HomeMy WebLinkAbout97-05499
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IN THE COURT OF COMMON PLEAS OF
CUMBERLAND COUNTY, PENNSYLVANIA
TECHNICORP INTERNATIONAL II,
INC., a Delaware corporation,
and STATEK CORPORATION, a
California corporation,
Plaintiffs,
vs. CIVIL ACTION - LAW
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H. FREDERICK JOHNSTON, No. q'l - l' ~ q 1
SANDRA SPILLANE, BUM HOLDING
CORPORATION, a Delaware
corporation, BAI CORPORATION,
A Delaware corporation,
METRO DYNE CORPORATION, a
Delaware corporation, SAMCO
INVESTORS, INC., a Delaware
corporation, RARE STAMPS
INVESTMENTS, INC., a Delaware.
corporation, TECHNICORP
INTERNATIONAL III, INC., a
Delaware corporation,
TECHNICORP INTERNATIONAL IV
LTD., a Delaware corporation,
TECHNICORP INTERNATIONAL V
LTD., a Delaware corporation,
TECHNICORP INTERNATIONAL,
INC., a Delaware corporation,
TECHNICORP VENTURES, INC., a
Delaware corporation,
TECHNICORP INDUSTRIES INC.,
INC., a Delaware corporation,
AMPLIFONIX, INC., a Delaware
corporation, E C M DEVICES,
INC., a Delaware corporation,
ARTAFAX SYSTEMS, LTD., a New
York corporation, and DIGITAL
COMMUNICATIONS PRODUCTS, INC.,:
a Delaware corporation,
Defendants,
ORDER
AND NOW, this -8- day of ~1997, upon
consideration of the petition of the plaintiffs Technicorp
International II, Inc. and Statek corporation for issuance of a
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subpoena to take evidence dspositions, it is ORDERED that said
petition is GRANTED, and it is further ORDERED that the
Prothonotary shall forthwith issue subpoenas to compel the
attendance of and production of documents by representatives of
C-MAC Quartz Crystals, Inc. (formerly Greenray Industries, Inc.)
at evidence depositions to be conducted under the Delaware Rules
Court and to be held on October 28, 1997 at 10:00 a.m., and
continuing day to day until completed, at the offices of Geiger &
Loria Reporting Service, 240B Park Drive, Suite B, Harrisburg,
Pennsylvania 17110, unless the parties and deponents can agree to
an alternate time and place.
BY THE
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J.
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TECHNICORP INTERNATIONAL II,
INC., a Delaware corporation,
and STATEK CORPORATION, a
California corporation,
Plaintiffs,
vs.
H. FREDERICK JOHNSTON,
SANDRA SPILLANE, BLM HOLDING
CORPORATION, a Delaware
corporation, BAI CORPORATION,
A Delaware corporation,
METRODYNE CORPORATION, a
Delaware corporation, SAMCO
INVESTORS, INC., a Delaware
corporation, RARE STAMPS
INVESTMENTS, INC., a Delaware
;::::1~ ~oration, TECHNICORP
~ , TERNATIONAL III, INC., a
Delaware corporation,
. 'TECHNICORP INTERNATIONAL IV
LTD., a Delaware corporation,
TECHNICORP INTERNATIONAL V
LTD., a Delaware corporation,
TECHNICORP INTERNATIONAL,
INC., a Delaware corporation,
TECHNICORP VENTURES, INC., a
Delaware corporation,
TECHNICQRP INDUSTRIES INC.,
INC., a Delaware corporation,
AMPLIFONIX, INC., a Delaware
corporation, E C M DEVICES,
INC., a Delaware corporation,
ARTAFAX SYSTEMS, LTD., a New
York corporation, and DIGITAL :
COMMUNICATIONS PRODUCTS, INC.,:
a Delaware corporation,
Defendants,
IN THE COURT OF COMMON PLEAS OF
CUMBERLAND COUNTY, PENNSYLVANIA
CIVIL ACTION -
: No. q'1, !;'</9tf
LAW
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PETITION FOR ISSUANCE OF SUBPOENAS DUCES TECUM TO TAKE
EVIDENCE DEPOSITIONS IN AID OF MATTER PENDING BEFORE
THE COURT OF CHANCERY OF THE STATE OF DELAWARE
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Plaintiffs Technicorp International II, Inc. and statek
corporation, by their attorneys, stevens & Lee, hereby petitions
this Court, pursuant to Pennsylvania Rule of civil Procedure
234.2 and 42 Pa. C.S.A. S 5326(a), to issue a subpoena to compel
the deposition of and production of documents of C-MAC Quartz
Crystals, Inc. (formerly Greenray Industries, Inc.) and, in
support of therefore, aver as follows:
1. Plaintiffs instituted an action in the Court of
Chancery of the state of Delaware, Docket No. C.A. 15084. A true
and ~orrect copy of the complaint filed in this matter is
attached hereto and made a part hereof as Exhibit A.
2. Plaintiffs, by their Delaware counsel, began pretrial
discovery in this action. As part of that discovery, in
compliance with Delaware law, plaintiffs have issued and filed a
Motion for Commission (hereinafter "the Commission") in this
proceeding for the taking of depositions and the production of
documents by C-MAC Quartz Crystals, Inc. (formerly Greenray
Industries, Ino.). Upon filing of the Commission, the Court
issued an Order Granting Motion for Commission on September 29,
1997, granting plaintiffs the authority to take these
depositions. A certified copy of the Commission is attached
hereto and made a part hereof as Exhibit B.
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3. Plaintiffs, by their Delaware counsel, prepared and
served a Notice of Deposition which was served via hand delivery
upon defendants' counsel on September 26, 1997. A true and
correct copy of the Notice of oepoeition is attached hereto and
made a part hereof as Exhibit C.
4. Section 5326(a) of the Pennsylvania Code of Judicial
Procedure authorizes the Court to issue a subpoena in aid of
discovery in an action filed in another state (here, Delaware) if
the party requesting the subpoena has complied with all
requirements necessary to have an out-of-state subpoena issued
under that state's laws. 42. Pa. C.S.A. S 5326(a).
5. Pursuant to Rules 28, 30 and 45 of the Delaware Court
of Chancery RUles, a deposition may be taken in another state of
the United States for use in Delaware by filing a Motion for
Commission with the Court of Chancery. Rules 28, 20 and 45
empower any person authorized to administer oaths in the place
the deposition is to be taken to administer the oath and conduct
the deposition.
6. Plaintiffs have complied with all requirements of
Delaware and Pennsylvania law and, therefore, request the
issuance of a subpoena by this Court to compel the attendance of
the deponent, C-MAC Quartz Crystals, Inc. (formerly Greenray
Industries, Inc.), and the production by it of relevant
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yKRIJ'IIm COMPLAINT
plaintiffS for eheir complaine allege as fol-
lows:
NllTURE OF THE ACTION
1. This is a direce aceion by Technicorp
Ineernational II ("TCI II" or the nCompanyn) and Seatek
Corporation (nStaeek") eo remedy more than a decade-long
pattern of breaches of fiduciary duties, frauds and
misappropriations of TCI II and Seatek assets perpetrated
by defendants H. Frederick Johnseon ("Johnstonn) and
Sandra Spillane ("Spillane"), and by BUM Holding Corpora-
tion ("BUM"), BAI Corporation ("BAI"), Metrodyne Corpora-
tion ("Metrodyne"), SAMCO Investors, Inc. ("SAMCOn), Rare
Stamps Investments, Inc. (nRare Stampsn), Technicorp
Ineernational III, Inc. (nTeI IIIn), Technicorp Interna-
tional IV Ltd. (nTCI Ivn), Technicorp International V,
Ltd. ("TCI Vn), Technicorp International, Inc. (nTCIn),
Technicorp Ventures, Inc. (nTVIn), Technicorp Industries,
Inc. ("TI!"), Amplifonix, Inc. (nAmplifonix"), E C M
Devices, Inc. (nECMn), Artafax Systems, Ltd. (nArtafaxn),
and Digital communications Products, Inc. (nDcpn) (col-
lectively, the nJohnston Entitiesn) .
2. Specifically, since TCI II's acquisition
of Staeek in 1984, defendants Johnston and Spillane have
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engaged in a pattern of fraudulent schemes to misappro-
priate the assets of TCI II and Statek, all to the detri-
ment of TCI II and Statek. Johnston and Spillane have
accomplished these schemes by: (i) attempting, by inten-
tional misrepresentation, to induce Vendel to believe
that his ownership interest in TCI II did not give him
the power to elect officers and directors of TCI II; (ii)
attempting illegally to reclassify Vendel's TCI II stock
into non-voting stock without his knowledge or consent;
(iii) attempting to dilute Vendel's stockholdings by
issuing unauthorized TCI II stock to themselves and their
nominees; (iv) misappropriating more than $10 million in
TCI II assets, including unauthorized and unreported
ncompensationn and undocumented loans to themselves and
the Johnston Entities; and (v) causing unjustified pay-
ments by Statek in excess of $12.5 million to be made,
directly or indirectly to, or for the benefit of,
Johnston and Spillane.
3. In this action, plaintiffs seek (i) a
judgment against Johnston, Spillane, and the Johnston
Entities, jointly and severally, for at least $22.5 mil-
lion, plus interest; (ii) the immediate sequestration of
all TCI II stock held, directly or indirectly, by
Johnston and Spillane; (iii) the imposition of a con-
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structive trust upon all TCI II stock purportedly held,
directly or indirectly, by Johnston and Spillane, and
upon all monies misappropriated from TCI II and Statek by
Johnston and Spillane, and upon all property derived from
such monies; and (iv) an accounting.
THE PARTIES
4. Plaintiff TCI II is a Delaware corpora-
tion. Until this year, its principal place of business
was in Stamford, Connecticut. TCI II serves solely as a
holding company for all of the capital stock of Statek
and conducts no other business activities.
5. plaintiff Statek, a wholly owned subsid-
iary of TCI II, is a California corporation that manufac-
tures microelectronic components.
6. Prior to the May 2, 1994 delivery of a
consent pursuant to a Del. C. S 228 removing him from
office (the "Consent"), defendant Johnston was Chairman
of the Board, President and Treasurer of TCI II. He was
also Chairman, Chief Executive Officer and President of
Statek. He is or was also an executive officer, director
and controlling stockholder of the ~ohnston Entities.
Johnston is not a resident of the State of Delaware.
7. Prior to the May 2, 1994 delivery of the
Consent, defendant Spillane was President, Secretary and
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the only other director besides Johnston of TCI II.
Spillane was also Vice president, Secretary and the only
other director besides Johnston of Statek. She is or was
also a director and executive officer of some or all of
the Johnston Entities. Spillane is a long-time personal
friend and business associate of Johnston. Spillane is
not a resident of the State of Delaware.
8. The Johnston Entities are shell corpora-
tions controlled by Johnston and Spillane that have no
legitimate business purpose. Artafax is a New York
corporation; all other Johnston Entities are Delaware
corpot'ations.
9. Miklos Vendel, a Swiss citizen, is and at
all relevant times has been the beneficial owner of a
majority of the outstanding stock of TCI II, which is
held of record by his nominee, Arbitrium (Cayman Islands)
AG (nArbitriumn), a Cayman Islands corporation. Vendel
and Arbitrium are not parties to this action.
D:ISCOVBRY OP TBB PRAtm
10. From 1984 through January 1996, Johnston
and Spillane abused their positions as purported direc-
tors and officers of TCI II and Statek to surreptitiously
and systematically misappropriate more than $10 million
from TCI II and more than $12.5 million from Statek.
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11. On October 15, 1993, Vendel, on behalf of
Arbitrium, demanded to inspect certain books and records
of TCI II pursuant to 8 Del, C. 5 220. When that demand
was refused, Arbitrium filed a complaint under 8 Del, C.
5 220 in this Court (the "Section 220 Action"). The
parties reached a settlement of that action on February
17, 1994. Pursuant to the settlement, on March 11, 1994,
TCI II produced certain financial records (the "Section
220 Records") of the Company.
12. The Section 220 Records established, among
other things, that Vendel beneficially owned at least
seventy percent of the voting stock of TCI II.
13. After receiving this documentation of
Vendel's and Arbitrium's majority stockholder status,
Vendel and Arbitrium, acting pursuant to 8 Del, C. 5 228
and Section 11 of the TCI II by-laws, executed the Con-
sent on April 28, 1994. Pursuant to the Consent., (i)
Johnston and Spillane were removed from their positions
as directors and officers of TCI II; (ii) the TCI II by-
laws were amended to decrease the number of directors to
one; and (iii) Vendel was elected the sole director of
TCI II.
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14. Defendants refused to recognize the valid-
ity of the Consent. Vendel and Arbitrium thereafter
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filed an action in this Court pursuant to 8 Del, C, 5 225
to determine the rightful directon of TCI II (the "Sec-
tion 225 Actionn). This Court held that the Consent was
valid and legally effective. Arbitrium ICavman Islands)
AG v, Johnston, Del. Ch., C.A. No. 13506. slip op. at 35,
Jacobs, V.C. (Jan. 5. 1996) (the nSection 225 Qpinion") .
15. In addition to establishing Vendel's and
Arbitrium's majority ownership in TCI II, the Section 220
Records. taken together with documents produced by TCI II
in connection with the Section 225 Action, also estab-
lished for the first time to plaintiffs' knowledge an
extraordinary pattern of fraud, misrepresentation and
conversion of the assets of TCI II and Statek for the
benefit of Johnston and Spillane. Defendants intention-
ally and fraudulently concealed their improper and ille-
gal activities.
MISAPPROPRIATION OF TCI II AND STATEK ASSETS
16. TCI II is a holding company. Statek, its
wholly-owned subsidiary, is its only revenue-producing
asset. and was the sole source of funds for Johnston,
Spillane and the entire web of Johnston companies. In
fact, Johnston and Spillane used Statek as their personal
bank. funding all of their activities, down to the most
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trivial of personal expenses, out of Statek.
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17. Funds were diverted from Statek to the
benefit of Johns tOil and Spillane in four ways.
18. First, Johnston and/or spillane caused
payments to be made dir~ctly to them, the Johnston Enti-
ties, or Johnston's cronies. These payments generally
took one of three forms: checks drawn directly to the
recipient; wire transfers to the recipient (typically
overseas); or checks written to "cash," which Johnston
then ordered Statek employees to deposit directly into
his personal bank account with Bank of America in Orange,
California. These direct payments totalled over $4
million.
19. Second, Johnston and/or Spillane ordered
that payments totalling more than $8 million be made by
Statek to third parties for the benefit of Johnston or
Spillane. Included in those payments were:
a. Legal fees paid to law firms ~
employed by Statek in its regular course of business
(the nLegal Fee paymentsn). In all but one instance the
only support in the Statek accounting records for the
Legal Fee Payments was an ninvoice" manually prepared by
Spillane showing only the name of the firm and the dollar
amount of the invoice. No detail on the work performed
was reflected, and many of the payments match invoices
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billed by the firms to Johnston and Spillane personally,
or to Johnston Entities.
b. Payments attributable to Johnston and
Spillane's personal living expenses (the "Personal Ex-
pense payments"), including credit card charges, tele-
phone charges, aircraft charters, and direct hotel bill-
ings. There is not a single Johnston or Spillane expense
report in Statek's files to support the Personal Expense
Payments. Among the Personal Expense Payments were:
. Items charged by Johnston and Spillane to Amer-
ican Express accounts paid by Statek, including
numerous purchases from Harrod's, medical ex-
penses (despite the comprehensive medical in-
surance also paid for by Statekl, and travel to
locations where Statek had no business, such as
Gibraltar and the Bahamas. The American Ex-
press bills paid directly by Statek alone to-
talled more than $1.25 million.
. Payment for a full-time suite at an Orange
County hotel for a period of nearly three full
years, at the same time as Johnston was causing
Statek to pay for a residence for him in Lon-
don, England.
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. Chauffeured limousine services totalling well
over $100,000.
o Almost $10,000 in freight charges to ship
Johnston's personal wine and art collections to
his new home in the Bahamas.
. Almost $16,000 for Chinese lessons.
. Almost $10,000 in direct medical payments (over
and above the American Express medical charges,
and again despite the defendants' health insur-
ance plans) .
. Well over $25,000 in purchases of rare stamps
at European auctions.
. More than $6,000 in gifts to and travelling
expenses of women whom Johnston invited to
visit him in Orange; Johnston ordered Statek's
controller to pay these expenses with the
controller's own American Express card, and
then to bury them in Statek's selling, general
and administrative expense line.
. Unnecessary interest and fees on loans having
no legitimate business purpose for Statek,
proceeds of which were diverted to the benefit
of Johnston or the Johnston Entities.
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The Personal Expense payments totalled more
than $8 million.
20. Third, Johnston and Spillane caused Statek
to incur more than $550,000 in unnecessary expenses (the
nUnnecessary Expense paymentsn). For example, Statek
paid almost $350,000 for rent, magazine subscriptions,
and equipment at the defendants' office at 20 Acosta
Street, Stamford, Connecticut.
21. Fourth, Johnston and Spillane caused
Statek to pay over $11.5 million in dividends, management
fees, advances or corporate charges to TCI II. Of this
total, more than $10 million was improperly paid out,
directly or indirectly, to the benefit of Johnston and
spillane.
22. The funds paid by Statek to TCI II and the
Johnston Entities as described above in paragraphs 18 and
21 were in turn used exclusively for the benefit of
Johnston and Spillane.
23. TCI II has no audited financial state-
ments. Apart from its tax returns, TCI II's only inter-
nal financial record is a handwritten ledger (the nLed-
gern) kept on an annual basis by Spillane ahowing the
year-end balances for certain accounts, including loans
receivable, loans payable, accounts receivable and
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prepaid., expenses and ncompensaeionn paid or purporeedly
owed to Johnseon and Spillane.
24. Specifically, the Ledger shows ehae
Johnston and Spillane have caused TCI II to make millions
of dollars in undocumented loans to themselves and ehe
Johnston Entities.
25. The Ledger reflects, for example, that
from 1984 ehrough 1992, JONlston withdrew over $2,100,000
and Spillane withdrew $200,000 in undocumented personal
nloans" from TCI II. There are no written loan agree-
ments documenting or reflecting ehe ineerest or repaymene
terms or conditions of ehese loans. These loans were
made in violation of 8 Del, C. S 143 in thae they were
noe approved by resolution of the TCI II board of direc-
tors and were not determined to benefit TCI II.
26. One court, based on Johnseon's own finan-
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cia1 affidavit, has already found that Johnston nhas
evidenced an ability to borrow virtually unlimited sums
from ehe corporaeions in which he has an interest.n
Johnston v. Johnston, Conn. Super., C.A. No. FA90 0275308
S, 1990 Conn. Super. LEXIS 1599, ae *5 (Oct. 23, 1990).
Despiee Spillane'S representation eo the Connecticue
court thae "chis borrowing had been curtailed as of
December, 1989 and January, 1990," .1;L., TCI II's records
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reflect that these "loans" increased in frequency and
amount from 1990 through at least 1992.
27. In addition to the $2.3 million in person-
al loans described above, between 1984 and 1992, Johnston
and Spillane caused TCI II to issue undocumented loans
totalling almost $4 million to the Johnston Entities.
Again, no loan agreements exist reflecting the interest
or repayment terms or conditions of any of these loans.
