Free Statement - District Court of Arizona - Arizona

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Don P. Martin (AZ Bar No. 004232) [email protected] Edward A. Salanga (AZ Bar No. 020654) [email protected] QUARLES & BRADY STREICH LANG LLP One Renaissance Square Two North Central Avenue Phoenix, Arizona 85004-2391 (602) 229-5200 Kevin A. Russell (admitted pro hac vice) David S. Foster (admitted pro hac vice) Michael J. Faris (admitted pro hac vice) Nicholas B. Gorga (admitted pro hac vice) LATHAM & WATKINS LLP Sears Tower, Suite 5800 Chicago, Illinois 60606 (312) 876-7700 Attorneys for Defendants GTCR Golder Rauner, LLC, GTCR Fund VI, LP, GTCR VI Executive Fund, LP, GTCR Associates VI, Joseph P. Nolan, Bruce V. Rauner, Daniel Yih, David A. Donnini and Philip A. Canfield UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Diane Mann, as Trustee for the Estate of LeapSource, Inc., et al., Plaintiffs, vs. GTCR Golder Rauner, L.L.C., a Delaware limited liability company, et al., Defendants. Case No.: CIV-02-2099-PHX-RCB STATEMENT OF UNCONTESTED FACTS IN SUPPORT OF GTCR DEFENDANTS' MOTION FOR SUMMARY JUDGMENT ON FIDUCIARY DUTY AND OTHER REMAINING CLAIMS (Assigned to the Honorable Robert C. Broomfield)

Pursuant to Local Rule 56.1, and Federal Rule of Civil Procedure Rule 56, the undersigned defendants hereby submit the following Statement of Uncontested Facts in Support of GTCR Defendants' Motion for Summary Judgment on Fiduciary Duty and Other Remaining Claims.

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STATEMENT OF UNCONTESTED FACTS1 I. 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).2 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. 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). 4. Kirk served as a director of LeapSource from September 16, 1999 to

March 16, 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. 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. 6. Gupta, Powers, Scott and Walker were employed by LeapSource

pursuant to Employment Agreements dated October 5, 1999 until approximately March

References to exhibits "Ex. ___" are to the exhibits to the Declaration of Nicholas B. Gorga, attached hereto. 2 Documents previously submitted in their entirety to this Court in connection with the GTCR Defendants' Motion For Summary Judgment On Joint Venture-Related Claims (Docket No. 239, 240) have been attached only in relevant part as exhibits herein.
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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. 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). 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). 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, 24-30). 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. 11. GTCR Fund VI, L.P., GTCR VI Executive Fund, L.P. and GTCR

Associates VI (collectively, the "GTCR Funds") are private equity funds. GTCR Golder Rauner, LLC is the general partner of GTCR Partners VI, L.P., which in turn is the general partner of the GTCR Funds. Purchase Agmt. (Ex. 21). 12. Phil Canfield is a GTCR3 principal who never served as a director of

LeapSource. Canfield Dep. (Ex. 81) at 7:19-8:1, 30:15-16.

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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.
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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). 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). 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. 86) at 11:10-14, 291:14-292:2; 2/16/01 Stockholders Consent (Ex. 53). 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. 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). 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). 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). 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).
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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. 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. 23. Plaintiffs presented the Business Plan to potential investors other

than GTCR, including Bank of America's venture capital unit. Kirk Dep. (Ex. 90) at 143:18-144:1. 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. 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). 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. 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). IV. 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). 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 the 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).
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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). 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). 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. Makings 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 104:22105:1; ICG Purchase Agmt. (Ex. 33) at § 2.2.1(c). 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). V. LeapSource's Performance Financial Results 34. 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. 35. From its inception until its bankruptcy, LeapSource secured

contracts with four BPO clients: Comsys, Epoch Partners, Heritage Golf Group and Xpedior. Kirk Dep. (Ex. 90) at 388:10-12, 443:14-17; Gilman Dep. (Ex. 88) at 158:4159:5; Customer Contracts (Ex. 35). 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.

