Free Response in Opposition to Motion - District Court of Arizona - Arizona

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BEUS GILBERT PLLC
ATTORNEYS AT LAW

4800 NORTH SCOTTSDALE ROAD SUITE 6000 SCOTTSDALE, ARIZONA 85251 TELEPHONE (480) 429-3000

Leo R. Beus/002687 ­ [email protected] Scot C. Stirling/005757 ­ [email protected] Steven E. Weinberger/015349 ­ [email protected] Attorneys for Individual Plaintiffs and Trustee

STEVE BROWN & ASSOCIATES, LLC
1414 E. INDIAN SCHOOL ROAD, SUITE 200 PHOENIX, ARIZONA 85014-2412 TELEPHONE (602) 264-9224

Steven J. Brown/010792 ­ [email protected] Co-Counsel for Trustee UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA DIANE MANN, as Trustee for the Estate of LeapSource, Inc., CHRISTINE V. KIRK, et al., Plaintiffs, vs. GTCR GOLDER RAUNER, L.L.C.; et al., Defendants. MICHAEL MAKINGS, Counterclaimant, vs. LEAPSOURCE, INC., et al., Counterdefendants.
Case No.: CIV-02-2099-PHX-RCB

PLAINTIFF'S RESPONSE TO GTCR'S STATEMENT OF UNCONTESTED FACTS REGARDING FIDUCIARY DUTY AND OTHER REMAINING CLAIMS AND PLAINTIFFS' STATEMENT OF ADDITIONAL FACTS (Assigned to the Honorable Robert C. Broomfield)

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Pursuant to Local Rule 56.1, and Federal Rule of Civil Procedure Rule 56, the undersigned Plaintiff hereby submits the following Response to GTCR's Statement of Uncontested Facts Regarding Fiduciary Duty and Other Remaining Claims. STATEMENT OF UNCONTESTED FACTS BACKGROUND/PARTIES 1. A corporation named Kirkco, Inc. ("Kirkco") was formed on September 16,

1999. The name was subsequently changed, first to Leap, Inc. and then to LeapSource, Inc. (hereinafter "LeapSource" refers to the corporation without regard for the legal name in effect at any particular time) Certificate of Incorporation and Amendments (Ex. 19). RESPONSE TO 1 Undisputed. 2. Prior to their resignations on September 14, 1999, plaintiffs Christine Kirk,

Julie McCollum and Kim Hartmann were partners at Arthur Andersen LLP and plaintiffs Indu Gupta, Kelly Powers, Bobby Scott and Patrice Walker were employees thereof. Fourth Amended Complaint ("4th Am. Cplt.") ¶¶ 35-41, 159-162. RESPONSE TO 2 Undisputed. 3. Kirk was employed by LeapSource as its Chief Executive Officer pursuant to a

Senior Management Agreement from September 27, 1999 until February 27, 2001. Kirk SMA (Ex. 20); 2/27/01 Board Minutes (Ex. 57). RESPONSE TO 3 Undisputed.

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4.

Kirk served as a director of LeapSource from September 16, 1999 to March 15,

2001. 9/16/99 Consent (Ex. 18); 3/16/01 Consent (Ex. 65); Kirk Dep. (Ex. 90) at 385:14-18, 612:18-613:8, 616:1-6. RESPONSE TO 4 Undisputed. 5. Hartmann and McCollum were employed by LeapSource pursuant to Senior

Management Agreements dated October 5, 1999 until approximately March 2, 2001. Hartmann SMA (Ex. 25); McCollum SMA (Ex. 26); 4th Am. Cplt. ¶ 303. RESPONSE TO 5 Undisputed. 6. Gupta, Powers, Scott and Walker were employed by LeapSource pursuant to

Employment Agreements dated October 5, 1999 until approximately March 2, 2001. Gupta Empl. Agmt. (Ex. 27); Powers Empl. Agmt. (Ex. 28); Scott Empl. Agmt. (Ex. 29); Walker Empl. Agmt. (Ex. 30); 4th Am. Cplt. ¶ 303. RESPONSE TO 6 Undisputed. 7. There is no signed employment or consulting contract between either CEO

Solutions L.L.C. or plaintiff Thomas Gilman and LeapSource. Gilman Dep. (Ex. 88) at 35:23-39:9, 43:12-44:14, 188:7-10; Unsigned Contract (Ex. 36); 1/17/01 Email (Ex. 47). RESPONSE TO 7 Disputed. Plaintiff Thomas Gilman signed the contract between CEO Solutions LLC and LeapSource on behalf of CEO Solutions LLC. Said contract was provided to

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LeapSource, Inc. for signature and Gilman commenced working for LeapSource thereafter as a consultant and interim CFO pursuant to the terms thereof. CEO Solutions LLC Contract, attached as Exhibit 36 to GTCR Defendants' Statement of Uncontested Facts. 8. Gilman served as interim Chief Financial Officer of LeapSource from

approximately late September or October 2000 until he resigned on February 27, 2001 and as a director from March 31, 2000 until the board accepted his resignation on March 20, 2001. Gilman Interrog. Resp. (Ex. 9) at 12; Gilman Dep. (Ex. 88) at 20:1-4; 2/27/01 Board Minutes (Ex. 57); 3/20/01 Stockholders Consent (Ex. 68); 3/31/00 Stockholders Consent (Ex. 34). RESPONSE TO 8 Disputed. Thomas Gilman did not resign from the LeapSource, Inc. Board of

Directors on March 20, 2001 but, rather, was removed without his consent. (EX.1). 9. As of February 2, 2001, Kirk owned 1,384,615 shares of LeapSource common

stock, and the remaining individual plaintiffs (other than Gilman) owned 150,000 shares apiece. Kirk Damages Interrog. Resp. (Ex. 10) at Ex. 1; Plaintiffs' Employment

Agreements/SMAs (Exs. 20, 25-30). RESPONSE TO 9 Undisputed. 10. GTCR Golder Rauner, LLC is a Chicago based private equity firm. 4th Am.

Cplt. ¶¶ 4-5, 8; Kirk Dep. (Ex. 90) at 48:14-17. RESPONSE TO 10 Undisputed. 11. GTCR Fund VI, L.P., GTCR VI Executive Fund, L.P. and GTCR Associate's

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VI (collectively, the "GTCR Funds") are private equity funds. GTCR Golder Rauner, LLC is the general partner of GTCR Partners V1, L.P., which in turn is the general partner of the GTCR Funds. Purchase Agmt. (Ex. 2 1). RESPONSE TO 11 Undisputed. 12. Phil Canfield is a GTCR1 principal who never served as a director of

LeapSource. Canfield Dep. (Ex. 81) at 7:19-8:1, 30:15-16. RESPONSE TO 12 Undisputed. 13. David Donnini is a GTCR principal who served as a director of LeapSource

from September 27, 1999 until November 24, 1999. Donnini Dep. (Ex. 83) at 9:16-24; Stockholders Agmt. (Ex. 22); 11/24/99 Directors Consent (Ex. 32). RESPONSE TO 13 Undisputed. 14. Joe Nolan and Bruce Rauner are GTCR principals who served as directors of

