You are on page 1of 75
'", / ., -:J. 707 ~. NO. ;- .. . ... "",. ~ '. CCNNIE C.
'",
/ .,
-:J. 707
~.
NO.
;- ..
.
...
"",.
~
'.
CCNNIE C. ~~STRONG,
:~dividual~v, and
§
IN
THE
DISTRICT
COURT
§
~n the Riqhc Of ~PrJVl~,
S
r~c. and PJL~ILTON-TAf~ &
CC~ANY I
~~=cugh a~ Laast Febr~ary 9,
1989, as Q Shareholde~ in
§
§
u.s.
§
v
ARMSTRONG
CR94-0276
_
CAL
FOWLES
I
§
y-~ P HARJ-4_~ I
1: !lC . I
§
161
GOVERNMENT
EXHIBIT
§
?laint::fs,
§
§
v.
§
§
~_~_XP?-A.R.I,.(_~, INC.; !-iA:~!:
r8N-7MT
§
CHRISTIANA
& C~~ANY;
§
E!IERGY
C8RPORATION;
:r! S ION I
§
elC.
i
KEYSTONE
F INANC :.;L
S
JUDICIAL
DISTRICT
C:RPORATIONi
CR
ACCU:S!T:ONS,
§
l:~~C.;
C. ~AYNE Lr~C~FIELD; ?£G~Y f.
CA:T£1L; TI~OTHY w. =EL~;
UwRENCE
8.
C:S:::'::LLO i
§
§
§
..
~~~SAD; and JOHN H. ~CeERTS, JR.;
e~c~ respec~~vely CCt~
i~=ividual!y and as
~C::
A
..
v.EQ
A.
F.AOIOj
CR.
?S.
§
§
§
§
S~~==hclde=s of ~~~?~~~~,
§
ana
ce:.-ivac':":el.y
therefrom
S
:~:C. I
~~c as d
result of
cant=ol
S
:~2
~~=~=ot,
c~nc=~ll~~~ :harenalders
§
~:
~~~!:~ON-TAFT & C:., thr~ugn
§
dc'
laase
Febr'
lary
9,
:989
§
S
Defendants.
§
DA.L.:.-;S
COUNTY,
TEXAS
-
PLAINTIFFS'
ORIGINAL
PETITION,
APPLICATION FOR
T~ORARY
RESTRAINING
ORDER,
EX
PARTE,
APPLICATION
FOR
TEMPORARY
AND
PERMANENT
INJUNCTION,
AND
APPLICATION
FOR
IMPOSITION
OF
CONSTRUCTIVE
TRUST
HONORABLE
JUCGZ
OF
SAID
COURT:
~c T~£
COMES
~OW,
CCNN I E
C,
ARMSTRONG
(
AR.-'!STRONG - ) I
Indi v iduall y
and
in
the
:-ight.
;::E
~
..
AXPH
...
~R!-'
A,
INC.
and
HAMILTON-TAFT
&
CO.
I
t.;;==u.gh
at.
leas~
:ebruary
9 I
1989,
and
as
Shareholder
of
PLAINTIFFS'
ORIGINAL
PETITION,
APPLICATION
FOR
RESTRAINING
ORDER,
EX
PARTE,
APPLICATION
T~~ORARY
FOR TEMPORARY
AND
INJUNCTION,
AND
PE~~ENT
APPLICATION
fOR
IMPOSITION
OF
CONSTRUCTIVE
TRUST
page
1

INC;.

?laint.iff

("ARMSTRONG"),

and

for

, Pet.~tion, Application

for Temporarj Res~raining Order,

Original

Ex Par~e,

Applicat:ion

for

Temporary

and

Permanent.

Injunct.ion,

and

Applicat.ion

for

ImposiT:ion of Const:=uc~ive Trust.,

respeccfully

shc~s the Cour~ in suppor~ t.hereof as

follows:

 

I

.

PARTIes

 

1.

?laint.:'::, . A.R

 

is

an

indi'/idual

and

shareholder

cr

>!,,;X;:tA

R.'-!A,

INC.,

residing

in

Dallas

C:Junt:y,

Texas.