28. Specifically. as detailed under the cap-
tions "TCI II Loans Receivable" and nTCI II A/C Rec. &
Prepaids,n in TCI II's financial ledger from 1984 through
1992, the defendants caused TCI II to pay the following:
a. $334,238 in undocumented nloansn and
$53,227 in undocumented naccounts receiv-
able and prepaidsn to "TVI," which signi-
fies Technicorp Ventures, Inc., a Delaware
"industrial management" corporation.
TVI's most recent Delaware Annual Fran-
chise Tax Report lists Jorulston and
Spillane as its sole officers and direc-
tors and 20 Acosta Street, Stamford, CT as
its principal place of business.
b. $2,200.522 in undocumented "loans" and
$609,595 in undocumented "accounts receiv-
able and prepaids" to "TCI,n which signi-
fies Technicorp International, Inc., an-
other Delaware corporation. TCI's most
recent Delaware Annual Franchise Tax Re-
port lists Johnston and Spillane as its
sole officers and directors and 20 Acosta
Street, Stamford, CT as its principal
place of business.
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c. $241,629 in undocumented "loans" and
$179,127 in undocumented naccounts receiv-
able and prepaids" to "MD," which signi-
fies Metrodyne Corporation, another Dela-
ware corporation. Metrodyne's most recent
Delaware Annual Franchise Tax Report lists
Johnston and Spillane as its sole officers
and directors and 20 Acosta Street,
Stamford, CT as its principal place of
business.
d. $348,378 in undocumented nloans" to nTCI
III,n which signifies Technicorp Interna-
tional III, Inc., a Delaware nindustrial
holding" corporation. TCI Ill's most re-
cent Delaware Annual Franchise Tax Report
lists Johnston and Spillane as its sole
officers and directors and 20 Acosta
Street, Stamford, CT as its principal
place of business.
e. $150,000 in undocumented "loansn to
nArtafax." On information and belief,
"Artafax" refers to Artafax Systems, Ltd.,
a New York corporation now in dissolution.
f. $250,000 in undocumented nloansn to HOg
Prod." On information and belief, "Dg
Prod" refers to Digital Communications
Products, Inc., a Delaware corporation
(formerly Digital Products Co., Inc.).
g. $424,681 in undocumented nloansn to "ECM."
On information and belief, nECM" refers to
ECM Devices, Inc., a Delaware corporation
controlled by Johnston.
29. These loans were made in violation of 8
Del, C. 5 143 in that they were not approved by resolu-
tion of the TCI II board of directors and were not deter-
mined to benefit TCI II.
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30. According to TCI II's financial records,
not a penny of the loans to these Johnston Entities has
been repaid. Nevertheless, year after year, Johnston and
Spillane approved additional TCI II loans to the same
Johnston Entities.
31. On January 18, 1996, by resolution of its
board of directors, TCI II ncall[ed], accelerate[d], and
declare[d] immediately due and payable all sums owed to,
or wrongfully taken fromn TCI II by Johnston, Spillane or
the Johnston Entities.
32. By letter dated March 14, 1996, TCI II,
through its counsel, advised Johnston that the sums owed
to or wrongfully taken from TCI II by Johnston and the
Johnston Entities, specifically including $6,056,116 in
Designated Loans made by TCI II to Johnston and the
Johnston Entities through 1992, nare now due and payable
to TCI II.n TCI II demanded repayment of the loans by
March 22, 1996. Johnston did not repay these loans or
even acknowledge the March 14, 1996 letter. On May 29,
1996, TCI sent Johnston ;;\ second letter demanding that he
repay the $6,056,116 in Designated Loans made by TCI II
to Johnston and Johnston Entities, as well as other sums
he owed to or wrongfully took from TCI II. Johnston did
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not repay these sums or acknowledge the May 29, 1996
letter.
33. Also by letter dated March 14, 1996, TCI
II, through its counsel, advised Spillane that the sums
owed to or wrongfully taken f~om TCI II by Spillane, spe-
cifically including $200,000 in Loans Receivable made by
TCI II to Spillane through 1992, "are now due and payable
to TCI II.n TCI II demanded repayment of the loans by
March 22, 1996. spillane did not repay these loans or
even acknowledge the March 14, 1996 letter. On May 29,
1996, TCI sent Spillane a second letter demanding that
she repay the $200,000 in Loans Receivable as well as
other sums she owed to or wrongfully took from TCI II.
Spillane did not repay these sums or acknowledge the May
29, 1996 letter.
34. A review of even the limited Johnston
Entity documents produced in response to this Court's
order in March of this year shows conclusively how funds
paid by Statek to Johnston Entities (directly or indi-
rectly through TCI II) were used almost exclusively for
the benefit of Johnston.and Spillane. These documents,
which relate to certain Johnston Entities for the years
1993-95 only, indicate that Johnston and Spillane used
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the funds they diverted from Statek for, among other
thing.:
a. Lavi.h purcha.es of art and/or other
collectibles. Statek funds channeled through Metrodyne
totalling $24,740 were paid to the famous auction house,
Christies; $190,332 to Sotheby's; and $112,500 to the
Briti.h auction house Richard Green. In addition,
Johnston used Statek funds to pay for dedicated warehou.e
or secured vault space for his auction purchases, and
shipping and/or insurance to get them to that space,
totalling more than $44,000. These figures cover only
the three years 1993-95; the totals for the full period
1984-95 would likely be much higher.
b. Extensive purchases of rare stamps
for Johnston's personal collection, at leading European
dealers. Payments (again through Metrodyne) for stamps
to C. Grobe of Germany totalled $165,000; to German
dealer Heinrich Koehler $95,900; and to David Feldman, of
Geneva, Switzerland, in smaller amounts. Thus, in just
the three years preceding the Opinion, Johnston spent
more than a quarter of a million dollars of Statek's
money (channelled through Metrodyne) on rare stamps
alone. Again, this is only for the 3 year period from
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1993 to 1995, and these payments are in addition to the
payments for stamps made directly by Statek.
c. payments made directly to Johnston,
Spillane, or ncash" totalling more than $68,000 from
Metrodyne, TCI, TCI III or Samco.
d. Payments of premiums for benefit
packages, including health care and pharmaceutical insur-
ance policies, at the same time that Statek or Metrodyne
paid Johnston's medical bills directly. Johnston and
Spillane then submitted claims under the policies, with
directions that the insurance company should issue the
reimbursement check to Johnston directly.
e. Payments to banks to service personal
lines of credit for the benefit of Johnston and Spillane.
f. Payments for personal credit card
accounts of Johnston and Spillane; for just the years
1993 to 1995, for example, Metrodyne American Express
bills (for charges almost exclusively made by Johnston
and Spillane personally) totalled $192,574.
g. Regular payments to a Bahamas law
firm, Dupuch & Turnquest, apparently unrelated to legal
services performed for TCI II or Statek. These payments
were (i) made directly from Statek (totalling $547,295
from 1988 to 1996), (ii) made indirectly from Statek
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through Metrodyne (totalling $61,500 trom 1993 to 1995
only), or (iii) made indirectly trom Statek by tunnelling
the payment. through invoice. trom Carb Luria, which wa.
then the law tirm ot detendant.' current coun.el (total-
ling $179,000 in 1'93 alone).
h. Payment. ot premium. tor lite in.ur-
ance policies tor John.ton and Spillane, having cash
surrender value. again.t which John.ton and Spillane then
borrowed tunds. Por the year. 1993 to 1995 alone, the.e
premium payment. totalled more than $170,000.
i. Pinally, virtually every per.onal
expen.e ot John.ton and Spillane -- literally down to the
purchase of personal toiletries -- was paid with Statek
fund. funneled through either Metrodyne or Tel. It
John.ton or Spillane wanted to send tlower. to a friend,
Statek paid (through Metrodyne). John.ton and/or
Spillane belonged to multiple social club., but Statek
(through Metrodyne or TCI) paid the fees. Cellular
phone., cable TV charges, greeting cards, wri.twatch
repair., kitchen knives -- all were paid for by Johnston
Entitie., using tunds generat~d by Statek.
35. Thus, all told, Johnston and Spillane
misappropriated tor their own benefit more than $22.5
million of Statek and Tel II assets. Plaintiff.' inve.-
19
tigation i. ongoing, and the actual total may b. mat.ri-
ally high.r.
COUNT I - - WASTE OF CORPORATE ASSETS
36. Plaintiff. incorporat. .ach of the pr.c.d-
ing paragraph. a. if ..t forth fully h.r.in.
37. John. ton and Spillan.. in their former
capaciti.. a. director. of Statek and TCI II. owed fidu-
ciary duti.. to TCI II. Statek and their .tockholder..
38. The.e duties prohibited John.ton .nd
Spillane from approving or participating in the waste of
St.tek'. and TCI II'. ....t..
39. Statek and TCI II received no con.ider-
.tion in r.turn for the more than $22.5 million in ..sets
t.ken from Statek and TCI II by John.ton, Spill.ne and
the John. ton Entities.
40. John.ton's .nd Spillane's waste of corpo-
rate .s.ets i. beyond the protection of the business
judgm.nt rule and h.. h.rmed Statek. Tel II and their
.tockholder.. Johnston and Spillane are personally li.-
ble. jointly and .ever.lly, for the full amounts of the
waated corpor.te as.et.. with intereat.
COUNT II -- CONVERSION OF CORPORATE ASSETS
41. Plaintiffs incorporate each of the pre-
ceding paragraphs aa if set forth fully herein.
20
42. John.ton and Spillane, in their former
capacities a. director. of Statek and TCI II, owed fidu-
ciary duti.. to the .tockholder. of Statek and TCI II.
43. Pursuant to these dutie., Johnston and
Spillane were prohibited from approving or participating
in the miaappropriation of Statek'. and TCI II'y a..eta.
44. Statek and TCI II received no consider-
ation in return for the more t.han $22.5 million in a..et.
taken from Statek and TCI II by Johnaton, Spillane and
the Johnston Entitiea.
45. The Statek and Tel II .tockholders have
never ratified the above-de.cribed mi.appropriation of
Statek'. and TCI II's a..et..
46. The above-described misappropriation of
corporate a.aets i. beyond the protection of the buaineas
judgment rule and ha. harmed Statek, TCI II and their
stockholders. Johnston and Spillane are personally lia-
ble, jointly and .everally, for the full amounts of the
mi.appropriated corporate assets, with interest.
COUNT III -- BREACH OF FIDUCIARY DUTIES
47. Plaintiff. incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
48. Johnston and Spillane, in their former
capacitiea as directors of Statek and TCI II, owed fidu-
21
ciary duties of care, loyalty, good faith, and disclosure
to the .tockholder. of Statek and TCI II.
49. John.ton and Spillane breached all these
fiduciary duties by engaging in the conduct detailed
above, including (i) illegally .eeking to recla.sify Tel
II stock into cla.ses of voting and non-voting stook
without the knowledge or consent of a majority of TCI
II's stockholder., in an attempt to gain voting control
over TCI III (ii) misappropriating for them.elves and the
Johnston Entities more than $10 million in Tel II as.etsl
and (iii) misappropriating for themselves and the
Johnston Entities more than $12.5 million in Statek
assets.
50. The Statek and TCI II stockholders have
never ratified the above-desoribed breaches of fiduciary
duty.
51. Johnston's and Spillane's breaches of
their fiduciary duties described above have harmed
Statek, TCI II and their stockholders.
COUNT IV -- FRAUD
52. Plaintiffs inoorporate each of the pre-
ceding paragraphs as if set forth fully herein.
22
53. Johnston fal.ely and knowingly repre.ent-
ed to Vendel that he would invest $250,000 in the Statek
Acqui.i~ion.
54. By fa13ely repre.enting to Vendel that he
would contribute $250.000 of hi. own per.onal funds to
TCI II for the Statek Acquisition, Johnston willfully in-
duced Vendel to invest $250,000 in TCI II.
55. Through Arbitrium, Vendel entrusted
$250,000 of his personal funds with Johnston in the
expectation that he would be entitled to stock owner.hip
in proportion to his investment.
56. John.ton's and Spillane's original and
continuing mi.representations were intended to and did
conceal from Vendel his true status as the majority owner
of TCI II with the right to elect all directors of TCI II
and Statek and direct the operations of both corpora-
tions.
57. A8 a result of Johnston'. and Spillane'.
fraudulent repre.entations. plaintiffs have been injured
in an amount to be determined at trial, but estimated at
this time to be not le.s than $22.5 million, plus inter-
est.
23
/
,
COUNT V - - DEBT ACTION
58. Plaintiff. incorporate each of the pre-
ceding paragraph. a. if .et forth fully herein.
59. John.ton i. indebted to TCI II in the
amount of $6,056,116 and Spillane is indebted to TCI II
in the amount of $~OO,OOO, a. a result of loan. recorded
by TCI II to John.ton and Spillane through 199~.
60. Notwith.tanding TCI II'. repe.ted re-
que.t., John.ton and Spillane have refueed to repay the
aforementioned sums to TCI II.
COUNT VI -- AIDING AND ABE'M'ING
61. Plaintiff. incorporate each of the pre-
ceding paragraph. as if .et forth fully herein.
62. Defendant. Johnston and Spillane have
knowingly participated in and aided and abetted each
other in the violations of law complained of herein.
63. The Johnston Entities have aided and
abetted the Individual Defendants in the misappropriation
of TCI II's and Statek's assets.
COUNT VII - - CIVIL CONSPIRACY
6.. Plaintiffs incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
65. Johnston and Spillane have knowingly par-
ticipated in and conepired with each other and the
24
Johnston Intities in the violations of law complained of
herein.
66. Johnston and Spillane's violations of
their fiduciary duties and frauds and their conspiracy in
each others' violations and frauds have harmed TCI II and
Statek.
REOUEST FOR RELIEP
WHEREFORE, plaintiff. request that the Court
enter a judgment:
(i) sequestering all TCI II stock owned
by Johnston, Spillane or any of the other defendants
herein ~nd ordering the .ale of .aid stock to satisfy the
judgment. described below;
(ii) imposing a constructive trust upon
all TCl II .tock owned by anyone other than Arbitrium and
upon all monies misappropriated from TCI II and Statek by
Johnston and Spillane and upon all property derived from
such monies;
(iii) ordering an accounting;
(iv) awarding damages against the defen-
dants, jointly and severally, in the amount of the ille-
gal and excessive payments made by Statek and TCI II to
or for the benefit of Johnston, Spillane or the Johnston
Entities;
25
IN THE COURT OF CHANCERY COURT OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
--------------------------------x
TECHNICORP INTERNATIONAL II,
INC., a Delaware corporation,
and STATEK CORPORATION, a
California corporation,
Plaintiffs,
C.A. No. 15084
v.
H. FREDERICK JOHNSTON, et al.,
Defendants.
--------------------------------x
ORDER GRANTING MOTION FOR COMMISSION
Upon motion of the plaintiffs for Commission
pursuant to 10 Del, C, ~ 368 and Court of Chancery Rule 28,
to take deposition upon oral examination outside the State
of Delaware,
IT IS HEREBY ORDERED:
1, That Commission be issued to the Clerk of
Court of the Commonwealth of Pennsylvania, County of
Cumberland requesting the issuance of subpoenas duces tecum
and ad testificandum as described in the Commission to Take
Deposition, or otherwise, to the following named witness to
appear at the date, time and place specified below:
the witness, unles3 it appears on the record that said
signature has been waived by the witness, Such testimony
shall be certified by the person heretofore commissioned,
or his designees, and shall be returned by mail or other-
wise to the Register in Chancery, Public Building,
Wilmington, Delaware 19801, in due course,
~
DATED: ~ a-C)_, 1997
.~~'n
.'~ '.i~~UZ CO?Y:
^T"'r:~T:
: !l!l~;E M. Kr::.:l'S::r
3
d:J1 ~~::o:
O<~c:~
~
.
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
________________________________x
TECHNICORP INTERNATIONAL II,
INC., a Delaware corporation,
and STATEK CORPORATION, a
California corporation,
Plaintiffs,
C.A. No. 15084
v.
H. FREDERICK JOHNSTON, et al.,
Defendants.
________________________________x
NOTICE OF MOTION FOR COMMISSION
TO: Lawrence C. Ashby
ASHBY & GEDDES
One Rodney Square
P.O. Box 1150
Wilmington, Delaware 19899
Attorneys for Defendants
PLEASE TAKE NOTICE that the attached Motion for
Commission will be presented to the Court at the earliest
convenience of the Court and counsel.
DATED: September
/
/
v
26, 1997 /
Th~
eathy L. Reese
James L. Love
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
Attorneys for Plaintiffs Technicorp
International II, Inc. and Statek
Corporation
.
.
IN THE COURT OF CHANCERY COURT OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
--------------------------------x
TECHNICORP INTERNATIONAL II,
INC., a Delaware corporation,
and STATEK CORPORATION, a
California corporation,
C.A, No. 15084
Plaintiffs,
v.
H. FREDERICK JOHNSTON, et al.,
Defendants.
--------------------------------x
MOTION FOR COMMISSION
Pursuant to 10 Del. C, ~ 368 and Court of
Chancery Rule 28, plaintiffs move the Court for an Order
in the form attached hereto directing the Clerk of Court
of the Commonwealth of Pennsylvania, County of Cumberland
to summon the following named witness by subpoena duce~
tecum and ad testificandum as described in the Commission
to Take Deposition, or otherwise, to appear at the date,
time and place specified below:
DeDonent
C-MAC Quartz Crystals. Inc, (for-
merly known as Greenray Indus-
tries, Inc,)
840 W, Church Street
Mechanicsburg, PA 17055
by the person or persons most
knowledgeable concerning the use
of Greenray Industries by H, Fred,
erick Johnston and Sandra Spillane
to, among other things, (1) cause
Statek Corporation to "purchase"
Greenray stock from Technicorp
International III. Inc, but never
transfer to Statek title of the
Greenray shares on Greenray's
stock ledger; (ii) cause Statek
tor no consideration to enter into
a put and call agreement with TCI
III for Statek's Greenray shares,
repeatedly IIcalling" the shares
without payment, and then "putt-
ing" the shares back to Statek for
a price; (iii) divert Greenray's
assets to themselves and Samco
Investors, Inc., one of Johnston's
shell companies, thereby reducing
the value of Greenray; and (iv)
divert a large portion of Statek's
share of the proceeds from the
1995 sale of Greenray,
~
Date , Time
October J8.
1997
10 a,m,
Geiger r. Loria
Reporting Ser-
vice
2408 Park Orive
Suite B
Harrisburg, PA
17110
for the taking of the deposition upon oral examination
under oath of the witness and the production of any and
all documents specified on schedule A annexed hereto that
are in the possession, custody, or control of the wit-
ness, pursuant to Rules 28, 30 and 4S of the Delaware
Court of Chancery Rules, and to return said deposition
without delay to the Register of the Court of Chancery of
the State of Delaware in and for New Castle County.
2
You are further requested:
1. To reduce the questions and answers so
taken to writing, in proper form, and cause the same to
be signed and sworn to by said witness,
2, To certify, under your hand and seal of
office, that said deposition was signed and sworn to by
said witness before you, or that such signature was
waived,
3. To seal up in an envelope the original of
the deposition so taken, together with the commission,
and write your name across the seal,
4. To endorse on the envelope the names of
the parties to this suit and the names of said witness.