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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. 38. At year-end 2000, LeapSource's cumulative net loss exceeded $23.2

million. McDonough Report (Ex. 11) at 8. 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. 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). 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. 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. Customer Dissatisfaction Comsys 43. 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. 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. 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).
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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-CK4-0071; Walker Dep. (Ex. 92) at 135-138; Kerr Dep. (Ex. 95) at 47:1-48:16. 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. 48. In December 2000, LeapSource pushed the estimated date for

completion of the Comsys transition to April 1, 2001. Walker Dep. (Ex. 92) at 143:13144:7. Xpedior 49. 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. 50. On December 15, 2000, Xpedior issued a written notice of default to

LeapSource. Default Notice (Ex. 44). 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. 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). Management Dysfunction 53. Makings believed that LeapSource's executive team was divided

into two 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.
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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 104:2106:20. 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. 56. Kirk did not advise anyone at GTCR of Makings' resignation.

Nolan Dep. (Ex. 84) at 216:24 ­ 217:3. VI. 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. 58. In December 2000 and January 2001, GTCR sent two of its

employees, Dan Yih and Sean Cunningham, to LeapSource to investigate its concerns. Nolan Dep. (Ex. 84) at 116:20-117:12; Yih Dep. (Ex. 87) at 145:14-19. 59. Yih and Cunningham interviewed management, reviewed data and

performed detailed financial analyses of LeapSource. Yih Dep. (Ex. 87) at 28:3-7, 35:2436:22, 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. 60. During this time frame, key executives warned GTCR of issues

regarding Kirk's integrity and management capabilities. Nolan Dep. (Ex. 84) at 120:16121:12, 216:4-237:22, 277:9-278:19; Makings Dep. (Ex. 97) at 107:18-126:14; Yih Dep. (Ex. 87) at 176:12-19, 164:20-168:14; Rauner Dep. (Ex. 85) at 264:1-268:13.
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61.

In January 2001, GTCR asked that LeapSource reduce 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). 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 261:16-21; McCollum Dep. (Ex. 91) at 317:13-322:18. 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). 64. GTCR asked LeapSource in January 2001 to review its letters of

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

funding sources and purchasers. Pearlman Dep. (Ex. 98) at 13:21-15:20; LeapSource Presentation (Ex. 55). 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 signed or pretty darn close to it." 2/01 Conference Call Transcribed by Plaintiffs (Ex. 56) at BOD/Call-0024. 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). VII. Efforts To Find Alternative Financing 68. In summer 2000, GTCR encouraged LeapSource to obtain
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alternative financing. Roche Dep. (Ex. 86) at 98:7-101:1; Kirk Dep. (Ex. 90) 955:10-12;

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Rauner Dep. (Ex. 85) at 158:6-14; 7/31/00 Funding Analysis (Ex. 37); 8/14/00 Letter (Ex. 39). 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 98:7-101:1; 8/14/00 Letter (Ex. 39). 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 secondround financing, or finding a potential buyer for the company. Pearlman Dep. (Ex. 98) at 27:2-32:4, 38:18-39:13; Kirk Dep. (Ex. 90) at 736:23-737:1; Engagement Letter (Ex. 42). 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. 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, 99:24100:11; Gilman Exp. Dep. (Ex. 88) at 210:16-22, 233:17-23, 285:14-25. 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. 74. Exult did not respond to requests for a more concrete proposal.

Nolan Dep. (Ex. 84) at 505:1-508:6; Plaintiffs' Phonemail Transcriptions (Ex. 63). 75. SSB considered Exult's proposal to be highly unattractive.

Pearlman Dep. (Ex. 98) at 47:13-48:23. 76. Exult never did due diligence on LeapSource, but Exult's CEO Jim

Madden believed based on what he subsequently learned about LeapSource that there was no likelihood of Exult consummating the contemplated transaction. Madden Dep. (Ex. 96) at 56:11-57:5, 100-101; 3/6/01 Letter (Ex. 61).
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77.

On December 14, 2000, Kirk presented Cargill with a draft term

sheet that proposed a three-year guarantee of $8 million in the first year, $6 million in the second, $4 million in the third, and no guaranteed revenue in subsequent years. 12/14/00 Cargill Draft (Ex. 43) at CGL 280. 78. Cargill told LeapSource that the three-year maximum on the

guarantee was non-negotiable. Kemp Dep. (Ex. 94) at 30:13-31:18. 79. EDS never made an offer to purchase LeapSource despite having

been in discussions with LeapSource since November 2000. Gilman Dep. (Ex. 88) 273:7-274:8. 80. In a February, 2001 telephone conference, EDS informed SSB, Kirk,