LeapSource from September 27, 1999 until LeapSource's bankruptcy. 4th Am. Cplt. ¶¶ 19, 20; Stockholders Agmt. (Ex. 22). RESPONSE TO 14 It is undisputed that Joe Nolan and Bruce Rauner are GTCR principals who served as directors of LeapSource beginning on September 27, 1999, but the referenced evidence does

For purposes of this statement of facts, "GTCR" will be used to refer to one or more of defendant GTCR Golder Rauner, LLC and the various related individuals and GTCR Funds named as defendants in this case. 5
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not support the claimed fact that their positions as directors ended with "LeapSource's bankruptcy," which is an undefined date certain. 15. Dan Yih is a GTCR principal who served as a director of LeapSource from

February 16, 2001 until LeapSource's bankruptcy. Yih Dep. (Ex. 87) at 11:10-14, 291:14292:2; 2/16/01 Stockholders Consent (Ex. 53). RESPONSE TO 15 It is undisputed that Dan Yih is a GTCR principal who served as a director of LeapSource beginning on February 16, 20011999, but the referenced evidence does not support the claimed fact that their positions as directors ended with "LeapSource's bankruptcy," which is an undefined date certain. 16. After becoming a LeapSource employee in February 2000, defendant Mike

Makings served as LeapSource's Chief Operating Officer from September 2000 until he resigned on December 15, 2000. Makings Dep. (Ex. 97) at 12:5-11, 13:12-22, 83:15-84:13. RESPONSE TO 16 Undisputed with the exception of the "resignation" of Makings on December 15, From December 15, 2000 until he spoke with Joe Nolan two or three weeks later, Makings stayed at the ICG offices (who do not work between Christmas and the New Year anyway) and continued to draw his LeapSource salary. Makings said: Q. And Joe called you, and what did Joe say? A. That he had heard I resigned, he was greatly disturbed by the news, did not want me to make a final decision, you know, pack my bags, go anywhere, didn't want me to say anything to anybody, that GTCR had been looking at LeapSource very closely the last few months, and he really wanted to get my impression on where we were and where we were going. 6
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Deposition of Michael Makings, at p. 125:17-24. Q. What did you do in that interim time period, did you go hang out at Tatum? A. Yeah, but it was Christmas and we basically didn't do any work between Christmas and new year, so basically, I enjoyed the holidays. Q. Did you draw a salary from LeapSource in that two weeks that you were gone? Q. Did you draw a salary from LeapSource in that two weeks that you were gone? A. Yes. That was agreed upon, that we were going to develop a severance agreement, that we were going to come up with some way to handle the stock and value the stock. All of those were the details that were going to be worked out and I was going to give Chris time for. Deposition of Michael Makings, at p. 123:2-13. 17. Makings served as LeapSource's Chief Executive Officer from February 27,

2001 until he resigned on or around March 20, 2001. 2/27/01 Board Minutes (Ex. 57); Makings Dep. (Ex. 97) at 12:12-14, 184:21-185:3, 206:5-8; 3/19/01 Letter (Ex. 66). RESPONSE TO 17 Undisputed that Makings resignation as a director of LeapSource is purported to be effective March 22, 2001. However, the Unanimous Written Consent of the LeapSource Board of Directors accepting his resignation is dated March 29, 2001 and apparently attempts to give the Makings resignation retroactive effect. In addition, Makings took 7
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over the CEO role for Christine Kirk when she and Thomas Gilman were on the road making presentations to potential investors in LeapSource. (EX.2) 18. Makings served as a director of LeapSource from approximately February 27,

2001 until he stepped down as CEO. The Board formally accepted his resignation effective March 22, 2001. Makings Dep. (Ex. 97) at 12:18-13:11; 3/29/01 Unanimous Directors Consent (Ex. 71); Stockholders Agmt. (Ex. 22) at (a)(ii)(B). RESPONSE TO 18 Undisputed, although this statement appears to be deliberately ambiguous with respect to the date Makings "stepped down as CEO." Makings was signing documents as the CEO and a Director of LeapSource prior to February 27,2001. Supplement No. 15 (EX.3) II. PLAINTIFFS' BUSINESS PLAN 19. On or about May 14, 1999, Nolan sent Kirk a letter bearing that date. 5/14/99

Letter (Ex. 13). RESPONSE TO 19 Undisputed that Joe Nolan sent a letter to Christine Kirk on May 14, 1999, which outlined items discussed during a meeting between Kirk and Nolan. 20. In August, 1999, Kirk and Hartmann presented Nolan with a document entitled

"Freedom Group Business Case Summary Presented to Potential Investors" (the "Business Plan"). Hartmann Dep. (Ex. 89) at 48:23-49:17, 94:1-96:6; Kirk Dep. (Ex. 90) at 135:5-16; Business Plan (Ex. 14). RESPONSE TO 20 Undisputed that a document entitled "Freedom Group Business Case Summary

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Presented to Potential Investors" was provided to Nolan in August 1999, but disputed to the extent that this document was the "Business Plan" for LeapSource to the exclusion of all others. As indicated in the Nolan letter of May 14, 1999 GTCR wanted a "brief business plan" which included a "rough estimate of the working capital required for salaries and overhead." The "business plan" for LeapSource was a dynamic and evolving process, and GTCR was provided with LeapPaks which evidence this evolution of the LeapSource business plan. Kirk testified: Q. Did you provide then a subsequent business plan to Mr. Nolan? A -- we provided on an ongoing basis the budget, which was what Joe wanted. Q. Did you provide anything other than a budget? A. LeapPaks which had all the information. Deposition of Christine Kirk, at p. 455:19-24, 5/14/99 Letter attached as Ex. 13 to GTCR SOF. When asked about the document referred to here (in the GTCR SOF) as the "Business Plan," Ms. Kirk made it clear at her deposition that the document (referred to in this testimony as "the business case" or "business case summary") was based upon assumptions about the strategy for growing the business that were the subject of continuing discussions and changes: Q. There is no statement in the business case summary that the Freedom Group expected to lose from $10 million to $20 million during each of the first two years of its operation, is there? A. No. Q. As of August 1999, did you expect that the Freedom Group would lose from $10 million to $20 million during each of the 9
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first two years of its operation? A. Not under this business case. Q. What do you mean "not under this business case"? A. Well, this was a business case used with a smaller start-up, smaller clients, not a large client. Kirk Depo. at 112:9-20 (emphasis added). See also Response to paragraph 34, below. 21. When the Business Plan was presented to Nolan, he was not told it was subject

to any confidentiality agreement. Hartmann Dep. (Ex. 89) at 457:16-458:24. RESPONSE TO 21 Disputed to the extent that the term "Business Plan" refers to the "Freedom Group Business Case Summary Presented to Potential Investors" was the "Business Plan" for LeapSource to the exclusion of all others. See response to 20 above. 22. On August 18, 1999, GTCR sent Kirk a draft Summary of Understanding.