5. To send said package by mail, and the
officer taking said deposition to certify thereon that
he, in person, deposited the same in the mail for trans-
mission, stating the date when and the Post Office in
which the same was so deposited for transmission, or if
you entrust said deposition to a private conveyance, that
you apprise the person receiving them that they must be
delivered to the Register of this Court by himself in
person, which evidence, so taken as above, is to be used
at the trial of the action now pending in the Court of
Chancery of the State of Delaware in and for New Castle
County,
3
SCHEDULE A
1, All documents referring or relating to
purchases or sales of Greenray stock, including, but not
limited to, all stock ledgers, stock lists, transfer
sheets, stock purchase or sale agreements, non-objecting
beneficial owner lists, and stock certificates (including
copies of such certificates and cancelled certificates) .
2, All documents referring or relating to the
value of Greenray stock,
3, All documents referring or relating to any
put or call options with respect to stock in Greenray.
4. All documents relating to the 1995 sale of
Greenray.
5, All documents related to the cash/bank
accounts of Greenray, including without limitation: the
(original) disbursement source ledger and bank statements
or any other document that is a full and complete regis-
ter of disbursements; cancelled checks (both sides);
check stubs; check books; wire transfer information,
including debit and credit advice memos; bank reconcilia-
tions; signature cards; and bank statements,
6. All documents referring or relating to any
audit of the business and accounts of Greenray,
7. All documents referring or relating to the
tax returns, supporting worksheets, Forms W-2 or 1099, or
other tax related documents of Greenray.
8, All documents referring or relating to the
corporate credit card accounts of Greenray.
9, All documents that refer or relate to any
loans made by Greenray, This request includes, but is
not limited to, the terms of the loan, the repayment
schedule, the interest rate of the loan, and any proof of
repayment.
10. All documents that refer or relate to any
loans to Greenray. This request includes, but is not
limited to, the terms of the loan, the repayment sched-
ule, the interest rate of the loan, and any proof of
repayment by Greenray.
11, All correspondence to, from, or copied to
Johnston, Spillane, the Johnston Entities, TCI II, or
Statek.
12. All documents referring or relating to
insurance policies for Johnston or Spillane or for which
Johnston or Spillane are or were beneficiaries, includ-
ing, without limitation, the policies, invoices, and
proof of premiums.
2
13. All records reflecting or referring to
expenses incurred by Johnston, Spillane, or the Johnston
Entities, and reimbursed or paid by Greenray.
14. All documents referring or relating to any
transaction between Johnston, Spillane, or any Johnston
Entity, on the one hand, and, on the other hand,
Greenray, or any current or former officer or director of
Greenray.
15. All documents referring or relating to any
asset held or owned jointly by Greenray, on the one hand,
with Johnston, Spillane, or any Johnston Entity, on the
other,
16. All documents summarizing, transcribing or
recording any meetings, or portions thereof, of the
boards of directors, or any committees thereof, of
Greenray.
17. All documents referring or relating to any
Greenray subsidiary or an entity in which Greenray owned
or owns an interest.
18, All documents referring or relating to
legal services provided to Greenray or any of its current
or former officers or directors including, but not limit-
ed to, files, bills, invoices, detail of services provid-
ed, receipts of payment, checks, and wire transfer infor-
mation.
3
19. All documents that are relevant to any of
the issues raised in the attached Complaint in this Ac-
tion.
4
DEFINITIONS
1, The term "Greer.ray" means Greenray Indus-
tries, Inc. and (i) all of its present and former agents,
employees, representatives, accountants, investigators,
consultants and attorneys, officers, directors, and
predecessors or successors in interest, including, but
not limited to, C-MAC Quartz Crystals, Inc. and any
affiliated entities that were in existence during the
applicable period of time covered by these requests; (ii)
any other person or entity acting on Greenray's behalf or
on whose behalf Greenray acted; and (iii) any other
person or entity otherwise subject to Greenray's control
or which Greenray controls, or with which Greenray is
under common control.
2, The term "Statek" means Statek Corporation
and its parent, subsidiaries, affiliates, present and
former officers, directors, employees, agents, attorneys
or representatives, and all other persons acting or
purporting to act on its behalf,
3. The term "TCI II" means Technicorp II,
Inc. and its subsidiaries, affiliates, present and former
officers, directors, employees, agents, attorneys or
representatives, and all other persons acting or purport-
ing to act on its behalf.
5
4. The term "Johnston" means H, Frederick
Johnston,
5, The term "Spillane" means Sandra Spillane,
6. The term "Johnston Entity" means any
company owned or controlled by H. Frederick Johnston,
including, but not limited to, BLM Holding Corporation,
BAI Corporation, Metrodyne Corporation, SAMCO Investors,
Inc., Rare Stamps Investments, Inc" Technicorp Interna-
tional III, Inc" Technicorp International IV Ltd.,
Technicorp International V, Ltd., Technicorp Internation-
al, Inc" Technicorp Ventures, Inc" Technicorp Indus-
tries, Inc., Amplifonix, Inc" E C M Devices, Inc.,
Artafax Systems, Ltd., Acosta Street Corporation, and
Digital Communications Products, Inc,
7, The term "document" is used in the broad-
est sense and shall include, without limitation, any and
all drafts; communications; correspondence; memoranda;
records; reports; books; reports and/or summaries of per-
sonal conversations or interviews; diaries; graphs;
charts; diagrams; tables; photographs; recordings; tapes;
microfilms; minutes, records, reports and/or summaries of
meetings, interviews or conferences; reports and/or
summaries of investigations; records, reports, or opin-
ions of consultants; brochures; pamphlets; circulars;
trade letters; marketing materials; press releases; con-
.
,
6
tracts; projections; forecasts; statistical statements;
stenographic, handwritten or any other notes; work pa-
pers; confirmation slips; transfer papers; checks, front
and back; check vouchers, check stubs or receipts; tape
data sheets, data processing cards, discs or any other
written, recorded, transcribed, punched, taped, filmed or
graphic matter, however produced or reproduced; and any
paper or writing of whatever description, and any other
documents or writings of whatever description, including,
but not limited to, any voicemail system or phono-records
of any kind or information, including any information
contained in any computer although not yet printed out
within defendant's possession, custody or control, or the
possession, custody or control of any person acting or
purporting to act on defendant's behalf. Document also
means all non-identical copies of original documents and
non-identical copies thereof.
8. The term "person" refers to any natural
person, governmental body or political subdivision there-
of, firm, sole proprietorship, association, partnership,
corporation or other form of legal entity,
9. The singular includes the plural and vice
versa; the words "and" and "or" shall be construed to be
either conjunctive or disjunctive as the context requires
so that each request for production of Documents shall be
7
INSTRUCTIONS
1. If any request for documents is deemed
to call for the production of privileged materials and
such privilege is asserted, a list of documents so with-
held is to be furnished: (a) identifying the person who
prepared or authorized the documents, and, if applicable,
the person to whom the document was sent or shown; (b)
specifying the date on which the document was prepared or
transmitted; (c) describing the nature of the document
(~, letter, telegram, etc); (d) stating briefly why
the document is claimed to be privileged or to constitute
work product; and (e) stating the paragraph of this
request to which the document relates,
2. Each Request for Production seeks pro-
duction of each document, in its entirety, and all drafts
and non-identical copies of each document.
3, Produce every responsive document re-
gardless of whether such document has been produced
already by another person in the course of this litiga-
tion.
4. If any document requested herein was
formerly in your possession, custody or control, and has
been lost or destroyed, or otherwise disposed of, you are
requested to submit in lieu of such document a written
statement: (a) describing in detail the nature of the
9
document and its contents; (b) identifying the person(s)
who prepared or authorized the document and, if applica-
ble, the person to whom the document was sent; (c) speci-
fying the date on which the document was prepared or
transmitted; and (d) specifying, if possible, the date on
which the document was lost or destroyed and, if de-
stroyed, the conditions of and reasons for such destruc-
tion and the person(s) requesting and/or performing the
destruction,
S. If any document identified in response
to any request herein relates in any way to a meeting or
to any other conversation, all participants in the meet-
ing or conversation are to be identified.
6. Each request for the production of docu-
ments shall be deemed continuing so as to require prompt
supplemental responses, in accordance with Court of Chan-
cery Rule 26(e), if you obtain or discover additional
documents between the time of initial production and the
time of hearing or trial.
7, Responsive documents should be produced
as they have been kept in the ordinary course of business
and organized and labeled to correspond to the categories
in this request to which they respond.
10
8, Unless otherwise indicated, the time
period covered by this Request is from February 29, 1984
to August 31, 1995.
9, To the extent that responsive documents
are held by someone within your control, such as a law
firm or relative, and are obtainable at your request,
those responsive documents should be produced.
11
J~:-
.', ..\-
-'>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
----------------- X
TECHNICORP INTERNATIONAL II,
INC., a Delaware corporation,
and STATEK CORPORATION, a
California corporation,
Plaintiffs,
C.A. No.
15~
-against-
H. FREDERICK JOHNSTON, SANDRA
SPILLANE, BLM HOLDING CORPORATION,
a Delaware corporation, BAI CORPO-
RATION, a Delaware corporation,
METRODYNE CORPORATION, a Delaware
corporation, SAMCO INVESTORS,
INC., a Delaware corporation, RARE
STAMPS INVESTMENTS, INC., a Dela-
ware corporation, TECHNICORP
INTERNATIONAL III, INC., a Dela-
ware corporation, TECHNICORP
INTERNATIONAL IV LTD., a Delaware
corporation, TECHNICORP INTER-
NATIONAL V, LTD., a Delaware
corporation, TECHNICORP INTERNA-
TIONAL, INC., a Delaware corpo-
ration, TECHNICORP VENTURES, INC.,
a Delaware corporation, TECHNI-
CORP INDUSTRIES, INC., a Delaware
corporation, AMPLIFONIX, INC., a
Delaware corporation, E C M
DEVICES, INC., a Delaware corpo-
ration, ARTAFAX SYSTEMS, LTD., a
New York corporation, and DIGITAL
COMMUNICATIONS PRODUCTS, INC., a
Delaware corporation,
Defendants.
./
o(
:,
.
,
( .
.
i
(
,/
..r_
....:.
- - - - - - - - - - - - - - - - - x
VBRIPIBD COMPLAINT
Plaintiffs for their complaint allege as fol-
lows:
I
,
1.
N~TtlRE OF THE ACTION
This is a direct action by Technicorp
,
International II (nTCI IIn or the "Companyn) and Statek
Corporation (nStatekn) to remedy more than a decade-long
pattenl of breaches of fiduciary duties, frauds and
misappropriations of TCI II and Statek aseets perpetrated
by defendants H. Frederick Johnston (rJohnston") and
Sandra Spillane (nSpillane"), and by BLM Holding Corpora-
tion (nBLMn), BAI Corporation ("BAln), Metrodyne Corpora-
tion (nMetrodynen), SAMCO Investors, Inc. ("SAMCO"), Rare
Stamps Investments, Inc. (nRare Stamps "), Technicorp
International III, Inc. ("TCI IUn), Technicorp Interna-
tional IV Ltd. (nTCI IVn), Technicorp International V,
Ltd. ("TCI V"), Technicorp International, Inc. ("TCln),
Technicorp Ventures, Inc. (nTVln), Technicorp Industries,
Inc. (nTII") I Amplifonix, Inc. (nAmplifonix") I E C M
Devices, Inc. (IIECMn), Artafax Systems, Ltd. (nArtafax"),
and Digital Communications Products, Inc. (nDcpn) (col-
lectively, the nJohnaton Entities").
2. Specifically, since TCI II's acquisition
of Statek in 1984, defendants Johnston and Spillane have
2
engaged in a pattern of fraudulent schemes to misappro-
priate the assets of TCI II and Statek, all to the detri-
ment of TCI II and Statek. Johnston and Spillane have
accomplished these schemes by: (i) attempting, by inten-
tional misrepresentation, to induce Vendel to believe
that his ownership interest in TCI II did not give him
the power to elect officers and directors of TCI II; (ii)
attempting illegally to reclassify Vendel's TCI II stock
into non-voting stock without his knowledge or consent;
(iiil attempting to dilute vendel's stockholdings by
issuing unauthorized TCI II stock to themselves and their
nominees; (iv) misappropriating more th~n $10 million in
TCI II assets, including unauthorized and unreported
"compensationn and undocumented loans to themselves and
the Johnston Entities; and (v) causing unjustified pay-
ments by Statek in excess of $12.5 million to be made,
directly or indirectly to, or for the benefit of,
Johnston and Spillane.
3. In this action, plaintiffs seek (i) a
judgment against Johnston, Spillane, and the Johnston
Entities, jointly and severally, for at least $22.5 mil-
lion, plus interest; (ii) the immediate sequestration of
all TCI II stock held, directly or indirectly, by
Johnston and Spillane; (iii) the imposition of a con-
3
structive trust upon all TCI II stock purportedly held,
directly or indirectly, by Johnston and Spillane, and
upon all monies misappropriated from TCI II and Statek by
Johnston and Spillane, and upon all property derived from
such monies; and liv) an accounting.
THE PARTIES
4. Plaintiff TCI II is a Delaware corpora-
tion. Until this year, its principal place of business
was in Stamford, Connecticut. TCI II serves solely as a
holding company for all of the capital stock of Statek
and conducts no other business activities.
S. Plaintiff Statek, a wholly owned subsid-
iary of TCI II, is a California corporation that manufac-
tures microelectronic components,
6. Prior to the May 2, 1994 delivery of a
consent pursuant to 8 Del, C. S 228 removing him from
office (the nConsentn), defendant Johnston was Chairman
of the Board, President and Treasurer of Tel II. He was
also Chairman, Chief Executive Officer and President of
Statek. He is or was also an executive officer, director
and controlling stockholder of the Johnston Entities.
Johnston is not a resident of the State of Delaware.
7. Prior to the May 2, 1994 delivery of the
Consent, defendant Spillane was President, Secretary and
4
the only other director besides Johnston of TCI II.
Spillane was also Vice President. Secretary and the only
other director besides Johnston of Statek. She is or was
also a director and executive officer of some or all of
the Johnston Entities. spillane is a long-time personal
friend and business associate of Johnston. Spillane is
not a resident of the State of Delaware.
B. The Johnston Entities are shell corpora-
tions controlled by Johnston and Spillane that have no
legitimate business purpose. Artafax is a New York
corporation; all other Johnston Entities are Delaware
corporations.
9. Miklos Vendel. a Swiss citizen. is and at
all relevant times has been the beneficial owner of a
majority of the outstanding stock of TCI II. which is
held of record by his nominee. Arbitrium (Cayman Islands)
AG ("Arbitrium"l. a Cayman Islands corporat10n. Vendel
and Arbitrium are not parties to this action.
DISCOVERY OP TKB PRAUD
10. From 1984 through January 1996. Johnston
and Spillane abused their positions as purported direc-
tors and officers of TCI II and Statek to surreptitiously
and systematically misappropriate more than $10 million
from Tel II and more than $12.5 million from Statek.
5
11. On October 15, 1993, Vendel, on behalf of
Arbitrium, demanded to inspect certain books and records
of TCI II pursuant to 8 Del. e. I 220. When that demand
was refused, Arbitrium fil~d a complaint under 8 Del. C.
I 220 in this Court (the "Section 220 Action"). The
parties reached a settlement of that action on February
17, 1994. Pursuant to the settlement, on March 11, 1994,
TCI II produced certain financial records (the "Section
220 Records"l of the Company.
12. The Section 220 Records established, among
other things, that Vendel beneficially owned at least
seventy percent of the voting stock of TCI II.
13. After receiving this documentation of
Vendel's and Arbitrium's majority stockholder status,
Vendel and Arbitrium, acting pursuant to 8 Del. C. S 228
and Section 11 of the TCI II by-laws, executed the Con-
sent on April 28, 1994. Pursu~nt to the Consent, (il
Johnston and Spillane were removed from their positions
as directors and officers of TCI II; (iil the TCI II by-
laws were amended to decrease the number of directors to
one; and (iiil Vendel was elected the sole director of
TCI II.
14. Defendants refused to recognize the valid-
ity of the eonsent. Vendel and Arbitrium thereafter
6
filed an action in this Court pursuant to 8 Del. C. S 225
to determine the rightful directors of TeI II (the "Sec-
tion 225 Action"). This Court held that the Consent was
valid and legally effective. Arbitrium (eavman Islandsl
AG v. Johnston, Del. eh., e.A. No. 13506, slip op. at 35,
Jacobs, V.C. (Jan. 5, 19961 (the "Section 225 Opinion" I .
15. In addition to establishing Vendel's and
Arbitrium's majority ownership in Tel II, the Section 220
Records, taken together with documents produced by Tel II
in connection with the Section 225 Action, also estab-
lished for the first time to plaintiffs' knowledge an
extraordinary pattern of fraud, misrepresentation and
conversion of the assets of Tel II and Statek for the
benefit of Johnston and Spillane. Defendants intention-
ally and fraudulently concealed their improper and ille-
gal activities.
MISAPPROPRIATION OF TCI II AND STATEK ASSETS
16. Tel II is a holding company. Statek, its
wholly-owned subsidiary, is its only revenue-producing
asset, and was the sole source of funds for Johnston,
Spillane and the entire web of Johnston companies. In
fact, Johnston and Spillane used Statek as their personal
bank, funding all of their activities, down to the most
trivial of personal expenses, out of Statek.
7
17. Funds were diverted from Statek to the
benefit of Johnston and Spillane in four ways.
18. First, Johnston and/or Spillane caused
payments to be made directly to them, the Johnston Enti-
ties, or Johnston's cronies. These payments generally
took one of three forms: checks drawn directly to the
recipient; wire transfers to the recipient (typically
k
I.
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overseasl; or checks written to "cash," which Johnston
then ordered Statek employees to deposit directly into
his personal bank account with Sank of America in Orange,
ealifornia. These direct payments totalled over $4
million.
19. Second, Johnston and/or Spillane ordered
that payments totalling more than $8 million be made by
Statek to third parties for the benefit of Johnston or
Spillane. Included in those payments were:
a. Legal fees paid to law firms n2t
employed by Statek in its regular course of business
(the "Legal Fee Payments"l. In all but one instance the
only support in the Statek accounting records for the
Legal Fee Payments was an "invoice" manually prepared by
Spillane showing only the name of the firm and the dollar
amount of the invoice. No detail on the work performed
was reflected, and many of the payments match invoices
8
billed by the firms to Johnston and Spillane personally,
or to Johnston Entities.
b. Payments attributable to Johnston and
Spillane's personal living expenses (the "Personal Ex-
pense Payments" I , including credit card charges, tele-
phone charges, aircraft charters, and direct hotel bill-
ings. There is not a single Johnston or Spillane expense
report in Statek's files to support the Personal Expense
Payments. Among the Personal Expense Payments were:
. Items charged by Johnston and Spillane to Amer-
ican Express accounts paid by Statek, including
numerous purchases from Harrod's, medical ex-
penses (despite the comprehensive medical in-
surance also paid for by Statekl, and travel to
locations where Statek had no business, such as
Gibraltar and the Bahamas. The American Ex-
press bills paid directly by Statek alone to-
talled more than $1.25 million.
. Payment for a full-time suite at an Orange
eounty hotel for a period of nearly three full
years, at the same time as Johnston was causing
Statek to pay for a residence for him in Lon-
don, England.
.
9
. ehauffeured limousine services totalling well
over $100,000.
. Almost $10,000 in freight charges to ship
Johnston's personal wine and art collections to
his new home in the Bahamas.