2.

Decendant,

LAWRENCE

 

B.

COSTELLO

("COSTELLO") I

is

an

indivicual

resid:ng

in

Caunt.y,

Texas,

and

is

current.ly

the

Presi.dent.

of

INC.

COSTE:'~O may be

served

wit.h

pr::;cess

her e i:1

by

s e !:"v in g

h i

1T1

a t.

his

p r inc i ? a 1

? 1 ace

a f

bus

in e s s

lac a t 2 d

dt.

200

C=escent

Suite

1300,

Dallas,

Texas

75201.

!.:-,'::':".'-:';:uc2. :-esid':'~.g ~:1 Oklahcrna City, Ck.!.ahcma, and is c:1===ntly

d

·::.:.=ec,;;::-

2r

:!

..

AX?:t.AR.lA

A,

INC.,

and

a

member

af

it.s

Board

of

 

LITC~:~ELD may

be

ser'.red

;

rich

process

herein

by

ser:ir.g him at: his ~rincipal place of business, located dt: 200

C=e5cen~ Court:,

Suite

1300,

~allas, Texas

75201.

:OHN

 

ROBER.7:S,

JR.

("ROBERTS"),

is

an

irlc!.vicual residing

 

':"n

Dallas

County,

':'exas,

wit.h

his

principal

~lcce of

business

in

Dallas,

Dallas

County,

Texas.

ROBERTS

may

be ~e~Jed with

process

dt

his

princi~al place of

business

at

200

 

,

PLAINTIFPS'

ORIGINAL

PETITION,

APPLICATION

FOR

TEMPORARY

RESTRAINING

ORDER,

EX

PARTE,

APPLICATION

 

FOR

TEMPORARY

AND

PERMANENT

INJUNCTION,

AND

 

APPLICATION

FOR

IMPOSITION

OF

CONSTRUCTIVE

TRUST

Page

2

C.=escent:. Cour~, Sui-.:.e 13i5, Dallas, Dallas Count:y, Texas 75201,

<.O.=-

at.

his

.=-esidence

at.

3737

Pot.emae,

 

Dallas,

Dallas

Count.y,

Texas

75205:>.

 
 

5.

Derendanr.,

 

~OHA.\{ED A.

 

HADIO

("HADIO-),

at.

a.ll

t.imes

mar.erial

herei.n,

has

engaged

 

in

business

 

in

t.he

Stat.e

of

Texas,

as

parr.icularly

described

below.

 

HADID

does

nor.

maint:a.in

a

regular

place

of

business

or

 

residence

in

t.he

Stat.e

of

Texas,

and

has ~o desl;~aced agent. on .hom service of cieat.ion may be made

i:t

:.:-.1 s

cause.

l-I

l,.DID

is

nor.

 

a

=esident.

 

of

the

St.at.e

of

Texas.

causes

or

dc:.icn

assert.ed

herein

arose

from

or

are

connect.ed

;.;i:::

?u=~ose['.ll ac:

..

s

ccmmi

..

:.:.ed

 

by

r:

..

ADID

 

in

Texas

because

P

...

ADID

en:.ered

lnt.o

a

t=r::rnissory

 

:1oce

while

in

Callas,

Dallas

Ccunr.y,

Texas I

and

i:.::dt.

noce

 

i.s

noy

due

and

payable

in

Dallas,

Dallas

C::t.::-'.:y,

':'exes.

breach

of

his

dur.y

t.o

t.he

p=omissory

:-'::'2

'

,;ne!1.

C.:"':'2

::::-::is

 

a

;:a=:.

of

che

 

::asis

 

c:

:::he

causes

c:

accion

 

:n

addit:ion,

P.ADID

 

is

a

Fe.:-:::cn

-",no

(a)

 

facilicat.ed

 

t.he

acquisicion

by

ROBERTS

of

c:::-.:.=ol

aver

JR.

 

?S.

PRASAD,

(b}

through

 

effecr.uat.ion

of

mc::.i:':"c:.t.ions

co

the

lending

agreements

bet"Jeen

OR.