8/18/99 SOU (Ex. 16); Kirk Dep. (Ex. 90) at 147:12-20; Nolan Declaration (Ex. 12) at ¶ 4. RESPONSE TO 22 Undisputed. 23. Plaintiffs presented the Business Plan to potential investors other than GTCR,

including Bank of America's venture capital unit. Kirk p. (Ex. 90) at 143:18-144: 1. RESPONSE TO 23 Disputed to the extent that the term "Business Plan" refers to the "Freedom Group Business Case Summary Presented to Potential Investors" was the "Business Plan" for LeapSource to the exclusion of all others. See response to 20 above.

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24.

GTCR did not provide the Business Plan to a GTCR portfolio company or to

anyone other than its counsel. Nolan Declaration (Ex. 12) at ¶¶ 5-6. RESPONSE TO 24 Disputed to the extent that GTCR placed all LeapSource business records and documents into storage outside of Chicago, IL with the records and documents of Xpedior, a company that also went into bankruptcy. III. LEAPSOURCE FORMATION DOCUMENTS 25. On or about September 14,1999, GTCR and Kirk entered into the Summary of

Understanding. 9/14/99 SOU (Ex. 17). RESPONSE TO 25 Undisputed if "entered into" means that the Summary of Understanding was signed by Christine Kirk and GTCR on or about September 14, 1999, and disputed if it is intended to imply anything else. 26. Kirk was named the sole director of Kirkco, Inc. on September 16, 1999.

9/16/99 Consent (Ex. 18); Kirk Dep. (Ex. 90) at 385:14-18, 612-18-613:8, 616:1-6. RESPONSE TO 26 Undisputed. 27. On or about September 27, 1999, the parties executed a Purchase Agreement,

Registration Agreement, Senior Management Agreement, Stockholders Agreement and Professional Services Agreement. Kirk SMA (Ex. 20); Purchase Agmt. (Ex. 21);

Stockholders Agmt. (Ex. 22); Registration Agmt. (Ex. 23); Prof. Serv. Agmt. (Ex. 24).

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RESPONSE TO 27 Undisputed, although not all of the documents attached as exhibits are complete. GTCR'S INVESTMENT IN LEAPSOURCE 28. GTCR paid approximately $1.4 million for 13,999,000 shares of LeapSource

common stock on September 27, 1999. Purchase Agmt (Ex. 21). RESPONSE TO 28 Undisputed. 29. Between September 1999 and March 2001, GTCR paid a total of

approximately $36.5 million to LeapSource in exchange for 36,500 shares of LeapSource preferred stock. 4/9/01 Stock Ledger (Ex. 74) (see also Supplements to Purchase

Agreement, generally included as Exhibits 2A-2R in the Appendix to GTCR Defendants' Motion to Dismiss Under Rule 12(b)(6)) (Docket No. 17). RESPONSE TO 29 Undisputed. 30. GTCR owned approximately 70% of LeapSource's common stock and 100%

of its preferred stock. Orig. Cplt. (Ex. 80) ¶ 51; Rhodes Dep. (Ex. 99) at 188:17-189:13; 9/14/99 SOU (Ex. 17). RESPONSE TO 30 Undisputed. 31. GTCR guaranteed LeapSource's $10 million line of credit to the Bank of

Montreal and several of LeapSource's lease obligations. Bank of Montreal Guarantee (Ex. 38); Lease Guarantees (Ex. 40).

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RESPONSE TO 31 Undisputed. 32. GTCR did not guarantee the $2.5 million note LeapSource gave to Makings, in

conjunction with LeapSource's purchase of ICG Consulting Group, Inc. Making., Dep. (Ex. 97) at 148:17-150:2, 200:5-7; Kirk Dep. (Ex. 90) at 785:8-14; Gilman Dep. (Ex. 88) at 320:2-7; 1/10/01 Phonemail (Ex. 45); Eaton Dep. (Ex. 93) at 104:22-105:1; ICG Purchase Agmt. (Ex. 33) at § 2.2.1(c). RESPONSE TO 32 Undisputed. 33. GTCR paid approximately $11.4 million on its guarantees of LeapSource's

obligations to the Bank of Montreal and its various lessors. Guarantee Payments (Ex. 75). RESPONSE TO 33 Undisputed. LEAPSOURCE'S PERFORMANCE A. 34. Financial Results In a LeapPak dated October 1999, LeapSource projected that it would have

fourteen BPO clients by year-end 2000. 10/99 LeapPak (Ex. 31) at GTCR 5465. RESPONSE TO 34 Undisputed that the October 1999 LeapPak projected LeapSource would have 14 BPO clients by year-end 2000, but it is disputed and misleading if it is intended to suggest that the October 1999 projections were the final word on the business strategy developed between LeapSource and GTCR. For example, LeapSource changed its strategy in the Fall

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of 1999 to go after much larger clients, following the example of Exult, at the request of GTCR. Christine Kirk testified: Q. Did the company change the clients it was targeting at some point after preparation of the August 1999 Freedom Group business case summary? A. Yes. It changed the strategy of what the company was trying to do. Q. How so? A. When LeapSource was formed in the fall of 1999, there was a company in the HR BPO space that was becoming -- that had signed a large shared service acquisition deal. It was preparing to go public. And Joe Nolan was very interested in us having that kind of a strategy where we go out and we look for a large client as well as some middle market clients and we use that as a way to gain quick revenue. Kirk Dep., at p. 456:9-22. That change in strategy resulted from discussions that began as the Individual Plaintiffs were preparing to leave Andersen, as Ms. Kirk testified: A. That Jeff Gilbert had told us that we, for example, could not sign the memo of understanding until after we had left; that we could not sell -- or Jeff Gilbert at that time believed that we would not be able to do any selling until January 1 of 2000, based upon our partnership agreements. I believe that we talked about the do not solicit clauses within the Andersen partner and manager agreements and what that meant related to individuals that would leave Andersen and join us. Joe was -- at that time Exult was beginning to grow, and Joe looked at Exult as something we should become very similar to. Joe was particularly curious on how many people we could get out of Andersen. He wanted us to maximize the number of individuals that would leave and come and join us. It was consistent with what he wanted with us mimicking Exult, as well as what they had experienced in AnswerThink. Kirk Dep., at p. 188:17-189:9.

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Michael Makings also testified that LeapSource was following the Exult example in the LeapSource business model. Makings testified: Chris was following the formula of Exult Corporation who had -- Exult had bought a similar company to ICG before they went public. And it was a story to tell Wall Street that not only could we gain clients through transactions, but we could also continue to increase margin over time with the assets of an ICG corporation. It was also strategic in that LeapSource could hold up ICG clients as their own. So we completed a story, if you will, and that's what I believe. Makings Dep., at p. 157:23-159:6. (Emphasis added) 35. From its inception until its bankruptcy, LeapSource secured contracts with four

BPO clients: Comsys, Epoch Partners, Heritage Group and Xpedior. Kirk Dep. (Ex. 90) at 388:10-12, 443:14-17; Gilman Dep. (Ex. 88) at 158:4-159:5; Customer Contracts (Ex. 35). RESPONSE TO 35 Undisputed, although LeapSource, Inc. was in the process of finalizing contracts with Cargill, Inc. and Computer Horizons Corporation and had other prospective clients in the pipeline at the time GTCR demanded that LeapSource reduce its work force and began to undermine the management authority of Christine Kirk. Karl Sachsenmaier testified about the positive implications of signing a deal with a major company like Cargill. He testified: Q. Then you wrote "this has tremendous 15
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implications to LSI as a credential to close other business now that a major company like Cargill is our client." A. Uh-huh. Q. You wrote that? A. Uh-huh. Q. Yes? A. Yes. Deposition of Karl Sachsenmaier, at p. 239:7-15. Kevin Campbell, the COO of Exult at the time, also testified about the credibility a referenceable client like Cargill could have had for LeapSource. He testified: Q. Was Cargill the type of potential client that would fit into what you would call this whale of a client category? A. Correct. Q. A referenceable client like Cargill is something that would give a BPO company servicing them credibility in the marketplace? MS. KISER: Objection. Calls for speculation. THE WITNESS: For me it would have helped give credibility based on my experience. Deposition of Kevin Campbell, at p. 43:5-15.

