-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KRoIgZZz2BFJzMtvoIJBtsM7Aa/LP0ikriBm03U9j2zdBx7pUhOYEp3qFmqaxbIO /5kAKyosPZjyLT0EjIhT0A== 0000950134-05-017316.txt : 20050907 0000950134-05-017316.hdr.sgml : 20050907 20050907171310 ACCESSION NUMBER: 0000950134-05-017316 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20050907 DATE AS OF CHANGE: 20050907 GROUP MEMBERS: HIGHLAND CAPITAL MANAGEMENT SERVICES INC GROUP MEMBERS: HIGHLAND CRUSADER OFFSHORE PARTNERS LP GROUP MEMBERS: HIGHLAND EQUITY FOCUS FUND LP GROUP MEMBERS: HIGHLAND LEGACY LIMITED GROUP MEMBERS: HIGHLAND SELECT EQUITY FUND LP GROUP MEMBERS: JAMES DONDERO GROUP MEMBERS: PAMCO CAYMAN LIMITED GROUP MEMBERS: PROSPECT STREET HIGH INCOME PORTFOLIO INC GROUP MEMBERS: PROSPECT STREET INCOME SHARES INC GROUP MEMBERS: STRAND ADVISORS INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MOTIENT CORP CENTRAL INDEX KEY: 0000913665 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 930976127 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-42503 FILM NUMBER: 051073442 BUSINESS ADDRESS: STREET 1: 300 KNIGHTSBRIDGE, PKY. CITY: LINCOLNSHIRE STATE: IL ZIP: 60069 BUSINESS PHONE: 8474784200 MAIL ADDRESS: STREET 1: 300 KNIGHTSBRIDGE, PKY. CITY: LINCOLNSHIRE STATE: IL ZIP: 60069 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN MOBILE SATELLITE CORP DATE OF NAME CHANGE: 19931019 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: HIGHLAND CAPITAL MANAGEMENT LP CENTRAL INDEX KEY: 0001167365 IRS NUMBER: 752716725 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 13455 NOEL ROAD STE 1300 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 9726284100 MAIL ADDRESS: STREET 1: 13455 NOEL ROAD STE 1300 CITY: DALLAS STATE: TX ZIP: 75240 SC 13D/A 1 d28485asc13dza.htm AMENDMENT TO SCHEDULE 13D sc13dza
 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

Under the Securities Exchange Act of 1934
(Amendment No. 5)*

Motient Corporation
(Name of Issuer)

Common Stock, par value $0.01 per share
(Title of Class of Securities)

619908304
(CUSIP Number)

Patrick H. Daugherty, Esq.
Highland Capital Management, L.P.
Two Galleria Tower
13455 Noel Road, Suite 1300
Dallas, Texas 75240
(972) 628-4100
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

September 6, 2005
(Date of Event Which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. o

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.

* The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

Persons who respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

 

             
CUSIP No. 619908304 Page 2 of 18
  1. Name of Reporting Person:
Prospect Street High Income Portfolio, Inc.		 I.R.S. Identification Nos. of above persons (entities only):
04-3028343
  2. Check the Appropriate Box if a Member of a Group (See Instructions):
    (a) x  
    (b) o  
  3. SEC Use Only:
  4. Source of Funds (See Instructions):
WC
  5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o
  6. Citizenship or Place of Organization:
Maryland
Number of
Shares
Beneficially
Owned by
Each Reporting
Person With
7. Sole Voting Power:
1,155,224
8. Shared Voting Power:
0
9. Sole Dispositive Power:
1,155,224
10.Shared Dispositive Power:
0
  11.Aggregate Amount Beneficially Owned by Each Reporting Person:
1,155,224
  12.Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
o
  13.Percent of Class Represented by Amount in Row (11):
1.7%
  14.Type of Reporting Person (See Instructions):
CO/IV

 

             
CUSIP No. 619908304 Page 3 of 18
  1. Name of Reporting Person:
Prospect Street Income Shares Inc.		 I.R.S. Identification Nos. of above persons (entities only):
36-2765811
  2. Check the Appropriate Box if a Member of a Group (See Instructions):
    (a) x  
    (b) o  
  3. SEC Use Only:
  4. Source of Funds (See Instructions):
WC
  5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o
  6. Citizenship or Place of Organization:
Maryland
Number of
Shares
Beneficially
Owned by
Each Reporting
Person With
7. Sole Voting Power:
111,940
8. Shared Voting Power:
0
9. Sole Dispositive Power:
111,940
10.Shared Dispositive Power:
0
  11.Aggregate Amount Beneficially Owned by Each Reporting Person:
111,940
  12.Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
o
  13.Percent of Class Represented by Amount in Row (11):
0.2%
  14.Type of Reporting Person (See Instructions):
CO/IV

 

             
CUSIP No. 619908304 Page 4 of 18
  1. Name of Reporting Person:
Highland Legacy Limited		 I.R.S. Identification Nos. of above persons (entities only):
  2. Check the Appropriate Box if a Member of a Group (See Instructions):
    (a) x  
    (b) o  
  3. SEC Use Only:
  4. Source of Funds (See Instructions):
WC
  5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o
  6. Citizenship or Place of Organization:
Cayman Islands
Number of
Shares
Beneficially
Owned by
Each Reporting
Person With
7. Sole Voting Power:
223,880
8. Shared Voting Power:
0
9. Sole Dispositive Power:
223,880
10.Shared Dispositive Power:
0
  11.Aggregate Amount Beneficially Owned by Each Reporting Person:
223,880
  12.Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
o
  13.Percent of Class Represented by Amount in Row (11):
0.3%
  14.Type of Reporting Person (See Instructions):
OO

 

             
CUSIP No. 619908304 Page 5 of 18
  1. Name of Reporting Person:
Highland Crusader Offshore Partners, L.P.		 I.R.S. Identification Nos. of above persons (entities only):
  2. Check the Appropriate Box if a Member of a Group (See Instructions):
    (a) x  
    (b) o  
  3. SEC Use Only:
  4. Source of Funds (See Instructions):
WC
  5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o
  6. Citizenship or Place of Organization:
Bermuda
Number of
Shares
Beneficially
Owned by
Each Reporting
Person With
7. Sole Voting Power:
5,352,497
8. Shared Voting Power:
0
9. Sole Dispositive Power:
5,352,497
10.Shared Dispositive Power:
0
  11.Aggregate Amount Beneficially Owned by Each Reporting Person:
5,352,497
  12.Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
o
  13.Percent of Class Represented by Amount in Row (11):
8.1%
  14.Type of Reporting Person (See Instructions):
PN

 

             
CUSIP No. 619908304 Page 6 of 18
  1. Name of Reporting Person:
PAMCO Cayman, Limited		 I.R.S. Identification Nos. of above persons (entities only):
  2. Check the Appropriate Box if a Member of a Group (See Instructions):
    (a) x  
    (b) o  
  3. SEC Use Only:
  4. Source of Funds (See Instructions):
WC
  5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o
  6. Citizenship or Place of Organization:
Cayman Islands
Number of
Shares
Beneficially
Owned by
Each Reporting
Person With
7. Sole Voting Power:
223,880
8. Shared Voting Power:
0
9. Sole Dispositive Power:
223,880
10.Shared Dispositive Power:
0
  11.Aggregate Amount Beneficially Owned by Each Reporting Person:
223,880
  12.Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
o
  13.Percent of Class Represented by Amount in Row (11):
0.3%
  14.Type of Reporting Person (See Instructions):
OO

 

             
CUSIP No. 619908304 Page 7 of 18
  1. Name of Reporting Person:
Highland Equity Focus Fund, L.P.		 I.R.S. Identification Nos. of above persons (entities only):
46-0491961
  2. Check the Appropriate Box if a Member of a Group (See Instructions):
    (a) x  
    (b) o  
  3. SEC Use Only:
  4. Source of Funds (See Instructions):
WC
  5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o
  6. Citizenship or Place of Organization:
Delaware
Number of
Shares
Beneficially
Owned by
Each Reporting
Person With
7. Sole Voting Power:
1,518,779
8. Shared Voting Power:
0
9. Sole Dispositive Power:
1,518,779
10.Shared Dispositive Power:
0
  11.Aggregate Amount Beneficially Owned by Each Reporting Person:
1,518,779
  12.Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
o
  13.Percent of Class Represented by Amount in Row (11):
2.3%
  14.Type of Reporting Person (See Instructions):
PN

 

             
CUSIP No. 619908304 Page 8 of 18
  1. Name of Reporting Person:
Highland Select Equity Fund, L.P.		 I.R.S. Identification Nos. of above persons (entities only):
  2. Check the Appropriate Box if a Member of a Group (See Instructions):
    (a) x  
    (b) o  
  3. SEC Use Only:
  4. Source of Funds (See Instructions):
WC
  5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o
  6. Citizenship or Place of Organization:
Delaware
Number of
Shares
Beneficially
Owned by
Each Reporting
Person With
7. Sole Voting Power:
119,283
8. Shared Voting Power:
0
9. Sole Dispositive Power:
119,283
10.Shared Dispositive Power:
0
  11.Aggregate Amount Beneficially Owned by Each Reporting Person:
119,283
  12.Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
o
  13.Percent of Class Represented by Amount in Row (11):
0.2%
  14.Type of Reporting Person (See Instructions):
PN

 

             
CUSIP No. 619908304 Page 9 of 18
  1. Name of Reporting Person:
Highland Capital Management Services, Inc.		 I.R.S. Identification Nos. of above persons (entities only):
  2. Check the Appropriate Box if a Member of a Group (See Instructions):
    (a) x  
    (b) o  
  3. SEC Use Only:
  4. Source of Funds (See Instructions):
WC
  5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o
  6. Citizenship or Place of Organization:
Delaware
Number of
Shares
Beneficially
Owned by
Each Reporting
Person With
7. Sole Voting Power:
182,748
8. Shared Voting Power:
0
9. Sole Dispositive Power:
182,748
10.Shared Dispositive Power:
0
  11.Aggregate Amount Beneficially Owned by Each Reporting Person:
182,748
  12.Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
o
  13.Percent of Class Represented by Amount in Row (11):
0.3%
  14.Type of Reporting Person (See Instructions):
CO

 

             
CUSIP No. 619908304 Page 10 of 18
  1. Name of Reporting Person:
Highland Capital Management, L.P.		 I.R.S. Identification Nos. of above persons (entities only):
75-2716725
  2. Check the Appropriate Box if a Member of a Group (See Instructions):
    (a) x  
    (b) o  
  3. SEC Use Only:
  4. Source of Funds (See Instructions):
AF/WC
  5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o
  6. Citizenship or Place of Organization:
Delaware
Number of
Shares
Beneficially
Owned by
Each Reporting
Person With
7. Sole Voting Power:
8,822,764
8. Shared Voting Power:
0
9. Sole Dispositive Power:
8,822,764
10.Shared Dispositive Power:
0
  11.Aggregate Amount Beneficially Owned by Each Reporting Person:
8,822,764
  12.Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
o
  13.Percent of Class Represented by Amount in Row (11):
13.3%
  14.Type of Reporting Person (See Instructions):
IA/PN

 

             
CUSIP No. 619908304 Page 11 of 18
  1. Name of Reporting Person:
Strand Advisors, Inc.		 I.R.S. Identification Nos. of above persons (entities only):
95-4440863
  2. Check the Appropriate Box if a Member of a Group (See Instructions):
    (a) x  
    (b) o  
  3. SEC Use Only:
  4. Source of Funds (See Instructions):
AF
  5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o
  6. Citizenship or Place of Organization:
Delaware
Number of
Shares
Beneficially
Owned by
Each Reporting
Person With
7. Sole Voting Power:
8,822,764
8. Shared Voting Power:
0
9. Sole Dispositive Power:
8,822,764
10.Shared Dispositive Power:
0
  11.Aggregate Amount Beneficially Owned by Each Reporting Person:
8,822,764
  12.Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
o
  13.Percent of Class Represented by Amount in Row (11):
13.3%
  14.Type of Reporting Person (See Instructions):
CO

 

             
CUSIP No. 619908304 Page 12 of 18
  1. Name of Reporting Person:
James Dondero		 I.R.S. Identification Nos. of above persons (entities only):
  2. Check the Appropriate Box if a Member of a Group (See Instructions):
    (a) x  
    (b) o  
  3. SEC Use Only:
  4. Source of Funds (See Instructions):
AF/PF
  5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o
  6. Citizenship or Place of Organization:
United States
Number of
Shares
Beneficially
Owned by
Each Reporting
Person With
7. Sole Voting Power:
9,024,326
8. Shared Voting Power:
0
9. Sole Dispositive Power:
9,024,326
10.Shared Dispositive Power:
0
  11.Aggregate Amount Beneficially Owned by Each Reporting Person:
9,024,326
  12.Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
o
  13.Percent of Class Represented by Amount in Row (11):
13.6%
  14.Type of Reporting Person (See Instructions):
IN

 

 Page 13 of 18 
     This Amendment No. 5 to Schedule 13D amends and supplements the Schedule 13D filed with the Securities and Exchange Commission (the “Commission”) on June 10, 2002, as amended by Amendment No. 1 to Schedule 13D filed with the Commission on October 20, 2003, Amendment No. 2 to Schedule 13D filed with the Commission on July 12, 2004, Amendment No. 3 to Schedule 13D filed with the Commission on November 16, 2004, and Amendment No. 4 to Schedule 13D filed with the Commission on April 15, 2005 (as amended, the “Schedule 13D”). Capitalized terms used herein which are not defined herein have the meanings given to such terms in the Schedule 13D. Except as otherwise provided herein, all Items of the Schedule 13D remain unchanged.
Item 4. Purpose of the Transaction.
     Item 4 is hereby supplemented as follows:
     On August 16, 2005, Highland Legacy Limited (the “Plaintiff”) filed a derivative action in the Court of Chancery of the State of Delaware in and for New Castle County against certain officers and directors of Motient Corporation (“Motient” or the “Company”), together with certain consultants to the Company and affiliates of Tejas Securities Group, Inc. (collectively, the “Derivative Defendants”). The suit addresses past dealings between and among the Derivative Defendants and alleges, among other things, that the Derivative Defendants (i) have breached various fiduciary duties to the Company, including the duties of care, loyalty, utmost good faith and fair dealing, accountability and disclosure, (ii) have aided and abetted various breaches of fiduciary duties and (iii) have been unjustly enriched by their actions to the detriment of the Company and its stockholders. Based upon these claims, the Plaintiff is seeking damages for the benefit of the Company and its stockholders of an undetermined amount. The Plaintiff filed an amended complaint in this matter on September 6, 2005. A copy of the amended complaint is attached hereto as Exhibit 2 and is incorporated herein by reference.
     Also on August 16, 2005, Highland Crusader Offshore Partners, L.P., Highland Equity Focus Fund, L.P., Highland Capital Management, L.P. and Highland Capital Management Services, Inc. (collectively, the “Highland Plaintiffs”) filed a petition in the 101st Judicial District Court of Dallas County, Texas against Motient seeking the rescission of a sale of preferred stock by the Company to the Highland Plaintiffs that occurred in April 2005 (the “April Preferred Stock Sale”). The petition alleges that Motient made material misrepresentations and omitted material facts in connection with the issuance and sale of the preferred stock. A copy of the petition relating to this matter is attached hereto as Exhibit 3 and is incorporated herein by reference.
     On August 22, 2005, the Highland Plaintiffs filed a second petition in the 101st Judicial District Court of Dallas County, Texas against the law firm of Andrews & Kurth, L.L.P., relating to, among other things, its legal opinion delivered in connection with the April Preferred Stock Sale. A copy of the petition relating to this matter is attached hereto as Exhibit 4 and is incorporated herein by reference.
     Highland Capital Management, L.P. (“Highland”) is a Dallas, Texas-based investment adviser registered with the Commission that specializes in credit, structured product and distressed asset investments and manages over $15 billion in assets. Highland makes thousands of investments each year in both public and private companies. Contrary to the assertions in Motient’s Current Report on Form 8-K dated August 19, 2005 (the “Form 8-K”), Highland rarely initiates litigation outside of investment-related bankruptcy proceedings. In fact, since January 2002, Highland has not initiated any derivative actions similar to the suits described herein or any litigation in connection with any of its equity investments.
     In preparing for the litigation described above, Highland discovered that several of the Derivative Defendants have defended similar complaints in connection with their involvement with other companies. Specifically, Highland notes in Joseph D. Martinec, Chapter 11 Trustee of WSNet Holdings, Inc. v. Cerberus Capital Management LP, et al., a lawsuit filed in the 200th Judicial District Court of Travis County, Texas, that similar causes of action were asserted against Derivative Defendants Gary Singer and Jared Abbruzzese, including allegations of serious corporate governance abuses and conflicts of interest. A copy of the WSNet petition is attached hereto as Exhibit 5 and is incorporated herein by reference. Highland also notes the multiple lawsuits against Gary Singer involving fraud charges relating to his involvement with the Cooper Companies,Inc., including civil proceedings in SEC v. Cooper Cos., Civ. Action 92-8166

 

Page 14 of 18

(S.D.N.Y Nov. 10, 1992) and criminal proceedings in United States v. Gary Singer and the Cooper Companies, Inc., 92 Cr. 964 (RJW) (S.D.N.Y.).
     Due to the serious claims set forth in its lawsuits, Highland believes that it had no choice but to pursue litigation in order to protect its own interest in Motient and, ultimately, to preserve value in the Company on behalf of all stockholders. Highland also believes that it is important for Motient stockholders to understand the nature of these claims and to take Highland’s concerns into account when considering any future proposals by Motient’s Board of Directors.
Item 5. Interest in Securities of the Issuer.
     Item 5 is hereby amended and restated in its entirety as follows:
     (a) As of August 31, 2005, the Reporting Persons may be deemed to beneficially own an aggregate of 9,024,326 shares of Common Stock, representing approximately 13.6% of the Common Stock outstanding as of August 15, 2005 (based upon information contained in the Issuer’s Annual Report on Form 10-Q for the quarterly period ended June 30, 2005).
     (b) 
                                 
    Sole     Shared     Sole     Shared  
    Voting     Voting     Dispositive     Dispositive  
    Power     Power     Power     Power  
     
Prospect Street High Income Portfolio, Inc.
     1,155,224       0       1,155,224       0  
Prospect Street Income Shares Inc.
     111,940       0       111,940       0  
Highland Legacy Limited
     223,880       0       223,880       0  
Highland Crusader Offshore Partners, L.P. (1)
     5,352,497       0       5,352,497       0  
PAMCO Cayman, Limited
     223,880       0       223,880       0  
Highland Select Equity Fund, L.P. (2)
     119,283       0       119,283       0  
Highland Equity Focus Fund, L.P. (3)
     1,518,779       0       1,518,779       0  
Highland Capital Management Services, Inc. (4)
     182,748       0       182,748       0  
Highland Capital Management, L.P. (5) (6)
     8,822,764       0       8,822,764       0  
Strand Advisors, Inc. (6)
     8,822,764       0       8,822,764       0  
James Dondero (6) (7)
     9,024,326       0       9,024,326       0  
 
(1)   Includes (i) 2,094,289 shares of Common Stock held directly, (ii) 912,514 shares of Common Stock that may be acquired by Crusader within 60 days of the date hereof upon exercise of warrants and (iii) 2,345,694 shares of Common Stock that may be acquired by Crusader within 60 days of the date hereof upon conversion of shares of Series A Preferred Stock.
 