P.S.

PRASAD

a:t-=.

:ne

National

Bank

of

tlashing't.::Jn,

 

as

..

,e11

as

having

received

=-=-:'~·!:::'CN-TAf:' £.

CJ.

 

C8NCENTRAT!ON

 

;

CCOUNT

FUNDS

as

a

::-esulc

oE

.:. s

::: :: n t:. in u i

:-. gin

t: e !' est.

i n

P P.AR."'

..

A

Accordingly,

 

may

be

c.:.:.ea

by

sar':ing

t.he

 

Secret-ary

 

of

State

 

of

Texas

provided

 

chat

J

PLAINTIFFS'

ORIGINAL

 

PETITION,

 

APPLICATION

FOR

TEMPORARY

RESTRAINING

ORDER,

 

EX

PARTE,

APPLICATION

 

FOR

TEMPORARY

AND

PER."f.ANENT

INJUNCTION,

AND

 

APPLICATION

FOR

IMPOSITION

OF

 

CONSTRUCTIVE

TROST

 

Page

3

t.r.e

c:ication

anQ

pecit.ion

are

for-

;arded

t.o

HADID'S

home

office

addres s

 

at

1300

N.

17th

Street,

Suite

1100,

Rosslyn,

Virginia

122209, by cer~ified mail, ret.urn receipt: reques~ed.

I

 
 

6.

 

Deiendant.,

DR.

P.S.

PRASAD

("PRASAD"),

was

at

all

times

material

hereto

and

is

believed

t.o

cur::-ent:ly

be

a

member

of

the

Beard

 

of

Directors

of

and,

at

all

times

material

here in,

 

has

engaged

in

bus iness

in

Dallas

County,

Texas,

as

mare

par~ic~larly desc=~bed below.

PRASAD

does

not.

mainr.ain

a

place

of

=egular

business

Texas

and

has

no

agent

on

whom

service

of

cit.ation

:nay

be

made

in

chis

cause.

 

The

causes

of

ac'C.ion

asser'ted

herein

arese

from

or

dre

connect:ed

with

che

purposeful·

ac~s comrnit~ed by PRASAD in Texas because (a) he has facilitat.ed

through

 

his

origlnal

conduct

in

assist:ing

ROBERTS

 