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As for interfering with Kirk's ability to manage the company, Dan Yih testified: She alleged that my interviewing members of her management team below her was undermining her authority, and I said, "Yes, it is effectively cutting off your arms and legs within the organization." I certainly never, ever threatened her physically to cut off her arms and legs. I did agree with her that interviewing management members below her was effectively cutting off her arms and legs. Q And what -- what -- what did you mean by that, that it was effectively cutting off her arms and legs? A It is very disruptive for an organization for an outside investor to come in and talk to members of management without the CEO being there, and it is, she alleged, destructive to her authority and I would agree. Deposition of Daniel Yih, at 159:20 to 160:13 (emphasis added). 36. Comsys and Heritage Golf were GTCR portfolio companies; Xpedior and

Epoch were not. Kirk Dep. (Ex. 90) at 443:25-444:7; Nolan Dep. (Ex. 84) at 478:21-479:12; Yih Dep. (Ex. 87) at 73:8-13. RESPONSE TO 36 Undisputed. However, Xpedior was referred to LeapSource by John Whiteside, the CEO of NetASPx, which is a GTCR portfolio company. Whiteside Dep. at 18:16-18 ("Q. And from whom did you receive private equity funding to launch the business? A. GTCR, Golder Rauner in Chicago"). Mr. Whiteside also testified that: Q. Do you recall how you made the introduction of Xpedior to LeapSource? A. I believe I gave Ms. Kirk's name and number to the CFO and CEO of Xpedior and gave their numbers to her. Deposition of John Whiteside, at p. 31:7-11.

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37.

In October 1999, LeapSource projected a cumulative net loss of $5.2 million

from inception through year-end 2000. 10/99 LeapPak (Ex. 31) at GTCR 5465; McDonough Report (Ex. 11) at 8. RESPONSE TO 37 Undisputed that the October 1999 LeapPak projected a cumulative net loss of $5.2 million from inception through year-end 2000, but the October 1999 LeapPak projections were based upon the "business case summary" prepared before the Individual Plaintiffs left Andersen. See Response to 34. 38. At year-end 2000, LeapSource's cumulative net loss exceeded $23.2 million.

McDonough Report (Ex. 11) at 8. RESPONSE TO 38 Undisputed that LeapSource's cumulative net loss exceeded $23.2 million from inception through year-end 2000, but disputed that such losses were not incurred as a result of LeapSource's change in strategy in the Fall of 1999 to go after much larger clients following the example of Exult at the request of GTCR. See Response to 34. 39. In October 1999, LeapSource projected working capital needs of

approximately $9.3 million from inception through year-end 2000. 10/99 LeapPak (Ex. 31) at GTCR 5465. RESPONSE TO 39 Undisputed that the October 1999 LeapPak projected working capital needs of approximately $9.3 million from inception through year-end 2000, but it is disputed that said projections were cast in stone and not subject to change. LeapSource changed its strategy in

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the Fall of 1999 to go after much larger clients following the example of Exult at the request of GTCR. See Response to 34. 40. On December 20, 2000, LeapSource calculated that it had used over $16

million in GTCR funding on working capital. 11/00 LeapPak (Ex. 41). RESPONSE TO 40 Disputed that LeapSource had used over $16 million in GTCR funding on working capital. There was an ongoing dispute between GTCR and LeapSource over the GTCR had acknowledged the existence of a "gray area" Christine Kirk explained it this way at her

classification of expenses.

surrounding these expense classifications. deposition:

Q. So is it accurate to say as of November 20, 2000, LeapSource had spent 16,841,000 in working capital that had been contributed to the company by GTCR? A. We had spent 16,841,000 in ops and start-up, and we were accounting for it as prescribed by GTCR. Q. And you consider that to have been spent for working capital? A. Yes. Q. It is true, is it not, that then as of February 24, 2001, the company had exceeded the amount of working capital that was described either in the asset purchase agreement or in the summary of understanding? A. That's incorrect. Q. How so? A. The summary of understanding focused on start-up expenses, not operations such as selling expenses. GTCR early on acknowledged that it was gray and that we would work out an agreement later on. That never occurred. 19
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They demanded that we account for it the way they wanted it. Q. So when it said in Mr. Gilman's February 24, 2001, memo that the company has accounted for approximately 21 million spent in client matters and acquisitions with the balance of the funding, 16 million, being used for working capital, did you ever tell anyone that was erroneous? A. That is how we had accounted for it. Q. Did you ever tell anyone that was erroneous? A. Yes. Q. Who? A. Joe Nolan. Kirk Dep., at p. 414:16-415:21 (emphasis added). 41. In December 2000, LeapSource estimated that it would need an additional $21

million in cash from GTCR during 2001. 1/15/01 Memorandum. (Ex. 46); Cunningham Dep. (Ex. 82) at 157:4-160:19. RESPONSE TO 41 Disputed that LeapSource's cash needs were $21 million during 2001. The January 15, 2001 Memorandum upon which the cash needs were based was prepared by GTCR and represented one projection for a particular business plan based on numerous assumptions not mentioned in the Memorandum. This particular "cash needs" calculation was merely an option that was being discussed between GTCR and LeapSource management. 1/15/01 Memorandum. (Ex. 4) 42. On January 22, 2001, Kirk and Gilman reported to GTCR that LeapSource's

working capital spending had reached $17 million. 1/22/01 Presentation (Ex. 48) at GTCR 10174. 20
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RESPONSE TO 42 Disputed that LeapSource's capital spending had reached $17 million by January 21, 2001. There was an ongoing dispute between GTCR and LeapSource over the classification of expenses. GTCR had acknowledged the existence of a "gray area" surrounding these expense classifications. See Response to 40. B. Customer Dissatisfaction 1. 43. COMSYS