. Almost $16,000 for ehinese lessons.
. Almost $10,000 in direct medical payments (over
and above the American Express medical charges,
and again despite the defendants' health insur-
ance plansl .
. Well over $25,000 in purchases of rare stamps
at European auctions.
. More than $6,000 in gifts to and travelling
expenses of women whom Johnston invited to
visit him in Orange; Johnston ordered Statek's
controller to pay these expenses with the
controller's own American Express card, and
then to bury them in Statek's selling, general
and administrative expense line.
. Unnecessary interest and fees on loans having
no legitimate business purpose for Statek,
proceeds of which were diverted to the benefit
of Johnston or the Johnston Entities.
10
The Personal Expense payments totalled more
than $8 million.
20. Third, Johnston and Spillane caused Statek
to incur more than $550,000 in unnecessary expenses (the
"Unnecessary Expense Payments"). For example, Statek
paid almost $350,000 for rent, magazine subscriptions,
and equipment at the defendants' office at 20 Acosta
Street, Stamford, connecticut.
21. Fourth, Johnston and Spillane caused
Statek to pay over $11.5 million in dividends, management
fees, advances or corporate charges to Tel II. Of this
total, more than $10 million was improperly paid out,
directly or indirectly, to the benefit of Johnston and
Spillane.
22. The funds paid by Statek to TCI II and the
Johnston Entities as described above in paragraphs 18 and
21 were in turn used exclusively for the benefit of
Johnston and spillane.
23. Tel II has no audited financial state-
ments. Apart from its tax returns, TCI II's only inter-
nal financial record is a handwritten ledger (the "Led-
ger"l kept on an annual basis by Spillane showing the
year-end balances for certain accounts, including loans
receivable, loans payable, accounts receivable and
11
.-
;~C~_-:=--~
prepaids, expenses and "compensation" paid or purportedly
owed to Johnston and Spillane.
24. Specifically, the Ledger shows that
Johnston and Spillane have caused TCI II to make millions
of dollars in undocumented loans to themselves and the
Johnston Entities.
25. The Ledger reflects, for example, that
from 1984 through 1992, Johnston withdrew over $2,100,000
and Spillane withdrew $200,000 in undocumented personal
"loans" from TCI II. There are no written loan agree-
ments documenting or reflecting the interest or repayment
terms or conditions of theoe loans. These loans were
made in violation of 8 Del. C. S 143 in that they were
not approved by resolution of the Tel II board of direc-
tors and were not determined to benefit Tel II.
26. One court, based on Johnston's own finan-
cial affidavit, has already found that Johnston "has
evidenced an ability to borrow virtually unlimited sums
from the corporations in which he has an interest."
Johnston v. Johnston, eonn. Super., e.A. No. FA90 0275308
S, 1990 Conn. Super. LEXIS 1599, at *5 (Oct. 23, 19901.
Despite Spillane'S representation to the eonnecticut
court that "this borrowing had been curtailed as of
December, 1989 and January, 1990," jJL" Tel II's records
12
.
c. $241,629 in undocumented "loans" and
$179,127 in undocumented "accounts receiv-
able and prepaids" to "MO," which signi-
fies Metrodyne Corporation, another Dela-
ware corporation. Metrodyne's most recent
Delaware Annual Franchise Tax Report lists
Johnston and Spillane as its sole officers
and directors and 20 Acosta Street,
Stamford, CT as its principal place of
business.
d. $348,378 in undocumented "loans" to "TCI
III," which signifies Technicorp Interna-
tional I II, Inc., a Delaware "industrial
holding" corporation. Tel Ill's most re-
cent Delaware Annual Franchise Tax Report
lists Johnston and Spillane as its sole
officers and directors and 20 Acosta
Street, Stamford, CT as its principal
place of business.
e. $150,000 in undocumented "loans" to
"Artafax." On information and belief,
"Artafax" refers to Artafax systems, Ltd.,
a New York corporation now in dissolution.
f. $250,000 in undocumented "loans" to "Dg
Prod." On information and belief, "Dg
prod" refers to Digital eommunications
products, Inc., a Delaware corporation
(formerly Digital products eo., Inc.l.
g. $424,681 in undocumented "loans" to "ECM."
On information and belief, "ECM" refers to
ECM Devices, Inc., a Delaware corporation
controlled by Johnston.
29. These loans were made in violation of 8
D@l. e. 5 143 in that they were not approved by resolu-
tion of the Tel II board of directors and were not deter-
mined to benefit Tel II.
14
30. According to Tel II's financial records,
not a penny of the loans to these Johnston Entities has
been repaid. Nevertheless, year after year, Johnston and
Spillane approved additional TCI II loans to the same
Johnston Entities.
31. On January 18, 1996, by resolution of its
board of directors, TCI II II call [edJ, accelerate[dJ, and
declare [d) immediately due and payable all Bums owed to,
or wrongfully taken from" Tel II by Johnston, Spillane or
the Johnston Entities.
32. By letter dated March 14, 1996, Tel II,
through its counsel, advised Johnston that the sums owed
to or wrongfully taken from TCI II by Johnston and the
Johnston Entities, specifically including $6,056,116 in
Designated Loans made by Tel II to Johnston and the
Johnston Entities through 1992, "are now due and payable
to Tel II." Tel II demanded repayment of the loans by
March 22, 1996. Johnston did not repay these loans or
even acknowledge the March 14, 1996 letter. On May 29,
1996, TCI sent Johnston a second letter demanding that he
repay the $6,056,116 in Designated Loans made by TeI II
to Johnston and Johnston Entities, as well as other sums
hd owed to or wrongfully took from Tel II. Johnston did
15
not repay these sums or acknowledge the May 29, 1996
letter.
33. Also by letter dated March 14, 1996, TCI
II, through its counsel, advised Spillane that the sums
owed to or wrongfully taken from TCI II by spillane, spe-
cifically including $200,000 in Loans Receivable made by
TCI II to Spillane through 1992, "are now due and payable
to TCI II." TCI II demanded repayment of the loans by
March 22, 1996. spillane did not repay these loans or
even acknowledge the March 14, 1996 letter. On May 29,
1996, TCI sent Spillane a second letter demanding that
she repay the $200,000 in Loans Receivable as well as
other sums she owed to or wrongfully took from Tel II.
spillane did not repay these sums or acknowledge the May
29, 1996 letter.
34. A review of even the limited Johnston
Entity dor.uments produced in response to this eourt's
order in March of this year shows conclusively how funds
paid by Statek to Johnston Entities (directly or indi-
rectly through TCI III were used almost exclusively for
the benefit of Johnston ,and Spillane. These documents,
which relate to certain Johnston Entities for the years
1993-95 only, indicate that Johnston and Spillane used
16
the funds they diverted from Statek for, among other
things I
a. Lavish purchases of art and/or other
collectibles. Statek funds channeled through Metrodyne
totalling $24,740 were paid to the famous auction house,
ehristies; $190,332 to Sotheby's; and $112,500 to the
British auction house Richard Green. In addition,
Johns~on used Statek funds to pay for dedicated warehouse
or secured vault space for his auction purchases, and
shipping and/or insurance to get them to that space,
totalling more than $44,000. These figures cover only
the three years 1993-95; the totals for the full period
1984-95 would likely be much higher.
b. Extensive purchases of rare stamps
for Johnston's personal collection, at leading European
dealers. payments (again through Metrodynel for stamps
to C. Grobe of Germani totalled $165,000; to German
dealer Heinrich Koehler $95,900; and to David Feldman, of
Geneva, Switzerland, in smaller amounts. Thus, in just
the three years preceding the Opinion, Johnston spent
more than a quarter of a million dollars of Statek's
money (channelled through Metrodynel on rare stamps
alone. Again, this is only for the 3 year period from
17
1993 to 1995, and these payments are in addition to the
payments for stamps made directly by Statek.
c. payments made directly to Johnston,
Spillane, or "Cash" totalling more than $68,000 from
Metrodyne, Tel, TCI III or Samco.
d. Payments of premiums for benefit
packages, including health care and pharmaceutical insur-
ance policies, at the same time that Statek or Metrodyne
paid Johnston's medical bills directly. Johnston and
Spillane then submitted claims under the policies, with
directions that the insurance company should issue the
reimbursement check to Johnston directly.
e. Payments to banks to service personal
lines of credit for the benefit of Johnston and spillane.
f. Payments for personal credit card
accounts of Johnston and Spillane; for just the years
1993 to 1995, for example, Metrodyoe American Express
bills (for charges almost exclusively made by Johnston
and Spillane personallyl totalled $192,574.
g. Regular payments to a Bahamas law
firm, Dupuch k Turnquest, apparently unrelated to legal
services performed for Tel II or Statek. These payments
were (il made directly from Statek (totalling $547,295
from 1988 to 19961, (iil made indirectly from Statek
18
through Metrodyne (totalling $61,500 from 1993 to 1995
onlyl, or (iii) made indirectly from Statek by funnelling
the payments through invoices from Carb Luria, which was
then the law firm of defendants' current counsel (total-
ling $179,000 in 1993 alonel.
h. Payments of premiums for life insur-
ance policies for Johnston and Spillane, having cash
surrender values against which Johnston and Spillane then
borrowed funds. For the years 1993 to 1995 alone, these
premium payments totalled more than $170,000.
i. Finally, virtually every personal
expense of Johnston and Spillane -- literally down to the
purchase of personal toiletries -- was paid with Statek
funds funneled through either Metrodyne or TCI. If
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Johnston or Spillane wanted to send flowers to a friend,
Statek paid (through Metrodyne). Johnston and/or
Spillane belonged to multiple social clubs, but Statek
(through Metrodyne or TCIl paid the fees. Cellular
phones, cable TV charges, greeting cards, wristwatch
repairs, kitchen knives -- all were paid for by Johnston
Entities, using funds generated by Statek.
35. Thus, all told, Johnston and Spillane
misappropriated for their own benefit more than $22.5
million of Statek and TCI II assets. Plaintiffs' inves-
19
tigation is ongoing, and the actual total may be materi-
ally higher.
COUNT I - - WASTE OF CORPORATE ASSETS
36. Plaintiffs incorporate each of the preced-
ing paragraphs am if set forth fully herein.
37. Johnston and Spillane, in their formp.r
capacities as directors of Statek and TCI II, owed fidu-
ciary duties to Tel II, Statek and their stockholders.
38. These duties prohibited Johnston and
Spillane from approving or participating in the waste of
Statek's and Tel II's assets.
39. Statek and TCI II received no consider-
ation in return for the more than $22.5 million in assets
taken from Statek and Tel II by Johnston, Spillane and
the Johnston Entities.
40. Johnston's and Spillane'S waste of corpo-
rate assets is beyond the protection of the business
judgment rule and has harmed Statek, Tel II and their
stockholders. Johnston and Spillsne are personally lia-
ble, jointly and severally, for the full amounts of the
wasted corporate assets, with interest.
COUNT II -- CONVERSION OF CORPORATE ASSETS
41. Plaintiffs incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
20
42. Johnston and Spill.n., in th.ir form.r
capacities .s director. of St.t.k .nd TCl II, ow.d fidu-
ciary duties to the stockholders of St.tek .nd TCI II.
43. Pursu.nt to th..e duties, Johnston .nd
Spill.ne were prohibited from .pproving or p.rticip.ting
in the misappropri.tion of St.tek's .nd TCI II'. .ss.ts.
44. Statek .nd Tel II r.c.ived no consider-
ation in r.turn for the more th.n $22.5 million in .s..ts
taken from Statek and TCI II by John.ton, Spill.n. .nd
the Johnston Entities.
45. The Stat.k .nd TeI II stockhold.rs h.v.
nev.r r.tified the above-d..cribed mi.appropriation of
Statek's and TCI II'. .ss.ts.
46. The above-d.scribed mis.ppropri.tion of
corporate asset. is beyond the protection of the bu.in.ss
judgm.nt rule and has harmed St.tek, TCI II .nd th.ir
stockholders. Johnston and Spillane ar. person.lly li.-
bl., jointly and sev.r.lly, for the full .mount. of the
mi..ppropri.ted corpor.te as.ets, with int.r.st.
COUNT III -- BREACH OF FIDUCIARY DUTIES
47. Plaintiff. incorporat. ..ch of the pr.-
ceding paragraph. as if set forth fully her.in.
48. Johnston and Spillane, in their form.r
capacitie. as director. of Scat.k and TCl II, ow.d tidu-
21
ciary duties of care, loyalty, good faith, and disclosure
to the stockholders of Statek and TCI II.
49. Johnston and Spillane breached all these
fiduciary duties by engaging in the conduct detailed
above, including (il illegally seeking to reclassify TeI
II stock into classes of voting and non-voting stock
without the knowledge or consent of a majority of Tel
II's stockholders, in an attempt to gain voting control
over Tel II; (ii) misappropriating for themselves and the
Johnston EntitieD more than $10 million in TCI II assets;
and (iiil misappropriating for themselves and the
Johnston Entities more than $12.5 million in Statek
assets.
50. The Statek and Tel II stockholders have
never ratified the above-described breaches of fiduciary
duty.
51. Johnston's and Spillane'S breaches of
their fiduciary duties described above have harmed
Statek, TeI II and their st~ckholders.
eOUNT IV - - FRAUD
52. Plaintiffs incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
22
53. Johnston falsely and knowingly represent-
ed to Vendel that he would invest $250,000 in the Statek
Acquisition.
54. By falsely representing to Vendel that he
would contribute $250,000 of his own personal funds to
TCI II for the Statek Acquisition, Johnston willfully in-
duced vendel to invest $250,000 in TeI II.
55. Through Arbitrium, Vendel entrusted
$250,000 of his personal funds with Johnston in the
expectation that he would be entitled to stock ownership
in proportion to his investment.
56. Johnston's and Spillane's original and
continuing misrepresentations were intended to end did
conceal from Vendel his true status as the majority owner
of Tel II with the right to elect all directors of TeI II
and Statek and direct the operations of both corpora-
tions.
57. As a result of Johnston's and Spillane'S
fraudulent representations, plaintiffs have been injured
in an amount to be determined at trial, but estimated at
this time to be not less than $~2.5 million, plus inter-
est.
23
/
/
COUNT V -- DEBT ACTION
58. Plaintiffs incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
59. Johnston is indebted to Tel II in the
amount of $6,056,116 and Spillane is indebted to Tel II
in the amount of $200,000, as a result of loans recorded
by TCI II to Johnston and Spillane through 1992.
60. Notwithstanding Tel II's repeated re-
quests, Johnston and Spillane have refused to repay the
aforementioned sums to Tel II.
COUNT VI -- AIDING AND ABETTING
61. Plaintiffs incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
62. Defendants Johnston and Spillane have
knowingly participated in and aided and abetted each
other in the violations of law complained of herein.
63. The Johnston Entities have aided and
abetted the Individual Defendants in the misappropriation
of TCI II's and Statek's assets.
eOUNT VII -- CIVIL CONSPIRACY
64. Plaintiffs incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
65. Johnston and Spillane have knowingly par-
ticipateo in and conspired with each other and the
24
/
Johnston Entities in the violations of law complained of
herein.
66. Johnston and Spillane's violations of
their fiduciary duties and frauds and their conspiracy in
each others' violations and frauds have harmed Tel II and
Statek.
REOUEST FOR RELIEF
WHEREFORE, plaintiffs request that the eourt
enter a judgment:
IiI sequestering all Tel II stock owned
by Johnston, Spillane or any of the other defendants
herein and ordering the sale of said stock to satisfy the
judgments described below;
(ii) imposing a constructive trust upon
all TCI II stock owned by anyone other than Arbitrium and
upon all monies misappropriated from TCI II and Statek by
Johnston and Spillane and upon all property derived from
such monies;
liiil ordering an accounting;
(ivl awarding damages against the defen-
dants, jointly and severally, in the amount of the ille-
gal and excessive payments made by Statek and TCI II to
or for the benefit of Johnston, Spillane or the Johnston
Entities;
25
(vI awarding judgment against Johnston in
the amount of $6,056.116, representing the sum of loans
made by Tel II to Johnston which Johnston has refused to
repay to TCI II;
(viI awarding judgment against Spillane in
the amount of $200,000, representing the sum of loans
made by TCI II to Spillane which Spillane has refused to
repay to TCI II;
(viiI awarding damages against the defen-
dants, jointly and severally, in an amount to be deter-
mined at trial but estimated at this time to be not less
than $22.5 million, plus interest, to compensate plain-
tiffs for the misappropriation and conversion of assets,
waste, breach of fiduciary duties, and frauds perpetrated
on them by Johnston and Spillane;
(viiil awarding plaintiffs their costs of
suit, including reasonable attorneys' fees and disburse-
ments; and
26
(ix) granting such other and further re-
lief as is just and proper.
Tomas . A
L. Ree e
Thonlas G. Mac
SKADDEN, ARPS,
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(3021 651-3000
Attorneys for Plaintiffs
& FLOM
DATED r.::r /UU. ~"
, 1996
27
.ui,fEOERAIION or ~'idi;""';i,j)
CANTON OF GENEVA 5 5
CITY OF GENEVA .
CONSULAR SERVICE OF THE
UNITED STATES OF AMERICA
VERIFICATION
I, Miklos Vendel, as an officer, director and
duly authorized representative of the above-named plain-
tiffs, being duly sworn, state as follows:
I have react the foregoing Verified Complaint
and know the contents thereof and the same is true of my
own knowledge as to acts of plaintiffs and is true on
information and belief as to all other allegations.
,% Yt&1 r/ evd J'
Miklos Vendel
Sworn to and subscribed before
me this ;;q.. day of ~-;rt/i1e. , 1996.
0067691.01-41511
28
"
CERTIFICATE OF SERVICE
I, Cathy L. Reese, hereby certify that two
copies of the foregoing Notice of Motion for Commission,
Motion for Commission, commission to Take Deposition and
Order Granting Motion for Commission were served, in the
manner specified below, this 26 day of September, 1997:
Bv Hand Deliverv
Lawrence C. Ashby
ASHBY & GEDDES
One Rodney Square
P.O. Box 1150
Wilmington, Delaware 19899
Attorneys for Defendants
II ingham II
Reese
Love
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
Attorneys for Plaintiffs Technicorp
International II, Inc. and Statek
Corporation
~
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,
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
________________________________x
TEeHNICORP INTERNATIONAL II,
INC., a Delaware corporation,
and STATEK CORPORATION, a
California corporation,
C.A. No. 15084
Plaintiffs,
v.
H. FREDERICK JOHNSTON, et al.,
Defendants.
________________________________x
NOTICE OF DEPOSITION
TO: Lawrence C. Ashby
ASHBY & GEDDES
One Rodney Square
P.O. Box 1150
Wilmington, Delaware 19899
Attorneys for Defendants
PLEASE TAKE NOTICE that pursuant to Court of
Chancery Rules 30 and 45, that plaintiff will take the
deposition upon oral examination of C-MAC Quartz Crystals,
Inc. (formerly Greenray Industries, Inc.). This deposition
will be taken before an officer authorized by law to admin-
ister oaths, commencing at 10 a.m. on October 28, 1997, and
continuing from day to day until completed, at the offices
of Geiger & Loria Reporting Service, 2408 Park Drive, Suite
B, Harrisburg, Pennsylvania 17110, or at such other place,
date and times as may be agreed upon by counselor ordered
by the Court.