Gilman, Nolan and Yih that EDS would not be deciding whether to make an offer for several more weeks, and even if it decided to do so would not have a purchase price in mind for weeks after that. 2/01 Conference Call Transcribed by Plaintiffs (Ex. 56) at BOD/Call-0024. 81. In March 2001, Bruce Rauner asked Comsys to consider investing in

LeapSource. Willis Dep. (Ex. 101) at 19:24-21:19. 82. In March 2001, Comsys's CEO Michael Willis and others made a

trip to Phoenix to investigate the possibility of a LeapSource investment. Willis Dep. (Ex. 101) at 22:3-19. 83. Willis concluded after his visit that LeapSource was "a rotten

company," that Comsys would not invest in LeapSource, and that Comsys did not believe LeapSource could handle its business. Willis Dep. (Ex. 101) at 21:20-26:19. VIII. GTCR's Decision To Cease Purchasing Preferred Stock 84. On February 27, 2001, GTCR advised LeapSource that it would

cease purchasing additional shares of its preferred stock. 2/27/01 Letter (Ex. 58). 85. GTCR's decision was founded on several factors, including the

company's current and projected negative cash flows, the dissatisfaction expressed by the company's clients with the nature and level of services provided, and the conflicts within
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the existing management team, which did not appear to be cohesive, efficiently functioning or in effective control of the business. 2/27/01 Letter (Ex. 58); Roche Dep. (Ex. 86) at 54:2-78:16, 95:5-96:24; Nolan Dep. (Ex. 84) at 104:5-108:24, 120:16-121:12; 125:17-128:4, 133:4-10, 215:13-239:2, 242:13-243:8, 246:18-247:23, 277:9-278:19, 312:13-314:12, 589:3-592:4; Yih Dep. (Ex. 87) at 71:7-82:16, 88:5-93:10, 164:13168:14, 176:12-19, 385:17-387:17, 412:14-20; Rauner Dep. (Ex. 85) at 21:2-23, 33:8-16, 53:15-56:12, 89:23-92:15, 96:6-24, 103:9-104:9, 117:19-120:2, 169:19-170:7, 261:9263:11, 264:1-268:13. 86. By its letter of February 28, 2001, GTCR advised LeapSource that it

remained open to reviewing the possibility of resuming funding. 2/28/01 Letter (Ex. 59). 87. On February 27, 2001, LeapSource's board of directors terminated

Kirk's employment, named Makings as the new CEO, accepted Gilman's resignation and retained AEG Partners to act as LeapSource's crisis manager. 2/27/01 Board Minutes (Ex. 57). 88. On or about March 3, 2001, AEG Partners' principal David Eaton,

an expert with extensive troubled company experience, presented to GTCR various restructuring alternatives. 3/3/01 Presentation (Ex. 60); Eaton Dep. (Ex. 93) at 25:2-41:4. IX. LeapSource Winds-Down Operations LeapSource's Transitions-Back To Its Customers 89. By its letter of March 19, 2001, GTCR advised LeapSource that it

would fund up to another $750,000 "purely to allow LeapSource to provide for an orderly transition of the outsourced accounting operations back to their clients with minimal disruption." 3/19/01 Letter (Ex. 66). 90. In late March and early April 2001, LeapSource entered into

agreements with Comsys, Xpedior and Heritage for the transition back of their accounting operations. Customer Contracts (Ex. 72). 91. LeapSource's officers, led by Eaton who had been appointed
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LeapSource's Chief Restructuring Officer, negotiated these agreements relying on a

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combination of book value, alternative bids and other sources to set a fair and reasonable price for the assets sold. 3/20/01 Board Minutes (Ex. 69); Eaton Dep. (Ex. 93) at 173:1178:9, 182:4-11, 185:5-11, 187:1-188:1, 194:3-24, 259:7-260:18; Rhodes Dep. (Ex. 99) at 130:18-131:10. 92. The LeapSource board was not asked to approve any of these

transactions. Eaton Dep. (Ex. 93) at 173:5-188:1, 257:20-258:11. LeapSource's Sale Of Its ICG Division 93. ICG's client relationships were personal to Makings and were not

memorialized in long-term contracts. Eaton Dep. (Ex. 93) at 164:3-5, 167:1-14, 247:516; Makings Dep. (Ex. 97) at 66:14-19. 94. Makings told Eaton that he would not stay with ICG if it were sold

