefiting their marital community and did, in fact, benefit their marital community. 24. Robert Corry, upon information and belief, became the Chief Financial Officer of

the Plaintiff in February of 2000 and served in that capacity thereafter. 25. Defendants Giles Somerville and Jane Doe Sommerville are husband and wife and,

at all material times, were residents of the State of Arizona and all actions alleged herein to have been taken by Giles Somerville were done with the intention of benefiting their marital community and did, in fact, benefit their marital community. 26. Giles Somerville served on the Plaintiff's "Executive Committee" from the date of

its creation on March 1, 1999, as the Plaintiff's "Acting CFO" (upon information and belief meaning "Chief Financial Officer"), upon information and belief, became the Vice President ­ Capital Markets of the Plaintiff in October of 1999 and served in that capacity thereafter.

firm. E&Y does business and maintains an office in Maricopa County, Arizona. 29. E&Y was retained by the Plaintiff to perform audit services, including the

preparation of audits of the Plaintiff's financial statements for 1998, 1999 and 2000. Document 289 -4Filed 11/30/2005 Page 4 of 55

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30.

E&Y was also retained by the Plaintiff to perform consulting services and provide

advice relating to the Plaintiff's accounting and billing needs, procedures and policies, related financial controls, the installation, implementation and integration of accounting and billing software, general business operations and information technology and Internet applications. 31. Snell & Wilmer, LLP, ("S&W") is a limited liability partnership and a law firm.

S&W does business and maintains an office in Maricopa County, Arizona. 32. S&W was retained by the Plaintiff to perform general legal services related to the

Plaintiff's business affairs, including previous and planned financial transactions, issues relating 8 to the Plaintiff's capital structure, warrants allegedly issued to Mr. Thimmesch and Mr. 9 10 11 12 13 14 15 16 17 18 19 20 21 actions that have damaged the Plaintiff or may have received avoidable transfers or setoffs, 22 23 24 25 26 either as an initial transferee or a subsequent transferee. 38. Upon information and belief, Jane Does 1-20 and John Does 1-20 are either spouses O'Donnell and a dispute between the Plaintiff and Mr. Cardwell. 33. S&W is vicariously liable for the actions and inactions of individual attorneys

employed by the firm. 34. Upon information and belief, S&W represented Mr. Thimmesch an;d Mr.

O'Donnell, personally, in 1999 and 2000 for estate planning purposes. 35. Defendant MP3.com, Inc., ("MP3") is a foreign corporation and, at all times

material to the allegations contained in this Complaint, did business in Maricopa County, Arizona. 36. MP3 entered into certain transactions with the Plaintiff in late 1999 and early 2000,

described more fully below, and received payments from the Plaintiff, at that time, in the aggregate amount of $5,303,000.00. 37. Upon information and belief, Black Corporations 1-10 are affiliates, divisions,

successors in interest, subsidiaries, or related companies to Defendants and may have taken

of those named as Defendants, which are added herein for the purpose of binding the marital community and because the marital community benefited from the transfers, or are additional parties who may have taken actions that have damaged the Plaintiff or may have received Document 289 -5Filed 11/30/2005 Page 5 of 55

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avoidable transfers or setoffs, either as an initial transferee or a subsequent transferee that may yet be revealed through discovery. III. GENERAL ALLEGATIONS. 39. 40. Complaint. 41. A Unanimous Consent of the Board of Directors in Lieu of Organizational Meeting, The Plaintiff was incorporated in the State of Arizona on September 3, 1998. The Plaintiff was insolvent on all dates material to each of the allegations in this

dated September 4, 1998, reflects that Mr. Thimmesch was elected Chief Executive Officer and Secretary, Cynthia Thimmesch, was elected Corporate Treasurer, Mr. O'Donnell was elected 9 10 11 12 13 14 15 16 17 18 19 20 21 46. 22 23 24 25 26
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President and Mr. Cardwell was elected Vice President. 42. The September 4, 1998 Unanimous Consent also reflects that Mr. Thimmesch was

issued 2,600,000 shares, Mr. O'Donnell was issued 2,500,000 shares and Mr. Cardwell was issued 1,000,000 shares of the Company's common stock. 43. The stock transfer records of the Plaintiff, as well as actual stock certificates, reflect

that those shares of stock were issued to Mr. O'Donnell, Mr. Thimmesch and Mr. Cardwell on September 4, 1998. 44. 1998. 45. A document titled "Action by Unanimous Consent" of the Plaintiff's Board of Mr. Cardwell was elected to the Plaintiff's Board of Directors on September 8,

Directors purports that the Board of Directors authorized the issuance of 7,650,000 warrants to purchase the Plaintiff's common stock at a price of $0.135 per share to Mr. Thimmesch and Mr. O'Donnell (the "Founders Warrants") on September 12, 1998. That Action by Unanimous Consent was not created until November of 1998, not

executed by any members of the Board of Directors until November of 1998, after Mr. Cardwell became a director, never signed by Mr. Cardwell and never legally effective. 47. A document titled "Minutes of a Special Meeting of the Board of Directors, dated

September 12, 1998," purports that the Board of Directors of the Plaintiff, consisting only of Mr.

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Thimmesch and Mr. O'Donnell, allegedly convened a meeting on September 12, 1998, in which they agreed to issue the Founders Warrants to themselves. 48. Those "Minutes of a Special Meeting of the Board of Directors" were not, actually,

prepared on or about September 12, 1998. In reality, they were prepared by S&W in November or December of 1999. 49. The copy of the alleged "Minutes of Special Meeting of Board of Directors, dated

September 12, 1998," in the possession of the Plaintiff is not signed by either Mr. Thimmesch or Mr. O'Donnell or any other officer or director of the Plaintiff. 8 50. 9 10 11 12 13 14 15 16 17 18 19 20 21 55. 22 23 24 25 26 Documents in the possession of the Plaintiff, including memoranda from S&W, reflect substantial concern about the validity and legality of the Founders' Warrants allegedly issued to Mr. O'Donnell and Mr. Thimmesch and potential breaches of fiduciary duty related to same. 56. E&Y received payments from the Plaintiff for auditing services in the approximate In October and November 1998, the Plaintiff raised money through the sale of an issuance of "Series A Preferred Stock" and an issuance of "Series B Preferred Stock." 51. No disclosure was made in any of the offering materials, including the term sheet,

for the Series A Preferred Stock regarding the purported 7.65 million warrants allegedly issued to Mr. O'Donnell and Mr. Thimmesch. 52. Only after the Series A offering closed, did Mr. Thimmesch and Mr. O'Donnell

claim they owned the Founders Warrants. 53. Upon information and belief, in November 1998, after the Series A offering had

closed, Mr. Thimmesch and Mr. O'Donnell decided they needed protection against the dilution that their stock interests would bear through the conversion of the Series A and Series B Preferred Stock into common stock and future equity offerings. 54. Upon information and belief, Mr. Thimmesch and Mr. O'Donnell also decided, at

that time, that the means for that protection would be the issuance to themselves of a large block of cheap warrants to purchase additional common stock.

aggregate amount of $1,000,000.00. Document 289 -7Filed 11/30/2005 Page 7 of 55

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57.