~
The deponent is also directed to produce for
inspection or copying at or before the time of deposition
the documents called for in Schedule A attached hereto.
You are invited to attend and cross-examine.
T1:!!{~ II
~eese
James L. Love
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
Attorneys for Plaintiffs Technicorp
International II, Inc. and Statek
Corporation
DATED: September 26, 1997
r
,
I
2
SCHEDULE A
1. All documents referring or relating to
purchases or sales of Greenray stock, including. but not
limited to, all stock ledgers, stock lists, transfer sheets,
stock purchase or sale agreements, non-objecting beneficial
owner lists, and stock certificates (including copies of such
certificates and cancelled certificates) .
2. All documents referring or relating to the
value of Greenray stock.
3. All documents referring or relating to any
put or call options with respect to stock in Greenray.
4. All documents relating to the 1995 sale of
Greenray.
5. All documents related to the cash/bank
accounts of Greenray, including without limitation: the
(original I disbursement source ledger and bank statements or
any other document that is a full and complete register of
disbursements; cancelled checks (both sides); check stubs;
check books; wire transfer information, including debit and
credit advice memos; bank reconciliations; signature cards;
and bank statements.
6. All documents referring or relating to any
audit of the business and accounts of Greenray.
7. All documents referring or relating to the
tax returns, supporting worksheets, Forms W-2 or 1099, or
other tax related documents of Greenray.
8. All documents referring or relating to the
corporate credit card accounts of Greenray.
9. All documents that refer or relate to any
loans made by Greenray. This request includes, but is not
limited to, the terms of the loan, the repayment schedule,
the interest rate of the loan, and any proof of repayment.
10. All documents that refer or relate to any
loans to Greenray. This request includes, but is not limited
to, the terms of the loan, the repayment schedule, the inter-
est rate of the loan, and any proof of repayment by Greenray.
11. All correspondence to, from, or copied to
Johnston, Spillane, the Johnston Entities, Tel II, or Statek.
12. All documents referring or relating to
insurance policies for Johnston or Spillane or for which
Johnston or Spillane are or were beneficiaries, including,
without limitation, the policies, invoices, and proof of
premiums.
13. All records reflecting or referring to
expenses incurred by Johnston, Spillane, or the Johnston
Entities, and reimbursed or paid by Greenray.
14. All documents referring or relating to any
transaction between Johnston, Spillane, or any Johnston
Entity, on the one hand, and, on the other hand, Greenray, or
any current or former officer or director of Greenray.
2
15. All documents referring or relating to any
asset held or owned jointly by Greenray, on the one hand,
with Johnston, Spillane, or any Johnston Entity, on the other.
16. All documents summarizing, transcribing or
recording any meetings, or portions thereof, of the boards of
directors, or any committees thereof, of Greenray.
17. All documents referring or relating to any
Greenray subsidiary or an entity in which Greenray owned or
owns an interest.
18. All documents referring or relating to legal
services provided to Greenray or any of its current or former
officers or directors including, but not limited to, files,
bills, invoices, detail of services provided, receipts of
payment, checks, and wire transfer information.
19. All documents that are relevant to any of
the issues raised in the attached Complaint in this Action.
3
DEFINITIONS
1. The term "Greenray" means Greenray Indus-
tries, Inc. and (i) all of its present and former agents, em-
ployees, representatives, accountants, investigators, consul-
tants and attorneys, officers, directors, and predecessors or
successors in interest, including, but not limited to, C-MAC
Quartz Crystals, Inc. and any affiliated entities that were
in existence during the applicable period of time covered by
these requests; (ii) any other person or entity acting on
Greenray's behalf or on whose behalf Greenray acted; and
(iii) any other person or entity otherwise subject to
Greenray's control or which Greenray controls, or with which
Greenray is under common control.
2. The term "Statek" means Statek Corporation
and its parent, subsidiaries, affiliates, present and former
officers, directors, employees, agents, attorneys or repre-
sentatives, and all other persons acting or purporting to act
on its behalf.
3. The term "TCI II" means Technicorp II, Inc.
and its subsidiaries, affiliates, present and former offi-
cers, directors, employees, agents, attorneys or representa-
tives, and all other persons acting or purporting to act on
its behalf.
4. The term "Johnston" means H. Frederick
Johnston.
5. The term "Spillane" means Sandra Spillane.
4
6. The term "Johnston Entity" means any company
owned or controlled by H. Frederick Johnston. including. but
not limited to, BLM Holding Corporation, BAI Corporation,
Metrodyne Corporation, SAMCO Investors, Inc., Rare Stamps
Investments, Inc., Technicorp International III, Inc.,
Technicorp International IV Ltd.. Technicorp International V,
Ltd., Technicorp International, Inc., Technicorp Ventures,
Inc., Technicorp Industries, Inc., Amplifonix, Inc., E C M
Devices, Inc., Artafax Systems, Ltd., Acosta Street Corpora-
tion, and Digital Communications Products, Inc.
7. The term "document" is used in the broadest
sense and shall include, without limitation, any and all
drafts; communications; correspondence; memoranda; records;
reports; books; reports and/or summaries of personal conver-
sations or interviews; diaries; graphs; charts; diagrams;
tables; photographs; recordings; tapes; microfilms; minutes,
records, reports and/or summaries of meetings, interviews or
conferences; reports and/or summaries of investigations; re-
cords, reports, or opinions of consultants; brochures; pam-
phlets; circulars; trade letters; marketing materials; press
releases; contracts; projections; forecasts; statistical
statements; stenographic, handwritten or any other notes;
work papers; confirmation slips; transfer papers; checks,
front and back; check vouchers, check stubs or receipts; tape
data sheets, data processing cards, discs or any other writ-
ten, recorded, transcribed, punched, taped, filmed or graphic
5
matter, however produced or reproduced; and any paper or
writing of whatever description. and any other documents or
writings of whatever description, including, but not limited
to, any voicemail system or phono-records of any kind or
information, including any information contained in any
computer although not yet printed out within defendant's
possession, custody or control, or the possession, custody or
control of any person acting or purporting to act on
defendant's behalf. Document also means all non-identical
copies of original documents and non-identical copies there-
of.
~<
8. The term "person" refers to any natural
person, governmental body or political subdivision thereof,
firm, sole proprietorship, association, partnership, corpora-
tion or other form of legal entity.
9. The singular includes the plural and vice
versa; the words "and" and "or" shall be construed to be
either conjunctive or disjunctive as the context requires so
that each request for production of Documents shall be con-
strued broadly rather than narrowly; the word "all" means
"any and all"; the word "any" means "any and all."
6
INSTRUCTIONS
1. If any request for documents is deemed to
call for the production of privileged materials and such
privilege is asserted, a list of documents so withheld is to
be furnished: (a) identifying the person who prepared or
authorized the documents, and, if applicable, the person to
whom the document was sent or shown; (bl specifying the date
on which the document was prepared or transmitted; (c) de-
scribing the nature of the document (~, letter, telegram,
etcl; (d) stating briefly why the document is claimed to be
privileged or to constitute work product; and (e) stating the
paragraph of this request to Which the document relates.
2. Each Request for production seeks production
of each document, in its entirety, and all drafts and non-
identical copies of each document.
3. Produce every responsive document regardless
of whether such document has been produced already by another
person in the course of this litigation.
4. If any document requested herein was for-
merly in your possession. custody or control, and has been
lost or destroyed, or otherwise disposed of, you are request-
ed to submit in lieu of such document a written statement:
(al describing in detail the nature of the document and its
contents; (b) identifying the person(s) who prepared or
authorized the document and, if applicable, the person to
whom the document was sent; (c) specifying the date on which
7
the document was prepared or transmitted; and (dl specifYlng,
if possible, the date on which the document was lost or
destroyed and, if destroyed, the conditions of and reasons
for such destruction and the person(s) requesting and/or
performing the destruction.
5. If any document identified in response to
any request herein relates in any way to a meeting or to any
other conversation, all participants in the meeting or con-
versation are to be identified.
6. Each request for the production of documents
shall be deemed continuing so as to require prompt supplemen-
tal responses, in accordance with Court of Chancery Rule
26(el, if you obtain or discover additional documents between
the time of initial production and the time of hearing or
trial.
7. Responsive documents should be produced as
they have been kept in the ordinary course of business and
organized and labeled to correspond to the categories in this
request to which they respond.
8. Unless otherwise indicated, the time period
covered by this Request is from February 29, 1984 to August
31, 1995.
9. To the extent that responsive documents are
held by someone within your control, such as a law firm or
relative, and are obtainable at your request, those respon-
sive documents should be produced.
8
.....
",,'
,. .:..::
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE eoUYTY
----------------- X
r.
TECHNICORP INTERNATIONAL II,
INe., a Delaware corporation,
and STATEK CORPORATION, a
ealifornia corporation,
Plaintiffs,
,.
e.A. No.
15~
-against-
H. FREDERICK JOHNSTON, SANDRA
SPILLANE, BLM HOLDING eORPORATION,
a Delaware corporation, BAI CORPO-
RATION, a Delaware corporation,
METRODYNE eORPORATION, a Delaware
corporation, SAMCO INVESTORS,
INe., a Delaware corporation, RARE
STAMPS INVESTMENTS, INC., a Dela-
ware corporation, TECHNICORP
INTERNATIONAL III, INC., a Dela-
ware corporation, TECHNICORP
INTERNATIONAL IV LTD., a Delaware
corporation, TECHNICORP INTER-
NATIONAL V, LTD., a Delaware
corporation, TECHNleORP INTERNA-
TIONAL, INC., a Delaware corpo-
ration, TECHNICORP VENTURES, INe.,
a Delaware corporation, TECHNI-
eORP INDUSTRIES, INC., a Delaware
corporation, AMPLIFONIX, INe., a
Delaware corporation, E C M
DEVICES, INC., a Delaware corpo-
ration, ARTAFAX SYSTEMS, LTD., a
New York corporation, and DIGITAL
eOMMUNICATIONS PRODUCTS, INe., a
Delaware corporation,
/
:/
,
I
..
.1".
-.
Defendants.
- - - - - - - - - - - - - - - - - X
VERIPIIrD COMPLAINT
Plaintiffs for their complaint allege as fol-
lows I
NATURE OF THE ACTION
1. This is a direct action by Technicorp
International II ("Tel II" or the "eompany") and Statek
Corporation ("Statek" I to remedy more than a decade-long
pattern of breaches of fiduciary duties, frauds and
misappropriations of TCI II and Statek assets perpetrated
by defendants H. Frederick Johnston ("Johnston" I and
Sandra Spillane ("Spillane"l, and by BLM Holding eorpora-
tion (IBLM"l, BAI eorporation (IIBAI"I, Metrodyne Corpora-
tion ("Metrodyne"l, SAMCO Investors, Inc. ("SAMCO"l, Rare
Stamps Investments, Inc. ("Rare Stamps"), Technicorp
International III, Inc. ("TCI III II I , Technicorp Interna-
tional IV Ltd. ("Tel IV" I, Technicorp International V,
Ltd. ("TeI V"I, Technicorp International, Inc. ("TeI"),
Technicorp Ventures, Inc. ("TVI"), Technicorp Industries,
Inc. ("TII"I, Amplifonix, Inc. ("Amplifonix"l, EeM
Devices, Inc. ("ECM"), Artafax Systems, Ltd. ("Artafax"l,
and Digital Communications Products, Inc. ("Dep"l (col-
lectively, the "Johnston Entities"l.
2. Specifically, since TCI II's acquisition
of Statek in 1984, defendants Johnston and Spillane have
2
engaged in a pattern of fraudulent schemes to misappro-
priate the as.ets of TCI II and Statek, all to the detri-
ment of TCI II and Statek. Johnston and Spillane have
accomplished these schemes by: (il attempting, by inten-
tional misrepresentation, to induce Vendel to believe
that his ownership interest in TCI II did not give him
the power to elect officers and directors of TCI II; (iil
attempting illegally to reclassify Vendel's Tel II stock
into non-voting stock without his knowledge or consent;
(iiil attempting to dilute Vendel's stockholdings by
issuing unauthorized TCI II stock to themselves and their
nominees; (ivl misappropriating more than $10 million in
TCI II assets, including unauthorized and unreported
"compensation" and undocumented loans to themselves and
the Johnston Entities; and (v) causins unjustified pay-
ments by Statek in excess of $12.5 million to be made,
directly or indirectly to, or for the benefit of,
Johnston and Spillane.
3. In this action, plaintiffs seek (il a
judgment against Johnston, Spillane, and the Johnston
Entities, jointly and severally, for at least $22.5 mil-
lion, plus interest; (iil the immediate sequestration of
all TCI II stock held, directly or indirectly, by
Johnston and Spillane; (iiil the imposition of a con-
3
structive trust upon all TCI II stock purportedly held,
directly or indirectly, by Johnston and Spillane, and
upon all monies misappropriated from Tel II and Statek by
Johnston and Spillane, and upon all property derived from
such monies; and (iv) an accounting.
THE PARTIES
4. Plaintiff Tel II is a Delaware corpora-
tion. Until this year, its principal place of business
was in Stamford, Connecticut. Tel II serves solely as a
holding company for all of the capital stock of Statek
and conducts no other business activities.
5. Plaintiff Statek, a wholly owned subsid-
iary of Tel II, is a California corporation that manufac-
tures microelectronic components.
6. Prior to the May 2, 1994 delivery of a
consent pursuant to 8 Del. e. S 228 removing him from
office (the "Consent"), defendant Johnston was Chairman
of the Board, President and Treasurer of TCI II. He was
also Chairman, Chief Executive Officer and President of
Statek. He is or was also an executive officer, director
and controlling stockholder of the Johnston Entities.
Johnston is not a resident of the Statft of Delaware.
7. Prior to the May 2, 1994 delivery of the
eonsent, defendant Spillane was President, Secretary and
4
the only other director besides Johnston of Tel II.
Spillane was also Vice president, Secretary and the only
other director besides Johnston of Statek. She is or was
also a director and executive officer of some or all of
the Johneton Entities. Spillane is a long-time personal
friend and business associate of Johnston. spillane is
not a resident of the State of Delaware.
8. The Johnston Entities are shell corpora-
tions controlled by Johnston and Spillane that have no
legitimate business purpose. Artafax is a New York
corporation; all other Johnston Entities are Delaware
corporations.
9. Miklos Vendel, a Swiss citizen, is and at
all relevant times has been the beneficial owner of a
majority of the outstanding stock of TCI II, which is
held of record by his nominee, Arbitrium (eayman Islandsl
AG ("Arbitrium"l, a Cayman Islands corporation. Vendel
and Arbitrium are not parties to this action.
DISCOVERY OP THB PRAUD
10. From 1984 through January 1996, Johnston
and Spillane abused their positions as purported direc-
tors and officers of Tel II and Statek to surreptitiously
and systematically misappropriate more than $10 million
from TCI II and more than $12.5 million from Statek.
5
11. On October 15, 1993, Vendel, on behalf of
Arbitrium, demanded to inspect certain books and records
of TCI II pursuant to 8 Del. C. 5 220. When that demand
was refused, Arbitrium filed a complaint under 8 Del. C.
S 220 in this eourt (the "Section 220 Action"). The
l
ri
;
\.
,
parties reached a settlement of that action on February
17, 1994. Pursuant to the settlement, on March 11, 1994,
Tel II produced certain financial records (the "Section
220 Records"l of the eompany.
12. the Section 220 Records established, among
other things, that Vendel beneficially owned at least
seventy percent of the voting scock of TCI II.
13. After receiving this documentation of
Vendel's and Arbitrium's majority stockholder status,
Vendel and Arbitrium, acting pursuant to 8 Del. e. S 228
and Section 11 of the Tel II by-laws, executed the eon-
sent on April 28, 1994. Pursuant to the eonsent, (il
Johnston and Spillane were removed from their positions
as directors and officers of Tel II; (iil the TCI II by-
laws were amended to decrease the number of directors to
one; and (iii) Vendel was elected the sole director of
TCI II.
14. Defendants refused to recognize the valid-
ity of the Consent. Vendel and Arbitrium thereafter
6
filed an action in thie Court pursuant to 8 Del. C. I 225
to determine the rightful directors of TCI II (the "Sec-
tion 225 Action"l. This eourt held that the Consent was
valid and legally effective. Arbitrium (Cavman Islandsl
AG v. Johnston, Del. Ch., e.A. No. 13506, slip op. at 35,
Jacobs, v.e. (Jan. 5, 1996) (the "Section 225 Opinion" I .
15. In addition to establishing Vendel's and
Arbitrium's majority ownership in TCI II, the Section 220
Records, taken together with documents produced by TCI II
in connection with the Section 225 Action, also estab-
lished for the first time to plaintiffs' knowledge an
i
L
~
extraordinary pattern of fraud, misrepresentation and
conversion of the assets of Tel II and Statek for the
benefit of Johnston and Spillane. Defendants intention-
ally and fraudulently concealed their improper and ille-
gal activities.
MISAPPROPRIATION OF TCI II AND STATEK ASSETS
16. Tel II is a holding company. Statek, its
wholly-owned subsidiary, is its only revenue-producing
asset, and was the sole source of funds for Johnston,
Spillane and the entire web of Johnston companies. In
fact, Johnston and Spillane used Statek as their personal
bank, funding all of their activities, down to the most
trivial of personal expenses, out of Statek.
7
17. Funds were diverted from Statek to the
benefit of Johnston and Spillane in four ways.
lB. First, Johnston and/or Spillane caused
payments to be made directly to them, the Johnston Enti-
ties, or Johnston's cronies. These payments generally
took one of three forms: checks drawn directly to the
recipient; wire transfers to the recipient (typically
overseas I ; or checks written to "cash," which Johnston
then ordered Statek employees to deposit directly into
his personal bank account with Bank of America in Orange,
ealifornia. These direct payments totalled over $4
million.
19. second, Johnston and/or Spillane ordered
that payments totalling more than $B million be made by
Statek to third parties for the benefit of Johnston or
Spillane. Included in those payments were:
a. Legal fees paid to law firms n2t
employed by Statek in its regular course of business
(the "Legal Fee Payments"l. In all but one instance the
only support in the Statek accounting records for the
Legal Fee payments was an "invoice" manually prepared by
Spillane showing only the name of the firm and the dollar
amount of the invoice. No detail on the work performed
was reflected, and many of the payments match invoices
8
billed by the firms to Johnston and Spillane personally,
or to Johnston Entitie8.
b. payments attributable to Johnston and
Spillane'. personal living expenses (the "Personal Ex-
pense Payments" I , including credit card charges, tele-
phone charges, aircraft charters, and direct hotel bill-
ings. There is not a single Johnston or Spillane expense
report in Statek's files to support the Personal Expense
payments. Among the Personal Expense Payments were:
. Items charged by Johnston and Spillane to Amer-
ican Express accounts paid by Statek, including
numerous purchases from Harrod's, medical ex-
penses (despite the comprehensive medical in-
surance also paid for by Statek), and travel to
locations where Statek had no business, such as
Gibraltar and the Bahamas. The American Ex-
press bills paid directly by Statek alone to-
talled more than $1.25 million.
. Payment for a full-time suite at an Orange
eounty hotel for a period of nearly three full
years, at the same time as Johnston was causing
Statek to pay for a residence for him in Lon-
don, England.
9
. Chauffeured limousine services totalling well
over $100,000.