(2)   Includes 10,939 shares of Common Stock that may be acquired by Equity Fund within 60 days of the date hereof upon exercise of warrants.
 
(3)   Includes (i) 1,300,145 shares of Common Stock held directly, (ii) 164,089 shares of Common Stock that may be acquired by Equity Focus within 60 days of the date hereof upon exercise of warrants and (iii) 54,545 shares of Common Stock that may be acquired by Equity Focus within 60 days of the date hereof upon conversion of shares of Series A Preferred Stock.
 
(4)   Represents shares of Common Stock that may be acquired by HCM Services within 60 days of the date hereof upon conversion of shares of Series A Preferred Stock.
 
(5)   Includes 117,281 shares of Common Stock that may be acquired by Highland Capital within 60 days of the date hereof upon conversion of shares of Series A Preferred Stock.
 
(6)   As a result of the relationships described herein, Highland Capital, Strand and Mr. Dondero may be deemed to be the indirect beneficial owners of the shares of Common Stock beneficially owned by Prospect Portfolio, Prospect Shares, Legacy, Crusader, PAMCO, Equity Focus and Equity Fund, and Mr. Dondero may also be deemed to be the indirect beneficial owner of the shares of Common Stock beneficially owned by HCM Services. Highland Capital, Strand and Mr. Dondero expressly disclaim beneficial ownership of the securities reported herein, except to the extent of their pecuniary interest therein.
 
(7)   Includes 18,814 shares of Common Stock held directly.

 

Page 15 of 18

     (c) On August 15, 2005, Mr. Dondero acquired 10,000 shares of Common Stock pursuant to a grant of Common Stock under the Company’s 2004 Restricted Stock Plan. Except as otherwise described herein, no transactions in the Common Stock have been effected by the Reporting Persons during the past sixty days.
     (d) Not applicable.
     (e) Not applicable.
Item 7. Material to be Filed as Exhibits.
     Item 7 is hereby amended and supplemented as follows:
     
Exhibit 2
  First Amended Complaint, filed in the Court of Chancery of the State of Delaware in and for New Castle County, styled as Highland Legacy Limited v. Steven G. Singer; Gary Singer; Tejas, Inc.; Tejas Securities Group, Inc.; Gerald S. Kittner; Christopher W. Downie; Communications Technology Advisors LLC; Capital 4 Technology Advisors, Inc.; Peter D. Aquino; Jared E. Abbruzzese; Barry A. Williamson; Raymond L. Steele; and C. Gerald Goldsmith.
 
    
Exhibit 3
  Original Petition, filed in the 101st Judicial District Court of Dallas County, Texas, styled as Highland Crusader Offshore Partners, L.P.; Highland Equity Focus Fund, L.P.; Highland Capital Management, L.P.; Highland Capital Management Services, Inc. vs. Motient Corporation.
 
    
Exhibit 4
  Plaintiffs’ Original Petition, filed in the 101st Judicial District Court of Dallas County, Texas, styled as Highland Crusader Offshore Partners, L.P.; Highland Equity Focus Fund, L.P.; Highland Capital Management, L.P.; Highland Capital Management Services, Inc. vs. Andrews & Kurth, L.L.P.
 
    
Exhibit 5
  Plaintiffs’ Fourth Amended Petition, filed in the 200th Judicial District Court of Travis County, Texas, styled as Joseph D. Martinec, Chapter 11 Trustee of WSNet Holdings, Inc., Plaintiff v. Cerberus Capital Management LP, Cerberus Partners LP, Cerberus Associates, L.L.C., Craig Court, Inc., CRT Satellite Investors LLC, Stephen A. Feinberg, Gary Singer, Jared Abbruzzese, Seth Plattus, C. Ronald Dorchester, Remus Holdings LLC, Romulus Holdings Inc. and, Techone Capital Group LLC, Defendants.

 

Page 16 of 18

SIGNATURE
     After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
Date: September 6, 2005
         
HIGHLAND CAPITAL MANAGEMENT, L.P.
 
        
By:   Strand Advisors, Inc., its general partner
 
        
 
  By:   /s/ James Dondero
 
       
 
  Name:   James Dondero
 
  Title:   President
 
        
STRAND ADVISORS, INC.
 
        
By:   /s/ James Dondero
     
Name:   James Dondero
Title:   President
 
        
/s/ James Dondero
 
James Dondero
 
        
PROSPECT STREET HIGH INCOME PORTFOLIO, INC.
 
        
By:   /s/ James Dondero
     
Name:   James Dondero
Title:   President
 
        
PROSPECT STREET INCOME SHARES INC.
 
        
By:   /s/ James Dondero
     
Name:   James Dondero
Title:   President
 
        
HIGHLAND LEGACY LIMITED
 
        
By:   Highland Capital Management, L.P., its collateral manager
By:   Strand Advisors, Inc., its general partner
 
        
 
  By:   /s/ James Dondero
 
       
 
  Name:   James Dondero
 
  Title:   President
 
        
HIGHLAND CRUSADER OFFSHORE PARTNERS, L.P.
 
        
By:   Highland Capital Management, L.P., its general partner
By:   Strand Advisors, Inc., its general partner
 
        
 
  By:   /s/ James Dondero
 
       
 
  Name:   James Dondero
 
  Title:   President

 

Page 17 of 18

         
PAMCO CAYMAN, LIMITED
 
        
By:   Highland Capital Management, L.P., its collateral manager
By:   Strand Advisors, Inc., its general partner
 
        
 
  By:   /s/ James Dondero
 
       
 
  Name:   James Dondero
 
  Title:   President
 
        
HIGHLAND EQUITY FOCUS FUND, L.P.
 
        
By:   Highland Capital Management, L.P., its general partner
By:   Strand Advisors, Inc., its general partner
 
        
 
  By:   /s/ James Dondero
 
       
 
  Name:   James Dondero
 
  Title:   President
 
        
HIGHLAND SELECT EQUITY FUND, L.P.
 
        
By:   Highland Capital Management, L.P., its general partner
By:   Strand Advisors, Inc., its general partner
 
        
 
  By:   /s/ James Dondero
 
       
 
  Name:   James Dondero
 
  Title:   President
 
        
HIGHLAND CAPITAL MANAGEMENT SERVICES, INC.
 
        
By:   /s/ James Dondero
     
Name:   James Dondero
Title:   President

 

Page 18 of 18

APPENDIX I
     The name of each director and officer of HCM Services, Strand, Prospect Portfolio and Prospect Shares is set forth below. Unless otherwise indicated, the business address of each person listed below is Two Galleria Tower, 13455 Noel Road, Suite 1300, Dallas, Texas 75240. Each person identified below is a citizen of the United States of America. The present principal occupation or employment of each of the listed persons is set forth below. During the past five years, none of the individuals listed below has been convicted in a criminal proceeding or been a party to a civil proceeding, in either case of the type specified in Items 2(d) or (e) of Schedule 13D.
         
    Present Principal Occupation or Employment    
Name   and Business Address (if applicable)    
Highland Capital Management Services, Inc.
James D. Dondero, Director
  President    
Mark K. Okada, Director
  Executive Vice President    
Patrick H. Daugherty
  Secretary    
Todd A. Travers
  Assistant Secretary    
J. Kevin Ciavarra
  Assistant Secretary    
David Lancelot
  Treasurer    
Chad Schramek
  Treasurer    
 
        
Strand Advisors, Inc.
        
James D. Dondero, Director
  President    
Mark K. Okada
  Executive Vice President    
R. Joseph Daugherty
  Vice President    
Todd A. Travers
  Secretary    
J. Kevin Ciavarra
  Assistant Secretary    
Chad Schramek
  Treasurer    
 
        
Prospect Street High Income Portfolio, Inc. and Prospect Street Income Shares Inc.
James D. Dondero, Director
  President    
Mark K. Okada
  Executive Vice President    
R. Joseph Daugherty, Director
  Senior Vice President    
M. Jason Blackburn
  Secretary and Treasurer    
Michael S. Minces
  Chief Compliance Officer    
Timothy K. Hui, Director
  Associate Provost for Graduate Education of the Pennsylvania Biblical University, 48 Willow Green Drive, Churchville, Pennsylvania 18966    
Scott F. Kavanaugh, Director
  Private investments    
James F. Leary, Director
  Managing Director of Benefit Capital Southwest, Inc., 2006 Peakwood Drive, Garland, Texas 75044    
Bryan A. Ward, Director
  Senior Manager of Accenture, LLP, 3625 Rosedale, Dallas, Texas 75205    
EX-99.2 2 d28485aexv99w2.htm FIRST AMENDED COMPLAINT exv99w2
 

Exhibit 2
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
         
HIGHLAND LEGACY LIMITED,
  :    
 
  :    
                                                                                Plaintiff,
  :    
 
  :   C.A. No. 1566-N
v.
  :    
 
  :    
 
  :    
STEVEN G. SINGER; GARY SINGER;
  :    
TEJAS, INC.; TEJAS SECURITIES GROUP,
  :    
INC.; GERALD S. KITTNER;
  :    
CHRISTOPHER W. DOWNIE;
  :    
COMMUNICATIONS TECHNOLOGY
  :    
ADVISORS LLC; CAPITAL &
  :    
TECHNOLOGY ADVISORS, INC.; PETER D.
  :    
AQUINO; JARED E. ABBRUZZESE; BARRY A.
  :    
WILLIAMSON; RAYMOND L. STEELE;
  :    
AND C. GERALD GOLDSMITH,
  :    
 
  :    
                                                                                Defendants
  :    
 
  :    
and MOTIENT CORPORATION
  :    
 
  :    
                                                                                Nominal Defendant.
  :    
FIRST AMENDED COMPLAINT
     1. Plaintiff Highland Legacy Limited (“Highland”) files this First Amended Complaint, on behalf of Motient Corporation (“Motient”), to recover amounts wrongfully paid by Motient to the Defendants. Highland and its affiliates are the largest single holder of Motient common stock, and Highland seeks to hold the Defendants responsible for their breaches of duties owed to Motient and its shareholders in the transactions described herein. Plaintiff also brings this suit to recover the exorbitant fees paid to conflicted insiders and/or advisors and to protect the integrity of Motient’s corporate governance and assets in an industry experiencing massive expansion, consolidation and change. Motient and its shareholders must have

 

 

confidence that its board will act in the shareholders’ best interest in all decisions, including decisions relating to operations, investments and any divestitures, mergers or acquisitions. Based upon past conduct, there can be no confidence that this Motient board will act in the best interest of Motient and its shareholders or that it will attempt to recover the improper fees and securities given to the Defendants.
The Parties
     2. Plaintiff Highland and its affiliates are the largest single holder of Motient common stock. Plaintiff is an exempt company with limited liability organized under the laws of the Cayman Islands. Plaintiff currently owns 223,880 shares of Motient Common Stock, and has been shareholder of Motient since 2002 when Motient emerged from bankruptcy. Plaintiff has not sold or otherwise disposed of any Motient common stock since 2002 when Motient emerged from bankruptcy. Consistent with this fact, Plaintiff and its affiliates have been and continue to believe in the intrinsic value of Motient, and as such have no present intention to dispose of its Motient securities. Plaintiff believes that Motient shares are undervalued and that one of the reasons for this undervaluation is that the market discounts Motient’s shares because of Motient’s management’s reputation and the conflicts of interest pervasive in Motient’s management. Specifically, Highland believes that the prospects for Motient and its S-band assets, in the absence of management mischief, are enormous.
     3. Defendant Motient Corporation is a Delaware corporation with its principal place of business in Lincolnshire, Illinois. Motient’s current board of directors has seven members: James Dondero, Jonelle St. John, and Defendants Steven Singer, Gerald Kittner, Raymond Steele, Barry Williamson, and Gerald Goldsmith. Dondero is the President of Strand Advisors, Inc., the general partner of Highland Capital Management, L.P., which is the collateral manager

2

 

and an equity investor in Plaintiff Highland Legacy, Limited. Defendants Peter Aquino and Jared Abbruzzese formerly served as directors of Motient. Defendant Christopher Downie is the principal executive officer of Motient.
     4. Defendant Communication Technology Advisors LLC (“CTA”) is a financial and operational restructuring firm with offices in Albany, New York and Reston, Virginia. Communication Technology Advisors LLC is controlled by defendant Abbruzzese. Defendant Capital & Technology Advisors, Inc. is organized under the laws of Delaware, and is affiliated with CTA, and it and Communication Technology Advisors LLC are referred to herein collectively as “CTA.”
     5. Defendant Tejas, Inc. is a Delaware corporation with its principal place of business in Austin, Texas. Tejas, Inc. describes itself as a full service brokerage and investment banking firm that operates primarily through its subsidiary, defendant Tejas Securities Group, Inc., a Texas corporation (Tejas, Inc. and Tejas Securities Group, Inc. are referred to herein collectively as “Tejas”). On July 1, 2005, Defendant Tejas acquired CTA for consideration of approximately $65 million in cash and stock paid to CTA’s stock holders.
     6. Defendant Steven G. Singer has been a Motient director since May 2002 and chairman of the board since June 2003. Since November 2000, Steven Singer has served as chairman and chief executive officer of American Banknote Company (“American Banknote”), a public company. In addition, he currently serves as the non-executive chairman of Globix Corp. (“Globix”), and also heads several private entities.
     7. Defendant Gary Singer is the brother of Defendant Steven Singer. Gary Singer is a convicted felon, having been convicted of, inter alia, fraud, money laundering and racketeering arising out of his management of another Delaware company, Cooper Companies. That conduct

3

 

led the SEC to obtain a permanent injunction against Gary Singer, prohibiting him from acting as an officer or director for any public company. Nonetheless, Gary Singer remains active in Motient’s management, and The Singer Children’s Management Trust, a trust set up for the benefit of Gary Singer’s children, holds or held warrants in Motient and other companies affiliated with CTA, Abbruzzese and Steven Singer.
     8. Defendant Gerald S. Kittner has been a Motient director since May 2002. Since October 2001, Kittner has also been an advisor and consultant for CTA. Kittner has received significant fees of at least $25,000 annually and also received various option and warrants. Since at least July 2002, Kittner has not provided any substantive comments or engaged in active discussion or deliberation of any topic at any board meeting, but he nonetheless approved the transactions challenged herein.
     9. Defendant Raymond L. Steele has been a Motient director since May 2004. Steele also serves as a director of both Globix and American Banknote, two entities whose boards of directors are chaired by Steven Singer. Steele receives over $25,000 annually for his board service at Globix and a similar amount for board service on American Banknote. In addition, Steele has received various stock option and warrant grants from both entities in connection with his service as a director.
     10. Defendant Barry A. Williamson is a career public servant, with a history of serving various positions in state and federal government. Williamson was appointed to the Motient Board in March 2005. Williamson is also a director of Tejas and owns a significant number of Tejas shares. Williamson has been a Tejas director since 1999, and now owns over 51,000 shares of Tejas, a stake with a market value exceeding half a million dollars.