E&Y also received approximately $1,000,000.00 in additional payments from the

Plaintiff for consulting services. 58. Despite having received payment of approximately $1,000,000.00 for its auditing

services, E&Y failed to complete the audit for 1999 and claims to have "lost" the work papers it prepared relating to its 1998 and 1999 auditing services. 59. The audit performed by E&Y for 1998 was deficient because it failed to disclose

the true financial condition of the Plaintiff including the actual value of the Debtor's assets, the contingent liabilities to purchasers of the Plaintiff's Series A, Series B and Series C Preferred 8 Stock described more fully below and the problems with and true nature of the Founders 9 10 11 12 13 14 15 16 17 18 19 20 21 debt due and owing and which would become due and owing to MP3, and the real value of the 22 23 24 25 26
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Warrants. 60. During 1999, the Founder Defendants, Mr. Best, Mr. Gaston, Mr. Cooney, and Mr.

Somerville failed to disclose the true financial condition of the Plaintiff, including the contingent liabilities to purchasers of the Plaintiff's Series A, Series B and Series C Preferred Stock described more fully below, the problems with and true nature of the Founders Warrants, the debt due and owing and which would become due and owing to MP3, and the real value of the Plaintiff's assets, and made false and misleading statements regarding the Plaintiff's intellectual property and technology, including its viability, workability, and scalability to Mr. Kaplan, Mr. Hirschberg, creditors, vendors and investors. 61. During 2000, the Founder Defendants, Mr. Best, Mr. Gaston, Mr. Cooney, and Mr.

Somerville failed to disclose the true financial condition of the Plaintiff, including the contingent liabilities to purchasers of the Plaintiff's Series A, Series B and Series C Preferred Stock described more fully below, the problems with and true nature of the Founders Warrants, the

Plaintiff's assets, and made false and misleading statements regarding the Plaintiff's intellectual property and technology, including its viability, workability, and scalability to Mr. Kaplan, Mr. Hirschberg, Mr. Corry, creditors, vendors and investors.

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62.

The Plaintiff's Board of Directors caused the Plaintiff to enter into a three-year

license of billing software from Portal Software, Inc. ("Portal") in May 1999, based, upon information and belief, on advice from E&Y. 63. 64. The cost of the Portal license was approximately $1 million. In addition, the Board of Directors caused the company to retain E&Y to provide

consulting services relating to the Portal billing software. 65. Mr. Hirschberg is a former partner at E&Y and, upon information and belief, stood

to and did, in fact, profit as a result of the consulting relationship between the Plaintiff and Ernst 8 & Young and the auditing services that were to be provided by E&Y. 9 10 11 12 13 14 15 16 17 18 19 20 21 71. 22 23 24 25 26
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66.

The Plaintiff did not have and has never had any need for billing software as

sophisticated or expensive as the software licensed from Portal for $1 million. 67. The Plaintiff had no operations and revenue at the time of entering into the license

for the Portal billing software and has never had enough revenue to justify the expenditure of $1 million for such software and the fees of E&Y relating to such software. 68. license. 69. The Board of Directors also agreed to purchase an accounting software package The Portal billing software had even more limited value due to the short term of the

from Oracle Corp. ("Oracle") for approximately $750,000.00, plus large additional consulting fees. 70. At the time of the purchase of the Oracle accounting software, the Plaintiff did not

have any revenue generated by its business operations and only began generating revenue from its business operations after the date of the filing of its bankruptcy petition. As of the date of the purchase of the Oracle accounting software, the Plaintiff did

not have a need for such sophisticated accounting software and, at no time thereafter, did the Plaintiff ever have a need for such software. 72. On January 10, 2000, Mr. Cardwell was terminated from his position as an

employee by the Company "for cause." Mr. Cardwell did not resign as a director and was never

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removed as a director by the Plaintiff's shareholders and his term as a director did not, naturally, lapse prior to the date the Plaintiff filed for bankruptcy. 73. A formal termination letter from the Plaintiff to Mr. Cardwell, dated February 1,

2000, details and explains the termination was "for cause" due to his failure to adequately perform his duties for the Company. 74. A formal "Employee Termination Report" from Administaff relating to Mr.

Cardwell's termination has a box checked noting "Unsatisfactory Job Performance." 75. 8 payment to him in the aggregate amount of $275,000.00; that is, an amount equal to the amounts 9 10 11 12 13 14 15 16 17 18 19 20 21 the Plaintiff was to begin "procuring" purchasers for 500,000 shares of Mr. Cardwell's stock at 22 23 24 25 26
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On January 21, 2000, Mr. Cardwell, through his attorney, proposed a "settlement"

that would be due to "other Visitalk senior executives" under their employment agreements. 76. Upon information and belief, Mr. Cardwell knew or believed that the "Founders

Warrants" allegedly issued to Mr. Thimmesch and Mr. O'Donnell either had not really been issued to them or had not been legally and validly issued to them. 77. From February 1, 2000 through early May 2000, Mr. Cardwell and the Plaintiff

negotiated a "settlement" agreement through which the Plaintiff was either to make payment or to arrange for payment to Mr. Cardwell of an amount in excess of $1.2 million with Mr. Cardwell giving up or "selling" 500,000 shares of his stock and for Mr. Cardwell to receive options to purchase new stock at a very favorable exercise price. 78. Original drafts of the "settlement" agreement reflect that the Plaintiff was to

purchase or obtain purchasers for Mr. Cardwell's stock. 79. The actual "Settlement Separation and Release Agreement" between Mr. Cardwell

and the Plaintiff was signed by the parties on May 10, 2000 and provided, in relevant part, that

the price of $2.42 per share. The total "price" to be paid to Mr. Cardwell was $1,210,000.00. 80. The Plaintiff was also required to pay $50,000.00 to Mr. Cardwell upon the

execution of the "settlement" agreement and issue to him an option to purchase common stock at a very favorable exercise price.