acquire

~~~p~~~~~ as

a

cor?orate

shell

through

~hich to

acquire

:'.!.?:'

 

::-.e::-ea::er

dissipace

the

aSS2t.s

of

f-Ll~\!ILTON-T.~fT, ant

     

(tl

t~E subsequen~ :ailure

exerc:se

in

good

faith

and ~l:~ due

di':".:

gence

the

fiduciary

dut.ies

of

a

direct.or

and can~rolling

shareholder

of

:-tA.XPH

A.R.}(.A,

as

more

fully

descr.:.bed

below

is

t:he

basis

 

of

Plaintiff's

cause

of

action.

 

Accordingly,

De fendan t:

P R

..

!

..

S; o ...

I

may

be

c i t:ed

by

s erv ing

t.he

Sec ret.ary

of

S ta t.e

of

Texa

5

r; =::: 'J i.oed

t.ha t.

the c i ~a t. ion and pe t. i:. io n are

forwarded

to

PRASAD' 5

ci.;al

place

oc

business,

KEYSTONE

FINANCIAL

CORPORATION,

400 (Jest. Fifch Street, Greenville, Nort.h Carolina 27834, by

ce~~ified mail, return receipt requested.

 
 

,

PLAINTIFFS'

ORIGINAL

PETITION,

APPLICATION

FOR

TEMPORARY

RESTRAINING

ORDER,

EX

PARTE,

APPLICATION

 

FOR

TEMPORARY

AND

PERMANENT

INJUNCTION,

AND

APPLICATION

FOR

IMPOSITION

OF

CONSTRUCTIVE

TROST

 

page

4

 
 

7.

Defendant:,

PEGGY

 

f.

CATTELL

 

("CATTELL"},

is

an

indi v idual

res iding

in

Dallas

Count:y I

Texas I

a.nd

may

be

served

wit:h

cit.at.ion

a.t.

her

principal

place

of

business,

 

200

Crescent:

Suit.e

1375,

Dallas,

Dallas

County,

Texas

iSlOl.

 

8.

Defendan1:,

MAXPHARMA,

INC.

("MAXPHARMA"),

is

a

ccr;o=at.icn duly

fo~ed and

existing

under

t.he

laws

of

t.he

Stace

of

Tennessee

and

duly

au'thorized

t:o

t=ansact

business

in

t.he

Stace

of

':'axas,

and: may

be

served

',./it.h

cit.at:ic:l

by

serring

it.s

regi.s~c=ed aqent:,

i:

!.WRENCE

3.

COST::UO,

al:

200

Crescenc

Cour1:,

Suit.e

:JOO,

Jallas,

Dallas

Count.y,

Texas

75201.

 

9,

Derendanc,

HA

"1IL:'ON-TAFT

&

CO}!FANY

('·H.A.'1ILTON-TAFT'"),

i.s d c:::-::orat:.ion duly for:ned and exist:.inq under t.he ~dWS of t.he

Stat.e

 

ot

Calif:rnla.

HA.!-!ILTON-TAFT,

at:

0.1:"

t.imes

mdt-erial

he=e.!

;.,

has

engaged

in

business

in

Texas

and

!':as

no

des ic;nat:ed

 

Stace

cf

Texas

an

whcm

service

Cl:a1:10n

may

be

made

 

::use.

The

causes

of

act.ion

assart:ed

herei:1

a<;dins't

~!."':·:::::~i-:.;.r,!, arose

from

or

are

ccnneet:ed

·,

rith

t=urposei:.Jl

acts

c ~;n~.: ~ ~ed

=y

HAMILTON-TAFT

in

Texas

because

~XPHARM.A and

f-t_~~! :':CN-:'AFT engaged in loan t.ransact:ion I through nominees I the

e:e!'::: =::lance

wi t:h

res pee t:

'Co

which

·,

..

ras

due,

in

part:,

in

Texas;

ar.c.

:'.!r~!1er,

because

P

A

.. ..

'1IL:'ON-TA.FT

permit.:.ed

itse1 f

t.::l

be,

and

~as, ~::~ized by ROBERTS and COSTELLO as a vehicle for f~nding of

i:1s.:.':e= ~~ans may be cit.ed by serving t:he Seere1:ary of State of

,

PLAINTIFPS'

ORIGINAL

PETITION,

APPLICATION

FOR

Tf~ORARY RESTRAINING ORDER, EX PARTE I APPLICATION

FOR

TEMPORARY

AND

PERMANENT

INJUNCTION,

AND

APPLICATION

FOR

IMPOSITION

OF

CONSTRUCTIVE

TRUST

Page

5

,

•• w

--

______ ......

Texas

provided

t:ha t.

the

c i t:a cion