4

 

     11. Defendant C. Gerald Goldsmith joined the Motient board in June 2005. Goldsmith has an extensive history of business with defendant Steven Singer and his brother, Gary Singer, including board service on the American Banknote board of directors. In November 2000, the American Banknote board elected Goldsmith as Chairman Emeritus of the Board, and he became a consultant to American Banknote, at the rate of $10,000 per month. In July 2001, Goldsmith was awarded a participation in American Banknote’s restructuring bonus pool at a $100,000 level, which was fully paid over a 36-month period commencing in January 2001 and ending December 31, 2003. On the April 15, 2005 consummation date of American Banknote’s second bankruptcy filing, Goldsmith retired from the American Banknote board, who then paid Goldsmith $40,000 for his past services. At approximately the same time that his tenure on the American Banknote board (chaired by Steven Singer) ended and the payments to him ceased, Goldsmith was nominated to serve on the Motient board, also chaired by Steven Singer.
     12. Defendant Peter D. Aquino is a resident of Reston, Virginia. Aquino was a Motient director from June 2003 to March 2005. Aquino was a senior managing director of CTA from February 2002 until July 2005, when CTA merged with Tejas. When Aquino left the Motient board in March of 2005, he was replaced by Barry Williamson, a director of Tejas with a significant ownership stake in Tejas.
     13. Defendant Jared E. Abbruzzese lists his address as 18 Corporate Woods Blvd., 3rd Floor, Albany, NY 12211, and, on information and belief, is a resident of Loudonville, NY . Abbruzzese was the Founder and Managing Principal of CTA prior to its merger with Tejas. Abbruzzese has been active in all aspects of CTA’s business, and is the senior most executive at CTA. Abbruzzese was also a Motient director until June 20, 2003. Since at least 2002,

5

 

Abbruzzese has functioned in a managerial role at Motient, including advising the company and negotiating transactions and contracts on its behalf. Abbruzzese also directs Defendant Downie, Motient’s nominal principal executive officer.
     14. Defendant Christopher W. Downie is Motient’s nominal principal executive officer. Downie was appointed executive vice president, chief operating officer and treasurer of Motient in May 2004. From March 2004 to May 2004, Downie held the position of executive vice president, chief financial officer and treasurer, and was designated as Motient’s principal executive officer. From April 2003 to March 2004, Downie served as vice president, chief financial officer and treasurer. From May 2002 to April 2003, Downie worked as a consultant for CTA and while with CTA, Downie was primarily engaged on Motient-related and other telecom-related matters, and reported to defendant Abbruzzese. Downie’s compensation remains linked to CTA and Motient’s payments to CTA.
FACTS
     15. This lawsuit is being filed because the Motient directors, controlled by Steven Singer, aided by Steven Singer’s brother Gary Singer (who has been banned for life from serving as an officer or director of a public company), and their conspirator Abbruzzese, are conflicted, not independent and driven to hasty decisions adverse to Motient’s best interest by the Singers and Abbruzzese. The effect of these imprudent decisions has been to dilute the interests of Motient’s shareholders in Motient, and thus in its primary asset, Mobile Satellite Ventures L.P. (“MSV”), while at the same time enriching the Singers, CTA, Tejas and Abbruzzese, all at the shareholders’ expense. With this board paradigm rigidly entrenched, the pattern of self-dealing and fleecing of stockholder wealth can only repeat itself in this rapidly changing and evolving

6

 

industry. Given the corporate chicanery exposed in the last several years, the Defendants simply cannot be entrusted with fiduciary responsibilities for stockholders.
     16. The company at issue, Motient, provides two-way wireless mobile data services and nationwide wireless internet services. Motient’s operations lose money, and Motient has reported losses of more than $72 million on reported revenues of only $36.9 million in fiscal year 2004. Motient’s primary asset is its interest in MSV. MSV provides mobile satellite based communications services, and its spectrum assets are extremely valuable. Thus, despite Motient’s history of operating losses, Motient’s current market capitalization is approximately $1.5 billion.
     17. Defendants CTA and Abbruzzese have provided financial advice to Motient since 2002 and functioned as its executive management. CTA assumed this role at Motient in May 2002, when it was hired to provide financial advice to Motient. At the time CTA was hired, both Abbruzzese and Steven Singer were members of the Motient board. Motient has paid significant fees to CTA for this advice, and CTA currently receives $60,000 per month from Motient. CTA has received over $3 million in total fees since 2002. In addition to significant fees, CTA has been given warrants to purchase hundreds of thousands of shares of Motient stock. Those warrants are now worth tens of millions of dollars.
     18. In order to raise capital to maintain operations and invest in MSV, in 2004 and early 2005, Motient sold hundreds of millions of dollars in various unregistered securities. Because Motient’s underlying business was losing tens of millions of dollars a year, selling equity was Motient’s only source of cash.
     19. In connection with each of the sales described herein, CTA and Abbruzzese provided advice to the Motient board and encouraged Motient to retain Tejas to provide services

7

 

to the Company. CTA also discouraged any competitive bidding for the service provided by Tejas, pressuring the board that no adequate alternatives existed and contriving urgency that did not exist. The result was that the board felt compelled to follow CTA’s advice without proper consideration of alternatives or alternative service providers. The directors, other than James Dondero, provided little input and had basically no deliberation on these complicated issues involving transactions worth hundreds of millions of dollars to the company. In fact, since at least July 2002, Defendant Kittner has not made substantive comments or actively participated in deliberations at a Board meeting.
     20. CTA and Abbruzzese also failed to disclose their interests in Tejas and Tejas’s lack of qualifications for the tasks for which they were recommended by CTA. The net result was extraordinary compensation to CTA (and thus to Abbruzzese, Kittner and Aquino) and Tejas. Gary Singer advocated that the board hire Tejas and disparaged other well regarded Wall Street firms. CTA, Abbruzzese and Gary Singer all pressured the company to retain Tejas, despite Tejas’s relative obscurity and lack of qualifications.
     21. In 2003, Tejas was a regional financial advisor focusing on brokerage sales and research of mid-cap stocks. Investment banking revenue was a de minimis part of its business, accounting for less than 1% of its revenue. Abbruzzese and Steven Singer failed to disclose, however, that Tejas was unqualified to perform the services for which it was retained and was in fact struggling for its corporate life. After Tejas began work for Motient, however, Tejas’s investment banking revenue increased over 25,000%, annual profit increased over 2600%, and Tejas’s stock price appreciated 900% in one year. In addition to being paid significant fees by Motient, Tejas was granted significant warrants to purchase Motient common stock, and those warrants now are worth tens of millions of dollars.

8

 

     22. Tejas was also paid an above-market rate for its services. For example, in July 2004, Tejas received warrants valued at $11.6 million at the time of issuance, even though Motient received only $30.0 million of proceeds from the offering. Putting aside any other fees to CTA or Tejas, Motient in effect paid a fee of nearly 39% for this equity issuance. The value of Motient warrants granted to Tejas in 2004 was over $20 million dollars, fees greatly in excess of the market value of Tejas’s services.
     23. In total, the value of the warrants provided to CTA and Tejas are estimated to be worth over $50 million. This is in addition to the millions more in fees Motient paid to CTA and Tejas by Motient. Defendants have benefited from their breaches of fiduciary duties in amounts that could exceed $100 million.
     24. In addition to stock and fees paid to CTA, Abbruzzese and Kittner have another conflict of interest associated with Motient’s purchase of MSV units. Namely, even though Motient owns a significant stake in MSV, Motient is not the only MSV shareholder, nor does Motient own or control MSV’s general partner. MSV’s general partner is actually Motient Satellite Ventures GP, Inc., (“MSV GP”) whose principal place of business is 10802 Parkridge Boulevard, Reston, Virginia. Abbruzzese and Kittner are directors of MSV GP. Thus, Kittner sits on both the Motient and MSV GP board, while Abbruzzese sits on the MSV GP board and also has de facto executive authority at Motient. Thus, even though Motient owns upwards of 40% of MSV, the only two MSV GP directors with any executive responsibility at Motient are both CTA employees.
     25. In addition to Kittner’s and Abbruzzese’s service on the MSV GP board, Plaintiff has been informed that CTA, Abbruzzese, Kittner or entities affiliated with them also either own direct equity interests in MSV or beneficial interests in MSV equity. Thus, because they

9

 

directly benefit from an increase in value at MSV, Kittner, Abbruzzese and CTA have both a motive and an opportunity to transfer value from Motient to MSV. Motient’s purchases of MSV units in 2004 at prices that reflected ever increasing valuations of MSV enriched Kittner, Abbruzzese and CTA through their ownership of MSV units.
     26. Kittner, Abbruzzese and CTA failed to fully disclose the conflicts arising from the management and ownership of MSV to either the Motient board or to the public. Kittner, Abbruzzese and CTA also failed to recuse themselves from past deliberations, discussions and decisions relating to Motient’s dealings with MSV.
Motient’s 2004 Private Placement Transactions and Warrant Grants to Defendants
     27. As disclosed in Motient’s 10-K filed March 31, 2005, on April 7, 2004, Motient sold 4,215,910 shares of its common stock at a per share price of $5.50 for an aggregate purchase price of $23.2 million to several different investors. The sale of these shares was not registered under the Securities Act of 1933 (the “Securities Act”), as amended, and the resale of the shares was restricted in the United States absent registration or an applicable exemption from registration requirements. The shares were offered and sold pursuant to the exemption from registration afforded by Rule 506 under the Securities Act and/or Section 4(2) of the Securities Act. In connection with this sale, Motient signed a registration rights agreement with the holders of these shares. Motient also issued warrants to purchase an aggregate of 1,053,978 shares of its common stock to certain investors.
     28. In connection with the April 2004 sale, Motient issued to Tejas, its placement agent for the private placement, and certain CTA affiliates, warrants to purchase 600,000 and 400,000 shares, respectively, of its common stock. The exercise price of these warrants was $5.50 per share. The warrants were immediately exercisable upon issuance and provided for a

10

 

term of five years. Motient also paid Tejas a placement fee of $350,000 at closing. The fair value of the warrants was estimated at $6.2 million. The shares were offered and sold pursuant to an exemption from registration afforded by Rule 506 under the Securities Act and/or Section 4(2) of the Securities Act.
     29. On July 1, 2004, Motient sold 3,500,000 shares of its common stock at a per share price of $8.57 for an aggregate purchase price of $30.0 million to multiple investors. The sale of these shares was not registered under the Securities Act and the resale of the shares was restricted in the United States absent registration or an applicable exemption from registration requirements. The shares were offered and sold pursuant to the exemption from registration afforded by Rule 506 under the Securities Act and/or Section 4(2) of the Securities Act.
     30. In connection with the July 2004 sale, Motient issued to certain affiliates of CTA and Tejas, its placement agent for the private placement, warrants to purchase 340,000 and 510,000 shares, respectively, of its common stock. The exercise price of these warrants was $8.57 per share. The warrants were immediately exercisable upon issuance and have a term of five years. Motient also paid Tejas Securities Group, Inc. a placement fee of $850,000 at closing. The fair value of the warrants was estimated at $11.6 million using a Black-Scholes model. The shares were offered and sold pursuant to an exemption from registration afforded by Rule 506 under the Securities Act and/or Section 4(2) of the Securities Act.
     31. On November 12, 2004, Motient sold 15,353,609 shares of its common stock at a per share price of $8.57. Motient received aggregate proceeds of $126,397,809, net of $5,182,620 in commissions paid to its placement agent, Tejas. The approximately 60 purchasers included substantially all of the purchasers from the April and July 2004 private placements, as well multiple new investors. The sale of these shares was not registered under the Securities Act

11

 

and the resale of the shares was restricted in the United States absent registration or an applicable exemption from registration requirements. The shares were offered and sold pursuant to the exemption from registration afforded by Rule 506 under the Securities Act and/or Section 4(2) of the Securities Act. In connection with this sale, Motient signed a registration rights agreement with the holders of these shares. Motient also issued warrants to purchase an aggregate of approximately 3,838,401 shares of its common stock to certain investors at an exercise price of $8.57 per share.
     32. In addition, in February 2005, CTA and certain of its affiliates were paid an investment banking fee of $3.7 million in cash and stock in relation to the closing of Motient’s acquisition of certain interests in MSV. Gary Singer argued to the board on his own behalf and on behalf of CTA that they should receive a significant fee for this deal. Gary Singer actually sought an even greater fee for himself, arguing that he had done more work on the deal than any Motient director. After Motient paid CTA $3.7 million, CTA then assigned approximately $1.1 million of this fee to The Singer Children’s Management Trust, which is ultimately controlled by and affiliated with Gary Singer.
The Web of Connections
     33. In addition to Motient, CTA also advises Globix. Globix’s non-executive chairman is defendant Steven Singer. Like Motient, Globix pays CTA a monthly fee for its advice, and like Motient, Globix has granted CTA significant warrants. In addition to Motient and Globix, CTA and Abbruzzese provide advice to entities that have an interest in MSV or its general partner, and CTA and Abbruzzese have indirect ownership interests in MSV. Finally, Globix shares directors with Motient, including Steele and Singer.

12

 

     34. Gary Singer shares an office with Steven Singer, has participated in many Motient board meetings and conference calls, and even acted in a managerial role on behalf of the company. Gary Singer routinely pressures the board for compensation, and has warrants to acquire shares of the company. Defendant Downie often delegated authority to Gary Singer, and Gary Singer regularly negotiated transactions purportedly on behalf of Motient. Downie has never disagreed with any proposal to the board made by Gary Singer, Steven Singer, CTA or Abbruzzese. Defendants have tried to obfuscate Gary Singer’s role with Motient by not officially naming him an officer or director of the company.
     35. Gary Singer and Abbruzzese also have an extensive business history together. In fact both Gary Singer and Abbruzzese were recently sued for looting WSNet Holdings, Inc., a satellite television company based in Austin, Texas. Abbruzzese was the chairman of WSNet, a company that was allegedly dominated by Gary Singer, and was sued by WSNet’s shareholders for breach of fiduciary duty and letting Gary Singer control the corporation. Judgment was reportedly entered against Abbruzzese for $9 million. In addition, Abbruzzese has been involved in businesses linked to Romulus Holdings, Inc., Remus Holdings, Inc. and The Singer Children’s Management Trust, all of which are investment vehicles for the Singer family, including Gary Singer. For example, Gary Singer, Abbruzzese and Romulus Holdings were all Defendants in WSNet litigation and were alleged to have participated in various breaches of duty in that case.
     36. CTA, Kittner and Abbruzzese also have links to Tejas, the firm they pressured Motient to hire at above market rates. On November 8, 2004, Tejas granted Abbruzzese an option to purchase 100,000 shares of common stock of Tejas, purportedly as compensation to Abbruzzese for services rendered to Tejas. Neither Abbruzzese, CTA, nor Tejas disclosed this

13

 

option grant to the Motient board. Tejas also gave PDA Group, LLC, an entity wholly-owned by Aquino, warrants to purchase 56,250 shares of Motient common stock.
     37. After CTA and Abbruzzese steered millions in fees and Motient warrants to CTA and Tejas, in May 2005, Tejas announced that it would essentially acquire CTA for approximately $65 million in cash and stock to CTA’s owners, including Abbruzzese and Kittner. CTA became a wholly owned subsidiary of Tejas and continued to operate under the CTA brand and will maintain a primary office in Reston, Virginia, where MSV is also located. Defendant Abbruzzese was appointed Vice Chairman of Tejas and granted a generous employment agreement and stock option package.
     38. Another significant investor in Motient is Rajendra Singh. Singh also has invested with the Singers in other companies, including First Avenue Networks, Inc. and Leap Wireless International, Inc. Singh and Singer family entities have significant stakes in First Avenue Networks, Inc. and that company has also issued warrants to Tejas. Singh, Kittner and another CTA principal, Wayne Barr, had agreed to serve as directors of Leap Wireless after it emerged from bankruptcy, but resigned shortly after CTA was terminated by Leap.
     A Majority of the Board of Directors of Motient is Not Independent, But Rather Controlled and Dominated by the Defendants
     39. Motient’s Board of Directors, consisting of seven persons, is unable to investigate, pursue or litigate the claims alleged in this Complaint. A majority of the Motient board of directors is not disinterested and independent. Steven Singer cannot possibly investigate and pursue claims for his breach of duties, as he and/or his brother have a financial interest in the transactions described herein. As further detailed herein, Raymond Steele is controlled and dominated by the Singers, and dependent on the Defendants for compensation he receives as a director of Singer-affiliated entities Globix and American Banknote. Defendant C.

14

 

Gerald Goldsmith is controlled and dominated by the Singers and has a history of business with them, including service on the American Banknote board of directors. Defendants Kittner and Williamson have a direct, material financial interest in the transactions described herein. Defendant Williamson owns a significant stake of Tejas stock, and is a director of Defendant Tejas. Kittner remains a senior executive at defendant CTA, and is a business partner with Defendants Abbruzzese and Aquino.
     40. Defendant Steele is a member of the board of directors of both Globix and American Banknote, two entities whose boards of directors are chaired by Steven Singer. Steven Singer is chairman of the board of American Banknote and also has a significant stock interest in American Banknote. Steele receives over $25,000 annually for his board service at Globix and a similar amount for board service on American Banknote. In addition, Steele has received various stock option and warrant grants from both entities in connection with his service as a director. Because of his close ties to Steven Singer, Steele is incapable of disinterestedly considering a demand to take action against the Defendants. Steele is dominated, controlled and dependent on the Singers and the largesse they dispense to him. Steele’s arrangement with American Banknote is part of a pattern of largesse. Similarly, Gary Singer was awarded a $325,000 bonus by American Banknote and also annual consulting fees of $120,000.
     41. Defendant Williamson was appointed to the Motient Board in March 2005. Williamson also is a director of Tejas and owns a significant number of Tejas shares. Williamson has been a Tejas director since 1999, and now owns over 51,000 shares of Tejas, a stake with a current market value exceeding half a million dollars. He therefore cannot be expected to investigate and prosecute claims against Tejas and the other Defendants.