Comsys refused to enter into a long-term contract with LeapSource because it

was dissatisfied with LeapSource's services and it desired to focus instead on solving existing service issues with LeapSource. Kerr Dep. (Ex. 95) at 97:19-98:1. RESPONSE TO 43 It is disputed that Comsys "refused to enter into a long-term contract with LeapSource," and the excerpt from David Kerr's deposition is a lawyer's paraphrase of Mr. Kerr's actual testimony, taken out of context. As late as October 2000 LeapSource and Comsys were negotiating the terms of a long term Professional Services Agreement. In that regard David Kerr also testified: (Exhibit No. 584 marked.) Q. (By Mr. Weinberger) Do you recognize this document? A. I do. It's an extension of the interim services agreement from October 15th, 2000 to October 31st, 2000. Q. And that's your signature on the second page? A. Yes. Q. Thank you. (Exhibit No. 585 marked.) 21
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Q. (By Mr. Weinberger) I'll show you another document we've marked as 585. Do you recognize this document? A. Yes. It's, again, another extension to the interim services agreement from October 31st to November 30th, 2000; and it's my signature. Q. Thank you. (Exhibit No. 586 marked.) Q. (By Mr. Weinberger) 586. A. I recognize this document. It's, again, another extension of the interim services agreement from November 30th, 2000 to March 31st, 2001. Q. The document is dated January 31, 2001, correct? A. Correct. Q. And you signed it February 7, '01? A. Correct. Deposition of David Kerr at 69:8 to 70:10. Thus, Comsys in fact continued to do business with LeapSource for an extended period of time, and was still working with LeapSource under an Interim Services Agreement when GTCR stopped funding and shut down the company. See also draft of Professional Services Agreement, Exhibit 583 to Deposition of David Kerr, Bates Nos. LS-44-2868-2897, (EX.5). 44. LeapSource had originally estimated that the Comsys transition would be

completed (the "go live" date) by October 31, 2000 at a cost of $2.7 million. Kerr Dep. (Ex. 95) at 97:15-18; Plaintiffs' Timeline (Ex. 76); Walker Dep. (Ex. 92) at 100:4-101:1; 7/3/00 Comsys Agmt. (Ex. 35) at LS-81-2664. RESPONSE TO 44 Undisputed. 22
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45.

In approximately September 2000, LeapSource revised the go-live date to

January 1, 2001. Walker Dep. (Ex. 92) at 101:22-102:14; Plaintiffs' Timeline (Ex. 76). RESPONSE TO 45 Undisputed that LeapSource revised the go-live date to January 1,2001 due, in part, to the failure of NetASPx to obtain some computer software. In that regard Patrice Walker testified: Q. Did you know in September of 2000 that if BSI tax software was never properly implemented that it would delay any go-live date? A. Yes. Q. Is it your testimony today, Ms. Walker, that the sole blame for the failure to meet the 10/30 deadline falls on NetAspx for not procuring the BSI tax software? MR. BREGER: Objection. Form. A. I wouldn't make that statement, because there could have been other issues involved. Q. BY MR. GORGA: In your opinion, does LeapSource share any blame for the failure to meet the 10/30 deadline? A. I think in -- as in any implementation, I think the issues are co-managed, and I think as scope changes, the partners, i.e., COMSYS, LeapSource, NetAspx agree as

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to what the issues are and how to manage that against a go-live date. I don't think it is a question of blame. That would be a harsh word to use. Deposition of Patrice Walker at 110:20 to 111:13, then she also testified: Q. Other than the test results not being completed by the time necessary to go live on January 1, can you think of any other reasons why the go-live date was not met? A. I was focused on the technology, so, no, I am not aware. Q. And to your knowledge, you don't know of anything that the GTCR defendants did that delayed the go-live date beyond January 1, correct? A. I am -- not outside of the NetAspx decision, no, I am unaware. Q. And by "NetAspx decision," you mean that GTCR expressed a preference for NetAspx to be the hoster for the COMSYS transition in accordance with your discussion with Mr. Makings, correct? A. Yes. Yes, sir. Q. And aside from that, you have no knowledge of any other things that the GTCR defendants might have done

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to contribute to the failure to go live, correct? A. Correct. I am not aware. Deposition of Patrice Walker at 127:21 to 128:15. 46. On December 8, 2000, LeapSource advised Comsys that it would be unable to

meet the January 1, 2001 go-live date, causing Comsys to suggest that LeapSource had covered up issues. Plaintiffs' Timeline (Ex. 76) at LS-CK-0071; Walker Dep. (Ex. 92) at 135-138; Kerr Dep. (Ex. 95) at 47:1-48:16. RESPONSE TO 46 Undisputed. 47. By late 2000, Comsys had stopped paying LeapSource because it was

dissatisfied with LeapSource's services, disagreed with the amounts it had been billed, and did not believe that LeapSource was providing the services it had agreed to provide. Kerr Dep. (Ex. 95) at 72:14-73:19, 95:12-96:21. RESPONSE TO 47 Disputed that Comsys "stopped paying" LeapSource to the extent that it implies any wrongdoing on the part of LeapSource. David Kerr testified that the payments were deferred or stopped because of a dispute with LeapSource over the excess travel and entertainment expenses that were being necessitated due to the delay in transition. Mr. Kerr testified: Q. Was -- was there a problem with regard to unpaid travel at this point? A. Yes. The costs were -- had -- had ­ were too high. Q. Did you get an explanation as to why the costs were so high? A. Well, you know, again, the transition had been extended beyond what was initially expected. 25
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 49.

At this point in time, in January of 2001, the Comsys accounting center, which was located in Rockville, Maryland, was still in operation and had not been transitioned to Tempe and it was -- it -- it was supposed to have been transitioned in ­ in late 2000 at some point in time. And because of the delays, not only the costs associated with ­ with temporary employees was escalating, but also the cost of travel between Tempe and Rockville was escalating and we didn't believe we should pay the travel and out-of-pocket expenses of LeapSource, and they agreed. Deposition of David Kerr, at p. 71:5-24. 48. In December 2000, LeapSource pushed the estimated date for completion of

the Comsys transition to April 1, 2001. Walker Dep. (Ex. 92) at 143:13-144:7. RESPONSE TO 48 Undisputed that the transition date was moved to April 1, 2001 due, in part, to issues involving the ADP payroll module that were unique to the Comsys environment. 2. Xpedior

In late 2000, Xpedior withheld payments because it was dissatisfied with

LeapSource's service and performance. Whiteside Dep. (Ex. 100) at 36:2 16, 69:22-72:20. RESPONSE TO 49 Disputed. Although Xpedior claimed that this was the reason for withholding

payment, in fact Xpedior acknowledged that it was in part responsible for the migration problems that it experienced, and netASPx was also substantially responsible for those problems. In fact, Randall Ware of net ASPx wrote by email on December 12, 2000 to others internally at netASPx the following "joke which may not be funny: We need to get some of our best politician/spin doctor personnel on this as the testing should have been done prior to the 7.23 upgrade, and we will need to either cover this up or figure a way that