and

pet.i t:ion

are

forvarded

to

HA

'1ILTON-TAFT'S

reqist.ered

agent.

in

the State of Ca.lifornia,

Alber-c

L.

567

Golden

Gat.e

Avenue,

San Francisco, California

by cart.ified

mail,

return receipt.

request.ed.

 
 

lO.

De fencant. I

VIS ION I

 

INC.

("VISION")

is

a

corporat.ion

duly

fo~ed and

exist.ing

under

the

laws

of

che

Stat.e

of

Delaware.

VISION

has

cbtained

a

Cer~ificat.e of Aut.hority

from

the

Secret.ary

a:

State

ct

Texas,

is

duly

aut.horized

t.o t:~ansact. business

in

t.he

5cat.e

cf

 

and

may

be

served

with

citat.ion

in

this

act.ion

by

se~~ice ar

cit:atLan

upon

it.s

regist.ered

agent.,

PEGGY

F.

at.

its

~eg:st.ered office,

200

Crescent.

Suite

lJi5,

Dallas,

Callas Count.y, Texas 75201.

 
 

11.

Defendant,

CHRISTIANA

ENERGY

CORPORA.TION

i ··:::RiSTL.;,1IA,'·) I

is

a

corporation

duly

for.ned

and

exist.ing

uncer

:'::2

:f.

t.he

State

of

Delaware.

CHRISTIANA,

at.

all

t::.imes

:na:,e~ia.l ::e.::-ein,

has

engaged

in

busir.ess

in

Texas,

as

mare

~a=-::cu.!.a=-~y desc::ibed below.

CHRISTIANA

does

noe.

maint.ain

a

~~ace af

=egular

business

in

Texas

and

has

no

designat.ed

aqenc

in

 

5 tat.e

0

E

Texas

on

whom

serv ice

0 f

c i cat.ion

may

be

ma.de

in

:.::':'s

cause.

Despite

t.he

fact:

t.hat.

it.

was

not

licensed

t.o

do

=~s~r.ess in the

Stat.e

of

Texas,

CHRISTIANA

execut::.ed

and

delivered

a

;:romissory

not::.a

in

Dalla.s I

Dallas

Couney,

Texas,

payable

in

 

Dallas

Caunt.y,

Texas.

 

Thac

not.e

is

the

crux

of

the

 

J

PLAINTIFFS'

ORIGINAL PETITION,

APPLICATION

FOR

 

TEMPORARY

RESTRAINING

ORDER,

EX

PARTE,

APPLICATION

 

FOR

TEMPORARY

AND

PERMANeNT

INJUNCTION,

AND

APPLICATION

FOR

IMPOSITION

OF

CONSTRUCTIVE

TRUST

Page

6

causes

of

action

ass~~ed herein

against

CHRISTIANA.

 

The

causes

of

d.ct.ian

asserted

arose

fram

or

are

connect.ed

wit.h

purposeful

dC':S

ccrnmi:.t.ed

by

CHRIST!ANA

in

Texas

because

CHRISTIANA

is

a

nominee

for

ROBERTS I

and

is

a

corporate

cont.rolled

 

by

RCEERTS

t.hrough

which

HAMILTON-TAFT

CONCENTRATION

ACCOUNT

 

FtTNOS

have

dist.ribut.ed

to

individuals

or

encities

affiliat.ed

with

RC:E;:tTS.

AccordinglYI

CERISTIANA.

:nay

ce

cit.ed

by

ser-J'ing

t.he

Sec:-etary

of

Stat.e

af

Texas

provided

:.!:at

 

the

cieat.ian

 

and

pec:': :on

drs

arded

t.o

CHRISTIANA' S

reg is t.ered

agent:

in

the

S :

Co :. e

a fOe 1 a war e I

The

r nco r pc!:" a tar SIr

..

t

d •

I

Co f fee

 

Ru n

?=c:essional

Cenere,

Pike

r Ce~aware 19i07, by cer~ified mail,

& Loveville,

ret~rn receipt.

R.O.,

Hockessin,

requestea.

:2.

Cetendanc,

:'::':YSTCNE

F!NANC:.ll

CORPORATION

 

!-3

a

fot'e.!.";:1 c-orporaticn,

the

scate

c:

Ecr:na'tion

and

exiscence

 

of

....

1:-.:.:::

is

;:resencly

unknown

'to

Plai:1t:!.Ef,

although

a

principal

~_:_= ~c t~sLness is

known

and

is

allaged

hereinbelow.

KEYSTONE,

 

a:

~~l :.i

'nes

macerial

herein,