15

 

     42. Defendant Goldsmith also recently joined the Motient board in 2005. Goldsmith also has an extensive history of business with the Singers, including board service on the American Banknote board of directors. In fact, in November 2000, the American Banknote board elected Goldsmith as Chairman Emeritus of the Board, and he became a consultant to American Banknote, at the rate of $10,000 per month. In July 2001, Goldsmith was awarded a participation in American Banknote’s restructuring bonus pool at a $100,000 level, which was fully paid over a 36-month period commencing in January 2001 and ending December 31, 2003. On the April 15, 2005 consummation date of American Banknote’s second bankruptcy filing, Goldsmith retired from the American Banknote board, who then paid Goldsmith $40,000 for his past services. At approximately the same time that his tenure on the American Banknote board (chaired by Steven Singer) ended and the payments to him ceased, Goldsmith was nominated to serve on the Motient board, also chaired by Steven Singer. Thus, Goldsmith is dominated, controlled and dependent on the Singers and the largesse they dispense to him.
Efforts to Have the Motient Board Pursue These Claims
     43. At Motient board meetings in 2005, then director James Dondero (“Dondero”) raised his concerns regarding warrants, options and other payments awarded to CTA and Tejas. Dondero has also opposed retaining Tejas as underwriter and questioned the fees to be paid to Tejas, and, as a director, voted against proposals to retain Tejas as underwriter. Rather than address those concerns, on August 11, 2005, the Board sent Dondero a letter threatening to sue him for disclosing and discussing, among other things, the information he related at the Board meetings and the Board’s reactions to his concerns. Dondero informed the company and the Board that he had not disclosed any material non-public information and encouraged the board to focus on improving shareholder value.

16

 

The Board’s Retaliation Against Dondero and the Misleading 8-K
     44. Plaintiff submitted the original complaint for filing on August 16, 2005, immediately prior to a previously-scheduled Motient board meeting that began at 2:00 p.m. Central time. At that board meeting, Motient’s dominated, controlled and conflicted board implemented a scheme to exclude the only truly independent director, Dondero, from management and the board, even though Highland and its affiliates are collectively Motient’s largest shareholder. At the August 16 board meeting, the board voted to form a so-called “Executive Committee,” which excludes Dondero. By excluding Dondero from the Board, the Defendants and the dominated, controlled and conflicted Board members have effectively (i) disenfranchised Motient’s shareholders; (ii) entrenched themselves to the detriment of the company; (iii) effectively excluded the person fighting for Motient’s shareholders, Dondero, from influencing the board, its deliberations and the future of Motient; and (iv) created a “board within a board” that can continue to oversee the direction of the company for the benefit of the Defendants to the detriment of Motient shareholders.
     45. In contrast to the Motient’s board’s exclusion of Dondero, the Motient board allows the conflicted Defendants, including Steven Singer, Gary Singer, Kittner, Williamson, Abbruzzese, and Downie, to conduct the affairs of the company, attend board meetings, vote on all corporate matters and generally direct the strategy and set the course of the company. This inconsistency demonstrates the board’s lack of independence and inability to meaningfully pursue and prosecute the claims and allegations previously raised by Plaintiff and Dondero.
     46. The Board further demonstrated its inability to prosecute these claims when it filed with the SEC a misleading current report on Form 8-K on August 19, 2005, purporting to describe Plaintiff’s original complaint (the “8-K”). Motient’s 8-K identified Plaintiff’s suit, but

17

 

focused on Dondero and Highland rather than the claims asserted herein. In fact, the 8-K inaccurately stated that “The lawsuits against Motient were filed after the formation by Motient’s Board of Directors of an Executive Committee which does not include Mr. Dondero.” The lawsuits were in fact submitted for filing before the board meeting and the board’s exclusion of Dondero from management, and any implication that this lawsuit was filed as a result of the formation of an Executive Committee is inaccurate.
     47. Finally, the 8-K starkly demonstrates the Board’s inability to investigate and prosecute the claims alleged in Plaintiff’s complaint. Quite simply, the defendant directors that control and dominate the Board have prejudged these claims without any investigation or deliberation. Indeed, the 8-K does not reference any board investigation or deliberation relating to the allegations of the complaint or even that the full board met to consider the complaint after it was filed and before Motient filed the 8-K. Notwithstanding this fact, Motient’s 8-K summarily concluded: “Motient believes that these lawsuits have no merit and intends to vigorously defend these lawsuits.” Motient and the Defendants board members should not be entrusted to prosecute claims that they have declared dead on arrival.
COUNT 1 — BREACH OF FIDUCIARY DUTY
     48. Plaintiff repeats the allegations in the foregoing paragraphs as if fully set forth herein.
     49. All of the Director Defendants and Downie owed Motient the fiduciary duties of care, loyalty, utmost good faith and fair dealing, accountability and disclosure. The directors with either direct or indirect interests in CTA or Tejas have breached their fiduciary duties by placing their own interests above the interests of Motient and by engaging in the actions and omissions described herein.

18

 

     50. The Directors Defendants including Steven Singer, Aquino, Kittner, Williamson, Steele and Goldsmith who approved the grant of warrants or options to purchase Motient stock to either CTA or Tejas and/or payments to CTA or Tejas have breached their fiduciary duties because such grants and payments were unnecessary, excessive and reflected self-dealing transactions as to certain directors with interests in either CTA or Tejas.
     51. Defendants Steven Singer, Downie, Aquino, Steele, Williamson, Goldsmith, Kittner and Abbruzzese have breached their fiduciary duties to Motient by, among other things, (i) causing Motient to hire CTA; (ii) causing Motient to pay CTA exorbitant fees and warrants; (iii) engaging Tejas to provide services to the Company; (iv) agreeing to pay Tejas millions in fees and warrants for the services allegedly provided; and (v) misrepresenting and failing to disclose adequately their interests in these entities.
     52. By knowingly permitting Gary Singer to act in a managerial role in circumvention of the SEC injunction and by failing adequately to disclose the extent of his role with Motient, the Defendants including Steven Singer, Aquino, Downie, Kittner, Williamson, Steele and Goldsmith have breached their fiduciary duties of care, good faith, and loyalty.
     53. In addition, certain of the director Defendants have improperly profited from these breaches of fiduciary duty and all such Defendants are legally responsible for their fiduciary breaches.
     54. As a proximate result of these breaches of fiduciary duty, Motient has been harmed.
COUNT 2 — AIDING AND ABETTING BREACH OF FIDUCIARY DUTY
     55. Plaintiff repeats the allegations in the foregoing paragraphs as if fully set forth herein.

19

 

     56. Defendants Gary Singer, CTA, Abbruzzese, and Tejas aided and abetted the breaches of fiduciary duties described above by knowingly participating in the breach of fiduciary duties, which have resulted in harm to Motient.
     57. Gary Singer has knowingly aided and abetted the breaches of fiduciary duty by the director Defendants, who have allowed Gary Singer to circumvent the SEC injunction by participating in the management of Motient and actively participating in board meetings, effectively serving as a de facto officer and director of Motient.
     58. Defendants’ conduct has resulted in harm to the Company.
COUNT 3 — UNJUST ENRICHMENT
     59. Plaintiff repeats the allegations in the foregoing paragraphs as if fully set forth herein.
     60. Defendants Steven Singer, CTA, Abbruzzese, Kittner, Aquino, Downie and/or Tejas have obtained benefits from Motient by wrongful conduct, duress and/or taking of an undue advantage of Motient as described in the foregoing recitation of facts. As a result, these Defendants have been unjustly enriched. Motient seeks recovery of all monies and assets unjustly obtained by Defendants.
FUTILITY OF DEMAND
     61. Plaintiff repeats the allegations in the foregoing paragraphs as if fully set forth herein.
     62. Under the particularized facts alleged herein, a reasonable doubt is created that a majority of the board of directors of Motient is disinterested and independent, for the reasons discussed. In addition or in the alternative, a reasonable doubt exists that the challenged

20

 

transactions and conduct were the product of a valid exercise of business judgment of Motient’s directors. For these reasons, pre-suit demand upon Motient is excused as futile.
PRAYER
     Plaintiff seeks the following relief:
     (1) all damages suffered by the Company or directly by its shareholders (other than Defendants and their affiliates or family members);
     (2) the imposition of a constructive trust upon all profits, assets and proceeds of Defendants as a result of breaches of fiduciary duty to Motient;
     (3) attorney’s fees, costs, and expenses incurred by Plaintiff in connection with this action;
     (4) pre-judgment and post-judgment interest; and
     (5) such other or further relief that the Court deems just and equitable.
     WHEREFORE, Plaintiff prays that upon final hearing the Court award judgment in favor of Plaintiff and against Defendants and grant the aforementioned relief and such other and further relief as may be just.
     
 
  POTTER ANDERSON & CORROON LLP
OF COUNSEL:
    
 
    
Haynes and Boone LLP
  By /s/ Joyce E. Wong                                        
Brian D. Hail (BH-1857)
        Kevin R. Shannon (#3137)
53 E. 53rd St. 49th Floor
        Michael A. Pittenger (#3212)
New York, NY 10022
        Matthew E. Fischer (#3092)
Telephone: (212) 659-4962
        Joyce E. Wong (#4617)
Telecopier: (212) 884-8202
        Hercules Plaza, 6th Floor
 
        1313 North Market Street
 
        Wilmington, Delaware 19899-0951
 
        (302) 984-6000
Dated: September 6, 2005
    
 
  Attorneys for Plaintiff

21

EX-99.3 3 d28485aexv99w3.htm ORIGINAL PETITION exv99w3
 

Exhibit 3
No. 05-07996
         
HIGHLAND CRUSADER OFFSHORE PARTNERS,
  §   IN THE DISTRICT COURT
L.P.; HIGHLAND EQUITY FOCUS FUND, L.P.;
  §    
HIGHLAND CAPITAL MANAGEMENT, L.P.;
  §    
HIGHLAND CAPITAL MANAGEMENT SERVICES,
  §    
INC.
  §    
 
  §    
           Plaintiffs,
  §    
 
  §    
VS.
  §   E-101st JUDICIAL DISTRICT
 
  §    
MOTIENT CORPORATION
  §    
 
  §    
           Defendant.
  §   DALLAS COUNTY, TEXAS
ORIGINAL PETITION
TO THE HONORABLE JUDGE OF THE DISTRICT COURT
     COME NOW Plaintiffs Highland Crusader Offshore Partners, L.P., Highland Equity Focus Fund, L.P., Highland Capital Management, L.P., and Highland Capital Management Services, Inc. (“Highland”) and file this Original Petition against Defendant Motient Corporation (“Motient”) and for their cause of action would show the Court and Jury the following:
DISCOVERY CONTROL PLAN
     1. In accordance with Rule 190.4 of the Texas Rules of Civil Procedure, Plaintiffs intend to conduct discovery in this case pursuant to Discovery Level 3.
PARTIES
     2. The Plaintiffs are Highland Crusader Offshore Partners, L.P., a Bermuda exempted limited partnership; Highland Equity Focus Fund, L.P. , a Delaware limited partnership; Highland Capital Management, L.P., a Delaware limited partnership; and Highland
      
ORIGINAL PETITION   Page 1

 

 

Capital Management Services, Inc., a Delaware corporation. All Plaintiffs maintain their principal office in Dallas County, Texas. All Plaintiffs purchased Series A Cumulative Convertible Preferred Stock from Defendant Motient Corporation in April 2005 in the amount of approximately $90,000,000 and still hold their shares of such stock. The Series A Cumulative Convertible Preferred Stock is a security within the meaning of the terms of Article 581—4(A) of the Texas Revised Civil Statutes.
     3. Defendant Motient is a Delaware corporation with its principal place of business at 300 Knightsbridge Parkway, Lincolnshire, Illinois 60069. Motient Corporation can be served with process through (1) the Texas Secretary of State; (2) its registered agent, the Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801; and (3) its general counsel, Robert Macklin at 300 Knightsbridge Parkway, Lincolnshire, IL 60069.
JURISDICTION AND VENUE
     4. This Court has jurisdiction over Defendant because Defendant negotiated a contract and sold stock to Plaintiffs, Defendant has availed itself of the privileges and benefits of conducting business in Texas, and Defendant has committed torts in whole or in part in Texas in which the victims included Texas residents.
     5. Venue is appropriate in the district courts of Dallas County pursuant to § 15.002(a)(1) of the Texas Civil Practice and Remedies Code because Dallas County is the county in which a substantial part of the events or omissions giving rise to the claims occurred. Venue is also appropriate under § 15.002(a)(4) as Dallas County is the county where all Plaintiffs resided and maintained their principal office at the time the cause of action accrued.
FACTS
     6. On or about April 15, 2005, Plaintiffs purchased shares of Series A Cumulative
      
ORIGINAL PETITION   Page 2

 

 

Convertible Preferred Stock (“Series A Preferred Stock”) from Motient, pursuant to a Securities Purchase Agreement, in a private placement, exempt from the registration requirements of the Securities Act of 1933, as amended. In connection with the execution of the Securities Purchase Agreement, Motient also entered into a Registration Rights Agreement with the purchasers.
     7. The shares of Series A Preferred Stock were created by resolution of Motient’s board of directors and the filing of a certificate of designations with the Secretary of State of the State of Delaware. The Certificate of Designations of the Series A Preferred Stock (the “Certificate of Designations”) was filed with the Secretary of State on April 15, 2005. With respect to the voting rights of Series A Preferred Stock, it provides:
Section 3. Voting Rights. Except as required by law, holders of Series A Preferred shall have no voting rights and their consent shall not be required for taking any corporate actions. Notwithstanding the foregoing, the Corporation shall not have the right, as long as any shares of Series A Preferred are outstanding, to modify the rights, preferences or privileges of the Series A Preferred in a manner adverse to the holders of Series A Preferred without first obtaining the approval (by vote or written consent, as permitted by law) of the holders of at least a majority of the then-outstanding shares of Series A Preferred, voting or acting, as the case may be, as a single class.
     8. Article 7 of the Securities Purchase Agreement requires Motient to indemnify each purchaser and its affiliates:
against any and all claims, losses, liabilities, damages, deficiencies, judgments, assessments, fines, settlements, costs or expenses (including interest, penalties and reasonable fees, disbursements and other charges of counsel (collectively “Losses”), based upon, arising out of or otherwise in respect of any breach by the Company of any representation, warranty, covenant or agreement of the Company contained in this Agreement or in the Transaction documents....
     9. At the time Motient issued the shares of Series A Preferred Stock, it described them in its public filings as “shares of non-voting Series A Cumulative Convertible Preferred
      
ORIGINAL PETITION   Page 3

 

 

Stock” and represented that “[t]he Series A [Convertible] Preferred Stock is non-voting, except as required by applicable law.”
     10. The fact that the Series A Preferred Stock did not possess any voting rights was significant and material to potential purchasers, including Plaintiffs, because of various antitrust and securities law issues. Prior to the stock’s issuance Plaintiffs and Defendant specifically negotiated the lack of voting rights for the preferred stock, and the intent of all parties to the transaction was that the Series A Preferred Stock would not have voting rights.
     11. In the Securities Purchase Agreement, Motient represented that (i) all corporate action necessary for the authorization, execution, delivery and performance of the Securities Purchase Agreement and the transaction documents and consummation of the transactions contemplated therein had been taken and that the Securities Purchase Agreement and other transaction documents were enforceable against Motient in accordance with their terms; (ii) the shares of Series A Preferred Stock had been duly authorized and upon issuance pursuant to the terms of the Securities Purchase Agreement would be validly issued, fully paid and nonassessable; and (iii) the execution, delivery and performance by Motient of the Securities Purchase Agreement and the transaction documents, and the consummation of the transactions contemplated thereby, including the issuance of shares of Series A Preferred Stock, did not and will not conflict with or violate any provision of the Certificate of Incorporation or bylaws of Motient or result in a violation of any statute or law applicable to Motient.
     12. The purchasers of the Series A Preferred also received a legal opinion from Motient’s outside legal counsel opining that the shares of Series A Preferred Stock were duly authorized and validly issued and that the issuance of the shares did not conflict with Motient’s certificate of incorporation or applicable law.
      
ORIGINAL PETITION   Page 4

 

 

     13. The purchasers of the Series A Preferred Stock, including Plaintiffs, relied on Motient’s representations in the Securities Purchase Agreement and also on the legal opinion issued by Motient’s outside counsel.
     14. At the time of the issuance of the Series A Preferred Stock, Motient’s Restated Certificate of Incorporation (the “Certificate of Incorporation”), however, provided that “[t]he Corporation shall not issue any class of non-voting stock.” (Article 4, Section 4.1).
     15. On July 29, 2005, Motient filed a purported Certificate of Correction to the Certificate of Designations with the Secretary of State of the State of Delaware. The purported Certificate of Correction states, “the inaccuracy or defect of said Certificate of Designations to be corrected is that the voting rights set forth in Section 3 were inaccurately and defectively stated.” The purported Certificate of Correction attempted to correct Section 3 of the Certificate of Designations, regarding voting rights, by giving the holders of Series A Convertible Preferred Stock the right to elect two directors upon certain “Voting Rights Triggering Events,” including the accumulation of accrued and unpaid dividends on the shares of Series A Convertible Preferred Stock for two or more six month periods.
     16. The Certificate of Correction filed July 29, 2005, is defective and cannot change the nature of the underlying Series A Preferred Stock. Because Motient issued the preferred stock in violation of its Certificate of Incorporation, the Series A Preferred Stock issued in April 2005 is void.
CAUSES OF ACTION
COUNT 1—VIOLATIONS OF THE TEXAS SECURITIES ACT
     17. In connection with the sale of the Series A Preferred Stock to Plaintiffs, Motient violated the Texas Securities Act, Tex. Rev. Stat. ann art. 581-33, by making false statements
      
ORIGINAL PETITION   Page 5

 

 

and misleading omissions of material fact concerning the Series A Preferred Stock and the voting rights of that preferred stock as detailed herein.
     18. This Count of the Petition is based on principles of strict liability and negligence. Under the Texas Securities Act, Motient is liable regardless of whether it intended to make the false statements or whether Plaintiffs relied upon them.
     19. As a result of Motient’s violations of the Texas Securities Act, Plaintiffs are entitled to rescission of the Securities Purchase Agreement and to recover the full consideration paid to Motient for the Series A Preferred Stock, plus interest thereon from the date of purchase. Plaintiffs are prepared to tender their respective shares of Series A Preferred Stock upon receipt of such relief.
     20. Because of Motient’s violation of the Texas Securities Act, Plaintiffs were required to hire Haynes and Boone, LLP to prosecute this action. Under the terms of the Texas Securities Act, Plaintiffs are entitled to recover their reasonable attorney’s fees.
COUNT 2—VIOLATIONS OF BUSINESS AND COMMERCE CODE § 27.01
     21. Plaintiffs purchased Series A Preferred Stock from Motient as described herein.
     22. As detailed herein, prior to Plaintiffs purchase of the Series A Preferred Stock, Motient made false statements of material fact concerning the Series A Preferred Stock and the voting rights of that preferred stock.
     23. When Motient made the false statements concerning the Series A Preferred Stock and the voting rights of that preferred stock, Motient either knew that they were false or recklessly disregarded the truth.
     24. Motient made the misrepresentations detailed herein with the intent of inducing Plaintiffs to purchase the Series A Preferred Stock.
      