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81.

The Plaintiff did, in fact, "procure" or locate persons willing to purchase stock after

May 10, 2000, and referred those persons to Mr. Cardwell rather than selling shares from its corporate treasury to and receiving payments from such persons. 82. The Plaintiff's worsening financial condition caused by the actions of the

Defendants, including the breaches of fiduciary duty by the Founder Defendants, Mr. Best, Mr. Gaston, Mr. Cooney, and Mr. Somerville as set forth herein, and the actions of E&Y and S&W, by their partners, members and employees, including their negligence, breach of contract and/or aiding and abetting of breaches of fiduciary duties, as set forth herein, proximately caused the

8 Plaintiff to have the need for and to resort to an offering of convertible debentures (the "Debt 9 10 11 12 13 14 15 16 17 18 19 20 21 were inadequate business record support or which were for personal matters or which had not 22 23 24 25 26
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Offering"). 83. The Plaintiff initiated the Debt Offering in June of 2000 and raised $2,539,000.00

of debt that further deepened the Plaintiff's insolvency. 84. During the Spring and/or Summer of 2000, the Plaintiff discovered that Mr.

Thimmesch had incurred a large dollar amount of expenses, which had been paid by the Company, that were for personal matters, had not been authorized by the Plaintiff or were in grossly excessive amounts. 85. Moreover, Mr. Thimmesch had caused the Company to pay charges at certain clubs

and other alleged business expenses for which no or inadequate documentation or justification could be located or provided. 86. When confronted with these matters, Mr. Thimmesch performed his own

reconciliation of expenses. After completing that analysis, Mr. Thimmesch agreed in writing that he had incurred charges totaling $235,000.00, which the Company had paid, for which there

been properly authorized. 87. During the period of time that Mr. Thimmesch incurred these improper expenses his

wife, Cynthia Thimmesch, was the Corporate Treasurer and/or his brother-in-law, Ray Gaston, was the Chief Financial Officer or Controller.

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88.

Cynthia Thimmesch and Ray Gaston failed to timely implement any policies or

procedures and report or take any action to prevent or stop the improper and unauthorized use of corporate funds and depletion of assets by Mr. Thimmesch during the period of time that Mr. Thimmesch was incurring these improper expenses. 89. Mr. Thimmesch has failed to repay any portion of the $235,000.00 that he has

agreed he owes to the Plaintiff on account of his unauthorized, improper, personal or undocumented expenditures paid by the Plaintiff. 90. No or inadequate financial policies, procedures, controls and checks to protect

8 against fraud and abuse by corporate officers in the incurrence of debt and use of corporate funds 9 10 11 12 13 14 15 16 17 18 19 20 21 Plaintiff. 22 23 24 25 26 94. The Founder Defendants, Mr. Best, Mr. Gaston, Mr. Cooney, and Mr. Somerville were in use by the Plaintiff prior to the end of the Summer of 2000. 91. The Board of Directors failed to take adequate and appropriate action against Mr.

Thimmesch to obtain the return of these funds. 92. Although a promissory note was prepared by lawyers for the Plaintiff, the Founder

Defendants, Mr. Best, Mr. Gaston, Mr. Cooney, Mr. Somerville and S&W, as legal counsel for Plaintiff, failed to follow-up and require Mr. Thimmesch to execute that promissory note. No promissory note evidencing Mr. Thimmesch's obligation to repay these funds was ever signed by Mr. Thimmesch. 93. Upon information and belief, the Founder Defendants, Mr. Best, Mr. Gaston, Mr.

Cooney, Mr. Somerville, and S&W, as legal counsel for the Plaintiff, failed to require or even request of Mr. Thimmesch that he sign a security agreement or deed of trust to provide collateral for his obligation to repay to the Plaintiff the $235,000.00 he has agreed he owes to the Plaintiff on account of his unauthorized, improper, personal or undocumented expenditures paid by the

failed to immediately terminate Mr. Thimmesch as the Secretary of the Corporation and as an employee, and require that he resign from the Board of Directors. In fact, Mr. Thimmesch remained as an employee of the Plaintiff in the position as "Chief Internet Architect" and as the Chairman of the Board of Directors until November of 2000 even though the Board of Directors Document 289 -12Filed 11/30/2005 Page 12 of 55

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and S&W discovered in the late Spring or early Summer of 2000 that the Plaintiff had paid a large amount of improper, personal and unauthorized expenditures incurred by Mr. Thimmesch. 95. The Founder Defendants, Mr. Best, Mr. Gaston, Mr. Cooney, and Mr. Somerville

failed to cause the Plaintiff to initiate a cause of action against Mr. Thimmesch to collect the $235,000.00 he has admitted, in writing, he owes to the Plaintiff. 96. Upon information and belief, S&W and Mr. Best failed to properly advise the

Plaintiff's officers and directors to require Mr. Thimmesch to sign a security agreement or deed of trust to provide collateral for his obligation to repay the amount he owes to the Plaintiff and to 8 commence legal action against Mr. Thimmesch in order to collect those funds. 9 10 11 12 13 14 15 16 17 18 19 20 21 to limit or prevent additional harm to the Plaintiff, including, the filing of a petition for relief 22 23 24 25 26 under the Bankruptcy Code at an earlier date and, thereby, preserving the Plaintiff's assets and decreasing the extent of its debt burden and insolvency. 101. Mr. Hirschberg, Mr. Kaplan, Mr. Corry and/or Mr. Cooney would have taken action to stop or prevent actions by the Founder Defendants, Mr. Best, Mr. Gaston, Mr. Somerville, S&W and E&Y in violation of their fiduciary duties, acts and omissions that led to the Board of Document 289 -13Filed 11/30/2005 Page 13 of 55 97. During the summer and fall of 2000, at a time when the Plaintiff desperately needed

operating capital and was having substantial difficulty raising new money from investors, Mr. O'Donnell sold to outside investors large portions of the "Founders' Warrants" that had never been legally or properly authorized and issued to him. 98. Mr. O'Donnell was an officer and director of the Plaintiff at the time of these sales

of his warrants and, upon information and belief, never offered to the Plaintiff the opportunity to sell its securities to those investors and such sales were not approved by the Board of Directors. 99. The Plaintiff could have used the funds received by Mr. O'Donnell from these

personal warrant sales to address its worsening financial condition and, upon information and belief, would have availed itself of those opportunities to sell its securities. 100. If the Founder Defendants, Mr. Best, Mr. Gaston, Mr. Cooney, Mr. Somerville, S&W and E&Y had properly discharged each of their duties to the Plaintiff, Mr. Hirschberg, Mr. Kaplan, Mr. Corry and/or the Plaintiff's creditors could and would have taken appropriate action

