Free Stipulation - District Court of Arizona - Arizona

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vs. JUDGMENT BILTMORE ASSOCIATES, L.L.C., as Trustee for the Visitalk Creditors' Trust,, Case No. 02-2405-PHX (HRH) Plaintiff, IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

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Pursuant to stipulation by and between the Plaintiff and Defendant Cynthia Thimmesch and for good cause showing, the Court hereby finds as follows: Case 2:02-cv-02405-HRH Document 274 Filed 10/20/2005 Page 1 of 9 PETER THIMMESCH and CYNTHIA THIMMESCH, husband and wife; MICHAEL O'DONNELL and MARSHA O'DONNEL, 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,, Defendant.

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I. 1.

FINDING OF FACTS Plaintiff Biltmore Associates, L.L.C., is the Court appointed Trustee for the

Visitalk Creditors' Trust and the successor in interest to the claims and causes of action set forth in the Amended Complaint filed by Visitalk.com, Inc. ("Visitalk"). 2. Defendant Cynthia Thimmesch at all material times was a resident of the State of

Arizona. Ms. Thimmesch, former wife to Defendant Peter Thimmesch, is an unmarried woman

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8. The September 4, 1998 Unanimous Consent also reflects that Mr. Thimmesch at the time of this judgment. 3. Ms. Thimmesch is a former officer of Visitalk. At all material times hereto, she

was Visitalk's Treasurer and Vice-President of Investor Relations. 4. Peter Thimmesch, Ms. Thimmesch, Michael O'Donnell, and Mark Cardwell, are

referred to collectively herein as the "Founders." 5. 6. 7. Visitalk was incorporated in the State of Arizona on September 3, 1998. Visitalk was insolvent on all dates material to each of these Findings of Facts. A Unanimous Consent of the Board of Directors in Lieu of Organizational

Meeting, 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 President and Mr. Cardwell was elected Vice President.

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was issued 2,600,000 shares, Mr. O'Donnell was issued 2,500,000 shares and Mr. Caldwell was issued 1,000,000 shares of Visitalk's common stock. 9. The stock transfer records of Visitalk, 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. 10. Mr. Cardwell was elected to Visitalk's Board of Directors on September 18, 1998. Document 274

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11.

A document titled "Action by Unanimous Consent" of Visitalk's Board of

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. 12. 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

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16. In October and November 1998, Visitalk raised money through the sale of an became a director, never signed by Mr. Cardwell and never legally effective. 13. A document titled "Minutes of a Special Meeting of the Board of Directors, dated

September 12, 1998," purports that Visitalk's Board of Directors, consisting only of Mr. Thimmesch and Mr. O'Donnell, allegedly convened a meeting on September 12, 1998, in which they agreed to issue the Founders Warrants to themselves. 14. 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 Defendant Snell & Wilmer ("S&W") in November or December of 1999. 15. The copy of alleged "Minutes of Special Meeting of Board of Directors, dated

September 12, 1998," in Visitalk's possession is not signed by either Mr. Thimmesch or Mr. O'Donnell or any other officer or director of Visitalk.

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issuance of "Series A Preferred Stock" and an issuance of "Series B Preferred Stock." Visitalk also engaged in a number of additional subsequent offerings of its preferred stock to individuals and entities. In connection with the Series A Stock issuance, no disclosure was made regarding the Founders' Warrants allegedly issued to Mr. O'Donnell and Mr. Thimmesch. As to the Series B Stock issuance, a Series C offering of preferred stock and subsequent private offerings of securities by Visitalk, inadequate disclosure was made regarding the Founders' Warrants and Case 2:02-cv-02405-HRH
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several other securities law issues. 17. Ms. Thimmesch should have or could have had sufficient knowledge about the

Founders' Warrants to correct the situation and had sufficient power within Visitalk to require a more complete disclosure about the Founders' Warrants during stock offerings or issuances by Visitalk. 18. The situation with the Founders' Warrants resulted in a settlement with Mark

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paying him directly for the stock, and depriving Visitalk of the funds it should have received Cardwell after he was terminated by Visitalk for cause. Mr. Cardwell demanded and was paid $1,200,000.00 even though he had initially offered to settle for the same severance payment made to other Visitalk senior executives under the employment agreements. The usual severance payment amount was $200,000.00. Thus, Visitalk paid Mr. Cardwell $1,000,000.00 in excess of the usual severance payment due to his knowledge regarding the infirmities of the Founders' Warrants. The settlement required Visitalk to find purchasers for Mr. Cardwell's Visitalk stock, which was to be purchased for the $1,200,000.00 owed to Mr. Cardwell under his settlement with Visitalk. 19. Visitalk paid the settlement with Mr. Cardwell by procuring purchasers for his