ORIGINAL PETITION   Page 6

 

 

     25. In reasonable reliance on Motient’s false statements of material fact, Plaintiffs purchased the Series A Preferred Stock. Plaintiffs would not have made their respective purchases but for Motient’s false statements.
     26. Plaintiffs have been injured by the false representations concerning the voting rights of the Series A Preferred Stock.
     27. As a result of Motient’s fraud, Plaintiffs are entitled to rescission of the Securities Purchase Agreement and to recover the full consideration paid to Motient for the Series A Preferred Stock, plus interest thereon from the date of purchase. Alternatively, Plaintiffs are entitled to damages in a sum that exceeds the jurisdictional limits of this Court.
COUNT 3 — COMMON LAW FRAUD
     28. As detailed herein, Motient made false representations of material fact concerning the Series A Preferred Stock and the voting rights of the Series A Preferred Stock.
     29. When Motient made the false statements concerning the Series A Preferred Stock and the voting rights of that preferred stock, Motient either knew that they were false or recklessly disregarded the truth.
     30. Motient intended to induce the Plaintiffs to purchase the stock based on its representations.
     31. In reasonable reliance on Motient’s false statements of material fact, Plaintiffs purchased the Series A Preferred Stock. Plaintiffs would not have made their respective purchases but for Motient’s false statements.
     32. Plaintiffs have been injured by the false representations concerning the voting rights of the Series A Preferred Stock.
      
ORIGINAL PETITION   Page 7

 

 

     33. Because of Motient’s fraud, Plaintiffs are entitled to rescission of the Securities Purchase Agreement and the return of the consideration provided, and all costs associated therewith. Alternatively, Plaintiffs are entitled to damages in an amount exceeding the jurisdictional limits of this Court.
COUNT 4 — NEGLIGENT MISREPRESENTATION
     34. As detailed herein, Motient made negligent false representations of fact concerning the Series Preferred Stock and the voting rights of that preferred stock. The false representations were made in the course of Motient’s business and in a transaction in which it had a pecuniary interest.
     35. Motient failed to exercise reasonable care in making the false representations. Plaintiffs purchased the Series A Preferred Stock in justifiable reliance on the representations of Motient.
     36. Plaintiffs have been injured by the negligent representations concerning the voting rights of the Series A Preferred Stock.
     37. Because of Motient’s negligent misrepresentations, Plaintiffs are entitled to rescission of the Securities Purchase Agreement and the return of the consideration provided, and all costs associated therewith. Alternatively, Plaintiffs are entitled to damages in an amount exceeding the jurisdictional limits of this Court.
COUNT 5 — RESCISSION FOR MUTUAL MISTAKE
     38. Potential purchasers of Motient’s Series A Preferred Stock issued in April, 2005, including Plaintiffs, specifically requested and negotiated for the shares to be non-voting stock. Motient knew it was of material importance to the potential purchasers, including Plaintiffs, that the Series A Preferred Stock be non-voting stock.
      
ORIGINAL PETITION   Page 8

 

 

     39. Plaintiffs reasonably believed they were receiving non-voting stock and that in designating the Series A Preferred Stock, the Motient board believed and intended that the Series A Preferred Stock would be non-voting stock. The original Certificate of Designations (prior to the purported correction) provided that the Series A Preferred Stock would have no voting rights except as required by law. Motient’s public disclosures shortly after the shares of Series A Preferred Stock were issued described the Series A Preferred Stock as “non-voting” stock and stated that such shares were “non-voting, except as required by applicable law.”
     40. Motient made representations in the Securities Purchase Agreement as to the due authorization and valid issuance of the Series A Preferred Stock and that the issuance of shares of Series A Preferred Stock would not conflict with or violate any provision of Motient’s Certificate of Incorporation. Plaintiffs further received an opinion from Motient’s outside legal counsel to the effect that the shares of Series A Preferred Stock were duly authorized and validly issued and that the issuance of those shares did not conflict with the Certificate of Incorporation.
     41. Motient negotiated for the shares of Series A Preferred Stock to be non-voting and later entered into the Securities Purchase Agreement and related transaction documents, made representations and warranties to Plaintiffs, and provided an opinion of counsel, to induce Plaintiffs and the other purchasers to purchase shares of Series A Preferred Stock in the private placement.
     42. Plaintiffs’ belief that they received non-voting stock was reasonable because, among other reasons, Plaintiffs received express representations to that effect in the Securities Purchase Agreement as well as an opinion from Motient’s outside legal counsel. Plaintiffs did not assume the risk of the mistake.
      
ORIGINAL PETITION   Page 9

 

 

     43. Plaintiffs were induced to purchase shares of Series A Preferred Stock in the mistaken belief that they were purchasing non-voting shares.
     44. Plaintiffs will be substantially prejudiced if the Series A Preferred Stock is modified to (or deemed to) have voting rights, and that the issuance of voting stock to Plaintiffs would materially affect the agreed-upon exchange of performances.
     45. Both Motient and Plaintiffs were mistaken as to a basic assumption about the Series A Preferred Stock.
     46. The mistake as to the Series A Preferred Stock materially affects the bargain struck and agreed upon by the Plaintiffs and Motient.
     47. Plaintiffs will return the shares of Series A Preferred Stock issued to them upon refund of the purchase price by Motient.
     48. Accordingly, Plaintiffs are entitled to rescission of the Securities Purchase Agreement and the return of all consideration paid for the Series A Preferred Stock, amounting to approximately $90 million.
     49. In addition, Plaintiffs are entitled to reimbursement for all costs incurred by Plaintiffs, including attorneys’ fees, incurred in connection with the Series A Preferred Stock and this suit.
COUNT 6 — RESCISSION FOR UNILATERAL MISTAKE
     50. Enforcement of the Series A Preferred Stock as issued would be unconscionable.
     51. The mistake as to the voting rights of the Series A Preferred Stock affects the very substance of the consideration.
     52. The mistake occurred notwithstanding the exercise of ordinary care by Plaintiffs.
      
ORIGINAL PETITION   Page 10

 

 

     53. Accordingly, Plaintiffs are entitled to rescission of the Securities Purchase Agreement and the return of all consideration paid for the Series A Preferred Stock, amounting to approximately $90 million.
     54. In addition, Plaintiffs are entitled to reimbursement for all costs incurred by Plaintiffs, including attorneys’ fees, incurred in connection with the Series A Preferred Stock and this suit.
JURY DEMAND
     55. Plaintiffs demand a trial by jury on the issues in this case.
PRAYER
     Plaintiffs seek the following relief:
  (1)   rescission of the Series A Preferred Stock and the return of all consideration provided in connection therewith;
 
  (2)   all actual, special and consequential damages;
 
  (3)   attorney’s fees;
 
  (4)   pre-judgment and post-judgment interest at the highest available rate under applicable law;
 
  (5)   costs of court; and
 
  (6)   such further relief to which Plaintiffs may be entitled.
      
ORIGINAL PETITION   Page 11

 

 

     WHEREFORE, Plaintiffs pray that upon final hearing they recover judgment for the foregoing damages and relief and receive such other and further relief to which they may be justly entitled.
/s/ Ronald W. Breaux
Ronald W. Breaux
Texas State Bar No. 02937200
Brian D. Hail
Texas State Bar No. 00797808
R. Thaddeus Behrens
Texas State Bar No. 24029440
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
(214) 651-5000 — Office
(214) 200-0617 — Fax
153 E. 53rd St. 49th Floor
New York, NY 10022
Telephone: (212) 659-4962
Telecopier: (212) 884-8202
      
ORIGINAL PETITION   Page 12

 

EX-99.4 4 d28485aexv99w4.htm PLAINTIFFS' ORIGINAL PETITION exv99w4
 

Exhibit 4
NO. 05-08331
         
HIGHLAND CRUSADER OFFSHORE
  §   IN THE DISTRICT COURT
PARTNERS, L.P.; HIGHLAND EQUITY,
  §    
FOCUS FUND, L.P.; HIGHLAND
  §    
CAPITAL MANAGEMENT, L.P.; and
  §    
HIGHLAND CAPITAL MANAGEMENT
  §    
SERVICES, INC.
  §    
 
  §    
Plaintiffs,
  §    
 
  §    
v.
  §   E-101st  JUDICIAL DISTRICT
 
  §    
ANDREWS & KURTH, L.L.P.
  §    
 
  §    
Defendant.
  §   DALLAS COUNTY, TEXAS
PLAINTIFFS’ ORIGINAL PETITION
     Plaintiffs Highland Crusader Offshore Partners, L.P., Highland Equity Focus Fund, L.P., Highland Capital Management, L.P., and Highland Capital Management Services, Inc. (collectively, “Plaintiffs”) file this Original Petition against Defendant Andrews & Kurth, L.L.P. (“Defendant”) on personal knowledge and/or information and belief, as follows:
I.
PRELIMINARY STATEMENT
     Plaintiffs purchased approximately $90,000,000 worth of stock from Motient Corporation (“Motient”) in reliance on an opinion letter provided by Andrews & Kurth. That opinion letter indicated, among other things, that the company had the power to issue the stock and that the stock was properly issued. However, since that time Plaintiffs discovered that the stock was void because it was issued in violation of Motient’s Certificate of Incorporation. Thus, in reliance on Andrews & Kurth’s opinion letter, Plaintiffs have paid $90,000,000 for shares of stock that are void.

 

 

II.
DISCOVERY CONTROL PLAN
     1. In accordance with Rule 190.4 of the Texas Rules of Civil Procedure, Plaintiffs intend to conduct discovery in this case pursuant to Discovery Level 3.
III.
PARTIES
     2. Plaintiff Highland Crusader Offshore Partners, L.P., is a Bermuda exempted limited partnership with its principal office in Dallas County, Texas.
     3. Plaintiff Highland Equity Focus Fund, L.P., is a Delaware limited partnership with its principal office in Dallas County, Texas.
     4. Plaintiff Highland Capital Management, L.P., is a Delaware limited partnership with its principal office in Dallas County, Texas.
     5. Plaintiff Highland Capital Management Services, Inc., is a Delaware corporation with its principal office in Dallas County, Texas.
     6. Plaintiffs purchased Series A Cumulative Convertible Preferred Stock from Motient Corporation (“Motient”) in April 2005 in the amount of approximately $90,000,000 and still hold the stock. The Series A Cumulative Convertible Preferred Stock is a security within the meaning of the terms of Article 581-4(A) of the Texas revised Civil Statutes. All Plaintiffs were sent an opinion letter by Andrews & Kurth regarding the stock purchase.
     7. Defendant Andrews & Kurth is a Texas limited liability partnership with its principal place of business in Texas. Andrews & Kurth can be served by serving the managing partner of its Dallas office, Charlie Marshall, at 1717 Main Street, Suite 3700, Dallas, Texas 75201.
PLAINTIFFS’ ORIGINAL PETITION — Page 2

 

 

IV.
JURISDICTION AND VENUE
     8. This Court has jurisdiction over Defendant because Defendant is a Texas limited liability partnership that drafted and sent an opinion letter to Plaintiffs in Texas. Defendant has availed itself of the privileges and benefits of conducting business in Texas and Defendant has committed torts in whole or in part in Texas.
     9. Venue is appropriate in the district courts of Dallas County pursuant to §15.002(a)(1) of the Texas Civil Practice & Remedies Code because Dallas County is the county in which a substantial part of the events or omissions giving rise to the claims occurred. Venue is also appropriate under §15.002(a)(4) as Dallas County is the county where all Plaintiffs resided and maintained their principal office at the time that the cause of action accrued.
V.
FACTS APPLICABLE TO ALL COUNTS
     10. On or about April 15, 2005, Plaintiffs purchased shares of Series A Cumulative Convertible Preferred Stock (“Series A Preferred Stock”) from Motient, pursuant to a Securities Purchase Agreement, in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. In connection with the execution of the Securities Purchase Agreement, Motient also entered into a Registration Rights Agreement with the purchasers.
     11. The shares of Series A Preferred Stock were created by resolution of Motient’s board of directors and the filing of a certificate of designations with the Secretary of State of the State of Delaware. The Certificate of Designations of the Series A Preferred Stock (the “Certificate of Designations’) was filed with the Secretary of State
PLAINTIFFS’ ORIGINAL PETITION — Page 3

 

 

on April 15, 2005. With respect to the voting rights of Series A Preferred Stock, it provided:
Section 3. Voting Rights. Except as required by law, holders of Series A Preferred shall have no voting rights and their consent shall not be required for taking any corporate actions. Notwithstanding the foregoing, the Corporation shall not have the right, as long as any shares of Series A Preferred are outstanding, to modify the rights, preferences or privileges of the Series A Preferred in a manner adverse to the holders of Series A Preferred without first obtaining the approval (by vote or written consent, as permitted by law) of the holders of at least a majority of the then-outstanding shares of Series A Preferred, voting or acting, as the case may be, as a single class.
     12. At the time Motient issued the shares of Series A Preferred Stock, it described them in its public filings as “shares of non-voting Series A Cumulative Convertible Preferred Stock” and represented that “[t]he Series A [Convertible] Preferred Stock is non-voting, except as required by applicable law.”
     13. The fact that the Series A Preferred Stock did not possess any voting rights was significant and material to potential purchasers, including Plaintiffs, because of various antitrust and securities law issues. Prior to the stock’s issuance Plaintiffs and Motient specifically negotiated the lack of voting rights for the preferred stock and the intent of all parties to the transaction was that the Series A Preferred Stock would not have voting rights.
     14. The purchasers of the Series A Preferred Stock also required and received a legal opinion from Defendant Andrews & Kurth opining that the shares of Series A Preferred Stock were duly authorized and validly issued and that the issuance of the shares did not conflict with Motient’s Certificate of Incorporation or applicable law.
PLAINTIFFS’ ORIGINAL PETITION — Page 4

 

 

     15. Andrews & Kurth provided an opinion letter dated April 15, 2005 (the “Opinion Letter”). The Opinion Letter specifically indicated it was for the benefit of the purchasers of the stock. Those purchasers, including Plaintiffs, are listed on the attachment to the Opinion Letter. The Opinion Letter provided that “[t]his opinion is being furnished only to you in connection with the issuance and sale of the shares pursuant to the Securities Purchase Agreement and is solely for your benefit...”
     16. The Opinion Letter further provided:
Neither the execution and delivery by the Company of the Transaction Agreements, nor the performance by the Company of its obligations thereunder in accordance with the terms thereof, will violate (A) the Certificate of Incorporation, (B) the Bylaws, (C) the DGCL or (D) the Applicable Laws of the State of New York.
     17. The purchasers of the Series A Preferred Stock, including Plaintiffs, relied on the legal opinion issued by Defendant Andrews & Kurth by purchasing the stock.
     18. At the time of the issuance of the Series A Preferred Stock, however, Motient’s Restated Certificate of Incorporation (the “Certificate of Incorporation”) provided that “[t]he Corporation shall not issue any class of non-voting stock.” Therefore, Defendant Andrews & Kurth’s statements in its Opinion Letter were false.
     19. Because Motient issued the stock in violation of its Certificate of Incorporation, the Series A Preferred Stock issued in April 2005 is void.
VI.
CAUSES OF ACTION
A. Count One: Fraudulent Misrepresentation
     20. Plaintiffs reallege and incorporate all allegations set forth above.
PLAINTIFFS’ ORIGINAL PETITION — Page 5

 

 

     21. Andrews & Kurth made representations regarding the issuance of the stock, as described above. These representations were false.
     22. Andrews & Kurth knew these representations were false when they made these representations or made the representations recklessly, as positive assertions, and without knowledge of their truth.
     23. Andrews & Kurth made these representations with the intent that Plaintiffs act on them.
     24. Plaintiffs justifiably relied on these representations to their detriment by purchasing the stock, as described above, and such justifiable reliance was a proximate cause of the damage suffered by Plaintiffs.
     25. Because Andrews & Kurth’s fraudulent misrepresentations were wanton, willful, reckless, and intentional, Plaintiffs are further entitled to punitive damages in an amount to be determined at trial.
B. Count Two: Negligent Misrepresentation
     26. Plaintiffs reallege and incorporate all allegations set forth above.
     27. Andrews & Kurth’s representations regarding the stock, as described above, constitute representations made by Andrews & Kurth in the course of its business.
     28. Andrews & Kurth owed a duty to Plaintiffs to use reasonable care and/or competence in obtaining and/or calculating and/or communicating the information described above because, under the business practices at the time of the subject transactions, Plaintiffs were part of a limited group of persons for whose benefit and guidance Andrews & Kurth intended to supply its Opinion Letter for the purposes of being relied upon in making business decisions, or part of a limited group of persons for whom Andrews & Kurth knew or should have known Motient intended to supply with
PLAINTIFFS’ ORIGINAL PETITION — Page 6

 

 