has

ang.:lged

:':1

business

in

Texas,

as ~cre ~ar~icularly descri~ed belew.

KEYSTCNE

does

not:

main1:ain

a

;ldce

of

business

in

Texas

and

has

no

designaced

agent

:::

State

of

Texas

on

whom

service

of

cit.acion

may

be

made

 

in

_=

cause.

The

causes

of

acticn

assert.ed

arose

 

f=om

or

are

c=::::ected

it.h purposeful

ae'!:s

ccrrunit.'t:ed

by

KEYSTONE

in

Texas

cecause

KEYSTONE

is

the

nominee

shareholder

af

record

 

for

shares

c"";i.ec

by

PRASAD

and

MAXPIi.A.R1J.A.

Accordingly,

 

KEYSTONE

may

 

be

J

PLAINTIFFS'

ORIGINAL

PETITION,

APPLICATION

POR

 

TEXPORARY

RESTRAINING

ORDER,

EX

PARTE,

APPLICATION

 

FOR

TEMPORARY

AND

PERMANENT

INJUNCTION,

AND

APPLICATION FOR

IMPOSITION

OF

CONSTRUCTIVE

TROST

 

Page

7

 

",

'

-..------

cited

 

=y

serving

the ~ Secret.ary of

State

of

Texas

provided

that

the

ci:.at.ion

and

petition

a.re

forwarded

to

KEYSTONE'S

principa.l

place

 

of

business,

400

West

fifth

St=eet,

Greenville,

Nort:h

Caroli~a 27834, by cer~ified mail,

~eturn =eceipt

requested.

 

lJ.

Defendant J

TIMOTHY

w.

BELL ("8ELL~),

is

an

individual

resid:~g in Plano,

Collin

Count.y,

Texas.

SELL

does

not

maintain

a

place

af

regular

business

in

Texas

anc.

has

no

agent

on

 

whom

serlics

of

cit.ation

'may

be

made

i.n

:his

cause.

The

causes

0 f

ac:.:on

asser~ed arose

frcm

cr

are

connec:.ad

with

purposeful

 

acts

c::m.rni ~ :ed

by

BELL

in

Texas

because

(a)

he

is

a

twenty

percent

( 2 a ~)

shareholder I

wi th

adci t iana 1

options,

in

CR ACQU~SrT! ONS I

INC.,

the

current

controll:":1g

shareholce.!"

of

HAMILTON-TAFT,

and

(b)

is

one

0

f

the

present.

princi.;:a.l

sources

of

financing

for

 

and j

accordingly,

may

have

access

to

the

shares

of

Deiendanc, cELL, ~ay be cited by serling
 

Deiendanc,

cELL,

~ay be

cited

by serling

:.:-:e

St:c=etary

 

of

State

of

-:'exas

provi:ied

the

citati::n

and

pe':':'~:':Jn are

forwarded

to

BELL'S

pr!.nci?al

place

of

business,

133

C=escent

Avenue,

 

New

Jersey

08884,

by cer~ified mail,

retu=n receipt reques~ed.

 
 

1';.

De fendant I

CR

ACQUISITIONS,

rNC.

("CR

ACQUISITIONS") I

is

d

ccmpany duly fo~ed No~ember 9,

1988,

and

existing

under

the

laws

at

the

State

of

Texas

~ith its

prinCipal

place

of

business

in

Dallas,

Dallas

Count.y,

Texas,

and

may

be

served

with

citation

 

J

PLAINTIFFS'

ORIGINAL

PETITION,

APPLICATION

FOR

 

TE

1oI.:PORARY

RESTRAINING

ORDER,

EX

PART!,

APPLICATION

 

FOR

TE.HFORARY

AND

PERM.ANENT

INJUNCTION I

AND

 

APPLICATION POR

IMPOSITION

OF

CONSTRUCTIVE

TRUST

 

Page

8

--

in

chis

ac~ion by

service

of

cication

upon

its

registered

agent,

?EGG-{

f.

CATTELL,

at

its

registered

office,

200

Crescent:.

Court.,

Suice

1375,

Dallas,

Dallas

Count:.y,

Texas

75201.

 

CASE

OVERVIEW

concerns indi-Jidually and derivacivelYI a.gainst:

This

case

the

claims

-/:'

ot ..

by

a