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leapsource is at least partially to blame." Dep. Ex. 491. NetASPx's "Lessons Learned" Summary also summarized a series of problems at netASPx that contributed to the problems with the Xpedior migration, including "NetASPx didn't work from a detailed list of everything Xpedior related that need to be moved during the migration," "It appears this new URL address was not communicated to Leapsource adequately," "Second, when the new SEA server was established the passwords had to be reset. This also was not communicated to Leapsource adequately." And so on. Dep. Ex. Of John Whiteside 488 and 491. (EX.6) These issues with netASPx affected both the Xpedior and Comsys projects, and required LeapSource's attention, as Patti Walker testified: A. ... Once they became a client, I would interact when there were issues with our partners. So, for example, in the case of, let's say, COMSYS, they were posted at NetAspx. We had a series of issues with NetAspx as a hoster, and I would be brought in to help NetAspx overcome those issues as it related to supporting a LeapSource client. Walker Dep. at 55:15-20. Q. Did you have any other responsibilities on those three clients? A. Xpedior, since it was one of our first larger implementations, I was a little bit more involved in quality assurance, and I think it was because we had quite a few issues with NetAspx. Walker Dep. at 68:5-10. And NetASPx was in that role because of GTCR: Q. So NetAspx provided the hosting of the Lawson software for Xpedior; is that correct? A. That is correct. Q. And you were responsible for setting up the relationship between LeapSource and NetAspx for the Xpedior transition? A. Yes, sir. 27
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Q. How did you select NetAspx to be the hoster for the Xpedior transition? A. I did not select NetAspx as hoster. Q. How was NetAspx selected as the hoster for the Xpedior transition? A. It was brought to me as the partner for the Xpedior transition. Q. What was your understanding as to how NetAspx had come into the picture on the Xpedior transition? A. It was my understanding that they had something to do with bringing the client -- the potential client aboard. Q. Did you have any direct conversations that you can remember with anybody regarding how NetAspx was selected to become involved as the hoster for Xpedior? A. I do not. Q. Did you interview any other potential hosters for the Xpedior project? A. No. As a matter of fact, we were told by GTCR that NetAspx was the preferred partner not only for Xpedior but COMSYS and that a selection was not advisable. Q. Did you have any direct communication or indirect communication with GTCR on the issue of NetAspx being the preferred partner for hosting? A. I did not have any direct conversation, but I did indirect through Mike Makings. Q. When did Mike Makings tell you that NetAspx was to be the preferred partner for hosting Xpedior and COMSYS transitions? A. The conversation I had with Mike would have been around the September time frame, so it was too late for the Xpedior discussion but it was more in line with why we were choosing NetAspx for COMSYS, especially in light of all the trauma and pain we had over the Xpedior implementation. Mike and I at that time -- and this was around September when I started reporting to him full time -- agreed that if that was 28
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the absolute mandate from GTCR, which is the way we did interpret it, that we would have to spend a significant amount of time making NetAspx a better partner. Walker Dep. at 69:15-71:12 (emphasis added). 50. On December 15, 2000, Xpedior issued a written notice of default to

LeapSource. Default Notice (Ex. 44). RESPONSE TO 50 Undisputed that Xpedior issued a written notice of default to LeapSource, but disputed that the notice of default was justified. In fact, the notice of default was given in response to LeapSource's demand for payment sent to Xpedior, probably to create leverage for the negotiation that was sure to follow. Dep. Ex. Of Christine Kirk 527. (EX.7) Kirk testified that GTCR instructed her to make a demand for payment on Xpedior. She testified: Q. BY MR. FIRESTONE: Tell me if 517 helps refresh your recollection as to whether or not Xpedior was unhappy with the services being performed by LeapSource. THE WITNESS: What was the question, Carrie? Q. BY MR. FIRESTONE: Let me give it to you again. Xpedior was not satisfied with the services being performed by LeapSource and, in fact, wrote to you on December 15, 2000, to let you know that, correct? A. This was actually in response to my demand for payment of that note.

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Q. In fact, you threatened them, right? You said if they don't pay, you are going to cut them off, right? A. That's right. Q. You were not going to transition them; you were going to stop without a payment? A. That is correct. Q. Now, that would have been better for LeapSource's cash flow than Mr. Makings' trying to work out a note, if he did that? MR. BREGER: Objection. Form. Q. BY MR. FIRESTONE: Just yes or no. MR. BREGER: Objection. Form. THE WITNESS: Can you reread the question? (The following question was read back by the reporter.) "QUESTION: Now, that would have been better for LeapSource's cash flow than Mr. Makings's trying to work out a note, if he did that?" THE WITNESS: It may have been, yes. BY MR. FIRESTONE: Was that your practice and policy, that if someone did not pay you timely, that you would threaten them with cease of work?

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A. That is what GTCR instructed us to do. Kirk Dep., at p. 792:9-793:16. (Emphasis added) 51. Kirk did not notify GTCR that Xpedior had served LeapSource with a written

notice of default. Nolan Dep. (Ex. 84) at 234:23-235:6. RESPONSE TO 51 Disputed. Kirk's notification to GTCR was unnecessary because they were

previously informed by Kirk that demanding payment from Xpedior would damage their relationship. Xpedior's notice of default was sent in response to LeapSource's demand for payment. See Response to 49. Kirk also testified that Q. You state in Paragraph 268 that Kirk complied with Nolan's directive, and Xpedior paid LeapSource for the excess costs in December 2000, but LeapSource's relationship with Xpedior had been severely damaged. How was it damaged? A. I -- Dan and Joe Nolan had me call Xpedior and threaten to stop all of their accounting work. It made the CFO very angry. He referred me back to the notes. He told me that they were experiencing cash difficulties. Q. And you got paid in December. What impact did that have on the relationship between Xpedior and LeapSource going forward? A. I think it was strained. He was very angry. Kirk Dep., at p. 981:2-14.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3. 53. Management Dysfunction Makings believed that LeapSource's executive team was divided into two 52. Xpedior publicly announced on March 20, 2001 that it was selling its assets

and applying the proceeds to the payment of the company's debts and other obligations, that its stock likely had no value and that it was not ruling out the possibility of filing for bankruptcy. Xpedior-related Press Reports (Ex. 67). RESPONSE TO 52 Undisputed.

camps, one that wanted to build a long-term sustainable business and one that wanted a quick IPO. Makings Dep. (Ex. 97) at 86:7-89:3, 106:21-107:8, 119:8-15, 188:1-15, 316:4-318:13. RESPONSE TO 53 Undisputed that this is what Makings said in an effort to disparage others, testifying in a lawsuit in which he had been named as a defendant, but it isn't true. This isn't an undisputed fact, but a self-justifying insult aimed at other people who were more loyal to LeapSource and did their jobs better than he did. 54. Makings told Kirk in summer 2000 that he wanted to speak to GTCR and she

told him that no one other than she was allowed to contact GTCR in any manner and that doing so would be a fireable offense. Makings Dep. (Ex. 97) at 104:2-106:20. RESPONSE TO 54 This is not true; Kirk never told Makings he was not allowed to speak with GTCR. She testified: Q. BY MR. FIRESTONE: Did you ever tell Mr. Makings, 32
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"There are certain areas I do not want to you talk to with GTCR"? A. No. Q. So wasn't it within his rights, under the employment agreement and your directions, to talk to GTCR about anything they might ask questions about? MR. BREGER: Objection. Form. A. I believe so. Kirk Dep., at p. 772:12-20. 55. Makings resigned as COO on December 15, 2000 because he thought, among

other things, that Kirk and Gilman were lying to customers and potential funding sources and that LeapSource could neither survive as a business nor be sold to a third party. A few weeks later, Makings discussed his reasons for resigning with Nolan. Makings Dep. (Ex. 97) at 84:17-94:1, 107:18-126:14. RESPONSE TO 55 Disputed that Makings resigned at all from LeapSource on December 15, 2000. From December 15, 2000 until he spoke with Joe Nolan two or three weeks later, Makings stayed at the ICG offices (where they did no work between Christmas and the New Year anyway) and continued to draw his LeapSource salary. See Response to 16. Furthermore, when Makings took over as the CEO of LeapSource on February 27, 2000 he testified that he believed he could turn the company around with an additional investment of $8.5 million: Q. Okay. And at some point in time you arrived at what we talked about earlier, a number of roughly eight and a half million dollars, that you believed would be necessary and could get LeapSource to a cash neutral state? A. That's correct. 33
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VI.