Andrews & Kurth’s Opinion Letter for the purpose of being relied upon in making business decisions.
     29. Andrews & Kurth failed to use reasonable care and/or competence in obtaining and/or calculating and/or communicating the information contained in Andrews & Kurth’s Opinion Letter.
     30. As a result of Andrews & Kurth’s failure to use reasonable care and competence in providing the Opinion Letter, Andrews & Kurth supplied “false information” to Plaintiffs for the guidance of Plaintiffs in Plaintiffs’ business decisions.
     31. Plaintiffs justifiably relied upon the Opinion Letter supplied by Andrews & Kurth and such justifiable reliance was the proximate cause of the damage suffered by Plaintiffs.
     32. Thus, because of Andrews & Kurth’s negligent misrepresentations, Plaintiffs were damaged.
C. Count Three: Aiding and Abetting
     33. Plaintiffs reallege and incorporate the allegations set forth above.
     34. Andrews & Kurth is also liable for all damages caused by the aforementioned fraudulent schemes because Defendant was aware the conduct by Motient constituted fraud and a breach of duty and gave substantial assistance or encouragement to Motient to continue with the scheme.
D. Count Four: Conspiracy
     35. Plaintiffs reallege and incorporate the allegations set forth above.
     36. Andrews & Kurth and Motient entered into a common plan, scheme or design to defraud investors in Motient, including Plaintiffs, by issuing the Opinion Letter, as described above. Andrews & Kurth and Motient accomplished this fraud by
PLAINTIFFS’ ORIGINAL PETITION — Page 7

 

 

employing the material misrepresentations and/or omissions contained in Andrews & Kurth’s Opinion Letter to induce potential investors and existing investors, including Plaintiffs, to acquire shares in Motient. Andrews & Kurth and Motient knew that the misrepresentations and/or omissions contained in Andrews & Kurth’s Opinion Letter were false or had been made with reckless disregard as to their truth.
     37. Because the acts committed in furtherance of this conspiracy to defraud by Andrews & Kurth and Motient were committed knowingly and intentionally, Plaintiffs also seek to recover exemplary damages.
E. Count Five: Civil Liability as an “Aider” Under Art. 581-33(F)(2) of Texas Revised Civil Statutes
     38. Plaintiffs reallege and incorporate the allegations set forth above.
     39. Plaintiffs purchased interests in the stock as set forth above. The interests in the stocks constitute “securities” as that term is defined in Art. 581-4 (A) of Texas Revised Civil Statutes.
     40. Pursuant to Art. 581-33 (F)(2) of Texas Revised Civil Statutes, Andrews & Kurth is civilly liable as an aider of fraud in the sale of a security in that Andrews & Kurth directly or indirectly with intent to deceive or defraud or with reckless disregard for the truth or the law materially aided the issuer of the security.
     41. The misrepresentations and/or omissions contained in the Opinion Letter prepared by Andrews & Kurth were material to Plaintiffs’ investment in the stock.
     42. As a result of Andrews & Kurth’s material misrepresentations and/or omissions, Plaintiffs have suffered damages as set forth above.
     43. All conditions precedent to Plaintiffs bringing their claims against Andrews & Kurth have been performed or have occurred.
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     44. Because the harm with respect to which Plaintiffs are seeking recovery resulted from fraud, Plaintiffs also seek an award of exemplary damages.
     45. Plaintiffs also request that the Court award Plaintiffs their reasonable attorneys’ fees because such an award would be equitable under the circumstances presented by this case.
VII.
RELATED CASE DISCLOSURE
     46. Pursuant to Local Rule 1.08, Plaintiffs disclose the following case as being related: Cause No. 05-07996, Highland Crusader Offshore Partners, L.P., et al. v. Motient Corporation, in the 101st Judicial District Court, Dallas County, Texas.
VIII.
JURY DEMAND
     47. Plaintiffs demand a trial by jury on the issues in this case.
IX.
REQUEST FOR RELIEF
Plaintiffs seek the following relief:
  (1)   all actual, special, and consequential damages;
 
  (2)   attorney’s fees;
 
  (3)   pre-judgment and post-judgment interest at the highest available rate under applicable law;
 
  (4)   costs of court; and
 
  (5)   such further relief to which Plaintiffs may be entitled.
     WHEREFORE, Plaintiffs pray that upon final hearing they recover judgment for the foregoing damages and relief and receive such other and further relief to which they may be justly entitled.
PLAINTIFFS’ ORIGINAL PETITION — Page 9

 

 

         
  Respectfully submitted,
 		  
  LACKEY HERSHMAN, L.L.P.
 		  
  By:   /s/ Paul B. Lackey  
    Paul B. Lackey   
    State Bar No. 00791061  
    Michael P. Aigen  
    State Bar No. 24012196   
 
  3102 Oak Lawn Avenue
Suite 777
Dallas, Texas 75219
Telephone:(214) 560-2201
Telecopier:(214) 560-2203


ATTORNEYS FOR PLAINTIFFS
 		  
     
     
     
 
PLAINTIFFS’ ORIGINAL PETITION — Page 10

 

EX-99.5 5 d28485aexv99w5.htm PLAINTIFFS' FOURTH AMENDED PETITION exv99w5
 

Exhibit 5
CAUSE NO. GN 200604
         
JOSEPH D. MARTINEC, Chapter 11
  §   IN THE DISTRICT COURT OF
Trustee of WSNET HOLDINGS, INC.,
  §    
 
  §    
Plaintiff,
  §    
 
  §    
v.
  §    
 
  §    
CERBERUS Capital, MANAGEMENT
  §   TRAVIS COUNTY, TEXAS
LP, CERBERUS PARTNERS LP,
  §    
CERBERUS ASSOCIATES, L.L.C.,
  §    
CRAIG COURT, INC., CRT
  §    
SATELLITE INVESTORS LLC,
  §    
STEPHEN A. FEINBERG, GARY
  §    
SINGER, JARED ABBRUZZESE,
  §    
SETH PLATTUS, C. RONALD
  §    
DORCHESTER, REMUS HOLDINGS
  §    
LLC, ROMULUS HOLDINGS INC.,
  §    
and TECHONE CAPITAL GROUP
  §    
LLC,
  §  
 
  §    
 
  §    
Defendants
  §   200th JUDICIAL DISTRICT
PLAINTIFF’S FOURTH AMENDED PETITION
TO THE HONORABLE JUDGE OF SAID COURT:
     COMES NOW Plaintiff Joseph D. Martinec, Chapter 11 Trustee of WSNet Holdings, Inc. (“Plaintiff” or “WSNet”) and files this Plaintiff’s Fourth Amended Petition against Defendants Cerberus Capital Management LP, Cerberus Partners LP, CRT Satellite Investors LLC, Cerberus Associates, LLC, Craig Court, Inc., Stephen A. Feinberg, Gary Singer, Jared Abbruzzese, Seth Plattus, C. Ronald Dorchester, Remus Holdings LLC, Romulus Holdings Inc., and TechOne Capital Group LLC (collectively “Defendants”) as follows:
I.
PARTIES AND PROCEDURAL BACKGROUND
     1.1 This suit was originally filed as a shareholder derivative action on behalf of WSNet Holdings, Inc. by then-Plaintiff Michael Beck. As the case developed, and after Defendants wrested control of WSNet from its original shareholders, Defendants put WSNet and its subsidiary, World
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 1    

 

 

Satellite Network, Inc. (“Network”), into bankruptcy and removed the lawsuit to Bankruptcy Court. After protracted attempts by Defendants to dispose of this case by exercising control over the bankruptcy estates, Bankruptcy Judge Frank Monroe appointed an independent party, Mr. Martinec, as Chapter 11 Trustee for WSNet. The Bankruptcy Court also remanded the case to state district court under the style of Martinec, Chapter 11 Trustee et al v. Cerberus Capital Management LP, et al. Thus Mr. Martinec has been substituted as party-Plaintiff to bring this action on behalf of WSNet.
     1.2 WSNet Holdings, Inc. is a Delaware Corporation with its principal place of business in Austin, Texas. Mr. Martinec is an individual resident of Bastrop, Texas who brings this suit in his capacity as Chapter 11 Trustee of WSNet.
     1.3 Defendants Cerberus Capital Management LP (“Cerberus Capital”), is a Delaware limited partnership with its principal place of business in New York, and is the manager of CRT Satellite Investors, LLC. Cerberus Partners LP (“Cerberus Partners”) is a limited partnership with its principal place of business in New York. CRT Satellite Investors LLC (“CRT”) is a Delaware limited liability company with its principal offices in New York. Cerberus Associates, L.L.C. (“Cerberus Associates”) is a limited liability company with its principal place of business in New York. Craig Court, Inc. (“Cerberus Craig”) is a corporation with its principal place of business in New York. Each of the foregoing entities have answered and appeared herein by arid through their counsel. These Defendants are sometimes collectively referred to as “Cerberus.”
     1.4 Defendant Stephen A. Feinberg (“Feinberg”), is an individual resident of New York, who has answered and appeared herein by and through his counsel.
     1.5 Defendant Romulus Holdings Inc. is a Delaware limited partnership with its principal place of business in New York. Defendant Remus Holdings LLC is a limited liability company with its principal place of business in New York. Defendant Gary Singer (“Singer”) is a controlling person of Romulus and Remus (“Singer Defendants”). The Singer Defendants have answered and appeared herein by and through their counsel.
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 2    

 

 

     1.6 Defendant Jared Abbruzzese, is an individual resident of Albany, New York, who has answered, and appeared herein by and through his counsel. Defendant Abbruzzese is the controlling person of TechOne Capital Group, LLC, and served as Chairman of the Board and Interim CEO of WSNet.
     1.7 Defendant Seth Plattus, is an individual resident of New York, who has answered and appeared herein by and through his counsel. Mr. Plattus is a managing director of Cerberus Capital Management and has served as a board member of WSNet.
     1.8 Defendant C. Ronald Dorchester is an individual resident of Austin, Texas, who has answered and appeared herein by and through his counsel. Mr. Dorchester serves as a consultant to Cerberus and its companies and was a board member of WSNet beginning in April 2001.
     1.9 Defendant TechOne Capital Group LLC is a Delaware limited liability company with Its principal place of business in Albany, New York. TechOne has answered and appeared herein.
II.
VENUE AND JURISDICTION
     2.1 Venue is proper in Travis County, Texas because it is the county in which all or a substantial part of the events or omissions giving rise to Plaintiff’s claims occurred. See Tex. Civ. Prac. & Rem. Code § 15.002(a)(1).
     2.2 The amount in controversy exceeds the minimum jurisdictional amount. This court has jurisdiction over this matter and all parties.
III
FACTUAL BACKGROUND
A. Summary of the Case.
     3.1 This is a case of corporate chicanery in which the Defendants (a) took financial control of a corporation through fraud and duress, (b):reaped the benefits of the business by stealing key opportunities for themselves, (c) starved the business by diverting its remaining resources to themselves, and finally (d) took full control of the business and placed it, and its subsidiary, in bankruptcy in an effort to shield themselves from liability for their conduct.
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 3    

 

 

     3.2 As will be more fully described below, Defendants are experienced in such tactics. One Defendant, Singer, is a convicted felon — having been convicted of securities fraud, money laundering, and racketeering. Another, Abbruzzese, has recently been found liable for $9 million in connection with defrauding investors in a corporation of which he served as an officer and director. Two Defendant investor groups, the Cerberus Defendants and Romulus/Remus, are so-called “vulture” investors, that specialize in obtaining control of companies through the bankruptcy process and have each been found to engage in self-dealing and conflicts of interest. Each Defendant, or entities controlled by them (with the possible exception of Defendant Dorchester) has been found to have participated in previous corporate fraud or abuse.
     3.3 As a result of their conduct, Defendants have profited immensely, in an amount believed to be far in excess of $50 million, and have: also caused far greater damage to Plaintiff by presenting it from implementing its business strategies — strategies that would have resulted in WSNet becoming a billion-dollar business enterprise.
B. The History of WSNet.
     3.4 Prior to February 1999, World Satellite Network, Inc. was a publicly-held company. On February 8, 1999, WSNet Holdings, Inc. purchased World Satellite Network through a reverse subsidiary merger, and took that company private. At that time, Network became a wholly-owned subsidiary of WSNet Holdings, Inc. The purchase price of the company was approximately $15 million.
     3.5 At the time it was acquired, Network was an Austin-based corporation that operated as a provider of satellite television programming to the cable industry. Its business was to purchase the rights to broadcast television programming from content providers such as HBO, ESPN, and the like, and then to broadcast programs via satellite to its customers, local cable television providers.
     3.6 In the year following the acquisition of Network, the new management of WSNet set about a two-pronged strategy. First, WSNet sought to improve its subsidiary’s existing business by restructuring and consolidating Network, modernizing existing operations and improving its contracts with programming originators (such as CNN, HBO. MTV, etc.). Second, WSNet sought to develop and
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 4    

 

 

execute a new business plan, to convert WSNet from an intermediary or “middleman” purveyor of television rights on an “a la carte” basis, to a packager and distributor of complete television service via direct-to-customer satellite transmission.
     3.7 In August and September of 1999, WSNet initiated a six-part strategy to create the nation’s third direct-to-customer satellite television company. This would make WSNet a competitor with DIRECTV© and Dish Network© nationwide, primarily in small private and franchise markets where these two large competitors had traditionally been ineffective and where satellite services were in high demand.
     3.8 The steps in the strategy were to (i) acquire rights from AT&T Broadband Services to utilize AT&T’s HITS© satellite service, (ii) acquire the rights to a satellite adjacent to HITS© in order to supplement HITS© with additional “missing” signals necessary for a complete satellite television service, (iii) acquire the rights from all of the major television programming networks to offer a full complement of programming (approximately 200 channels) via these two satellites, (iv) obtain an agreement from AT&T’s satellite uplink division to uplink signals for WSNet to its new satellite in concert with its pre-existing uplink of the HITS© signals, (v) acquire the rights to and a supply of Motorola’s Digicipher II© uplink equipment and digital set-top receivers, and (vi) secure approximately $30 to $50 million to finance the plan.
     3.9 By October of 1999, WSNet was well on its way to causing Network to acquire the satellite and hardware requirements, and was confident that the acquisition of programming could be completed by the end of January 2000. In addition, Motorola had agreed that it would co-invest up to $10 million with a new WSNet investor, on the same terms that could be negotiated with the new investor.
     3.10 WSNet thus began seeking the financing required to implement the strategy in October. In the fall of 1999, WSNet’s President, Cary Ferchill, met with Abbruzzese in Washington, D.C. Abbruzzese offered to introduce WSNet to Cerberus as a source of financing for the strategy,
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 5    

 

 

C. The March 2000 Transaction: “Bait and Switch.”
     3.11 WSNet met initially with Cerberus1 in late November at Cerberus’ offices in New York City. At the meeting, WSNet presented its strategy in great detail. Thereafter, Cerberus informed WSNet that, subject to completion of due diligence, it was interested in making the proposed investment.
     3.12 Cerberus informed WSNet that the transaction would include Cerberus granting a small portion of its interest to Abbruzzese (through his company TechOne), and that Cerberus would co-invest with Romulus Holdings, Inc., an investment company managed by Gary Singer.2 Singer and Abbruzzese, together with Cerberus representatives Plattus, Feinberg, and Emily Fine, attended the initial meeting in New York, and many of the follow-up meetings. Collectively, the investor would become known as CRT, for “Cerberus, Romulus, TechOne.”
     3.13 By late December, Cerberus/CRT had completed its first round of due diligence on WSNet, and the companies had negotiated a detailed letter of intent setting out the terms on which the investment would be made, subject only to Cerberus/CRT completing its diligence on WSNet and the business strategy. The originally agreed upon terms provided that CRT would invest $42 million in WSNet, in convertible preferred stock, bearing no dividends, convertible at a rate of approximately $4.69 per share. The investment was contingent upon Motorola investing at least $10 million on the same terms as CRT. The letter of intent was signed on January 21, 2000.
     3.14 The transaction set out in the letter of intent would result in CRT owning approximately 45% of the common stock of WSNet, Motorola owning approximately 10% and the pre-existing shareholders of WSNet would continue to own approximately 45% of the common stock, thus giving the pre-existing investors, together with Motorola, continued control of the company. Cerberus/CRT was to
 
1   Cerebus is named after a mythological creature from ancient Greek/Roman literature. It is a monstrous three-headed dog that guards the gates of Hell. Each of the dog’s heads would sleep for a period of time while the others remained awake to assure that only the dead could enter Hades’ realm and that none could leave.
 