to a third-party. Eaton Dep. (Ex. 93) at 164:3-18. 95. ICG Group, Inc. purchased the ICG Division from LeapSource

pursuant to an Asset Purchase Agreement approved by the Board on March 30, 2001. ICG Group Purchase Agmt. (Ex. 70); Makings Dep. (Ex. 97) at 18:16-21, 137:18-21; 3/30/01 Board Minutes (Ex. 73). 96. LeapSource's sale of the ICG Division to ICG Group, Inc. was

negotiated between Makings and Eaton. Eaton Dep. (Ex. 93) at 160:14-17; Makings Dep. (Ex. 97) at 137:22-138:7, 276:3-6. 97. Eaton analyzed the sale of the ICG division to ICG Group, Inc., had

it reviewed by LeapSource's outside lawyers at Osborn Maledon, and recommended it to the board as in the best interests of LeapSource. 3/30/01 Board Minutes (Ex. 73); Eaton Dep. (Ex. 93) at 163:21-165:23. 98. On March 30, 2001, the LeapSource board approved the sale.

3/30/01 Board Minutes (Ex. 73).

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LeapSource's Negotiations Of Employee Severance 99. On or about March 2, 2001, Makings terminated virtually all the

headquarters staff. 4th Am. Cplt. ¶ 303; Makings Dep. (Ex. 97) at 287:16-289:1, 311:25312:12. 100. In March 2001, Rhodes and Eaton attempted to negotiate reductions

in severance obligations for terminated employees. Eaton Dep. (Ex. 93) at 129:3-134:4, 240:5-241:4, 262:4-264:7; Walker Proposal (Ex. 62). 101. None of the individual plaintiffs reached agreement with

LeapSource on their severance. Eaton Dep. (Ex. 93) at 263:18-264:4. 102. Other employees agreed to execute the required releases in return for

partial severance payments. Scoresby Release (Ex. 64); Trustee Interrog. Resp. (Ex. 1) at 13. 103. In late 2001, LeapSource's Trustee claimed that Kirk owed

LeapSource more than $800,000 based on loans she had taken from the company but failed to repay. 12/10/01 Letter (Ex. 77); 12/26/01 Email (Ex. 78). 104. On January 25, 2002, the Trustee and Kirk reached a settlement that

offset the Trustee's claims against Kirk by the entirety of her $400,000 severance claim. Settlement Agmt. (Ex. 79); Kirk Dep. (Ex. 90) at 529:2-4, 886:2-887:17; 12/26/01 Email (Ex. 78).

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Dated: March 10, 2006

s/ Edward A. Salanga Don P. Martin Edward A. Salanga QUARLES & BRADY STREICH LANG LLP One Renaissance Square Two North Central Avenue Phoenix, Arizona 85004-2391 (602) 229-5200 Kevin A. Russell David S. Foster Michael J. Faris Nicholas B. Gorga LATHAM & WATKINS LLP Sears Tower, Suite 5800 Chicago, Illinois 60606 (312) 876-7700 Attorneys for Defendants GTCR Golder Rauner, LLC, GTCR Fund VI, LP, GTCR VI Executive Fund, LP, GTCR Associates VI, Joseph P. Nolan, Bruce V. Rauner, Daniel Yih, David A. Donnini and Philip A. Canfield

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CERTIFICATE OF SERVICE I hereby certify that on March 10, 2006, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Leo R. Beus Scot Stirling Steven Weinberger BEUS GILBERT PLLC 4800 North Scottsdale Road, Suite 6000 Scottsdale, Arizona 85251 Attorneys for Plaintiffs* Steven J. Brown STEVE BROWN & ASSOCIATES LLC 1440 East Missouri, Suite 185 Phoenix, Arizona 85014-2412 Co-Counsel for Trustee* James R. Condo Patricia Lee Refo Joseph G. Adams SNELL & WILMER LLP One Arizona Center 400 East Van Buren Phoenix, Arizona 85004 Attorneys for defendant Kirkland & Ellis Merrick B. Firestone RONAN & FIRESTONE, PLC 9300 East Raintree Drive, Suite 120 Scottsdale, Arizona 85260 Attorneys for defendant Michael Makings

s/ Edward A. Salanga * A copy of the attached document was also hand-delivered to counsel for Plaintiffs and counsel for the Trustee.

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