. Almost $10,000 in freight charges to ship
Johnston's personal wine and art collections to
his new home in the Bahamas.
. Almost $16,000 for Chinese lessons.
. Almost $10,000 in direct medical payments (over
and above the American Express medical charges,
and again despite the defendants' health insur-
ance plansl .
. Well over $25,000 in purchases of rare stamps
at European auctions.
. More than $6,000 in gifts to and travelling
expenses of women whom Johnston invited to
visit him in Orange; Johnston ordered Statek's
controller to pay these expenses with the
controller's own American Express card, and
then to bury them in statek's selling, general
and administrative expense line.
. Unnecessary interest and fees on loans having
no legitimate business purpose for Statek,
proceeds of which were diverted to the benefit
of Johnston or the Johnston Entities.
10
The personal Expense payments totalled more
than $8 million.
20. Third, Johr.ston and Spillane caused Statek
to incur more than $550,000 in unnecessary expenses (the
"Unnecessary Expense Payments"l. For example, Statek
paid almost $350,000 for rent, magazine subscriptions,
and equipment at the defendants' office at 20 Acosta
Street, Stamford, Connecticut.
21. Fourth, Johnston and Spillane caused
Statek to pay over $11.5 million in dividends, management
fees, advances or corporate charges to Tel II. of this
total, mere than $10 million was improperly paid out,
directly or indirectly, to the benefit of Jot~ston and
Spillane.
22. The funds paid by Statek to Tel II and the
Johnston Entities as described above in paragraphS lB and
21 were in turn used exclusively for the benefit of
Johnston and Spillane.
23. TCI II has no audited financial state-
ments. Apart from its tax returns, Tel II's only inter-
nal financial record is a handwritten ledger (the "Led-
ger"l kept on an annual basis by Spillane showing the
year-end balances for certain accounts, including loans
receivable, loans payable, accounts receivable and
11
prepaids, expenses and "compensation" paid or purportedly
owed to Johnston and Spillane.
24. Specifically, the Ledger shows that
Johnston and Spillane have caused TCI II to make millions
of dollars in undocumented loans to themselves and the
Johnston Entities.
25. The Ledger reflects, for example, that
from 1984 through 1992, Johnston withdrew over $2,100,000
and Spillane withdrew $200,000 in undocumented personal
"loans" from TCI II. There are no written loan agree-
ments documenting or reflecting the interest or repayment
terms or conditions of these loans. These loans were
made in violation of B Del. e. S 143 in that they were
not approved by resolution of the Tel II board of direc-
tors and were not determined to benefit TCI II.
26. One court, based on Johnston's own finan-
cial affidavit, has already found that Johnston "has
evidenced an ability to borrow virtually unlimited sums
from the corporations in which he has an interest."
Johnston v. Johnston, Conn. Super., C.A. No. FA90 027530B
S, 1990 eonn. Super. LEXIS 1599, at *5 (Oct. 23, 19901.
Despite Spillane'S representation to the eonnecticut
court that "this borrowing had been curtailed as of
December, 1989 and January, 1990," jJL" TCI II's records
12
reflect that these "loans" increased in frequency and
amount from 1990 through at least 1992.
27. In addition to the $2.3 million in person-
al loans described above, between 1984 and 1992, Johnston
and Spillane caused Tel II to issue undocumented loans
totalling almost $4 million to the Johnston Entities.
Again, no loan agreements exist reflecting the interest
or repayment terms or conditions of any of these loans.
28. Specifically, as detailed under the cap-
tions "TCI II Loans Receivable" and "TCI U A/e Rec. &
prepaids," in Tel II's financial ledger from 1984 through
1992, the defendants caused TCI II to pay the following:
a. $334,238 in undocumented "loans" and
$53,227 in undocumented "accounts receiv-
able and prepaids" to "TVI, " which signi-
fies Technicorp Ventures, Inc., a Delaware
"industrial management" corporation.
TVI's most recent Delaware Annual Fran-
chise Tax Report lists Johnston and
Spillane as its sole officers and direc-
tors and 20 Acosta Street, Stamford, eT as
its principal place of business.
b. $2,200,522 in undocumented "loans" and
$609,595 in undocumented "accounts receiv-
able and prepaids" to "TCI," which signi-
fies Technicorp International, Inc., an-
other Delaware corporation. TCI's most
recent Delaware Annual Franchise Tax Re-
port lists Johnston and Spillane as its
sole officers and directors and 20 Acosta
Street, Stamford, eT as its principal
place of business.
13
c. $241,629 in undocumented "loans" and
$179,127 in undocumented "accounts receiv-
able and prepaids" to "MO," which signi-
fies Metrodyne Corporation, another Dela-
ware corporation. Metrodyne's most recent
Delaware Annual Franchise Tax Report lists
Johnston and spillane as its sole officers
and directors and 20 Acosta Street,
Stamford, CT as its principal place of
business.
d. $348,378 in undocumented "loans" to "Tel
III," which signifies Technicorp Interna-
tional I II, Inc., a Delaware "industrial
holding" corporation. Tel Ill's most re-
cent Delaware Annual Franchise Tax Report
lists Johnston and Spillane as its sole
officers and directors and 20 Acosta
Street, Stamford, CT as its principal
place of business.
e. $150,000 in undocumented "loans" to
"Artafax." On information and belief,
"Artafax" refers to Artafax Systems, Ltd.,
a New York corporation now in dissolution.
f. $250,000 in undocumented "loans" to "Dg
Prod." On information and belief, "Dg
Prod" refers to Digital eommunications
Products, Inc., a Delaware corporation
(formerly Digital Products eo., Inc.l.
g. $424,681 in undocumented "loans" to "ECM."
On information and belief, "ECM" refers to
ECM Devices, Inc., a Delaware corporation
controlled by Johnston.
29. These loans were made in violation of 8
Del. e. S 143 in that they were not approved by resolu-
tion of the Tel II board of directors and were not deter-
mined to benefit TCI II.
14
30. According to TCI II's financial records,
not a penny of the loans to these Johnston Entities has
been repaid. Nevertheless, year after year, Johnston and
spillane approved additional Tel II loans to the same
Johnston Entities.
31. On January 18, 1996, by resolution of its
board of directors, Tel II "call [ed] , accelerate[d], and
declare[d] immediately due and payable all sums owed to,
or wrongfully taken from" Tel II by Johnston, Spillane or
the Johnston Entities.
32. By letter dated March 14, 1996, Tel II,
through its counsel, advised Johnston that the sums owed
to or wrongfully taken from TCI II by Johnston and the
Johnston Entities, specifically including $6,056,116 in
Designated Loans made by TCI II to Johnston and the
Johnston Entities through 1992, "are now due and payable
to TCI II." TCI II demanded repayment of the loans by
March 22, 1996. Johnston did not repay these loans or
even acknowledge the March 14, 1996 letter. On May 29,
1996, TCI sent Johnston a second letter demanding that he
repay the $6,056,116 in Designated Loans made by TCI II
to Johnston and Johnston Entities, as well as other sums
he owed to or wrongfully took from Tel II. Johnston did
15
not repay these sums or acknowledge the May 29, 1996
letter.
33. Also by letter dated March 14, 1996, Tel
II, through its counsel, advised Spillane that the sums
owed to or wrongfully taken from Tel II by Spillane, spe-
cifically including $200,000 in Loans Receivable made by
TCI II to spillane through 1992, "are now due and payable
to Tel II." TCI II demanded repayment of the loans by
March 22, 1996. Spillane did not repay these loans or
even acknowledge the March 14, 1996 letter. On May 29,
1996, TeI sent Spillane a second letter demanding that
she repay the $200,000 in Loans Receivable as well as
other sums she owed to or wrongfully took from TCI II.
Spillane did not repay these sums or acknowled3e the May
29, 1996 letter.
34. A review of even the limited Johnston
Entity documents produced in response to this eourt's
order in March of this year shows conclusively how funds
paid by Statek to Johnston Entities (directly or indi-
rectly through TCI II) were used almost exclusively for
the benefit of Johnston.and Spillane. These documents,
which relate to certain Johnston Entities for the years
1993-95 only, indicate that Johnston and Spillane used
16
the funds they diverted from Statek for, among other
things:
a. Lavish purchases of art and/or other
collectibles. Statek funds channeled through Metrodyne
totalling $24,740 were paid to the famous auction house,
ehristies; $190,332 to Sotheby's; and $112,500 to the
British auction house Richard Green. In addition,
Johnston used Statek funds to pay for dedicated warehouse
or secured vault space for his auction purchases, and
shipping and/or insurance to get them to that space,
totalling more than $44,000. These figures cover only
the three years 1993..95; the totals for the full period
1984-95 would likely be much higher.
b. Extensive purchases of rare stamps
for Johnston's personal collection, at leading European
dealers. Payments (again through Metrodynel for stamps
to e. Grobe of Germany totalled $165,000; to German
dealer Heinrich Koehler $95,900; and to David Feldman, of
Geneva, Switzerland, in smaller amounts. Thus, in just
the three years preceding the Opinion, Johnston spent
more than a quarter of a million dollars of Statek's
money (channelled through Metrodynel on rare stamps
alone. Again, this is only for the 3 year period from
17
1993 to 1995, and these payments are in addition to the
payments for stamps made directly by Statek.
c. payments made directly to Johnston,
Spillane, or "Cash" totalling more than $68,000 from
Metrodyne, Tel, TCI III or Samco.
d. payments of premiums for benefit
packages, including health care and pharmaceutical insur-
ance policies, at the same time that Statek or Metrodyne
paid Johnston's medical bills directly. Johnston 'and
Spillane then submitted claims under the policies, with
directions that the insurance company should issue the
reimbursement check to Johnston directly.
e. Payments to banks to service personal
lines of credit for the benefit of Johnston and Spillane.
f. payments for personal credit card
accounts of Johnston and Spillane; for just the years
1993 to 1995, for example, Metrodyne American Express
bills (for charges almost exclusively made by Johnston
and Spillane personallyl totalled $192,574.
g. Regular payments to a Bahamas law
firm, Dupuch & Turnquest, apparently unrelated to legal
services performed for Tel II or Statek. These payments
were (il made directly from Statek (totalling $547,295
from 19BB to 19961, (iil made indirectly from Statek
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.~
.--
through Metrodyoe (totalling $61,500 from 1993 to 1995
onlyl, or (iii) made indirectly from Statek by funnelling
the payments through invoices from Carb Luria, which was
then the law firm of defendants' current counsel (total-
ling $179,000 in 1993 alonel.
h. Payments of premiums for life insur-
ance policies for Johnston and Spillane, having cash
surrender values against which Johnston and Spillane then
borrowed funds. For the years 1993 to 1995 alone, these
premium payments totalled more than $170,000.
i. Finally, virtually every personal
expense of Johnston and Spillane -- literally down to the
purchase of personal toiletries -- was paid with Statek
funds funneled through either Metrodyne or Tel. If
Johnston or Spillane wanted to send flowers to a friend,
Statek paid (through Metrodynel. Johnston and/or
Spillane belonged to multiple social clubs, but Statek
(through Metrodyoe or TCI) paid the fees. Cellular
phones, cable TV charges, greeting cards, wristwatch
repairs, kitchen knives -- all were paid for by Johnston
Entities, using funds generated by Statek.
35. Thus, all told, Johnston and Spillane
misappropriated for their own benefit more than $22.5
million of Statek and Tel II assets. Plaintiffs' inves-
19
tigation i. ongoing, and the actual total may be materi-
ally higher.
COUNT I - - WASTE OF CORPORATE ASSETS
36. Plaintiffs incorporate each of the preced-
ing paragraphs a8 if set forth fully herein.
37. Johnston and Spillane, in their former
capacities as director8 of Statek and TCI II, owed fidu-
ciary duties to TCI II, Statek and their stockholders.
38. These duties prohibited Johnston and
Spillane from approving or participating in the waste of
Statek's and Tel II's assets.
39. Statek and Tel II received no consider-
ation in return for the more than $22.5 million in assets
taken from Statek and TCI II by Johnston, Spillane and
the Johnston Entities.
40. Johnston's and Spillane'S waste of corpo-
rate assets is beyond the protection of the business
judgment rule and has harmed Statek, TCI II and their
stockholders. Johnston and Spillane are personally lia-
ble, jointly and severally, for the full amounts of the
wasted corporate assets, with interest.
COUNT II -- CONVERSION OF eORPORATE ASSETS
41. Plaintiffs incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
20
42. Johnston and Spillane, in their former
capftcities as directors of Statek and TCI II, owed fidu-
ciary duties to the Btockholders of Statek and TeI II.
43. Pursuant to these duties, Johnston and
Spillane were prohibited from approving or participating
in the misappropriation of Statek's and TCI II's assets.
44. Statek and TCI II received no consider-
ation in return for the more than $22.5 million in assets
taken from Statek and TCI II by Johnston, Spillane and
the Johnston Entities.
45. The Statek and TCI II stockholders have
never ratified the above-described misappropriation of
Statek's and Tel II's assets.
46. The above-described misappropriation of
corporate assets is beyond the protection of the business
judgment rule and has harmed Statek, TCI II and their
stockholders. Johnston and Spillane are personally lia-
ble, jointly and severally, for the ~ull amounts of the
misappropriated corporate assets, with interest.
COUNT III -- BREACH OF FIDUCIARY DUTIES
47. Plaintiffs incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
48. Johnston and Spillane, in their former
capacities as directors of Statek and TCI II, owed fidu-
21
ciary duties of care, loyalty, good faith, and disclosure
to the stockholders of Statek and TCI II.
49. Johnston and Spillane breached all these
fiduciary duties by engaging in the conduct detailed
above, including (i) illegally seeking to reclassify TCI
II stock into classes of voting and non-voting stock
without the knowledge or consent of a majority of Tel
II's stockholders, in an attempt to gain voting control
over TCI II; (iil misappropriating for themselves and the
Johnston Entities more than $10 million in TCI II assets;
and (iiil misappropriating for themselves and the
Johnston Entities more than $12.5 million in Statek
assets.
50. The Statek and Tel II stockholders have
never ratified the above-described breaches of fiduciary
duty.
51. Johnston's and Spillane'S breaches of
their fiduciary duties described above have harmed
Statek, TCI II and their stockholders.
COUNT IV - - FRAUD
52. Plaintiffs incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
22
53. Johnston falsely and knowingly represent-
ed to Vandal that ha would inv..t $250,000 in the Statek
Acquisition.
54. 8y falsely representing to Vendel that he
would contribute $250,000 of his own per.onal funds to
Tel II for the Statek Acquisition, Johnston willfully in-
duced Vendel to invest $250,000 in TCI II.
55. Through Arbitrium, Vendel entrusted
$250,000 of his personal funds with Johnston in the
expectation that he would be entitled to stock ownership
in proportion to his investment.
56. Johnston's and Spillane'S original and
continuing misrepresentations were intended to and did
conceal from Vendel his true status as the majority owner
of TCI II with the right to elect all directors of Tel II
and Statek and direct the operations of both corpora-
tions.
57. As a result of Johnston's and Spillane'S
fraudulent representations, plaintiffs have been injured
in an amount to be determined at trial, but estimated at
this time to be not less than $22.5 million, plus inter-
est.
23
.
/
COUNT V -- DEBT ACTION
58. Plaintiff. incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
59. Johnston is indebted to TCI II in the
amount of $6,056,116 and Spillane is indebted to Tel II
in the amount of $200,000, as a result of loans recorded
by TCI II to Johnston and Spillane through 1992.
60. Notwithstanding TCI II's repeated re-
quests, Johnston and Spillane have refused to repay the
aforementioned sums to TeI II.
COUNT VI -- AIDING AND ABETTING
61. Plaintiffs incorporate each of the pre-
ceding paragraphs au if set forth fully hel'ein.
62. Defendants Johnston and Spillane have
knowingly participated in and aided and abetted each
other in the violations of law complained of herein.
63. The Johnston Entities have aided and
abetted the Individual Defendants in the misappropriation
of TCI II's and Statek's assets.
COUNT VII -- CIVIL CONSPIRACY
64. Plaintiffs incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
65. Johnston and Spillane have knowingly par-
ticipated in and conspired with each other and the
24
.
.
/
Johnston Entities in the violations of law complained of
herein.
66. Johnston and Spillane's violations of
their fiduciary duties and frauds and their conspiracy in
each others' violations and frauds have harmed Tel II and
Statek.
REOUEST FOR RELIEF
WHEREFORE, plaintiffs request that the eourt
enter a judgment:
(il sequestering all Tel II stock owned
by Johnston, Spillane or any of the other defendants
herein and ordering the sale of said stock to satisfy the
judgments described below;
(ii) imposing a constructive trust upon
all Tel II stock owned by anyone other than Arbitrium and
upon all monies misappropriated from TCI II and Statek by
Johnston and Spillane and upon all property derived from
such monies;
(iiil ordering an accounting;
(ivl awarding damages againut the defen-
dants, jointly and severally, in the amount of the ille-
gal anJ excessive payments made by Statek and Tel II to
or for the benefit of Johnston, Spillane or the Johnston
Entities;
25
.
(vI awarding judgment against Johnston in
the amount of $6,056,116, representing the sum of loans
made by TCI II to Johnston which Johnston has refused to
repay to Tel II;
(viI awarding judgment against Spillane in
the amount of $200,000, representing the sum of loans
made by TCI II to Spillane which Spillane has refused to
repay to Tel II;
(viiI awarding damages against the defen-
dants, jointly and severally, in an amount to be deter-
mined at trial but estimated at this time to be not less
than $22.5 million, plus interest, to compensate plain-
tiffs for the misappropriation and conversion of assets,
waste, breach of fiduciary duties, and frauds perpetrated
on them by Johnston and Spillane;
(viiil awarding plaintiffs their costs of
suit, including reasonable attorneys' fees and disburse-
ments; and
26
(ix) granting such other and further re-
lief as is just and proper.
Tomas . A
L. Ree e
Thomas G. Mac
SKADDEN, ARPS, MEAGHER & FLOM
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302 I 651-3000
Attorneys for Plaintiffs
DATED r.:( /UU. ~"
, 1996
27
.
.u;,tEOERATiON Of W,li;" ';';'J)
CANTON Of GENEVA S S
CITY Of GENEVA .
CONSUlAR SERVICE Of TIff
UNITtO STAlfS or AMERICA
VERIFICATION
I, Miklos Vendel, as an officer, director and
duly authorized representative of the above-named plain-
tiffs, being duly sworn, state as follows:
I have read the for.egoing Verified Complaint
and know the contents thereof and the same is true of my
own knowledge as to acts of plaintiffs and is true on
information and belief as to all other
allegations.
r~J/
~I(I~
V\. Y. .
Miklos V~n el
Sworn to and subscribed before
me this ~ day of ~7""t/;re. , 1996.
0061691.01"'2:111
28
~
CERTIFICATE OF SERVICE
I, Cathy L. Reese, hereby certify that two copies
of the foregoing Notice of Deposition and Schedule A were
served, in the manner specified below, this 26 day of Sep-
tember, 1997:
Bv Hand Delivery
Lawrence C. Ashby
ASHBY &. GEDDES
One Rodney Square
P.O. Box 1150
Wilmington, Delaware 19899
Attorneys for Defendants
T.~'
Cathy L. Reese
James L. Love
SKADDEN, ARPS, SLATE, MEAGHER &.