2   Although Singer was introduced as the head of Romulus Holdings, his business card reads “Hades Investors, L.L.C.”
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 6    

 

 

be entitled to 2 seats on a five-member board, Motorola one seat and the pre-existing investors two seats. Cerberus/CRT and WSNet agreed that there would be no “financial covenants” required of WSNet.
     3.15 Cerberus/CRT performed extensive due diligence investigation of WSNet through December, January and February, At the same time, WSNet negotiated and documented the transactions required to complete the strategy. By February, WSNet, through its subsidiary Network, had obtained the most critical and scarce element of the strategy, an option for the lease of a Loral SkyNet satellite, one of only two acceptable satellites adjacent to HITS©. Because the market for satellite leases was extremely active and tight at that time, Loral SkyNet would only extend the option through the end of February, 2000. WSNet delivered a copy of the Loral SkyNet option agreement to Cerberus/CRT along with other documents in the diligence process.
     3.16 Cerberus insisted on having its law firm prepare the closing documentation. The law firm was late in delivering the first draft of documentation, but finally produced documents for the sale of convertible preferred stock by the early part of February, 2000.
     3.17 WSNet informed Cerberus/CRT that the documentation would have to be completed rapidly because any expiration of the Loral SkyNet satellite lease option would make it difficult, if not impossible, to implement the business strategy.
     3.18 Cerberus/CRT, through Abbruzzese, promised that the transaction would be closed no later than March 1. Thereafter, WSNet sought and obtained a further extension for Network on the option from the Loral SkyNet. The option was extended through March 15.
     3.19 Cerberus/CRT then extended the closing date to March 10, 2000. As that date approached, however, Cerberus/CRT requested that WSNet seek a further one-week extension on the satellite lease option and rescheduled the closing for March 17. WSNet requested and received an additional extension to March 22, but was informed by Loral that no further extension would be granted.
     3.20 Finally, in the week of March 13, 2000, the documentation for the sale of convertible preferred stock was substantially completed and the closing was confirmed for March 17. On March 15,
         
PLAINTIFF’S FOURTH AMENDED PETITION
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WSNet’s senior management team went to New York City for the scheduled pre-closing at Cerberus’ offices. Upon arrival they were ushered into a conference room and told by Cerberus/CRT, “We have a problem.”
     3.21 Cerberus/CRT then requested that WSNet’s President, Ferchill, meet privately with Feinberg, the head of Cerberus. In a one-on-one meeting in the early hours of March 17, Feinberg stated that he did not see how WSNet could possibly find a new investor at this late date since the satellite lease option was going to expire the following week. Feinberg said that he had no “problem” with the investment, but that he just thought that Cerberus/CRT could get better terms now at this late date than had been negotiated in December. Feinberg said that he never intended to honor the letter of intent. “We would never do that deal,” he said, pointing to the January 21 term sheet.
     3.22 Feinberg proposed that CRT would make the investment, but only under completely new terms including that (i) the transaction would be altered from a sale of convertible preferred stock to a sale of convertible notes, (ii) the conversion price of CRT’s subordinated notes would be reduced to $4.20 per share from $4.69, (iii) a set of strict covenants would be created for WSNet that would give Cerberus/CRT the right to take control of the board of directors if WSNet was not in compliance, and (iv) Cerberus/CRT would be given the right to approve or reject essentially any significant action WSNet proposed to take.
     3.23 Feinberg knew, correctly, WSNet would be destroyed if the new terms were not accepted. WSNet thus had no choice but to close on the new terms. Thereafter, Cerberus/CRT brought in a new law firm of its choosing (Schulte Roth & Zabel) which spent the next four days re-documenting the transaction on these new terms that Cerberus/CRT refused to negotiate. The revised transaction was closed and funded on March 20, 2000.
     3.24 As a result of the foregoing fraudulent course of conduct, WSNet was forced to cede the right to future control of the company to Cerberus and CRT.
         
PLAINTIFF’S FOURTH AMENDED PETITION
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D. Classic and Galaxy Transactions: “Siphoning Off Corporate Opportunity.”
     3.25 At the closing, Abbruzzese, Plattus, Keith Kelly (of Motorola), Chris Tyson (a prior investor) and Cary Ferchill were appointed to the Board of WSNet. In addition, Singer was present at Board Meetings on behalf of Cerberus/CRT and was a de facto board member.
     3.26 WSNet’s new system, through Network, was operational by August of 2000. The new service was well-received by the industry. However, by the Fall of 2000 there had been a downturn in the telecommunications market nationwide and many customers were finding it difficult to obtain the financing necessary to deploy the new service.
     3.27 However, the downturn in the telecommunications market also afforded a tremendous opportunity for WSNet. Most small cable companies were in financial distress because they could not offer satellite service to their customers or finance upgrades to their existing systems. DIRECTV© and Dish Network© were making substantial inroads on their customer base. As a result, these small operators were offering to sell their cable television assets for historically low prices, but there were few buyers. In addition, several of these companies were nearing bankruptcy, and the bonds they had issued were trading at deep discounts.
     3.28 The small cable market had been WSNet’s secondary market target and it was clear that the service, developed by WSNet was a solution to the small cable industry’s woes. Since the prices for the cable assets were so low, WSNet determined it was a perfect opportunity to purchase the assets of as many small systems as possible and convert the cable subscribers to WSNet’s new satellite service. This gave WSNet, as the owner of the only viable technological solution, the opportunity to buy these companies’ bonds at significant discounts and later convert them into equity, thus substantially reducing the acquisition cost. This was both an opportunity to make a bargain purchase of cable assets and make-up for Network’s sales that were slower than anticipated in WSNet’s primary market. This new opportunity, often referred to as the “cable roll-up,” was to have been realized by WSNet directly or through the creation of a new subsidiary company to WSNet, usually referred to as “Enhanced Communications.”
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 9    

 

 

     3.29 In the summer of 2000, WSNet began working on a plan to acquire the assets of Galaxy Cablevision and certain assets of Classic Cable, two sizeable but financially struggling cable companies. WSNet discussed this plan with Singer, Abbruzzese and Plattus throughout July, August and September and a complete plan and financing model was presented to WSNet’s board of directors on October 17, 2000. The Board reviewed the detailed financial model for the proposed acquisition and approved expenditure of resources on trying to determine if agreements could be worked out to purchase the cable assets.
     3.30 Throughout October, November and December, WSNet pursued these objectives and by January 2001, WSNet had offer letters out to Galaxy and Classic for the assets and proposals from two well-known Wall Street investment banks (CIBC-Oppenheimer and UBS/Warburg) offering to manage the financing of the acquisitions.
     3.31 The WSNet Board approved moving forward with the UBS/Warburg financing and WSNet began preparation of the necessary materials. UBS/Warburg agreed to assist the company in raising approximately $100 million in equity and $100 million in debt to finance the expansion of the business, and suggested that the appropriate valuation of the company would be between $5 and $8 per share.
     3.32 Beginning in January, however, and undisclosed to WSNet’s management and other shareholders, Cerberus had begun to purchase Galaxy and Classic bonds, with the apparent intention to convert the bonds to equity in an eventual recapitalization.
     3.33 On February 21, Cerberus contacted Ferchill and instructed him to bring the senior management team to New York for a “review” of WSNet’s status. The next day, they met in New York and the financial position of the company was reviewed. At the end of this meeting, Feinberg instructed WSNet not to proceed with any negotiations for the purchase of assets or any financing. Feinberg stated that Cerberus had “certain investments” in this industry, was active in the arena of distressed debt, and that Cerberus thus should be in charge of this area of WSNet’s activities. He stated that he did not want WSNet to impede Cerberus’ ability to get the best deal possible.
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 10    

 

 

     3.34 By January or February 2001 Cerberus and Singer were major players in the Galaxy recapitalization and possibly the Classic workout, and probably controlled Galaxy and perhaps Classic.
     3.35 UBS/Warburg expressed concern that the conflict must be resolved to complete a financing for the proposed acquisitions. In March, Ferchill requested appointment of an independent committee of the Board to address the issue. In response, CRT informed Ferchill that it intended to replace him as Chairman of the Board with Abbruzzese, and that Abbruzzese was in charge of all acquisitions and the financing.
     3.36 In late March, UBS/Warburg informed WSNet that it believed the market timing for the business plan was ideal and it could raise around $100 million in new equity at $4-8 per share, and a similar amount in subordinated debt, to finance WSNet’s strategy, including the acquisition of Galaxy and Classic. UBS/Warburg proposed closing in the 3rd or 4th quarter of 2001.
     3.37 WSNet requested that UBS/Warburg address the Cerberus conflicts, which needed to be resolved prior to any financing. UBS/Warburg called Cerberus to discuss this on April 2. On April 6, CRT demanded Ferchill’s resignation as President and CEO, and threatened unspecified litigation if he refused. Abbruzzese was then designated as “interim” CEO.
     3.38 In January and February of 2001, Feinberg, through Cerberus and its affiliates, and Singer, through Romulus and its affiliates, continued to acquire large amounts of Classic and Galaxy debt with the intent to take control of these companies.
E. The September 2001 Transaction: “The Bridge Loan.”
     3.39 Upon Ferchill’s termination, Cerberus/CRT required the other directors to make Abbruzzese the CEO of the company and to appoint one of Cerberus’ outside consultants, Ron Dorchester, to fill Ferchill’s board seat. This appointment gave Cerberus/CRT complete control of the Board. Cerberus/CRT slowed down the company’s financing efforts to a crawl and, notwithstanding the expressed concern about holding down expenses, began spending significantly more money on the subsidiary’s operations, thus imperiling the WSNet’s ability to survive and accelerating its need for additional capital.
         
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     3.40 In April and May, the management of WSNet pointed out to the Board that given the slow-down in financing activities by UBS/Warburg and the still slow sales, WSNet would run out of cash in August 2001 if no additional financing activities were pursued. As a temporary measure, management recommended that WSNet enter into a financing agreement proposed by Motorola that would give it sufficient capital to survive until the first quarter of 2002 without incurring any additional dilution of stock. Cerberus/CRT both refused to accept the Motorola offer or to move forward with the UBS/Warburg financing.
     3.41 Finally, in July, WSNet convened a Board meeting to discuss taking action on a “bridge” financing until such time as UBS/Warburg could complete a longer term financing.
     3.42 On July 3, Cerberus/CRT presented WSNet with proposed bridge financing terms in which a new Cerberus and Singer entity, Digital Satellite, would agree to invest up to $40 million, guaranteed by WSNet, and in exchange for which Digital Satellite would receive approximately $2 million in fees, interest at 18%, warrants to purchase 10% of the stock: of the company for one cent per share upon the initial funding and warrants for an additional 5% of the stock of WSNet for each month any amount was outstanding on the loan. In addition, given the anti-dilution provisions included in CRT’s prior financing documents, additional shares would have to be issued under that document as well, thus giving Cerberus/CRT/Digital Satellite 80% of the stock of WSNet as additional compensation for the loan. Finally, the proposal included provisions that effectively made the decision to fund any amount entirely within Cerberus/Digital Satellite’s discretion.
     3.43 The upshot of the “bridge” financing was that under almost any reasonable scenario, within 12 months Cerberus/CRT/Digital Satellite would earn approximately $12.5 million in interest and fees. As a result of the Bridge Loan, CRT and Digital Satellite would also increase their equity interest to approximately 92.5% of WSNet’s common stock. CRT anti Digital Satellite would gain these benefits for a loan of as little as $7 million. At the same time, UBS/Warburg was proposing to offer WSNet stock for sale to new investors, implying a value for WSNet stock of between $3 and $8 per share.
         
PLAINTIFF’S FOURTH AMENDED PETITION
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     3.44 Tyson pointed out that the terms were exorbitant and insisted that the company should consider a number of alternatives, including sale of the company, in order to avoid such a punitive financing. Abbruzzese as CEO and Chairman of the Board, wrote to Tyson specifically prohibiting him from seeking a buyer for the company or considering other alternatives. Abbruzzese also refused to provide Tyson and the common shareholders of the company with copies of financial information and material contracts that the company has recently entered into and denied him the right to consult with the company’s outside counsel for advice, telling him through legal counsel that he did not have the right as a Board member to review the company’s records and contracts.
     3.45 Tyson and certain other common shareholders were instructed to “negotiate” the terms of the proposed financing with Digital Satellite. Tyson and the other shareholders attended a meeting in New York to attempt to negotiate the term sheet. Not surprisingly, all of their significant requests for amendment to the proposed financing terms were rejected.
     3.46 On July 25, the WSNet Board approved the outline of terms proposed by Cerberus/Digital Satellite essentially “as is,” although noting that many of the material terms were still not supplied. Cerberus/Digital Satellite failed to document the transaction for over a month, distributing the first, incomplete set of documents only on August 28, and the first draft of complete documents on September 7. When Tyson and the other shareholders attempted to contact WSNet’s legal counsel and review the documents, Abbruzzese instructed legal counsel not to consult with the committee.
     3.47 On September 9, 2001, Cerberus/Digital Satellite proposed to reduce the maximum amount of the loan to $30 million and increase the initial warrant amount to 20% of the stock of WSNet, growing to 80% in just over a year.
     3.48 A WSNet Board meeting was held on September 24, 2001 to approve the terms of the proposed financing. Tyson voted against the transaction on the basis that it was unfair to the company. Cerberus/CRT threatened to sue him for his failure to approve the transaction and said that they would force the company to file bankruptcy. In the end, Tyson caved-in and voted in favor of the transaction,
         
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stating that the process was unfair and controlled by Cerberus and that he voted for it only because Cerberus threatened to sue him if he did not. The transaction closed in October.
F. The Aftermath and Bankruptcy.
     3.49 On February, 25, 2002 Michael Beck, one of the shareholders of WSNet, filed this suit in state district court. At the time the suit was filed, the: UBS/Warburg financing was still pending, operations were ongoing, and Defendants had acquired interests in, and profit from, transactions in Galaxy and Classic bonds.
     3.50 On October 17, 2002 however, Cerberus/Digital Satellite “swept” approximately $8.1 million from the accounts of Network. In so doing, Cerberus/Digital Satellite recovered more than the approximate $7 million it had advanced under the bridge loan. Also as a result, operations were discontinued. The bridge loan, then, had served little purpose other than giving Cerberus/CRT/Digital Satellite total control over WSNet. On October 21, 2002, Abbruzzese had WSNet and Network file for Chapter 11 Bankruptcy protection and Cerberus/CRT/Digital Satellite subsequently removed this litigation (then pending as Beck v. Cerberus et al.) to federal court. Thereafter, Defendants engaged in numerous attempts to de-rail this lawsuit.
     3.51 On July 28, 2003, United States Bankruptcy Judge Frank Monroe appointed Joseph D. Martinec as Chapter 11 Trustee and directed that this litigation be pursued. The case was remanded to state court by order dated August 21, 2003.
     3.52 Subsequent lo the appointment of Plaintiff as Chapter 11 Trustee for WSNet, CRT and Digital Satellite filed an adversary proceeding in Bankruptcy Court, alleging that the causes of action in this case do not belong to WSNet, but instead belong to Network. CRT and Digital Satellite have not coincidentally purported to settle these same claims for the sum of $1 million plus the subordination of in debt (representing a significant value, according to Network and its creditors committee). In fact, however, the claims asserted herein, with the possible exception of Network’s own limited Bridge Loan claims (which do net include the primary Bridge Loan claim, i.e. the creation and exercise of penny warrants on WSNet shares), wholly belong to WSNet. The March 2000 Transaction claims belong to
         
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WSNet because, among other things, WSNet was party to that transaction. The corporate diversion claims belong to WSNet because, among other things, the opportunities were to be exercised by a new WSNet subsidiary to be created — Enhanced Communications — and in any event WSNet, as the sole shareholder of Network, had the right to direct the opportunity as it saw fit. The Bridge Loan claims (excepting, perhaps, any claims that may be unrelated to the issuance of warrants, or the guarantee) belong to WSNet because, among other things, it was the guarantor of the Bridge Loan and it was required to allow its shares to be obtained by Cerberus and Digital Satellite pursuant to exercise of penny warrants. CRT and Digital Satellite’s claims of Network ownership, and the purported, but inadequate settlement with Network, further demonstrate Defendants’ bad-faith efforts to wrest control of these claims from their rightful owner, Plaintiff.
G. Conflicts of Interest and Pattern and Practice of Illegal Dealing.
     3.53 Generally. WSNet is not the first company to suffer at the hands of these same Defendants; a clear pattern of Defendants’ conflicts of interest and illegal actions exists. Shareholders in other corporations (as well as the SEC and the United Status Justice Department) have had to sue and prosecute many of the same Defendants for engaging in wide-spread, self-dealing, fraud and breach of fiduciary duty. See, e.g., United States v. Singer, No. 92 Cr. 964 (RJW), 1994 WL 376047 (S.D.N.Y. July 18, 1994); In re Cooper Companies, Inc. Shareholders Derivative Litigation, C.A. No. 12584 (Del. Ch. New Castle County); SEC Litigation Release No. 15278 (March 10, 1997) (discussing conditions of settlement of civil suit by the SEC against Singer and others); Motion for Leave to File Adversary Proceeding filed in In re Coram Healthcare Corp., Nos. 00-3299 and 00-3300 (Bankr. D. Del.) (seeking damages from Feinberg, Cerberus Capital and Cerberus Partners for breach of fiduciary duty, fraud and fraudulent inducement). More specifically, Defendants have engaged in the following conflicts of interests and the prior conduct.
     3.54 Cerberus and Feinberg. Cerberus and Feinberg had conflicts of interest by virtue of their investments in, at minimum, Optel, Galaxy and Classic. Furthermore, these Defendants exacerbated
         
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these conflicts by acting without disclosure, and by installing other conflicted individuals, such as Abbruzzese, Plattus, Singer, and Dorchester, as decision makers on the Board of WSNet.
     3.55 In past dealings with companies to whom they have loaned money, Defendants Feinberg and the Cerberus Defendants have used similar schemes to secure, preferential treatment and fiduciary breaches from officers of companies in which they have invested. See, e.g., In re Coram Healthcare Corp. and Corarn. Inc., Case Nos. 00-3299 and 00-3300 (Bank. D. Del.) (“Coram”). In the Coram case, Defendants Feinberg and Cerberus secured the conflict of interest and preferential treatment of Coram’s CEO by agreeing to secretly pay him $1,000,000.00 per year, plus “the added incentive of substantial bonuses. Once the shareholders of Coram found out about this conflict of interest and Cerberus’ scheme, they brought these facts to the attention of the bankruptcy judge, who ruled that Defendant Feinberg and others had installed and officer of Coram who had an “actual conflict of interest,” that produced an “insidious effect.”
     3.56 Singer and Romulus/Remus. Defendants used their control of WSNet to install Singer as a key decision maker over the business operations of WSNet. However, Singer was not named as an “official” officer or director of WSNet, given his criminal past. Singer is a convicted felon who had been found guilty on 23 counts of federal crimes, including mail fraud, securities fraud and violating the Racketeering Influenced Corrupt Organizations (RICO) laws. Singer served about two years in Federal prison on these convictions. (See: United States v. Gary Singer and the Cooper Companies, Inc., 92 Cr. 964 (S.D.N.Y.) Defendants allowed his participation despite knowing that Singer was convicted for fraudulent, self-dealing transactions with a company he served as a director. Singer has also been forced to disgorge over $4 million to the SEC for his role in engaging in “several fraudulent schemes in the market for high yield bonds.”
     3.57 Further, the company that Singer served as officer and director, Cooper Companies, was also convicted of mail and wire fraud. The Securities and Exchange Commission investigated the actions of Singer and charged him with fraudulent self-dealing transactions while he was an officer and director
         