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Directors not being adequately informed about issues regarding the Plaintiff, and other actions and omissions by the Founder Defendants, Mr. Best and other defendants which damaged Visitalk if Hirschberg, Kaplan, Corry and Cooney had been fully and adequately informed about those matters and Visitalk's other problems. COUNT I BREACH OF FIDUCIARY AND STATUTORY DUTIES [THIMMESCHES] 102. The Plaintiff hereby adopts and incorporates by reference all of the allegations contained in paragraphs 1 through 101. 103. As the chief executive officer and a director of the Plaintiff, at a time it was insolvent, Peter Thimmesch was in a position of trust and confidence and owed fiduciary duties to the Plaintiff and its creditors. 104. Mr. Thimmesch took actions causing the Plaintiff to appoint his wife, Cynthia Thimmesch, as the Corporate Treasurer and his brother-in-law, Ray Gaston, as the Chief Financial Officer and/or Controller of the Plaintiff. 105. Mr. Thimmesch, while serving as its chief executive officer and a director, breached his fiduciary duties to the Plaintiff by misappropriating funds, using corporate funds and credit cards, without authorization, to enrich himself and for his own personal benefit and to pay for personal expenses, including club entertainment, lavish trips and gifts and by incurring expenses without any or grossly inadequate business support.

18 106. Mr. Thimmesch has admitted, in writing, that the amount he owes to the Plaintiff 19 20 21 22 23 24 25 26
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because of these unauthorized and acts of self-dealing is $235,000.00 and he has failed to repay any portion of that amount. 107. The Plaintiff was deprived of funds by the actions of Mr. Thimmesch which it could have used for its operations and to pay its creditors the debts owed to them as they came due. 108. Mr. Thimmesch's breach of fiduciary duties proximately caused damages to the Plaintiff and its creditors in an amount that is not less than $235,000.00.

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109. Such actions were taken by Mr. Thimmesch for his own economic benefit and to benefit his marital community recklessly or intending economic harm to the Plaintiff, entitling the Plaintiff to an award of punitive damages. 110. This claim arises out of contract entitling Plaintiff to recover its attorneys fees if it is the successful party, pursuant to A.R.S. § 12-341.01. WHEREFORE, the Plaintiff prays that it receive a judgment against the Defendants Peter and Cynthia Thimmesch in an amount that is not less that $235,000.00, for compensatory damages, punitive damages in a sum to be proven at trial, together with

8 prejudgment and postjudgment costs, plus the Plaintiff's costs, attorneys fees, and such other and 9 10 11 12 111. The Plaintiff hereby adopts and incorporates by reference all of the allegations 13 14 15 16 17 18 19 20 21 22 23 24 25 transfers were made, indebted. 26
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further relief as is just. COUNT II FRAUDULENT TRANSFERS [THIMMESCHES]

contained in paragraphs 1 through 110. 112. The Plaintiff made transfers to Mr. Thimmesch and/or Mrs. Thimmesch in an amount that is not less than $235,000.00. 113. The Plaintiff received less than reasonably equivalent consideration in exchange for those transfers to Mr. Mr. Thimmesch and/or Mrs. Thimmesch. 114. The Plaintiff was insolvent on the date those transfers were made or the Plaintiff became insolvent as a result of those transfers. 115. The Plaintiff was engaged in business or a transaction or was about to engage in business or a transaction for which its remaining property was an unreasonably small capital. 116. The Plaintiff intended to incur or believed it would incur debts that were beyond its ability to pay as those debts matured. 117. The Plaintiff made the transfers identified above with the actual intent to hinder, delay or defraud persons to which the Plaintiff was or became, on or after the date that those

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118. The transfers identified above are voidable by the Plaintiff, pursuant to 11 U.S.C. §548(a)(1). 119. The transfers identified above are voidable by the Plaintiff, pursuant to 11 U.S.C. §544(b)(1) and A.R.S. §44-1001, et seq. 120. Pursuant to 11 U.S.C. § 550, the Plaintiff may recover the value of the transfers. WHEREFORE, the Plaintiff prays that it receive a judgment against the Thimmesches in an amount that is not less that $235,000.00, prejudgment and post judgment interest, and such further amounts as are determined to be owed plus the Plaintiff's costs,

8 attorneys fees, and such other and further relief as is just. 9 10 11 12 13 14 15 16 17 O'Donnell owed common law fiduciary duties and statutory duties to the Plaintiff and its 18 19 20 21 22 23 24 25 26 creditors. 124. As the vice-president and a director of the Plaintiff, at a time it was insolvent, Mark Cardwell owed common law fiduciary duties and statutory duties to the Plaintiff and its creditors. 125. As a director of the Plaintiff, at a time it was insolvent, Jeffrey Hirschberg owed common law fiduciary duties and statutory duties to the Plaintiff and its creditors. 126. As the chief financial officer and/or Controller of the Plaintiff, at a time it was insolvent, Ray Gaston owed common law fiduciary duties and statutory duties to the Plaintiff and its creditors. COUNT III BREACH OF FIDUCIARY AND STATUTORY DUTIES THIMMESCH USE OF FUNDS [FOUNDER DEFENDANTS, BEST, GASTON, COONEY, SOMERVILLE] 121. The Plaintiff hereby adopts and incorporates by reference all of the allegations

contained in paragraphs 1 through 120. 122. As the corporate treasurer of the Plaintiff, at a time it was insolvent, Cynthia Thimmesch owed common law fiduciary duties and statutory duties to the Plaintiff and its creditors. 123. As the president and a director of the Plaintiff, at a time it was insolvent, Michael

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1 2 3 4 5 6 7 8 9 10 11 12 13