FLOM LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
Attorneys for Plaintiffs Technicorp
International II, Inc. and Statek
eorporation
01123380\-4251.
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IN THE eOURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
--------------------------------x
TEeHNICORP INTERNATIONAL II.
INe., a Delaware corporation,
and STATEK CORPORATION, a
California corporation,
Plaintiffs,
e.A. No. 150B4
v.
H. FREDERleK JOHNSTON, et al.,
Defendants.
--------------------------------x
NOTICE OF DEPOSITION
TO. Lawrence C. Ashby
ASHBY & GEDDES
One Rodney Square
P.O. Box 1150
Wilmington, Delaware 19899
Attorneys for Defendants
PLEASE TAKE NOTICE that pursuant to eourt of
Chancery Rules 30 and 45, that plaintiff will take the
deposition upon oral examination of C-MAC Quartz Crystals,
Inc. (formerly Greenray Industries, Inc.l. This deposition
will be taken before an officer authorized by law to admin-
ister oaths, commencing at 10 a.m. on October 2B, 1997, and
continuing from day to day until completed, at the offices
of Geiger & Loria Reporting Service, 240B Park Drive, Suite
B, Harrisburg, Pennsylvania 17110, or at such other place,
dace and times as may be agreed upon by counselor ordered
by the Court.
8. All documents referring or relating to the
corporate credit card accounts of Greenray.
9. All documents that refer or relate to any
loans made by Greenray. This request includes. but is not
limited to, the terms of the loan, the repayment schedule,
the interest rate of the loan, and any proof of repayment.
10. All documents that refer or relate to any
loans to Greenray. This request includes, but is not limited
to, the terms of the loan, the repayment schedule, the inter-
est rate of the loan. and any proof of repayment by Greenray.
11. All correspondence to, from, or copied to
Johnston. Spillane, the Johnston Entities, TCI II, or Statek.
12. All documents referring or relating to
insurance policies for Johnston or Spillane or for which
Johnston or Spillane are or were beneficiaries. including,
without limitation, the policies, invoices, and proof of
premiums.
13. All records reflecting or referring to
expenses incurred by Johnston, Spillane, or the Johnston
Entities, and reimbursed or paid by Greenray.
14. All documents referring or relating to any
transaction between Johnston, Spillane, or any Johnston
Entity, on the one hand. and, on the other hand, Greenray, or
any current or former officer or director of Greenray.
2
i
DEFINITIONS
1. The term "Greenray" means Greenray Indus-
tries, Inc. and (i) all of its present and former agents, em-
ployees, representatives, accountants, investigators, consul-
tants and attorneys, officers, directors, and predecessors or
successors in interest, including, but not limited to, C-MAe
Quartz Crystals, Inc. and any affiliated entities that were
in existence during the applicable period of time covered by
these requests; (iil any other person or entity acting on
Greenray's behalf or o~ whose behalf Greenray acted; and
(iiil any other person or entity otherwise subject to
Greenray's control or which Greenray controls, or with which
Greenray is under common control.
2. The term "Statek" means Statek Corporation
and its parent, subsidiaries, affiliates, present and former
officers, directors, employees, agents, attorneys or repre-
sentatives, and all other persons acting or purporting to act
on its behalf.
3. The term "TCI II" means Technicorp II, Inc.
and its subsidiaries, affiliates, present and former offi-
cers, directors, employees, agents, attorneys or representa-
tives, and all other persons acting or purporting to act on
its behalf.
4. The term "Johnston" means H. Frederick
Johnston.
5. The term "Spillane" means Sandra Spillane.
4
6. The term "Johnston Entity. means any company
owned or controlled by H. Frederick Johnston, including, but
not limited to, BLM Holding Corporation, BAI Corporation,
Metrodyne eorporation, SAMCO Investors, Inc., Rare Stamps
Investments, Inc., Technicorp International III, Inc.,
Technicorp International IV Ltd., Technicorp International V,
Ltd., Technicorp International, Inc., Technicorp Ventures,
Inc., Technicorp Industries, Inc., Amplifonix, Inc., E eM
Devices, Inc., Artafax Systems, Ltd., Acosta Street Corpora-
tion, and Digital Communications Products, Inc.
7. The term "document" is used in the broadest
sense and shall include, without limitation, any and all
drafts; communications; correspondence; memoranda; records;
reports; books; reports and/or summaries of personal conver-
sations or interviews; diaries; graphs; charts; diagrams;
tables; photographs; recordings; tapes; microfilms; minutes,
records, reports and/or summaries of meetings, interviews or
conferences; reports and/or summaries of investigations; re-
cords, reports, or opinions of consultants; brochures; pam-
phlets; circulars; trade letters; marketing materials; press
releases; contracts; projections; forecasts; statistical
statements; stenographic, handwritten or any other notes;
work papers; confirmation slips; transfer papers; checks,
front and back; check vouchers, check stubs or receipts; tape
data sheets, data processing cards, discs or any other writ-
ten, recorded, transcribed, punched, taped, filmed or graphic
5
matter, however produced or re~roduced; and any paper or
writing of whatever description, and any other documents or
writings of whatever description, including, but not limited
to, any voicemail syst~m or phono-records of any kind or
information, including any information contained in any
computer although not yet printed out within defendant's
possession, custody or control, or the possession, custody or
control of any person acting or purporting to act on
defendant's behalf. Document also means all non-identical
copies of original documents and non-identical copies there-
of.
8. The term "person" refers to any natural
person, governmental body or political subdivision thereof,
firm, sole proprietorship, association, partnership, corpora-
tion or other form of legal entity.
9. The singular includes the plural and vice
versa; the words "and" and "or" shall be construed to be
either conjunctive or disjunctive as the context requires so
that each request for Production of Documents shall be con-
strued broadly rather than narrowly; the word "all" means
"any and all"; the word "any" means "any and all."
6
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INSTRUCTIONS
1. If any request for documents is deemed to
call for the production of privileged materials and such
privilege is asserted, a list of documents so withheld is to
be furnished: (al identifying the person who prepared or
authorized the documents, and, if applicable, the person to
whom the document was sent or shown; (bl specifying the date
on which the document was prepared or transmitted; (cl de-
scribing the nature of the document (~, letter, telegram,
etcl; (dl stating briefly why the document is claimed to be
privileged or to constitute work product; and (el stating the
paragraph of this request to which the document relates.
2. Each Request for production seeks production
of each document, in its entirety, and all drafts and non-
identical copies of each document.
3. Produce every responsive document regardless
of whether such document has been produced already by another
person in the course of this litigation.
4. If any document requested herein was for-
merly in your possession, custody or control, and has been
lost or destroyed, or otherwise disposed of, you are request-
ed to submit in lieu of such document a written statement:
(al describing in detail the nature of the document and its
contents; (bl identifying the person(s) who prepared or
authorized the document and, if applicable, the person to
whom the document was sent; (cl specifying the date on which
7
the document was prepared or transmitted; and (d) specifying,
if possible, the date on which the document was lost or
destroyed and, if destroyed, the conditions of and reasons
for such destruction and the person(sl requesting and/or
performing the destruction.
5. If any document identified in response to
any request herein relates in any way to a meeting or to any
other conversation, all participants in the meeting or con-
versation are to be identified.
6. Each request for the production of documents
shall be deemed continuing so as to require prompt supplemen-
tal responses, in accordance with Court of Chancery Rule
26(el, if you obtain or discover additional documents between
the time of initial production and the time of hearing or
trial.
7. Responsive documents should be produced as
they have been kept in the ordinary course of business and
organized and labeled to correspond to the categories in this
request to which they respond.
8. Unless otherwise indicated, the time period
cover~d by this Request is from February 29, 1984 to August
31, 1995.
9. To the extent that responsive documents are
held by someone within your control, such as a law firm or
relative, and are obtainable at your request, those respon-
sive documents should be produced.
8
........
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IN THE COURT OF CHANCE~Y OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
----------------- X
I
I
I
TECHNICORP INTERNATIONAL II, I
INC., a Delaware corporation, I
and STATEK eORPORATION, a
ealifornia corporation,
Plaintiffs,
C.A. No.
15~-l
-against-
H. FREDERICK JOHNSTON, SANDRA
SPILLANE, BLM HOLDING eORPORATION,
a Delaware corporation, BAI eORPO-
RATION, a Delaware corporation,
METRODYNE eORPORATION, a Delaware
corporation, SAMCO INVESTORS,
INe., a Delaware corporation, RARE
STAMPS INVESTMENTS, INe., a Dela-
ware corporation, TECHNlCORP
INTERNATIONAL III, INC., a Dela-
ware corporation, TECHNIeORP
INTERNATIONAL IV LTD., a Delaware
corporation, TECHNleORP INTER-
NATIONAL V, LTD., a Delaware
corporation, TECHNleORP INTERNA-
TIONAL, INe., a Delaware corpo-
ration, TECHNlCORP VENTURES, INC.,
a Delaware corporation, TF.CHNI-
eORP INDUSTRIES, INC., a Delaware
corporation, AMPLIFONIX, INC., a
Delaware corporation, E e M
DEVleES, INe., a Delaware corpo-
ration, ARTAFAX SYSTEMS, LTD., a
New York corporation, and DIGITAL
eOMMUNICATIONS PRODUCTS, INC., a
Delaware corporation,
Defendants.
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- - - - - - - - - - - - - - - - - x
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VERIPllm COMPLAINT
Plaintiffs for their complaint allege as fol-
lows,
N~TURE OF THE ACTION
1. This is a direct action by Technicorp
International II ("Tel II" or the "eompany" I and Statek
eorporation ("Statek"l to remedy more than a decade-long
pattern of breaches of fiduciary duties, frauds and
misappropriations of Tel II and Statek assets perpetrated
by defendants H. Frederick Johnston ("Johnston") and
Sandra Spillane ("Spillane"l, and by BLM Holding Corpora-
tion ("BLM"I, BAI Corporation ("BAI"I, Metrodyoe Corpora-
tion ("Metrodyne"), SAMeO Investors, Inc. ("SAMeO"), Rare
Stamps Investments, Inc. ("Rare Stamps" I , Technicorp
International III, Inc. ("TCI 111"1, Technicorp Interna-
tional IV Ltd. ("TCI IV"I, Technicorp International V,
Ltd. ("Tel V" I, Technicorp International, Inc. ("TeI" I ,
Technicorp Ventures, Inc. ("TVI"I, Technicorp Industries,
Inc. ("TI!"), Amplifonix, Inc. ("Amplifonix"I , E e M
Devices, Inc. ("ECM"I, Artafax Systems, Ltd. ("Artafax"I ,
and Digital eommunications Products, Inc. ("Dep"l (col-
lectively, the "Johnston Entities") .
2. Specifically, since TCI II's acquisition
of Statek in 1984, defendants Johnston and Spillane have
2
-----
engaged in a pattern of fraudulent schemes to misappro-
priate the assets of TCI II and Statek, all to the detri-
ment of TCI II and Statek. Johnston and Spillane have
accomplished these schemes by: (il attempting, by inten-
tional misrepresentation, to induce Vendel to believe
that his ownership interest in TCI II did not give him
the power to elect officers and directors of TeI II; (ii)
attempting illegally to reclassify Vendel's Tel II stock
into non-voting stock without his knowledge or consent;
(iiil attempting to dilute Vendel's stockholdings by
issuing unauthorized TeI II stock to themselves and their
nominees; (ivl misappropriating more than $10 million in
TeI II assets, including unauthorized and unreported
"compensation" and undocumented loans to themselves and
the Johnston Entities; and (vI causing unjustified pay-
ments by Statek in excess of $12.5 million to be made,
directly or indirectly to, or for the benefit of,
Johnston and Spillane.
3. In this action, plaintiffs seek (il a
judgment against Johnston, Spillane, and the Johnston
Entities, jointly and severally, for at least $22.5 mil-
lion, plus interest; (iil the immediate sequestration of
all Tel II stock held, directly or indirectly, by
Johnston and Spillane; (iiil the imposition of a con-
3
structive trust upon all TCI II stock purpo=tedly held,
directly or indirectly, by Johnston and Spillane, and
upon all monies misappropriated from TCI II and Statek by
Johnston and Spillane, and upon all property derived from
such monies; and (ivl an accounting.
THE PARTIES
4. Plaintiff Tel II is a Delaware corpora-
tion. Until this year, its principal place of business
was in Stamford, Connecticut. Tel II serves solely as a
holding company for all of the capital stock of Statek
and conducts no other business activities.
5. Plaintiff Statek, a wholly owned subsid-
iary of TeI II, is a California corporation that manufac-
tures microelectronic components.
6. Prior to the May 2, 1994 delivery of a
consent pursuant to 8 Del. e. 5 228 removing him from
office (the "Consent"l, defendant Johnston was ehairman
of the Board, President and Treasurer of Tel II. He was
also ehairman, Chief Executive Officer and President of
Statek. He is or was also an executive officer, director
and controlling stockholder of the Johnston Entities.
Johnston is not a resident of the State of Delaware.
7. Prior to the May 2, 1994 delivery of the
eonsent, defendant Spillane was President, Se~retary and
4
the only other director besides Johnston of TCI II.
spillane was also Vice president, Secretary and the only
other director besides Johnston of Statek. She is or was
also a director and executive officer of some or all of
the Johnston Entities. Spillane is a long-time personal
friend and business associate of Johnston. Spillane is
not a resident of the State of Delaware.
8. The Johnston Entities are shell corpora-
tions controlled by Johnston and Spillane that have no
legitimate business purpose. Artafax is a New York
corporation; all other Johnston Entities are Delaware
corporations.
9. Miklos Vendel, a Swiss citizen, is and at
all relevant times has been the beneficial oWTler of a
majority of the outstanding stock of Tel II, which is
held of record by his nominee, Arbitrium (eayman Islands)
AG ("Arbitrium"), a Cayman Islands corporation. Vendel
and Arbitrium are not parties to this action.
DISCOVERY 01' TBJ: PRAUD
10. From 1984 through January 1996, Johnston
and Spillane abused their positions as purported direc-
tors and officers of TCI II and Statek to surreptitiously
and systematically misappropriate more than $10 million
from TCI II and more than $12.5 million from Statek.
5
11. On October 15, 1993, Vendel, on behalf of
Arbitrium, demanded to inspect certain books and records
of TCI II pursuant to 8 Del. e. S 220. When that demand
was refused, Arbitrium filed a complaint under 8 Del. e.
S 220 in this eourt (the "Section 220 Action"l. The
parties reached a settlement of that action on February
17, 1994. Pursuant to the settlement, on March 11, 1994,
Tel II produced certain financial records (the .Section
220 Records"l of the eompany.
12. The Section 220 Records established, among
other things, that Vendel beneficially owned at least
seventy percent of the voting stock of TeI II.
13. After receiving this documentation of
Vendel's and Arbitrium's majority stockholder ~tatus,
Vendel and Arbitrium, acting pursuant to 8 Del. e. S 228
and Section 11 of the TCI II by-laws, executed the eon-
sent on April 28, 1994. Pursuant to the eonsent, (i)
Johnston and Spillane were removed from their positions
as directors and officers of Tel II; (iil the Tel II by-
laws were amended to decrease the number of directors to
one; and (iiil Vendel was elected the sole director of
Tel II.
14. Defendants refused to recognize the valid-
ity of the Consent. Vendel and Arbitrium thereafter
6
filed an action in this Court pursuant to 8 Del. C. S 225
to determine the rightful directors of Tel II (the "Sec-
tion 225 Action" I . This Court held that the Consent was
valid and legally effective. Arbitrium (Cavman Islandsl
AG v. Johnston, Del. eh., e.A. No. 13506, slip op. at 35,
Jacobs, v.e. (Jan. 5, 19961 (the "Section 225 Opinion" I .
15. In addition to establishing Vendel's and
Arbitrium's majority ownership in TCI II, the Section 220
Records, taken together with documents produced by TeI II
in connection with the Section 225 Action, also estab-
lished for the first time to plaintiffs' knowledge an
extraordinary pattern of fraud, misrepresentation and
conversion of the assets of TCI II and Statek for the
benefit of Johnston and Spillane. Defendants intention-
ally and fraudulently concealed their improper and ille-
gal activities.
MISAPPROPRIATION OF TCI II AND STATEK ASSETS
16. Tel II is a holding company. Statek, its
wholly-owned subsidiary, is its only revenue-producing
asset, and was the sole source of funds for Johnston,
Spillane and the entire web of Johnston companies. In
fact, Johnston and Spillane used Statek as their personal
bank, funding all of their activities, down to the most
trivial of personal expenses, out of Statek.
7
17. Funds were diverted from Statek to the
benefit of Johnston and Spillane in four ways.
lB. First, Johnston and/or Spillane caused
payments to be made directly to them, the Johnston Enti-
ties, or Johnston's cronies. These payments generally
took one of three forms: checks drawn directly to the
recipient; wire transfers to the recipient (typically
overseasl; or checks written to "cash," which Johnston
then ordered Statek employees to deposit directly into
his personal bank account with Bank of America in Orange,
California. These direct payments totalled over $4
million.
19. Second, Johnston and/or Spillane ordered
that payments totalling more than $8 million be made by
Statek to third parties for the benefit of Johnston or
Spillane. Included in those payments were:
a. Legal fees paid to law firms n2t
employed by Statek in its regular course of business
(the "Legal Fee Payments"l. In all but one instance the
only support in the Statek accounting records for the
Legal Fee Payments was an "invoice" manually prepared by
Spillane showing only the name of the firm and the dollar
amount of the invoice. No detail on the work performed
was reflected, and many of the payments match invoices
8
. r
billed by the firms to Johnston and Spillane personally,
or to Johnston Entities.
b. Payments attributable to Johnston and
Spillane'S personal living expenses (the "Personal Ex-
pense Payments" I , including credit card charges, tele-
phone charges, aircraft charters, and direct hot~l bill-
ings. There is not a single Johnston or Spillane expense
report in Statek's files to support the Personal Expense
Payments. Among the Personal Expense Payments were:
. Items charged by Johnston and Spillane to Amer-
ican Express accounts paid by Statek, including
numerous purchases from Harrod's, medical ex-
penses (despite the comprehensive medical in-
surance also paid for by Statek), and travel to
locations where Statek had no business, such as
Gibraltar and the Bahamas. The American Ex-
press bills paid directly by Statek alone to-
talled more than $1.25 million.
. Payment for a full-time suite at an Orange
eounty hotel for a period of nearly three full
years, at the same time as Johnston was causing
Statek to pay for a residence for him in Lon-
don, England.
9
. Chauffeured limousine services totalling well
over $100,000.
. Almost $10,000 in freight charges to ship
Johnston's personal wine and art collections to
his new hom~ in the Bahamas.
. Almost $16,000 for ehinese lessons.
. Almost $10,000 in direct medical payments (over
and above the American Express medical charges,
ar.d again despite the defendants' health insur-
ance plansl .
. Well over $25,000 in purchases of rare stamps
at European auctions.
. More than $6,000 in gifts to and travelling
expenses of women whom Johnston invited to
visit him in Orange; Johnston ordered Statek's
controller to pay these expenses with the
controller's own American Express card, and
then to bury them in Statek's selling, general
and administrative expense line.
. Unnecessary interest and fees on loans having
no legitimate business purpose for Statek,
proceeds of which were diverted to the benefit
of Johnston or the Johnston Entities.
10
The Personal Expense payments totalled more
than $8 million.