Visitalk stock at the price of $1,210,000.00. 20. These procured purchasers purchased Visitalk stock directly from Mr. Cardwell,

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from investors seeking to purchase Visitalk stock. 21. Mr. Peter Thimmesch caused the Plaintiff to reimburse him for at least $235,000

of business expenses that were not appropriately considered business expenses or for which no or inadequate documentation or justification was provided. 22. Despite her role as Treasurer, Ms. Thimmesch did not discover or exercise

appropriate diligence in order to discover Mr. Thimmesch's improper expenditures of Visitalk Case 2:02-cv-02405-HRH
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funds, and, after she did discover those facts, Ms. Thimmesch did not require Mr. Thimmesch to repay at least the $235,000.00 sum back to Plaintiff. 23. While Ms. Thimmesch was Visitalk's Treasurer, Visitalk entered into a three-year

license of billing software from Portal Software, Inc. ("Portal") in May 1999. The cost of the license was $1 million. In addition, Ms. Thimmesch, among others, caused Visitalk to retain the accounting firm of Ernst & Young to customize the billing software for an additional $1 million

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and fall of 2000, Mr. O'Donnell sold large portions of the Founders' Warrants, even though the even though Ernst &Young was Visitalk's auditors. 24. At the time it entered into the software license, Visitalk did not have, nor did it

ever have, a need for software as sophisticated or expensive as the Portal software. 25. Ms. Thimmesch neither analyzed nor sought professional advice regarding the

need for the Oracle software, nor did she ever consider any alternatives to to the Oracle software. 26. Visitalk purchased an accounting package from Oracle Corporation ("Oracle") at

a cost of $750,000.00, plus large additional consulting fees. 27. At the time it purchased the Oracle software, Visitalk had no need for the Oracle

software, nor did it ever have a need for such software. 28. During the summer and fall of 2000, Visitalk desperately needed operating capital

and was having substantial difficulty in raising new money from investors. During the summer

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warrants had infirmities. 29. The sale of the Founders' Warrants by Mr. O'Donnell deprived Visitalk of funds it

could have raised through the sale of stock. 30. Ms. Thimmesch did nothing in advance of such sales by Mr. O'Donnell to

institute or recommend controls and procedures to prevent the sale of securities, including Founders' Warrants, by officers even though such sales would forseeably deprive Visitalk of Case 2:02-cv-02405-HRH
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funds from potential investors. 31. During its entire corporate life, Visitalk never had a commercially viable product

or service, generating gross revenue of approximately $60,000 from operations while incurring nearly $55,000,000 in debt. 32. Despite the lack of any commercially viable service or product, having failed to

make adequate disclosures in the Series "A" and "B" offerings and other issues and problems

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from a large, well known internet company, such as MP3, as well as a substantial sale for MP3. relating to the offerings of securities by Visitalk, including the failure to make adequate disclosure regarding the claims held by earlier investors, Ms. Thimmesch, among others, permitted Visitalk to sell preferred stock through the Series "A" through "F" offerings. 33. On December 31, 1999, Visitalk and a company called MP3.com, Inc. ("MP3")

entered into a Marketing and Promotional Agreement, obligating Visitalk to pay MP3 not less than $60,000,000.00 to MP3 for marketing services. 34. On January 6, 2000, Visitalk and MP3 also entered into a Series E Preferred

Stock Purchase Agreement pursuant to which MP3 agreed to purchase 1,875,000 shares of Series E Preferred Stock in exchange for the payment of $15,000.000. 35. The purpose of the Marketing and Promotional Agreement and Stock Purchase

Agreement was to convey the appearance of substantial equity investment income to Visitalk

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36. Visitalk actually paid $5,000,000.00 to MP3 immediately after the closing of the issuance of the Series E Stock Transaction and an additional $303,000.00 within months thereafter. 37. The transactions with MP3 did not provide any benefit to Visitalk; rather, it

increased Visitalk's debt burden which it had no ability to pay, and thus artificially prolonged Visitalk's corporate life and deepened its insolvency. Case 2:02-cv-02405-HRH
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38.

In addition, Visitalk did not receive reasonably equivalent value in exchange for

the transfer to MP3 of $5,300,000.00. 39. Marsha O'Donnell, the wife of Mr. O'Donnell was in charge of controlling and

directing the excessive expenditures of Visitalk corporate funds for tenant improvements, furniture, fixtures and equipment in a building which Visitalk occupied just months before filing for bankruptcy.

