Free Statement - District Court of Arizona - Arizona

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Merrick B. Firestone #012138 Veronica L. Manolio #020230 RONAN & FIRESTONE, PLC
ATTORNEYS ATLAW 9300 E. RAINTREE DRIVE SUITE 120 SCOTTSDALE, AZ 85260
TELEPHONE (480) 222-9100

Attorneys for Defendants ICG Group, Inc. and Michael Makings Michael R. King #005903 Gregory J. Gnepper #024085 GAMMAGE & BURNHAM
A PROFESSIONAL LIMITED LIABILITY COMPANY ATTORNEYS "Two NORTH AT LAW A VENUE CENTRAL AZ (602)

18TH FLOOR PHOENIX, TELEPHONE 85004 256-0566

Co-Counsel for Defendants ICG Group, Inc. and Michael Makings UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Diane Mann, Trustee; et aI., Plaintiffs, vs. GTCR Golder Rauner, L.L.c., a Delaware limited liability company; et aI, Defendants. No. CIV-0202099-PHX-RCB consolidated with No. CIV -02-2325PHX-RCB BK-01-9020-PHX-JMM Adv. No. 02-1202

In re: Leapsource, Inc., Debtor.

AFFIDA VIT OF MICHAEL MAKINGS
(Assigned to the Honorable Judge Robert C. Broomfield)

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Diane Mann, Trustee, Plaintiff, vs. ICG Group, Inc., an Arizona corporation; Michael Makings and Marcia Makings, husband and wife, Defendants.

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MICHAEL MAKINGS, under the penalty of perjury, deposes and states: 1. I am familiar with the facts at issue, and have also reviewed the Statement

of Facts of Diane Mann, Trustee in the Chapter 7 Bankruptcy of Leapsource, Inc. ("Leapsource"). I make the following statements under penalty of perjury and based on

personal knowledge. 2. I accepted an employment position with Leapsource in January of 2000,

shortly after Leapsource acquired the ICG assets from ICG Consulting, Inc. During my
employment at Leapsource, I, amongst other duties, worked with the ICG division. Leapsource never had a Board of Directors meeting in which I was appointed Chief Operating Officer. I performed tasks that a Chief Operating Officer might, but resigned these duties on December 15, 2001. Until February of 2001, I had no control or influence over Leapsource's affairs. The board of directors even instructed me to "stay away."

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3.

On February 27, 2001, Leapsource's

primary financer, GTCR Golder

Rauner, L.L.C. and GTCR Fund VI, L.P. ("GTCR"), indicated that it would not continue funding Leapsource. The Board of Directors for Leapsource fired its current Chief

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Executive Officer, Plaintiff Christine Kirk, and offered the position to me. My primary

duty was to salvage the company and attract financing for the company, which I accepted. I was unsuccessful in persuading GTCR or Comsys to provide additional funds
to Leapsource. 4. On March 20, 2001, it became apparent that Leapsource was not going to

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financing, so I resigned as Chief Executive Officer. After resigning, I ceased to have any control or influence over Leapsource's operations, and the Chief Restructuring Officer,
David Eaton, began the process of liquidating Leapsource's affairs. 5. On March 30, 2001, on behalf of ICG Group, Inc. ("ICG Group"), I signed

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an Asset Purchase Agreement, where ICG Group agreed to purchase the ICG division
from Leapsource. Although the document was dated March 23, 2001, it was actually

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17 18 19 20 21 22 business had drastically reduced in value since I created it in the 1990s. I knew that if ICG Group did not purchase the business, it would be liquidated along with the rest of

signed on March 30, 2001. Under the agreement, which was drafted by Leapsource's attorneys at Osborn Maledon, the transaction took effect on March 30, 2001. The ICG

Leapsource. A copy of the Asset Purchase Agreement is attached as Exhibit A. 6. ICG Group's primary motivation in purchasing the ICG business was to use

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the ICG name to attract and retain clients. The actual assets that ICG Group acquired were some tangible office supplies and various forms of intellectual property. ICG

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Group never actually used the intellectual property, and has no need for it. The current ICG business differs drastically from the business formerly run by Leapsource.
7.

In exchange for the ICG division, ICG Group agreed to forgive a

promissory note owed by Leapsource. This note was previously granted to me from ICG Consulting, Inc., the entity that originally sold the ICG assets to Leapsource. The

principal and interest owed under this promissory note was approximately $2,748,526. See Exhibit A, Asset Purchase Agreement. 8. Also in consideration for the ICG business, ICG Group assumed numerous

liabilities Leapsource owed to various third party creditors. ICG Group assumed $46,148

13 in accounts payable to various creditors, $634,262 in building lease payments, $37,970 in 14 15 16
17 18 19 20 21 22 23 24 25 26 the rest of Leapsource. The estimated liquidation value of the ICG business' assets was 9. Therefore, Leapsource received $4,039,000 of total consideration for the This was a generous accrued prior to the transaction, and future payroll and tax expenses totaling $503,000. ICG Group paid the entirety of these obligations on Leapsource's behalf. See Exhibit A, Asset Purchase Agreement.

telephone lease payments, $13,572 in copier lease payments, $55,000 in payroll expenses

ICG division, of which $1,290,474 was for third party liabilities.

price, especially given that the ICG business would have been liquidated otherwise with

only $250,000. Eaton and the Leapsource board of directors believed the sale was fair as well, and approved the transaction on Leapsource' s behalf. See Exhibit A, Asset

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1 Purchase Agreement; Plaintiff's Exhibit 3, Expert Report of Edward M. McDonough at 2
3 4 5 6 10. The Expert Report of Edward M. McDonough concluded that the ICG 27-29,35-36.

business was worth $2,510,000 as a going concern. Because this appraisal contemplated

the ICG business as a going concern, it considered control premiums, expected revenues,
intercompany receivables, cash flows, and other factors not relevant to a liquidation analysis. A specific section of the report notes that under the "Asset Accumulation Method," the fair market value of the ICG business was

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9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 in plaintiff's statement of facts, $134,123.67, necessarily excludes the potential multimillion lawsuit of Leapsource against GTCR. the short-term future, the Company would have to consider liquidation." Exhibit 3, Expert Report of Edward M. McDonough at 31-40. 11. I have no knowledge of the extent of the estate's assets, but the figure cited Plaintiff's $250,000. The final conclusion differed because this liquidation value was "out of line methods." The

Method," or "Liquidation

with the various indications of value using the other 'going-concern'

report also noted that "if the Company's performance does not change for the better in

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1 2 3 4 5 6 7 8 9 10 SUBSCRlBED AND SWORN BEFORE ME this Michael Makings. ~~ay of March, 2006 by
AFFIANT FURTHER SA YETH NOT.

7~.I/~~
My commission expires:

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