Q. And you presented that to GTCR? A. We did. Q. And would that have worked -- would your proposal have worked whether Comsys made a financial contribution to the deal or not? In other words, if you got eight and a half million dollars, it didn't matter whether it came solely from GTCR or in combination of GTCR and Comsys. A. That's correct. Makings Dep., at p. 192:4-18. 56. Kirk did not advise anyone at GTCR of Makings' resignation. Nolan Dep.

(Ex. 84) at 216:24-217:3. RESPONSE TO 56 Disputed that there was any resignation of Makings. See Responses to 16 and 55. GTCR'S INVESTIGATION OF LEAPSOURCE 57. GTCR's concerns regarding LeapSource's performance, including cash burn

rate and its ability to generate revenue and control costs, escalated during the latter half of 2000. Roche Dep. (Ex. 86) at 54:2-78:16, 95:5-96:24; Nolan Dep. (Ex. 84) at 104:5-108:24, 215:13-235:20, 589:3-592:4; Rauner Dep. (Ex. 85) at 264:7-265:10. RESPONSE TO 57 Disputed to the extent that it is implied that these concerns were discussed among LeapSource board members since no such Board of Directors meetings were held between April 2000 and February 2001. 58. In December 2000 and January 2001, GTCR sent two of its employees, Dan

Yih and Sean Cunningham, to LeapSource to invest its concerns. Nolan Dep. (Ex. 84) at 34
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116:20-117:12; Yih Dep. (Ex. 87) at 145:14. RESPONSE TO 58 Disputed that Dan Yih and Sean Cunningham were sent to LeapSource merely to "investigate GTCR's concerns" and not for other reasons, including directly interfering with the management of the Company by its properly constituted management, and without the approval of the LeapSource board of directors. Deposition of Daniel Yih, at 159:20 to 160:13. 59. Yih and Cunningham interviewed management, reviewed data and performed See paragraph 35, above, citing the

detailed financial analyses of LeapSource. Yih Dep. (Ex. 87) at 28:3-7, 35:24-36:22, 62:6-9, 69:19-70:9, 84:7-19,101:23-104:21, 113:5-114:1, 186:7-189: 10; Cunningham Dep. (Ex. 82) at 32:6-36:22, 72:15-73:16. RESPONSE TO 59 Disputed that this is a fair or accurate characterization of what Dan Yih and Sean Cunningham were sent to LeapSource to do. See paragraph 35, above, citing the Deposition of Daniel Yih at 159:20 to 160:13. 60. During this time frame, key executives warned GTCR of issues regarding

Kirk's integrity and management capabilities. Nolan Dep. (Ex. 84) at 120:16-121:12, 216:4237:22, 277:9-278:19; Makings Dep. (Ex. 97) at 107:18-26:14; Yih Dep. (Ex. 87) at 176:1219, 164:20-168:14; Rauner Dep. (Ex. 85) at 264:1-268:13. RESPONSE TO 60 Disputed in that the key executives referred to here include defendant Bruce Rauner of GTCR, who said that he had heard things from people at Comsys and NetASPx that "they

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didn't believe Chris was honest with them, wasn't forthright"; not only is that inadmissible hearsay, but Rauner admitted that he took that with a grain of salt because in the technology world when something doesn't go right, they all point fingers. See, for example, Response to 49, above, including the reference to the (GTCR portfolio company) netASPx email "We need to get some of our best politician/spin doctor personnel on this as the testing should have been done prior to the 7.23 upgrade, and we will need to either cover this up or figure a way that leapsource is at least partially to blame." Dep. Ex. 491. The others cited here include David Belle-Isle of LeapSource, whom Dan Yih said was only offering his "musings" about Chris Kirk and he just took them as that; and Michael Makings of LeapSource whom Joe Nolan said had left because "he was frustrated with Chris and her management style," although Makings actually had not resigned at all and continued to draw a pay check from LeapSource, and was also already angling for the fraudulent transfer of the ICG Assets back to himself. Also, with regard to the Dan Yih interviews, those were conducted in hostile conditions and were intended to undermine and be detrimental to the management of Christine Kirk, LeapSource's CEO. See Response to 58. 61. In January 2001, GTCR asked that LeapSource reduced costs by, among other

things, reducing employment levels and executive salaries. 1/15/01 Memorandum. (Ex. 46); Kirk Dep. (Ex. 90) at 242:8-12, 474:24-475:4, 866:8-867:8; 1/26/01 Letter (Ex. 49). RESPONSE TO 61 Disputed. GTCR did not ask that LeapSource reduce costs by reducing employment levels, they specifically instructed LeapSource to do so. Dep. Of Christine Kirk, attached as Exhibit 90 to GTCR's Statement of Uncontested Facts, at 242:8-12, 474:24-475:4, 866:8-

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867:8. In addition, GTCR refused to fund LeapSource and Dan Yih told Chris Kirk he would "cut off her arms and legs" and prevent her from effectively managing the company. See paragraph 131. 62. On or about February 1, 2001, LeapSource reduced employment levels and

executive salaries. Gilman Dep. (Ex. 88) at 117:20-21; 1/26/01 Letter (Ex. 49); Salary Reduction List (Ex. 50); Kirk Dep. (Ex. 90) at 877:10-14; Rhodes Dep. (Ex. 99) at 20:16-21; McCollum Dep. (Ex. 91) at 317:13-322:18. RESPONSE TO 62 Undisputed, however LeapSource did so at the instruction and insistence of GTCR, Bruce Rauner, Joseph Nolan and Daniel Yih. See Response to 61. 63. By February 15, 2001, LeapSource's projected cash burn increased to $24.4

million for 2001. 2/15/01 Projections (Ex. 52); 2/20/01 Board Minutes (Ex. 54). RESPONSE TO 63 Disputed to the extent that these projections were actually prepared by GTCR and did not take into account revenues that realistically could have been realized once the impending deals with Cargill and CHC had been finalized or, alternatively, did not account for salary reductions that were planned by GTCR. See Exh. 46 attached to GTCR SOF. 64. GTCR asked LeapSource in January 2001 to review its letters of intent

("LOIs") with prospective clients. Cunningham Dep. (Ex. 82) at 182-83. RESPONSE TO 64 Undisputed. 65. LeapSource had referenced these LOIs in presentations to potential funding

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sources and purchasers. Pearlman Dep. (Ex. 98) at 13:21-15:20; LeapSource Presentation (Ex. 55). RESPONSE TO 65 Disputed to the extent that it is implied that Exhibit 55 is the actual presentation that was made to potential funding sources and purchasers. Steven Pearlman could not confirm this in his deposition. He testified: A I don't know for sure if this was exactly the presentation they used. Q Did you attend any of the presentations that Tom Gilman and Chris Kirk made to potential investors? A Q Yes. Do you recall the ones that you attended?