127. As the in-house general counsel of the Plaintiff, at a time it was insolvent, Stephen Best owed common law fiduciary duties and statutory duties to the Plaintiff and its creditors. 128. As a director of the Plaintiff at a time it was insolvent, Alan Kaplan owed common law fiduciary duties and statutory duties to the Plaintiff and its creditors. 129. As the Chief Operating Officer and/or the President of the Plaintiff, at a time it was insolvent, Michael Cooney owed common law fiduciary duties and statutory duties to the Plaintiff and its creditors. 130. As the Chief Financial Officer of the Plaintiff, at a time it was insolvent, Robert Corry owed common law fiduciary duties and statutory duties to the Plaintiff and its creditors. 131. As a member of the Plaintiff's Executive Committee and as its Acting Chief Financial Officer, Giles Somerville owed common law fiduciary duties and statuory duties to the Plaintiff. 132. The Founder Defendants, Mr. Best, Mr. Gaston, Mr. Cooney, and Mr. Somerville have breached their common law fiduciary duties and statutory duties including, but not limited

14 15 16 17 18 19 20 21 22 23 24 25 26

to, the following ways: a. In failing to detect the misuse and misappropriation of corporate funds

and self-dealing for personal gain by Mr. Thimmesch. b. In failing to investigate, examine or detect the substantiation for

business use of funds expended by Mr. Thimmesch. c. By failing to install and maintain appropriate financial controls,

checks, and balances to detect misuse and misappropriation of corporate funds. d. Thimmesch. e. By Cynthia Thimmesch and Ray Gaston continuing to serve in By failing to adequately supervise or review the actions by Mr.

positions of irreconcilable conflicts of interest regarding Mr. Thimmesch's use of corporate funds.

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f.

By failing to take action against Mr. Thimmesch on behalf of Plaintiff

after Mr. Thimmesch's misuse and misappropriation was discovered and lack of business substantiation provided. g. By failing to resolve the readily apparent conflicts of interest arising

from the positions held by Mrs. Thimmesch and Mr. Gaston. h. By Best failing to create, implement and maintain procedures,

controls, checks and balances as general counsel to prevent, discover and pursue Mr. Thimmesch for the Plaintiff's funds that were misused and misappropriated. i. By failing to engage existing or other outside professionals to

prosecute a cause of action against Mr. Thimmesch to recover the amount due from him to Plaintiff. j. misappropriations. 133. The breaches of the common law fiduciary duties and statutory duties by these By failing to be advised or informed about Mr.Thimmesch's

14 15 16 17 18 19 20 21 22 23 24 25 26

Defendants proximately caused damages to the Plaintiff in a sum not less than $235,000.00. 134. The actions of some or all of the Founder Defendants, Mr. Best, Mr. Gaston, Mr. Cooney, and Mr. Somerville were done in their own self economic interest in reckless disregard or with intent to economically harm the Plaintiff entitling Plaintiff to punitive damages. 135. This claim arises out of contract entitling Plaintiff to recover its attorneys' fees if it is the successful party pursuant to A.R.S. § 12-341.01. WHEREFORE, the Plaintiff prays that it receive a judgment against the all of the Founder Defendants, Best, Gaston, Cooney, and Somerville in an amount that is not less that $235,000.00, for additional compensatory and punitive damages in a sum to be proven at trial together with prejudgment and postjudgment interest, plus the Plaintiff's costs, attorneys fees, and such other and further relief as is just. COUNT IV BREACH OF FIDUCIARY AND STATUTORY DUTIES THIMMESCH USE OF FUNDS

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1 2 3 4 5 6 7 misappropriations. 8 Thimmesch. b.

[KAPLAN] 136. The Plaintiff hereby adopts and incorporates by reference all of the allegations contained in paragraphs 1 through 135. 137. Mr. Kaplan breached his fiduciary duty of due care in the following ways: a. By failing to adequately supervise or review the actions by Mr.

By failing to be advised or informed about Mr.Thimmesch's

138. The breach by Mr. Kaplan of his duty of due care proximately caused damages to 9 10 11 12 13 14 15 16 17 18 19 20 21 have breached their common law fiduciary duties and statutory duties including, but not limited 22 to, the following ways: 23 24 25 26
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the Plaintiff in a sum not less than $235,000.00. 139. This claim arises out of contract entitling Plaintiff to recover its attorneys' fees if it is the successful party pursuant to A.R.S. § 12-341.01. WHEREFORE, the Plaintiff prays that it receive a judgment against Kaplan in an amount that is not less that $235,000.00 plus additional compensatory damages to be proven at trial together with prejudgment and postjudgment interest, plus the Plaintiff's costs, attorneys fees, and such other and further relief as is just. COUNT V BREACH OF FIDUCIARY AND STATUTORY DUTIES DISCLOSURE OF FALSE AND MISLEADING INFORMATION [FOUNDER DEFENDANTS, BEST, GASTON, COONEY, SOMERVILLE] 140. The Plaintiff hereby adopts and incorporates by reference all of the allegations contained in paragraphs 1 through 139. 141. The Founder Defendants, Mr. Best, Mr. Gaston, Mr. Cooney, and Mr. Somerville

a.

In failing to disclose the true financial condition of the Plaintiff,

including its contingent liabilities arising from the Series A Offering, the debts due and owing to and which would become due and owing to MP3 and the real value of the Plaintiff's assets, as

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1 2 3 4 5 6 7

described herein, to investors, lenders, vendors and persons contemplating investing in and/or lending or extending credit to the Plaintiff. b. By making false and misleading statements regarding the Plaintiff's

intellectual property and technology, including its viability, workability, and scalability to investors, lenders, vendors and persons contemplating investing in and/or lending or extending credit to the Plaintiff. c. In failing to investigate, examine or determine the true financial

condition of the Plaintiff and its intellectual property and technology. 8 d. 9 10 11 12 13 14 15 16 17 18 19 20 21 of Claims" document to be prepared by Mr. Best and/or S&W (the "Series A Shareholder 22 23 24 25 26
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By failing to adequately supervise or review actions by its employees

and agents, including Mr. Thimmesch, Mr. O'Donnell and Mr. Cardwell, making claims about the Plaintiff's financial condition and intellectual property and technology. e. By failing to take action against its employees and agents who made

false or misleading claims about the Plaintiff's financial condition and intellectual property and technology. f. By failing to adequately supervise E&Y in connection with its audits

and financial statements and/or failing to provide complete and accurate information to E&Y regarding the Plaintiffs financial condition, assets, liabilities and intellectual property and technology. g. In order to preserve, protect and create legal support for the continued

existence of the Founders Warrants and, thereby, personally benefit Thimmesch and O'Donnell, the Founder Defendants, Mr. Best, and Mr. Somerville, decided in December of 1999 to solicit broad releases of claims from the Series A Shareholders through a letter and a form of "Release