20. Third, Johnston and Spillane caused Statek
to incur more than $550,000 in unnecessary expenses (the
"Unnecessary Expense Payments" I . For example, Statek
paid almost $350,000 for rent, magazine subscriptions,
and equipment at the defendants' office at 20 Acosta
Street, Stamford, eonnecticut.
21. Fourth, Johnston and Spillane caused
Statek to pay over $11.5 million in dividends, management
fees, advances or corporate charges to Tel II. Of this
total, more than $10 million was improperly paid out,
directly or indirectly, to the benefit of Johnston and
Spillane.
22. The funds paid by Statek to TCI II and the
Johnston Entities as described above in paragraphs 18 and
21 were in turn used exclusively for the benefit of
Johnston and Spillane.
23. TeI II has no audited financial state-
ments. Apart from its tax returns, TCI II's only inter-
nal financial record is a handwritten ledger (the "Led-
ger"l kept on an annual basis by Spillane showing the
year-end balances for certain accounts, including loans
receivable, loans payable, accounts receivable and
11
prepaids, expenses and "compensation" paid or purportedly
owed to Johnston and Spillane.
24. Specifically, the Ledger shows that
Johnston and Spillane have caused TCI II to make millions
of dollars in undocumented loans to themselves and the
Johnston Entities.
25. The Ledger reflects, for example, that
from 1984 through 1992, Johnston withdrew over $2,100,000
and Spillane withdrew $200,000 in undocumented personal
"loans" from TCI II. There are no written loan agree-
ments documenting or reflecting the interest or repayment
terms or conditions of these loans. These loans were
made in violation of 8 Del. e. S 143 in that they were
not approved by resolution of the TCI II board of direc-
tors and were not determined to benefit Tel II.
26. One court, based on Johnston's own finan-
cial affidavit, has already found that Johnston "has
evidenced an ability to borrow virtually unlimited sums
from the corporations in which he has an interest."
Johnston v. Johnston, eonn. Super., C.A. No. FA90 0275308
S, 1990 eonn. Super. LEXIS 1599, at *5 (Oct. 23, 19901.
Despite Spillane'S representation to the eonnecticut
court that "this borrowing had been curtailed as of
December, 1989 and January, 1990," jJL" Tel II's records
12
reflect that chese "loans" increased in frequency and
amount from 1990 through at least 1992.
27. In addition to the $2.3 million in person-
al loans described above, between 1984 and 1992, Johnston
and Spillane caused TCI II to issue undocumented loans
totalling almost $4 million to the Johnston Entities.
Again, no loan agreements exist reflecting the interest
or repayment terms or conditions of any of these loans.
28. Specifically, as detailed under the cap-
tions "Tel II Loans Receivable" and "TCI II Ale Rec. &
Prepaids," in Tel II's financial ledger from 1984 through
1992. the defendants caused TCI II to pay the following:
a. $334,238 in undocumented "loans" and
$53,227 in undocumented "accounts receiv-
able and prepaids" to "TVI, " which signi-
fies Technicorp Ventures, Inc., a Delaware
"industrial management" corporation.
TVl's most recent Delaware Annual Fran-
chise Tax Report lists Johnston and
Spillane as its sole officers and direc-
tors and 20 Acosta Street, Stamford, CT as
its principal place of business.
b. $2,200,522 in undocumented "loans" and
$609,595 in undocumented "accounts receiv-
able and prepaids" to "TCI, " which signi-
fies Technicorp International, Inc., an-
other Delaware corporation. TCI's most
recent Delaware Annual Franchise Tax Re-
port lists Johnston and Spillane as its
sole officers and directors and 20 Acosta
Street, Stamford, r.T as its principal
place of business.
13
c. $241,629 in undocumented "loans" and
$179,127 in undocumented "accounts receiv-
able and prepaids" to "MO," which signi-
fies Metrodyne Corporation, another Dela-
ware corporation. Metrodyne's most recent
Delaware Annual Franchise Tax Report lists
Johnston and Spillane as its sole officers
and directors and 20 Acosta Street,
Stamford, CT as its principal place of
business.
d. $348,378 in undocumented "loans" to "Tel
III," which signifies Technicorp Interna-
tional III, Inc., a Delaware "industrial
holding" corporation. Tel Ill's most re-
cent Delaware Annual Franchise Tax Report
lists Johnston and Spillane as its sole
officers and directors and 20 Acosta
Street, Stamford, CT as its principal
place of business.
e. $150,000 in undocumented "loans" to
"Artafax." On information and belief,
"Artafax" refers to Artafax Systems, Ltd.,
a New York corporation now in dissolution.
f. $250,000 in undocumented "loans" to "Dg
Prod." On information and belief, "Dg
Prod" refers to Digital eommunications
Products, Inc., a Delaware corporation
(formerly Digital Products eo., Inc.).
g. $424,681 in undocumented "loans" to "ECM."
On information and belief, "ECM" refers to
ECM Devices, Inc., a Delaware corporation
controlled by Johnston.
29. These loans were made in violation of 8
Del. C. 5 143 in that they were not approved by resolu-
tion of the Tel II board of directors and were not deter-
mined to benefit TCI II.
14
30. According to Tel II's financial records,
not a penny of the loans to these Johnston Entities has
been repaid. Neverthelees, year after year, Johnston and
Spillane approved additional TCI II loans to the same
Johnston Entities.
31. On January 18, 1996, by resolution of its
board of directors, TeI II "call [ed] , accelerate[d], and
declare[d] immediately due and payable all sums owed to,
or wrongfully taken from" TCI II by Johnston, Spillane or
the Johnston Entities.
32. By letter dated March 14, 1996, TCI II,
through its counsel, advised Johnston that the sums owed
to or wrongfully taken from TCI II by Johnston and the
Johnston Entities, specifically including $6,056,116 in
Designated Loans made by Tel II to Johnston and the
Johnston Entities through 1992, "are now due and payable
to Tel II." Tel II demanded repayment of the loans by
March 22, 1996. Johnston did not repay these loans or
even acknowledge the March 14, 1996 letter. On May 29,
1996, TCI sent Johnston a second letter demanding that he
repay the $6,056,116 in Designated Loans made by TCI II
to Johnston and Johnston Entities, as well as other sums
he owed to or wrongfully took from Tel II. Johnston did
15
not repay these sums or acknowledge the May 29, 1996
letter.
33. Also by letter dated March 14, 1996, TCI
II, through its counsel, advised Spillane that the sums
owed to or wrongfully taken from TCI II by Spillane, spe-
cifically including $200,000 in Loans Receivable made by
Tel II to spillane through 1992, "are now due and payable
to Tel II." Tel II demanded repayment of the loans by
March 22, 1996. Spillane did not repay these loans or
even acknowledge the March 14, 1996 letter. On May 29,
1996, Tel sent Spillane a second letter demanding that
she repay the $200,000 in Loans Receivable as well as
other sums she owed to or wrongfully took from Tel II.
Spillane did not repay these sums or acknowledge the May
29, 1996 letter.
34. A review of even the limited Johnston
Entity documents produced in response to this eourt's
order in March of this year shows conclusively how funds
paid by Statek to Johnston Entities (directly or indi-
rectly through Tel III were used almost exclusively for
the benefit of Johnston.and Spillane. These documents,
which relate to certain Johnston Entities for the years
1993-95 only, indicate that Johnston and Spillane used
16
the funds they diverted from Statek for, among other
things I
a. Lavish purchases of art and/or other
collectibles. Statek funds channeled through Metrodyne
totalling $24,740 were paid to the famous auction house,
ehristies; $190,332 to Sotheby's; and $112,500 to the
British auction house Richard Green. In addition,
Johnston used Statek funds to pay for dedicated warehouse
or secured vault space for his auction purchases, and
shipping and/or insurance to get them to that space,
totalling more than $44,000. These figures cover only
the three years 1993-95; the totals for the full period
1984-95 would likely be much higher.
b. Extensive purchases of rare stamps
for Johnston's personal collection, at leading European
dealers. Payments (again through Metrodynel for stamps
to C. Grobe of Germany totalled $165,000; to German
dealer Heinrich Koehler $95,900; and to David Feldman, of
Geneva, Switzerland, in smaller amounts. Thus, in just
the three years preceding the Opinion, Johnston spent
more than a quarter of a million dollars of Statek's
money (channelled through Metrodynel on rare stamps
alone. Again, this is only for the 3 year period from
17
1993 to 1995, and these payments are in addition to the
payments for stamps made directly by Statek.
c. payments made directly to Johnston,
Spillane, or "Cash" totalling more than $68,000 from
Metrodyne, TCI, Tel III or Samco.
d. payments of premiums for benefit
packages, including health care and pharmaceutical insur-
ance policies, at the same time that Statek or Metrodyn~
paid Johnston's medical bills directly. Johnston and
Spillane then submitted claims under the policies, with
directions that the insurance company should issue the
reimbursement check to Johnston directly.
e. Payments to banks to service personal
lines of credit for the benefit of Johnston and Spillane.
f. payments for personal credit card
accounts of Johnston and Spillane; for just the years
1993 to 1995, for example, Metrodyne American Express
bills (for charges almost exclusively made by Johnston
and spillane personallyl totalled $192,574.
g. Regular payments to a Bahamas law
firm, Dupuch & Turnquest, apparently unrelated to legal
services performed for TCI II or Statek. These payments
were (i) made directly from Statek (totalling $547,295
from 1988 to 19961, (iil made indirectly from Statek
18
through Metrodyne (totalling $61,500 from 1993 to 1995
only), or (iiil made indirectly from Statek by funnelling
the payments through invoices from Carb Luria, which was
then the law firm of defendants' current counsel (total-
ling $179,000 in 1993 .lone) .
h. Payments of premiums for life insur-
ance policies for Johnston and Spillane, having ca.h
surrender values against which Johnston and Spillane then
borrowed funds. For the years 1993 to 1995 alone, these
premium payments totalled more than $170,000.
i. Finally, virtu.lly every per.o~al
expense of Johnston and Spillane -- literally down to the
purchase of personal toiletries -- was paid with Statek
funds funneled through either Metrodyoe or TeI. If
Johnston or Spillane wanted to .end flowers to a friend,
Statek paid (through Metrodyne). John.ton and/or
Spillane belonged to multiple social clubs, but Statek
(through Metrodyoe or TCII paid the fe... eellular
phone., cable TV charges, greeting cards, wristwatch
repairs, kitchen knive. -- all w.re paid for by Johnston
Entities, using funds generated by Statek.
35. Thu., all told, Johnston and Spillane
misappropriated for their own benefit more than $22.5
million of Statek and TCI II ..s.tS. Plaintiffs' inves-
19
tigation i. ongoing, and the actual total may be materi-
ally higher.
COUNT I .... WASTE 0,. CORPORATE ASSETS
36. Plaintiffs incorporate each of the preced-
ing paragraphs as if set forth fully herein.
37. Johnston and Spillane, in their former
capacities as directors of Statek and TCI II, owed fidu-
ciary duties to TCI II, Statek and their stockholders.
38. These duties prohibited Johnston and
Spillane from approving or participating in the waste of
Statek's and TCI II'. assets.
39. Statek and Tel II received no consider-
ation in return for the more than $22.5 million in assets
taken from Statek and Tel II by Johnston, Spillane and
the Johnston Entities.
40. Johnston's and Spillane'S waste of corpo-
rate assets is beyond the protection of the business
judgment rule and has harmed Statek, TCI II and their
stockholders. Johnston and Spillane are personally lia-
ble, jointly and severally, for the full amounts of the
wasted corporate as.ets, with interest.
COUNT II -- CONVERSION OF CORPORATE ASSETS
41. Plaintiffs incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
20
-~~:::..::.;':'~.!.:-}''-~~
42. Johnston and Spillane, in their former
capacities as directors of Statek and TCI II, owed fidu-
ciary duties to the stockholders of Statek and TCI II.
43. Pursuant to these duties, Johnston and
Spillane were prohibited from approving or participating
in the misappropriation of Statek's and Tel II's assets.
44. Statek and TCI II received no consider-
ation in return for the more than $22.5 million in assets
taken from Statek and TCI II by Johnston, Spillane and
the Johnston Entities.
45. The Statek and TCI II stockholders have
never ratified the above-described misappropriation of
Statek's and TCI II's assets.
46. The above-described misappropriation of
corporate assets is beyond the protection of the business
judgment rule and has harmed Statek, TCI II and their
stockholders. JohnAton and Spillane are personally lia-
ble, jointly and severally, for the full amounte of the
misappropriated corporate assets, with interest.
COUNT III -- BREACH OF FIDUCIARY DUTIES
47. Plaintiffs incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
48. Johnston and Spillane, in their former
capacities as directors of Statek and TCI II, owed fidu-
21
ciary duties of care, loyalty, good faith, and disclosure
to the stockholders of Statek and Tel II.
49. Johnston and Spillane breached all these
fiduciary duties by engaging in the conduct detailed
above, including (il illegally seeking to reclassify TCI
II stock into classes of voting and non-voting stock
without the knowledge or consent of a majority of Tel
II's stockholders, in an attempt to gain voting control
over TCI III (iil misappropriating for themselves and the
Johnston Entities more than $10 million in Tel II assetsl
and (iiil misappropriating for themselves and the
Johnston Entities more than $12.5 million in Statek
assets.
50. The Statek and Tel II stockholders have
never ratified the above-described breaches of fiduciary
duty.
51. Johnston's and Spillane'S breaches of
their fiduciary duties described above have harmed
Statek, TCI II and their stockholders.
eoUNT IV - - FRAUD
52. Plaintiffs incorporate each of the pre-
ceding paragraphs as if set forth fully herein.
22
53. Johnston falsely and knowingly represent-
ed to Vendel that he would invest $250,000 in the Statek
Acquisition.
54. By falsely representing to Vendel that he
would contribute $250,000 of his own personal funds to
TCI II for the Statek Acquisition, Johnston willfully in-
duced Vendel to invest $250,000 in TCI II.
55. Through Arbitrium, Vendel entrusted
$250,000 of his personal funds with Johnston in the
expectation that he would be entitled to stock ownership
in proportion to his investment.
56. Johnston'. and Spillane'S original and
continuing misrepresentations were intended to and did
conceal from Vendel his true status as the majority owner
of TCI II with the right to elect all directors of Tel II
and Statek and direct the operations of both corpora-
tions.
57. A8 a result of Johnston's and Spillane'S
fraudulent representations, plaintiffs have been injured
in an amount to be determined at trial, but estimated at
this time to be not less than $22.5 million, plu8 inter-
est.
23
. . .. . -~....... .
-/
COUNT V -.. DEBT ACTION
58. Plaintiff. incorporate each of the pre-
ceding paragraph. a. if set forth fully herein.
59. John.ton is indebted to TCI II in the
amount of $6,056,116 and Spillane is indebted to TCI II
in the amount of $200,000, as a result of loans recorded
by TCI II to John.ton and Spillane through 1992.
60. Notwithstanding TCI II'. repeated re-
quests, Johnston and Spillane have refused to repay the
aforementioned sums to TCI II.
COUNT VI - - AIDING AND ABETTING
61. Plaintiffs incorporate each of the pre-
ceding paragraphs as if .et forth fully herein.
62. Defendants Johnston and Spillane have
knowingly participated in and aided a~d abetted each
other in the violations of law complained of herein.
63. The Johnston Entitie. have aided and
abetted the Individual Defendants in the misappropriation
of TCI II's and Statek's assets.
COUNT VII -- CIVIL CONSPIRACY
64. Plaintiffs incorporate each of the pre-
c~ding paragraphs as if set forth fully herein.
65. Johnston and Spillane have knowingly par-
ticipated in and conspired with each oth~r and the
24
/
Johnston Entities in the violations of law complained of
herein.
66. Johnston and Spillane's violations of
their fiduciary duties and frauds and their conspiracy in
each otherl' violations and frauds have harmed TCI II and
Statek.
REOUEST FOR RELIEF
WHEREFORE, plaintiff. reque.t that the Court
enter a judgment:
(i) .equestering all TCI II Itock owned
by Johnston, Spillane or any of the other defendants
herein and ordering the .ale of .aid .tock to .atisfy the
judgments de.cribed below;
(ii) impo.ing a con.tructive tru.t upon
all TCI II .tock owned by anyone other than Arbitrium and
upon all monies mi.appropriated from TCI II and Statek by
John.ton and Spillane and upon all property derived from
such monies;
(iii) ordering an accounting;
(iv) awarding damages against the defen-
dants, jointly and leverally, in the amount of the ille-
gal and excessive payment I made by Statek and TCI II to
or for the benefit of Johnston, Spillane or the Johnston
Entitie.;
25
(ix) granting such other and further re-
lief a. i. just and proper.
T omllS
L. Ree e
Thomas G. Mac
SKADDEN, ARPS,
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
Attorneys for Plaintiffs
, 1996
& FLOM
DATED~t. 'Jk
27
.u;.fEOERAIION Of S\"Ii~''''';;'J)
CANTON Of GENEVA S S
CITY Of GENEVA . .
CONSUlAR SERVICE Of filE
UNITED STAItS Of AMERICA
VERIFICATION
I, Miklos Vendel, as an officer, director and
duly authorized representative of the above-named plain-
tiffs, being duly sworn, state as follows:
I have read the foregoing Verified Complaint
and know the contents thereof and the same is true of my
own knowledge as to acts of plaintiffs and is true on
information and belief as to all other
4y.~
Miklos V;n e
allegations.
r ev-dJ/
Sworn to and subscribed before
me this :JfI- day of ,7'"t/lte. , 1996.
lI067691.01~1.
28
. .
, -
CERTIFI~ATE OF SERVICE
I, Cathy L. Reese, hereby certify that two copies
of the foregoing Notice of Deposition and Schedule A were
served, in the manner specified below, this 26 day of Sep-
tember, 1997:
Bv Hand Deliverv
'.
t
,
Lawrence C. Ashby
ASHBY & GEDDES
One Rodney Square
P.O. Box U50
Wilmington, Delaware 19899
Attorneys for Defendants
T~'
Cathy L. Reese
James L. Love
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
Attorneys for Plaintiffs Technicorp
International II, Inc. and Statek
Corporation
011%131.01"1510
TECHNICORP INTERNATIONAL II,
INC., a Delaware corporation,
and STATEK CORPORATION, a
California corporation,
Plaintiffs,
IN THE COURT OF COMMON PLEAS OF
CUMBERLAND COUNTY, PENNSYLVANIA
.
.
.
.
:
vs.
: CIVIL ACTION - LAW
(1;...: L kf2...~\
.
H. FREDERICK JOHNSTON, et a1.,; No. 9'7. t;l.r't?
Defendants,
AFFIDAVIT OF SERVICE
COMMONWEALTH OF PENNSYLVANIA
.
.
ss.
COUNTY OF BERKS
Anthony serafin, being duly sworn accor.ding to law, deposes
and says that he served, on this date, a subpoena and a true and
correct copy of the Notice of Deposition in the above-captioned
matter by personally handing same to Tracy Martin, who is an adult
individual and the person in charge at the time at the following
address:
C-MAC Quartz crystals, Inc.
940 Church Street
Mechanicsburg A 17055
/
I
, / ~tU
this /3 day
of October,
Dated: October 13, 1997
Sworn to and subscribed before me
1997.
NOTARIAL SEAL
LOIS F. SAVAGE, Notary Public
City 01 A..dlng. Berte. County
,
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