shareholder,

.lcers , direc't.ors and

cont.=olling persons who have engaged in conduct conseitueing

tctal

abandonment:.

and'disregard

of

:iduciar/ duties,

co initially

"lace"

the

asset:s

of.

t:.he

wholly-owned

corporate

subsidiary which

cor.st.:"cuees

the

primary

asset

of

ehe

publicly traded parent

ccmpany

of

which

Plaint:.iff

is

a

shareholder

and,

mose

recencIy,

di'/esc

chat:.

corporate

subSidiary

""it:~out:. shareholder a~9r:::val and

in suc~ a

fashion

as

co

conscicute

an

abdicat:.ion

and

violation

of

f.i.c.·

..

;:::.3

!

dut:ies

owed

\:.0

the

minorit.y

shareholders

of

parent

put::.=~y held and traded ccrporation.

 
 

:5.

Defendant

ROBERTS,

th=cugh

nominees

a.nd

cC:1t.=::::llled

inc:":lduals

or

a.ffiliates,

obtained

cent.rol

of

:-'.AXPHAR

"!A,

a.

puc.!.':'c ly

held

corporat.ion,

through

a

series

0 f

transac-::":ons

in

 

ROBERTS

arranged

for

HADID,

an

individual

with

whom

he

had

busi.:less

dealings,

to

assist. :he majority shareholder of

!-!.a

x?:-u\..

("PRASAD")

with

:-egard

to

refinancing

the

i.ndebt.edness

af

associated

with

t.he

initial

acquisition

by

PRASAD

of

his

inc.erest

in

l"'

AXPHARMA,

in

exchange

for

which

financial

,

PLAINTIFFS' ORIGINAL PETITION,

APPLICATION FOR

TEMPORARY

RESTRAINING

ORDER,

ex

PARTE,

APPLICATION

FOR TEMPORARY AND

PE~ENT

INJUNCTION,

AND

APPLICATION

FOR

IMPOSITION OF CONSTRUCTIVE TROST

Page

9

as sis t:ance

ROBERTS

acqu i red

de

f act:o

vat. ing

and

dis position

right.s

of

the

majority

int.ereses

derivative

from

his

control

of

the

entit.ies

and

individuals

involved.

 

17.

At.

or

abou t.

the

t.ime

0 f

.:.he

acquis i tion

by

ROBERTS

of

con't=ol

of

MAXPHARMA,

ROBERTS

was

also

att.emptinq

to

effect.uat.e

the

acquisit.ion

of

HAMILTON-TAFT,

a

"cash

rich"

payroll

services

company

which

had

theret.ofore

been

owned

by

CIGNA

Insurance

Ccmpany but.

as

to

which

CIGNA

was

seeking

a

purchaser,

as

CIGNA

was

dives~ing itself

of

non-insurance

 

relat.ed

asse'Cs

during

a

pe!."iod

when

CIGNA.

had

sust.aineci

subs't.antial

losses

in

the

pr=~er~y and casualty

insu=ance

businesses.

 
 

18.

COSTELLO

arranged

Ear

a

~=ansac'tion wherein cash asset.s

of

HAMILTON-TAFT

would

be

used

in

a

"reverse

repossession"

financing

arrangement.

whereby

said

cash

assets

t.hemselves

serJed

as

means

by which ~~XPHAR~A,

as a con'trolled entity af

RCc'£:tTS I

could

purchase

:tA.'1ILTON-TAFT

 

the

asset.s

of

HA."!IL70N-TAFT.

I n

this

t=ans act. ian I

the

cas h

0 f

HAMILTON-TAFT

was

transferred

to

an

investment.

banking

fir.n,

which

in

curn

p u!:'c ha s ed

treasury

s ecur i

t. ie s

wh ic h

 

we re

chen

he Id

by the

i

n v est. men t.

ban kin 9

firm

.,., i

t. h

rig h t. S

0 f

rep 0 sse

s s ion

the reo n

sueject.

to

the

faithful

performance

by

!-iAXPHARMA

and

fLa

MILTON-

TAFT

of

debt:

sat.isfact.ion

with

:-egard co monies

paid

by

the

investment.