Solicitation") which: (i) disclosed none of the true facts set forth herein regarding the

Founders Warrants rendering the factual information in the Series A Solicitation false and misleading; and

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(ii)

falsely stated that the term sheet for the Series A Offering

contained an "error" and it was a "fact" that the Founders Warrants "had been issued" to Mr. Thimmesch and Mr. O'Donnell prior to the Series A Offering. (iii) failed to disclose that the Plaintiff's officers and directors had

violated and caused the Plaintiff to violate Covenant 6.5 of the Series A Preferred Stock Purchase Agreement by issuing or consenting to the issuance of the Founders Warrants to Mr. Thimmesch and Mr. O'Donnell. 142. These breaches of the common law fiduciary duties and statutory duties by the

8 Founder Defendants, Mr. Best, Mr. Gaston, Mr. Cooney, and Mr. Somerville artificially 9 10 11 12 13 14 15 16 17 18 19 20 21 for compensatory damages, punitive damages in a sum to be proven at trial together with 22 23 24 25 26
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prolonged the life of the Plaintiff, created the false impression of solvency, permitted the Defendants to continue receive large financial payments from the Plaintiff and contributed to its deepening insolvency. 143. These breaches of the common law fiduciary duties and statutory duties by the Founder Defendants, Mr. Best, Mr. Gaston, Mr. Cooney, and Mr. Somerville proximately caused substantial damage to the Plaintiff. 144. These actions of some or all the Founder Defendants, Mr. Best, Mr. Gaston, Mr. Cooney, and Mr. Somerville were done in their own self economic interest in reckless disregard or with intent to economically harm the Plaintiff entitling Plaintiff to punitive damages. 145. This claim arises out of contract entitling Plaintiff to recover its attorneys' fees if it is the successful party pursuant to A.R.S. § 12-341.01. WHEREFORE, the Plaintiff prays that it receive a judgment against the Founder Defendants, Best, Gaston, Cooney, and Somerville in an amount to be determined through trial,

prejudgment and postjudgment interest, plus the Plaintiff's costs, attorneys fees, and such other and further relief as is just. COUNT VI NEGLIGENT MISREPRESENTATION [FOUNDER DEFENDANTS, GASTON, SOMERVILLE AND BEST]

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146. The Plaintiff hereby adopts and incorporates by reference all of the allegations contained in paragraphs 1 through 145. 147. The Founder Defendants, Mr. Gaston and Mr. Somerville made the

misrepresentations and omissions described above to persons considering purchasing or that had purchased shares of stock in the Plaintiff through the the Series A Offering. 148. The Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville made the misrepresentations and omissions described above to Mr. Hirschberg, Mr. Kaplan, Mr. Corry, Mr. Cooney, persons considering investing in the Plaintiff through the Convertible Debenture

8 Offering, other investors, lenders and persons contemplating extending credit or loaning money 9 10 11 12 13 14 15 16 17 18 19 20 21 false and misleading representation and/or omission for the purpose of inducing Mr. Hirschberg, 22 23 24 25 26 Mr. Kaplan, Mr. Corry, Mr. Cooney, investors, creditors, lenders, vendors and/or persons contemplating the extension of credit or loaning money to or investing in the Plaintiff not knowing of the falsity to rely upon them. 154. Upon information and belief, Mr. Hirschberg, Mr. Kaplan, Mr. Corry, Mr. Cooney, investors, creditors, lenders, vendors and/or persons contemplating the extension of credit or Document 289 -22Filed 11/30/2005 Page 22 of 55 facts. 150. Each of those misrepresentations and omissions was false and misleading. 151. The Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville made all the misrepresentations and omissions described herein for financial gain. 152. The Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville made these false and misleading representations and/or omissions concerning material facts, expecting and realizing that Mr. Hirschberg, Mr. Kaplan, Mr. Corry, Mr. Cooney, investors, creditors, lenders, vendors and/or persons contemplating the extension of credit or loaning money to or investing in the Plaintiff and the Series A shareholders not knowing of the falsity would rely upon them. 153. The Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville made each to or investing in the Plaintiff and the Series A shareholders through the releases sent to such persons. 149. Each of those misrepresentations or omissions related to then existing material

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1 2 3 4 5 6 7 8

loaning money to or investing in the Plaintiff were unaware of the falsity or misleading nature of the representations and/or omissions concerning material facts that were carelessly, negligently or recklessly made by the Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville.. 155. As a direct and proximate result of those false and misleading misrepresentations and/or omissions, the Plaintiff's life was artificially prolonged and its insolvency was deepened and the Plaintiff sustained damages in an amount to be proven at trial. WHEREFORE, the Plaintiff prays that it receive a judgment against the Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville in an amount to be proven at trial, including damages for the Plaintiff's deepening insolvency, and such further amounts as are

9 10 11 12 13 14 15 16 17 18 19

determined to be owed plus the Plaintiff's costs, attorneys fees, and such other and further relief as is just. COUNT VII BREACH OF FIDUCIARY AND STATUTORY DUTIES WARRANTS/CARDWELL SETTLEMENT [FOUNDER DEFENDANTS, GASTON, SOMERVILLE AND BEST ] 156. The Plaintiff hereby adopts and incorporates by reference all of the allegations contained in paragraphs 1 through 155. 157. Peter Thimmesch and Mark O'Donnell participated in a transaction to cause the issuance to themselves of the Founders Warrants, which, upon information and belief, either did not occur on the date it was alleged to have occurred or was not properly authorized on the date that transaction allegedly occurred. 158. Upon information and belief, the Plaintiff was insolvent on September 12, 1998, the

20 date the warrants are alleged to have been issued to Mr. Thimmesch and Mr. O'Donnell, and on 21 22 23 24 25 26 the later dates on which documentation relating to that transaction was actually created. 159. The actions or inaction by the the Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville related to the Founders Warrant transaction breached their common law fiduciary duties and statutory duties owed to the Plaintiff including, but not limited to, the following ways: a. The issuance of the Founders Warrants was done in violation of Arizona

law regarding the issuance of such warrants. Document 289 -23Filed 11/30/2005 Page 23 of 55

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1 2 3 4 5 6 7

b.