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Based on the above stipulated facts, and for good cause showing, the Court hereby 40. 41. Those expenditures totaled over Two Million Dollars ($2,000,000.00). Visitalk was insolvent and had no meaningful revenue or ability to pay its debts

from its operations at the time Ms. O'Donnell caused Visitalk to incur these expenditures. 42. Ms. Thimmesch, among others, failed to exercise appropriate oversight and

analysis regarding Ms. O'Donnell, the contracting process for the improvements, the items purchased, and the expenditure of funds. 43. Plaintiff has determined that the aggregate amount of damages caused to Visitalk

by Ms. Thimmesch is not less than $54,870,646.00 by calculating the amount of claims and other indebtedness owed by Visitalk due to the breaches of fiduciary duty by Ms. Thimmesch set forth in this Judgment. II. CONCLUSIONS OF LAW

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1409; 3. Ms. Thimmesch breached her duties as an officer of Visitalk by negligently concludes as follows: 1. 2. This Court has jurisdiction over this matter; Venue is proper in the District of Arizona pursuant to 28 U.S.C. §§ 1408 and

failing to investigate and to supervise the need for and implementation of accounting and Case 2:02-cv-02405-HRH
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operating controls for the expenditure of funds by employees and the recovery of funds expended by Mr. Peter Thimmesch, a former officer and director of Visitalk; 4. Ms. Thimmesch breached her duties as an officer of Visitalk by negligently

failing to investigate and analyze the need for or value of a $1 million dollar license to use the Portal billing software and the substantial and highly priced consulting services proposed to be rendered by and the large consulting fees proposed to be paid to Ernst &Young in connection

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of securities, lack of a commercially viable product and deepening insolvency; with and to customize such software for Visitalk's use; 5. Ms. Thimmesch breached her duties as an officer of Visitalk by negligently

failing to investigate and analyze the need for or value of purchasing accounting software from Oracle Corporation for $750,000, and the substantial and highly priced consulting services proposed to be rendered in connection with the Oracle accounting software and to obtain competitive bids for such software and consulting services; 6. Ms. Thimmesch breached her duties as an officer of Visitalk by negligently

failing to investigate the actual capital structure of Visitalk, including the claimed issuance of securities to insiders, the commercial viability of Visitalk's product and its deepening insolvency and/or failing to adequately supervise disclosures made to creditors and investors, including disclosures regarding Visitalk's capital structure, other securities law issues regarding offerings

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7. The actions by Ms. Thimmesch in connection with the Founders' Warrants comprise a breach of her fiduciary duties and loyalties to Visitalk and contributed to the insolvency of Visitalk by causing liability to investors who purchased Visitalk securities and the inability of Visitalk to subsequently raise capital and operate successfully; 8. Ms. Thimmesch's breached her fiduciary duties and loyalties to Visitalk by failing

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Mr. Cardwell which deprived Visitalk of $1,210,000.00 and deepened its insolvency; 9. Ms. Thimmesch breached her duties as an officer of Visitalk by negligently

failing to investigate and supervise the actions of Mrs. O'Donnell who negligently incurred on behalf of Visitalk over Two Million Dollars ($2,000,000.00) of excessively expensive and unnecessary improvements to lease space, furniture, fixtures and equipment at a time when Visitalk was insolvent and on the eve of filing for bankruptcy;

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III. JUDGMENT Based on the above findings of facts and conclusions of law, and for good cause showing, IT IS HEREBY ORDERED entering judgment in favor of Plaintiff and against Ms. Cynthia Thimmesch in the amount of FIFTY-FOUR MILLION, EIGHT HUNDRED SEVENTY THOUSAND, SIX HUNDRED AND FORTY-SIX DOLLARS ($54,870,646.00). 10. The actions by Mrs. Thimmesch set forth above, including the breaches of her fiduciary duties and loyalties to Visitalk, contributed to the insolvency of Visitalk and additional indebtedness owed by Visitalk in an amount Plaintiff has determined to be not less than $54,870,646.00; 11. Visitalk's insolvency was deepened by the incurrence of additional liabilities in

an amount which is not less than $54,870,646.00 and, therefore, Visitalk suffered actual damages in an amount of not less than $54,870,646.00 as a direct, proximate and foreseeable result of Ms. Thimmesch's breaches of loyalty and fiduciary duties as an officer of Visitalk, as well as her negligent failure to investigate and supervise others; 12. Plaintiff is the owner of and has been properly assigned by Visitalk all rights and

claims Visitalk has against Ms. Thimmesch.

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