banking

firm

t.o

CIGNA

in

satisfac'tion

for

the

purchase

ot P~~ILTON-TAFT by MAXP~~.

 
 

I

PLAINTIFfS'

ORIGINAL

PETITION,

APPLICATION

FOR

 

TEMPORARY

RESTRAINING

ORDER,

EX

PARTE,

APPLICATION

f'OR T~ORARY

AND

PERMANENT

INJUNCTION,

AND

 

APPLICATION

FOR

IMPOSITION OP CONSTROCTI~ TROST

 

Page

10

 
 

19.

Once

ROBERTS' had

acquired

MAXPHARMA,

and

in

t.urn

ar.::anged for

the

acquisition

by

:-!.AXPHARl-'

A

of

HAHILTON-TAFT,

ROSER~S then

proceeded

to

remove

the

existing

Board of Oirec~ors

for

each company and

replace

them with COSTELLO

and

LITCHFIELD.

 
 

20.

f{A

"!ILTON-TAFT

 

is

a

payroll

s erv ices

company

whic h

receives

tax

withholdings

from

cust:cmer

client.s,

retains

t.hose

funds

in

account.s

for

subSequent.

 

is

entitled

co

earn

int.erest.

on

funds,

and

ult.imat.ely

prepares

returns

and

pays

taxes I

in exc~ange

for

which

fWiIL7CN-TAFT

agrees

to

ce

liable

for

any

penalties

which

may

resul-c

with

respec't.

to

imprc;:er

filing.

1:1

'Chis

respect,

1-!&.'1ILTON-TMT

is

one

of

the

natien 's

largest.

companies.

Prior

to

the

acquisit.ion

of

cont.=ol

of

HAMILTCN-TAFT

by

R08ERTS,

f~ILTON-TAfT had

no~ ut.ilized

cust.cmer

acc=unt

tunas

for

any

purpose

ot.he~ ~han ac~iring secure assets

(5UC!1

as

government

bones

or

t=easur'j

not.es)

which

c:;ul::'

be

redai~y =edeemed for purposes of mee~~~q clien~ tax obligat.:=r.s.

 

21.

After

the

acquisition

0:

control

of

MAXPKAR

'1A

and

P'&"!ILTCN-TAfT

by

ROBERTS,

during

1988

approximat.ely

S14

 

:nil.!.ion

 

in

funds

were

caused

to

be

removed

from

client.

acccuncs

of

HA

..

'1IL:'ON-TAET

and

dist.ribut.ed

in

the

for:n

ot

loans

to

 

or

di=ect.ly

to

affiliat.ed

en~ir:.!.es wit.h

which

R08ERTS

did

all

for

t.he

benefit

of

the

interests

of

ROBERTS

and

all

contra~1 to

the in~erest.s of ~he shareholders of MAXP~~.

 
 

I

PLAlNTIPPS'

ORIGINAL

PETITION,

APPLICATION

POR

TEMPORARY

RESTRAINING

ORDER,

ex

PARTE,

APPLICATION

 

FOR

TnO?ORARY

AND

PERMAlfENT

INJUNCTION,

AND

 

APPLICATION

FOR

IMPOSITION

OP

CONSTRUCTI~ TROST

Page

11

 

¢sa

 

22.

As

 

d

consequence

of

the

"loo'Cing"

of

HAMILTON-rUT

at

the direc~ion of

ROBERTS,

HAMILTON-TAFT

was

placed

in

jeopardy of

 

being

una.ble

 

co

meet.

it.s

obligations.

 

As

a

resul t.

0 f

this

j eOFardy,

 

1-'

..

A.XPH.A.RJof

..

A

was

required

t:)

at campI:

some

means

by

whic h

t.c

obtain

 

funds

 

to

a.ssure

accom~lishmenc. of that. shor't:-ter:m

purpose.

 

ROBERTS

engaged

t.he

serJices

of

a

goad

friend

and

San

Ant::nio

 

act:crney I

 

Stanley

O.

Rosencerg

(ROSENBERG),

 

to

ob'Cain

a

loan

in

a

face

 

value

of

5625,000.00,

 

to

which

approxirnat.ely

 

s:oo,OOO.OO

 

·,

ras

actually

excended

("FIRST

ROSENBERG

NOTE").

 

This

loa n

was

 

use d

 

t. a

me e t.

s h art - t e rIll

0 b 1 i gat i Q n S

0

f

~x P HA~"!A

 

cerivative

 

from

 

the