The transaction constituted self-dealing and was done for personal gain in

violation of Mr. Thimmesch's and Mr. O'Donnell's duty of loyalty to the Plaintiff. c. Mr. Thimmesch's and Mr. O'Donnell's self-dealing in issuing warrants

with a nominal exercise price to themselves damaged the Plaintiff's future ability to raise money and operate its business. d. By failing to secure adequate consideration for the Plaintiff for the

issuance of the Founders Warrants. e. 8 creating minutes resulting in back dating of the issuance of the Founders Warrants prior to the 9 10 11 12 13 14 15 16 17 18 19 20 21 conflicting interest transaction without safe harbor and general conflict of interest. 22 23 24 25 26 the Plaintiff. l. By participating in and approving the usurpation of corporate k. By unjustly enriching themselves to the expense and impoverishment of issuance and/or receipt of funds from the full subscription of the Series A and Series B Preferred Stock and the consequences that arise from such action; f. By approving and issuing the Founders Warrants as a director's By issuing the Founders Warrants substantially after September 12, 1998,

conflicting interest transaction without appropriate safe harbors. g. By approving and issuing the Founders Warrants that they knew or had

reason to know would be invalid or illegal. h. By approving and/or participating in payments to Mr. Cardwell amounting

to waste and use of corporate assets for personal gain after Mr. Cardwell discovered that the Founders Warrants had not been validly or legally issued and to ensure Mr. Cardwell's silence after Mr. Cardwell's termination with cause. i. In participating in and approving the "settlement" to Mr. Cardwell far in

excess of reasonable and necessary severance compensation. j. By participating in and approving the Cardwell "settlement" as a director's

opportunities through the "procuring of purchasers" of Cardwell stock as a condition of the Cardwell "settlement" to the detriment of the Plaintiff as part of their effort to preserve and Document 289 -24Filed 11/30/2005 Page 24 of 55

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protect the Founders Warrants and, thereby, enrich Mr. O'Donnell and Mr. Thimmesch to the detriment of the Plaintiff. m. By participating in and approving a diversion of corporate income from

the sale of stock to investors through the transfer of corporate opportunities related to the procuring of purchasers for the Cardwell stock and/or the sale of any "Founders Warrants." n. and duty of loyalty. o. By failing to establish financial controls, checks and balances concerning By generally participating in and approving violations of the duty of care

8 the issuance of the "Founders Warrants". 9 10 11 12 13 14 15 16 17 18 19 20 21 Thimmesch, Mr. O'Donnell, Mr. Best and/or Mr. Cardwell attempted to structure a "solution" to 22 23 24 25 26 the problems with the Founders Warrants in November and December of 1999. 163. Mr. Hirschberg, Mr. Kaplan, Mr. Cooney and Mr. Corry were not fully or adequately informed about the problems with the Founders Warrants, the potential consequences of those problems and the "solution" to those problems proposed and recommended by S&W, Mr. Thimmesch, Mr. O'Donnell, Mr. Best and Mr. Cardwell. Document 289 -25Filed 11/30/2005 Page 25 of 55 p. By failing to be sufficiently informed of the acts and consequences

relating to the issuance of the warrants and Cardwell "settlement" and failing to take appropriate action upon discovery of such events to protect the Plaintiff. q. By failing to take any action to recover an additional $1,000,000.00 due to

the Debtor from Mark Cardwell arising from the sale of stock as part of the Cardwell settlement. 160. The breaches of fiduciary duty and statutory duties by the Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville proximately caused substantial damages in excess of $2,200,000.00. 161. The actions of some or all of the Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville were done in their own self economic interest in reckless disregard or with intent to economically harm the Plaintiff entitling Plaintiff to punitive damages. 162. Upon information and belief, Mr. Hirschberg and Mr. Cooney had been hired for or appointed to their respective positions with the Plaintiff shortly before or at the time S&W, Mr.

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164. Mr. Hirschberg, Mr. Kaplan, Mr. Corry and/or Mr. Cooney would have been able to take action to stop or prevent the actions and inaction by the Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville in violation of their fiduciary duties relating to the Founders Warrants, including the revisions to corporate history and cover-up regarding of the truth regarding the Founders Warrants perpetrated by them, and the "settlement" with Mr. Cardwell and would have taken such action if they had been fully and adequately informed about the matters described above. 165. This claim arises out of contract entitling Plaintiff to recover it attorneys' fees if it is

8 the successful party pursuant to A.R.S. § 12-341.01. 9 10 11 12 13 14 15 16 17 167. Mr. Kaplan breached his fiduciary duty of due care in the following ways: 18 19 20 21 22 23 24 25 26 a. By failing to adequately supervise or review the actions by Mr. WHEREFORE, the Plaintiff prays that it receive a judgment against the Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville in an amount to be determined by the Court but which is not less that $2,200,000.00, for punitive damages, together with interest, plus the Plaintiff's attorneys fees, costs, and such other and further relief as is just. COUNT VIII BREACH OF FIDUCIARY AND STATUTORY DUTIES WARRANTS/CARDWELL SETTLEMENT [KAPLAN] 166. The Plaintiff hereby adopts and incorporates by reference all of the allegations contained in paragraphs 1 through 165.

Thimmesch, Mr. O'Donnell and Mr. Cardwell relating to the alleged issuance of the Founders Warrants. b. By failing to be advised or informed about the truth regarding the

alleged issuance of the Founders Warrants. 168. The breach by Mr. Kaplan of his duty of due care proximately caused damages to the Plaintiff in an amount to be determined through trial. 169. This claim arises out of contract entitling Plaintiff to recover its attorneys' fees if it is the successful party pursuant to A.R.S. § 12-341.01.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

WHEREFORE, the Plaintiff prays that it receive a judgment against Kaplan for compensatory damages in an amount to be proven at trial together with prejudgment and postjudgment interest, plus the Plaintiff's costs, attorneys fees, and such other and further relief as is just. COUNT IX AIDING AND ABETTING BREACH OF FIDUCIARY DUTIES [BEST, GASTON, AND SOMERVILLE] 170. The Plaintiff hereby adopts and incorporates by reference all of the allegations contained in paragraphs 1 through 169. 171. The Founder Defendants had fiduciary relationships with and owed common law fiduciary duties and statutory duties to the Plaintiff in the manner set forth herein. 172. The Founder Defendants breached their common law fiduciary duties and statutory duties to the Plaintiff in the manner set forth herein. 173. Mr. Best, Mr. Gaston, and Mr. Somerville knew that the Founder Defendants breached their respective common law fiduciary duties and statutory duties to the Plaintiff in the manner set forth herein. 174. Mr. Best, Mr. Gaston, and Mr. Somerville provided substantial assistance to the Founder Defendants in breaching their respective common law fiduciary duties and statutory duties to the Plaintiff in the manner set forth herein by, among other things, aiding, abetting and participating in and/or assisting with the creation of a false impression regarding the Plaintiff's financial condition and solvency, actions that artificially prolonged the Plaintiff's life and