A I don't know which I was at. I just know that I was at at least one. Q At the one presentation that you can recall having attended, do you recall whether or not this presentation was used? A Again, I don't know if it was exactly this presentation that was used. Q A Something similar? Something similar.

Deposition of Steven Pearlman, at p. 15:4-20, Exh. 98 to GTCR SOF. 66. Julio Delgado, an employee of EDS, who had not yet seen LeapSource's LOIs,

told Kirk, Gilman, Nolan and others in a February 2001 phone call taped by Kirk that what got him excited about LeapSource was its LOIs of $500 million, which he would be taking a hard look at, and that he defined an LOI as a "much more sure thing" and a "deal ready to be

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signed or pretty darn close to it." 2/01 Conference Call Transcribed by Plaintiffs (Ex. 56) at BOD/Call-0024. RESPONSE TO 66 Disputed to the extent it implies that EDS's ultimate interest in LeapSource was "solely" based upon $500 million in LOIs that represented deals "ready to be signed." See BOD/CALL ­0024. (EX 9) 67. Yih concluded from his review of the LOIs that they were basically

confidentiality agreements and that Kirk had misled him to believe that LeapSource was closer to signing these deals than they were. Yih Dep. (Ex. 87) at 87-91; Makings Dep. (Ex. 97) at 108:6-109:21; LOIs (Ex. 51). RESPONSE TO 67 Disputed to the extent that what Dan Yih says now accurately portrays what he truly believed at the time. Additionally, to the extent the LOIs referenced included Cargill, it is undisputed that Cargill was in the process of finalizing a long term Professional Services Agreement with LeapSource at the time Yih and GTCR ordered the first reduction in force. See Dep. Ex. 51, email from Karl Sachsenmaier dated December 11, 2000, announcing the agreement in principle with Cargill ("This has tremendous implications to LSI as a credential to close other business now that a major company like Cargill is our client"); and Dep. Ex. 91, including Summary of Cargill Comments on Draft Professional Services Agreement, dated January 10, 2001. (EX.8). VII. EFFORTS TO FIND ALTERNATIVE FINANCING 68. In summer 2000, GTCR encouraged LeapSource to obtain alternative

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financing. Roche Dep. (Ex. 86) at 98:7-101:1; Kirk Dep. (Ex. 90) 955:10-12; Rauner Dep. (Ex. 85) at 158:6-14; 7/31/00 Funding Analysis (Ex. 37); 8/14/00 Letter (Ex. 39). RESPONSE TO 68 Disputed in that the meaning of the term "alternative" has not been specified. GTCR offered alternative types of financing such as mezzanine financing and equity financing from a variety of GTCR funds. Alternative financing also could imply obtaining funds from sources other than GTCR. It was also around the summer 2000 when the Bank of Montreal credit line was increased to $10M, so it is unclear if this was one of the alternatives contemplated. It is undisputed, however, that around summer 2000 LeapSource began interviewing various underwriters to discuss potential financial alternatives for the company. 69. In August 2000, GTCR sent Kirk a list of investment banking firms to

consider. Kirk Dep. (Ex. 90) at 955:10-956:9; Roche Dep. (Ex. 86) at 98:7-10 1: 1; 8/14/00 Letter (Ex. 39). RESPONSE TO 69 Undisputed. 70. After presentations by a number of investment bankers, LeapSource selected a

team from Salomon Smith Barney ("SSB") led by Steven Pearlman to explore three alternatives: an initial public offering, finding an investor willing to supply second-round financing, or finding a potential buyer for the company. Pearlman Dep. (Ex. 98) at 27:232:4, 38:18-39:13; Kirk Dep. (Ex. 90) at 736:23-737:1; Engagement Letter (Ex. 42). RESPONSE TO 70 Undisputed.

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71.

SSB advised LeapSource that an IPO would not be appropriate in 2000

because LeapSource was at a very early stage in its development and needed to establish a more substantial track record and because raising money in the capital markets was difficult at the time. Pearlman Dep. (Ex. 98) at 29:6-30:21. RESPONSE TO 71 Disputed in that it is implied that GTCR did not have any input as to whether or not an IPO would have been appropriate for LeapSource in 2000. Pearlman testified: Q Do you recall whether or not Joe Nolan had any input on the choice of the vehicle for raising capital for Leapsource, be it an IPO or private equity? A I believe he was in agreement that private equity was more appropriate. Pearlman Dep., at p. 30:22-31:3, attached as Exh. 98 to GTCR SOF. 72. SSB, Gilman and Kirk solicited numerous prospective investors or buyers

between October 2000 and March 2001 in an effort to locate another source of private capital for LeapSource. Pearlman Dep. (Ex. 98) at 14-15, 41-42, 97-98, 99:24-100:11; Gilman Exp. Dep. (Ex. 88) at 210:16-22, 233:17-23, 285:14-25. RESPONSE TO 72 Undisputed. 73. LeapSource received a non-binding proposal from Exult dated March 6, 2001.

3/6/01 Letter (Ex. 61); Gilman Dep. (Ex. 88) at 274:5-17. RESPONSE TO 73 Undisputed. 74. Exult did not respond to requests for a more concrete proposal. Nolan Dep. 41
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(Ex. 84) at 505:1-508:6; Plaintiffs' Phonemail Transcriptions (Ex. 63) RESPONSE TO 74 Disputed to the extent that it is implied that Exult "did not respond." Nolan was uncertain about this in his deposition. Nolan testified: A I -- I don't think they ever really became serious about putting it forward. I think they talked about it, but we, again, had trouble really getting them to be specific and to be definitive. Q Well, what -- what do you remember occurring with the discussions around the -- this possibility? A I don't remember much specific around this possibility. I would have been scrambling and working hard to try and explore any option to get out of this without filing for bankruptcy and to get the company in the hands of someone in the best case possible, and if there was anything to do with these guys, I would have been working hard to try and get them there. The problem is the company's in crisis, it's losing cash every day, COMSYS doesn't really want to be there and is -- wants their operations back. Nolan Dep., at p. 508:3-21, attached as Exh. 84 to GTCR SOF. 75. SSB considered Exult's proposal to be highly unattractive. Pearlman Dep. (Ex.

98) at 47:13-48:23. RESPONSE TO 75 Undisputed that Pearlman thought the proposal was unattractive because the cash consideration was extremely low and there was no assumption of debt or liabilities, but it is disputed to the extent that it is implied that this was a concrete and final offer. To the contrary, this was Exult's initial proposal and there was never any counter-proposal by LeapSource which, in light of their financial condition, was thought to be unusual by Exult's 42
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COO Kevin Campbell. He tes