20 contributed to its deepening insolvency and the other transactions described herein. 21 22 23 24 25 26
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175. As a direct and proximate result of the actions by the Founder Defendants described above, the Plaintiff's life was artificially prolonged and its insolvency was deepened and the Plaintiff sustained damages in an amount to be proven at trial. WHEREFORE, the Plaintiff prays that it receive a judgment against Mr. Best, Mr. Gaston, and Mr. Somerville in an amount to be proven at trial, including damages for the

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1 2 3 4 5 6 7 8 9 10 11 12

Plaintiff's deepening insolvency, and such further amounts as are determined to be owed plus the Plaintiff's costs, attorneys fees, and such other and further relief as is just. COUNT X CONSPIRACY TO COMMIT TORTIOUS ACTS [FOUNDER DEFENDANTS, GASTON, SOMERVILLE & BEST] 176. The Plaintiff hereby adopts and incorporates by reference all of the allegations contained in paragraphs 1 through 175. 177. The Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville agreed to engage or participate in the tortious acts described herein. 178. The Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville sought and agreed to accomplish lawful objects by or through the unlawful or tortious acts described herein and to accomplish certain unlawful or tortious purposes described herein. 179. As a direct and proximate result, the Plaintiff's life was artificially prolonged and its insolvency was deepened and the Plaintiff sustained damages in an amount to be proven at

13 14 15 16 17 18 19 20 21 22 23 24 25 26

trial. 180. These actions by the Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville were done in their own self economic interest in reckless disregard or with intent to economically harm the Plaintiff entitling Plaintiff to punitive damages. WHEREFORE, the Plaintiff prays that it receive a judgment against the Founder Defendants, Mr. Best, Mr. Gaston, and Mr. Somerville in an amount to be proven at trial, including damages for the Plaintiff's deepening insolvency, for punitive damages, and such further amounts as are determined to be owed plus the Plaintiff's costs, attorneys fees, and such other and further relief as is just. COUNT XI BREACH OF FIDUCIARY AND STATUTORY DUTIES PORTAL BILLING SOFTWARE [FOUNDER DEFENDANTS, HIRSCHBERG, BEST & GASTON] 181. The Plaintiff hereby adopts and incorporates by reference all of the allegations contained in paragraphs 1 through 180.

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182. The Plaintiff had no need for the Portal billing software on the dates that the Founder Defendants and Mr. Gaston agreed to purchase that software, and to retain the Plaintiff's auditor, E&Y, to perform consulting services relating to that software. 183. Mr. Hirschberg and Mr. Best participated in the decision to retain E&Y to provide consulting services related to the Portal billing software. 184. The Founder Defendants and Mr. Gaston breached their common law fiduciary duties and statutory duties to the Plaintiff including, but not limited to, the following ways: a. In failing to exercise the duty of care and diligence to investigate, analyze, and

8 competitively bid billing software and specifically the Portal billing software. 9 10 11 12 13 14 15 16 17 18 19 20 21 185. Mr. Hirschberg and Mr. Best breached their common law fiduciary duties and 22 23 24 25 26
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b. In failing to investigate, analyze, and seek competitive bids for consulting services regarding such billing software. c. By participating in or allowing a director conflicting interest transaction without safe harbor relating to the engagement, employment and use of E&Y for consulting purposes. d. In failing to investigate, analyze, seek professional services and otherwise be informed about the need for selecting billing software and related consulting services. e. By failing to have adequate standards, policies, or review concerning purchases such as this billing software and engagement of related consultants. f. In failing to participate in or otherwise engage as necessary disinterested consultants regarding billing software and the necessity for additional consulting services. g. By wasting corporate funds in purchasing the Portal billing software and engaging consultants.

statutory duties to the Plaintiff including, but not limited to, the following ways: a. In failing to exercise the duty of care and diligence to investigate, analyze, and competitively bid consulting services regarding the Portal billing software.

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b. By participating in or allowing a director conflicting interest transaction without safe harbor relating to the engagement, employment, use of and failure to terminate E&Y for consulting purposes. c. In failing to investigate, analyze, seek professional services and otherwise be informed about the need for consulting services related to the Portal billing software. d. By failing to have adequate standards, policies, or review concerning the engagement of consultants. e. In failing to participate in or otherwise engage as necessary disinterested

8 consultants regarding the need for consulting services. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 f. By wasting corporate funds in engaging consultants. 186. The breaches of the fiduciary duties and statutory duties by the Founder Defendants, Mr. Hirschberg, Mr. Best and Mr. Gaston proximately caused damages to the Plaintiff in excess of $1,000,000. 187. This claim arises out of contract entitling Plaintiff to recover it attorneys' fees if it is the successful party pursuant to A.R.S. § 12-341.01. WHEREFORE, the Plaintiff prays that it receive a judgment against the Founder Defendants, Mr. Hirschberg, Mr. Best and Mr. Gaston for compensatory damages in an amount to be determined by the Court but which is in excess of $1,000,000.00, together with prejudgment and postjudgment interest, plus the Plaintiff's costs, attorneys' fees and such other and further relief as is just. COUNT XII BREACH OF FIDUCIARY AND STATUTORY DUTIES ORACLE ACCOUNTING SOFTWARE [FOUNDER DEFENDANTS, HIRSCHBERG, BEST & GASTON] 188. The Plaintiff hereby adopts and incorporates by reference all of the allegations contained in paragraphs 1 through 187. 189. The Plaintiff had no need at the time of the purchase of that Oracle accounting software nor at any time thereafter for such sophisticated accounting software.

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1 2 3 4 5 6 7

190. Mr. Hirschberg and Mr. Best participated in the decision to retain E&Y to provide consulting services related to the Oracle accounting software. 191. The Founder Defendants and Mr. Gaston breached their common law fiduciary duty and statutory duties to the Plaintiff including, but not limited to, the following ways: a. In failing to exercise the duty of care and diligence to investigate, analyze,

and competitively bid billing software and specifically the Oracle accounting software. b. In failing to investigate, analyze, and seek competitive bids to perform

consulting services regarding such accounting software. 8 c. 9 10 11 12 13 14 15 16 17 18 19 20 21 competitively bid consulting services regarding the Or