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  PAGE 16    

 

 

of Cooper. As a result of this proceeding, the SEC obtained a permanent injunction against Defendant Singer enjoining him from, inter alia, “acting as an officer or director of a public company.”
     3.58 In addition, the shareholders of Cooper Companies, Inc. filed a derivative action against Singer and other directors of Cooper, as well as Defendant Romulus, asserting claims arising out of the fraudulent self-dealing transactions that Singer had engaged in, with the full knowledge of many of the officers and directors of Cooper.
     3.59 Legal commentators have written about the legal lessons to be drawn from the conviction, SEC litigation and derivative actions aimed at Singer and Cooper Companies, in law review articles, treatises, legal practice handbooks and hornbooks. The SEC harshly criticized the board of Cooper Companies for failing to take “immediate and effective action” on behalf of the company’s investors after it learned that Singer, one of the company’s officers and directors, had “concealed fraudulent self-dealing transactions” that were in clear breach of his fiduciary duties. The lessons from the illegal self-dealing transactions with Singer and the indifference and inaction of the board of directors for Cooper have become a staple in derivative action and corporate governance law.
     3.60 Thus, Defendants installed as an undisclosed officer and director someone who in corporate governance and securities law is synonymous with self-dealing, breach of fiduciary duty and defrauding shareholders. Unfortunately, rather than learning the lessons from Defendant Singer’s past criminal practices, Defendants have embraced and perpetrated the same illegal, self-dealing and fraudulent practices that earned Defendant Singer his prior criminal convictions.
     3.61 Dorchester’s Conflicts of Interest. Defendant Dorchester held a position on the Board of WSNet. Although he held this position with all the attendant fiduciary duties, he was also a consultant for one of WSNet’s wholly owned subsidiary’s creditors and competitors, the manager of one of its biggest clients, and was installed by Cerberus to oversee the operation of Galaxy, a company which represented a highly profitable business opportunity for WSNet. In his capacity as a consultant, Dorchester has earned fees for selling assets of Galaxy, a clear conflict of interest given that the assets of Galaxy were a business opportunity of WSNet.
         
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     3.62 Abbruzzese. Defendants have corrupted Abbruzzese in much the same way with regard to their investment in WSNet. When Abbruzzese was installed as CEO and chairman of WSNet, he ostensibly was proceeding without compensation, other than his interest in the company. However, on information and belief, an arrangement has been struck between Defendants Feinberg, the Cerberus Defendants, and possibly other parties, to compensate Abbruzzese based on how Cerberus ultimately fares in its dealings with WSNet, Galaxy, and Classic.
     3.63 Abbruzzese, as CEO and chairman of WSNet, has followed a course of action designed to enrich Cerberus at the expense of WSNet. Prior to Abbruzzese’s assumption of the CEO and Chairman positions, WSNet was in the process of raising financing through an arrangement with UBS/Warburg. Upon being installed as CEO and Chairman, Abbruzzese shelved the arrangement with UBS/Warburg, and after the passage of many months decided that only Cerberus would be able to provide funding to the corporation. Accordingly, Abbruzzese oversaw the commitment of WSNet on the Bridge Loan, a transaction characterized by self-dealing and other breaches of fiduciary duty. Following the completion of the Bridge Loan, Abbruzzese was awarded with compensation of some $25,000.00 per month.
     3.64 Further, Abbruzzese’s association with CAI Wireless shows, as in the case of Singer, that he is unsuitable as an officer and director of WSNet. Abbruzzese was sued for securities fraud by the shareholders of CAI Wireless for selling millions of dollars of CAI Wireless stock at a time when he and others were disseminating false information about CAI Wireless and its stock. Judgment was reportedly entered against Abbruzzese for $9 million. He has continued the course of action of self-dealing and enriching himself and other insiders as an officer and director of WSNet.
H. Conclusion.
     3.65 The foregoing facts establish egregious violations of nearly every legal duty that Defendants had to Plaintiffs. More specifically, the acts set forth above give rise to the following claims. All claims are stated in the alternative to the extent they conflict. All of the foregoing facts are incorporated by references in the following counts.
         
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  PAGE 18    

 

 

IV.
FIRST CAUSE OF ACTION — SECURITIES, COMMON LAW, AND
STATUTORY FRAUD; FRAUDULENT CONCEALMENT;
CONSPIRACY TO COMMIT FRAUD
A. Securities Fraud.
     4.1 Plaintiff brings claims against Defendants under Texas securities laws because Defendants, as buyers under the Texas Securities Act (the “Act”), made material misstatements and/or omissions of facts in the course of buying securities. Plaintiff is entitled to damages under the Act for each violation.
     4.2 The Texas Securities Act defines the term “security” to include “share, stock...note, bond...or other evidence of indebtedness” Tex. Civ. Stat. Ann. Art 581-4.A. The March 2000 Initial Investment and the September 2001 Bridge Loan involve the purchase of “Securities” in WSNet under the Act.
     4.3 Sections 4.F and 32 of the Act provide sanctions for the use of fraud and fraudulent practices in connection with the purchase of securities. Section 4.F of the Act defines fraud as follows:
    The terms “fraud” or “fraudulent practice” shall include any misrepresentations, in any manner, of any relevant fact; any promise or representation or prediction as to the future not made honestly and in good faith, or an intentional failure to disclose a material fact; . . . provided, that nothing herein shall limit or diminish the full meaning of the terms “fraud,” “fraudulent,” and “fraudulent practice” as applied or accepted in courts of law or equity.
     4.4 Defendants offered to buy, or bought securities from Plaintiff through fraud and untrue statements of material fact in violation of Tex. Civ. Stat. Ann. Art. 581-33(B) including without limitation:
  a.   In an early November 1999 meeting with WSNet’s President Ferchill, Abbruzzese identified himself as a partner with Cerberus;
 
  b.   In late November Cerberus informed WSNet that it was interested in making the proposed investment;
 
  c.   In late November Cerberus stated that its interest was contingent on WSNet not seeking financing from other sources;
         
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  d.   in late November Cerberus stated that it wanted to negotiate a deal and get it closed promptly; and that it was willing to move quickly to complete its due diligence and move to a closing in mid-February;
 
  e.   On January 21, 2000, CRT stated it would perform, in accordance with the letter of intent:
     4.5 Defendants further engaged in fraudulent conduct in the purchase of securities by intentionally failing to disclose material facts, and those omissions caused other statements to be misleading, in light of the circumstances tinder which they were made, in violation of Tex. Civ. Stat. Ann. Art. 581-33(B). These omissions include, without limitation:
  a.   While Cerberus informed WSNet that the transaction would include Abbruzzese (through his company TechOne), and Singer (through Romulus) it did not disclose their background or histories to WSNet;
 
  b.   Failing to disclose an intention to use the pending termination of the Loral satellite option as leverage to renegotiate the investment;
 
  c.   That Cerberus and Singer intended to become an investor directly in Galaxy Cable and/or Classic Cable;
 
  d.   That Cerberus and Singer had purchased Galaxy and Classic bonds;
 
  e.   That shareholders in other corporations (as well as the SEC and the United Status Justice Department) have had to sue and prosecute certain Defendants for engaging in self-dealing, fraud and breach of fiduciary duty;
 
  f.   That Cerberus, Feinberg, and Singer had conflicts of interest by virtue of their investments in, at minimum, Optel, Galaxy and Classic;
 
  g.   That Defendants Feinberg and the Cerberus have used similar schemes to secure preferential treatment and fiduciary breaches from officers of companies in which they have invested;
 
  h.   That Singer is a convicted felon who had been found guilty on 23 counts of federal crimes, including mail fraud, securities fraud and violating the Racketeering Influenced Corrupt Organizations laws and that Singer served about two years in Federal prison on these convictions;
 
  i.   That Defendants knew Singer was convicted for fraudulent, self-dealing transactions with a company he served as a director and has been forced to disgorge over $4 million to the SEC for his role in engaging in “several fraudulent schemes in the market for high yield bonds;”
 
  j.   That the SEC obtained a permanent injunction against Singer enjoining him from, inter alia, “acting as an officer or director of a public company;”
         
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  k.   That the shareholders of Cooper Companies, Inc. filed a derivative action against Singer and other directors of Cooper, as well as Romulus, asserting claims arising out of the fraudulent transactions that Singer had engaged in;
 
  l.   That the illegal self-dealing transactions with Singer and the indifference and inaction of the board of directors for Cooper have become a staple in derivative action and corporate governance law;
 
  m.   That Defendants installed as an undisclosed officer and director (Singer) someone who in corporate governance and securities law is synonymous with self-dealing, breach of fiduciary duty and defrauding shareholders;
 
  n.   That Dorchester was a consultant for one of WSNet’s wholly owned subsidiary’s creditors and competitors, the manager of one of its biggest clients, and was installed by Cerberus to oversee the operations of Galaxy, a company which represented a highly profitable business opportunity for WSNet. In his capacity as a consultant, Dorchester earned fees for selling assets of Galaxy;
 
  o.   When Abbruzzese was installed as CEO and chairman of WSNet, he ostensibly was proceeding without compensation. However, on information and belief, an arrangement was struck between Feinberg, Cerberus, and possibly other parties, to compensate Abbruzzese based on how Cerberus ultimately fares in its dealings with WSNet, Galaxy, and Classic;
 
  p.   That Abbruzzese’s past association with CAI Wireless shows he is unsuitable as an officer and director of WSNet. Abbruzzese was sued for securities fraud by the shareholders of CAI Wireless for selling millions of dollars of CAI Wireless stock at a time when he and others were disseminating false information about CAI Wireless and its stock; and
 
  q.   That each of those items listed as breaches of fiduciary duty and listed as elements of duress had occurred.
     4.6 These misrepresentations and omissions were the proximate cause of actual damages to Plaintiff.
     4.7 Plaintiff demands damages for its harm as authorized by the Act. The rights and remedies provided by the Act are in addition to other rights or remedies that may exist in law or in equity. Sec. 581-33 M.
     4.8 Defendants Feinberg, Singer, Abbruzzese, Plattus, and Dorchester, and each Defendant entity, were “control persons” or “aiders” under the Tex. CIV. STAT. Ann. Art. 581-33(F). Thus all Defendants possessed, directly or indirectly, the power to direct or cause the direction of the management and policies of the buyer of the securities. Additionally, each Defendant, with intent to deceive or with
         
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reckless disregard for the truth, directly or indirectly aided other Defendants in violating the Act and is therefore liable jointly and severally with all Defendants.
B. Common Law Fraud.
     4.9 Defendants made material misrepresentations (including without limitation those set forth above) that they knew were false when made. Defendants intended that Plaintiff rely upon those misrepresentations and Plaintiff did in fact rely upon them. Their reliance was the proximate and actual cause of injury to Plaintiff.
     4.10 In addition, fraud is the successful employment of cunning, deception or artifice to circumvent, cheat or defraud another to his injury. Defendants’ conduct constitutes fraud for this reason as well.
C. Fraudulent Concealment.
     4.11 Defendants intentionally failed to disclose material facts (including without limitation those set out above) that they had a duty to disclose and acted so as to prevent Plaintiff from discovering those facts. The failure to disclose those facts and the intentional concealment of those facts were a proximate cause of injury to Plaintiff.
D. Statutory Fraud in a Stock Transaction.
     4.12 Defendants made material representations of past or existing material facts (including without limitation those set forward above) to Plaintiff for the purpose of inducing Plaintiff into entering into contracts for the sale of stock, and Plaintiff relied on those representations entering into those contracts.
     4.13 Defendants’ false representations were the actual and proximate cause of damages to Plaintiff, and Plaintiff is entitled to his damages under Tex. Bus. & Com. Code §27.01(b) and attorneys fees and costs under § 27.01(e). Defendants made those false representations with awareness of the falsity of the representation, and thus are liable for exemplary damages under Tex. Bus. & Com. Code § 27.01(c).
         
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     4.14 In the alternative, Defendants had actual knowledge of the falsity of a representation or promise made by another person to Plaintiff, but failed to disclosure the falsity of the representation to the Plaintiff, and Defendants benefited from the false representation, and thus are liable to Plaintiff for damages under Tex. Bus. & com. Code § 27.01(d).
E. Conspiracy to Commit Fraud.
     4.15 Defendants and their corporate and business entities conspired with each other to commit the various acts of fraud described above and that conspiracy was a proximate and actual cause of injury to Plaintiff.
V
SECOND CAUSE OF ACTION — BREACH OF FIDUCIARY DUTY;
CONSPIRACY TO COMMIT BREACH OF FIDUCIARY DUTY;
AIDING AND & BETTING BREACH OF FIDUCIARY DUTY
A. Breach of Fiduciary Duty, and Duty of Care, Loyalty and Good Faith.
     5.1 All Defendants owed WSNet the fiduciary duties of care, loyalty, utmost good faith and fair dealing, accountability and disclosure. Defendants breached their duty of loyalty, care and fiduciary duties owed under the law to Plaintiff. In doing these things, Defendants failed to act with the care an ordinarily prudent person would exercise in similar circumstances. In addition, Defendants failed to act in good faith, and Defendants did not believe and could not have reasonably believed such conduct to be in the best interest of WSNet.
     5.2 Plattus was a member of the WSNet Board of Directors from March 2000 until October 17, 2002. Abbruzzese was a member of the Board continuously from March 2000. Dorchester was a member of the Board by May 24, 2001 until June, 2002. Singer was a de facto member of the Board continuously front March 2000. Each of these individuals, as members of the Board, owed WSNet a fiduciary duty during the tenure of their service on the Board.
     5.3 Plattus, Abbruzzese, Dorchester and Singer also acted as agents at the direction of their principals, Defendants Feinberg, the Cerberus Defendants, CRT, Remus, Romulus, TechOne and Digital Satellite. As such, these Defendants each owed fiduciary duties to WSNet. Further, the Cerberus
         
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Defendants and Feinberg exercised actual control over the affairs of WSNet. By virtue of their control over the affairs of WSNet, the Cerberus Defendants and Feinberg owed it fiduciary duties.
     5.4 Defendants breached their fiduciary duties by placing their own interests above the interests of WSNet and by engaging in the following actions and omissions:
  a.   Cerberus and the Singer Defendants becoming investors directly in Galaxy Cable and/or Classic Cable;
 
  b.   Cerberus and the Singer Defendants purchasing Galaxy and Classic bonds;
 
  c.   Feinberg instructing WSNet not to proceed with any negotiations for the purchase of assets or any financing;
 
  d.   Cerberus/CRT prohibiting any action by WSNet to pursue its strategic plans without express prior notice to Cerberus and approval of a committee dominated by Cerberus;
 
  e.   Singer making independent contact with the prospective business partners and starting separate negotiations outside of WSNet;
 
  f.   Cerberus/CRT replacing Ferchill as Chairman of the Board with Abbruzzese, and making Abbruzzese was in charge of all acquisitions and the financing;
 
  g.   Cerberus/CRT demanding Ferchill’s resignation as President and CEO, and threatening unspecified litigation if he refused, then replacing him with Abbruzzese as “interim” CEO;
 
  h.   Singer and Feinberg forbidding WSNet from moving forward on its attempts to acquire Classic and Galaxy;
 
  i.   Cerberus/CRT appointing one of Cerberus’ outside consultants, Ron Dorchester, to fill a Board seat;
 
  j.   Defendants slowing down the WSNet’s financing;
 
  k.   Defendants spending significantly more money on operations, and on lobbying that benefited other interests, thus imperiling the WSNet’s ability to survive;
 
  1.   Defendants refusing to consider a proposal by Motorola that would give the WSNet sufficient capital to survive until the first quarter of 2002, without incurring any additional dilution of stock;
 
  m.   Defendants refusing to accept the Motorola offer or to move forward with the UBS/Warburg financing;
 
  n.   Defendants re fusing to timely furnish Tyson with the necessary information to present to potential outside investors;
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 24    

 

 

  o.   Defendants proposing and insisting upon onerous and self-dealing terms for the bridge loan;
 
  p.   Defendants refusing to consider or act on alternatives to the bridge loan, such as selling WSNet and prohibiting others from doing so;
 
  q.   Defendants refusing to provide Tyson and shareholders of WSNet with copies of financial information and material contracts of the company, denying Tyson access to the company’s outside counsel for advice, and telling him through legal counsel that he did not have the right as a Board member to review WSNet’s records and contracts;
 
  r.   When the “independent committee” attempted to contact legal counsel and review the documents, Abbruzzese instructing legal counsel not to consult with the committee;
 
  s.   On September 9, 2001, Cerberus deciding that the terms of the bridge loan were too lenient and that changing the terms of the loan to improve the return to Digital Satellite;
 
  t.   Threatening to sue Tyson for his failure to approve the transaction and said that they would force WSNet to file bankruptcy;
 
  u.   Sweeping $8.1 from the accounts of Network and forcing and placing WSNet into bankruptcy;
 
  v.   By installing other conflicted individuals, such as Abbruzzese, Plattus, Singer, and Dorchester, as decision makers Board members of WSNet:
 
  w.   Abbruzzese, as CEO and chairman of WSNet, following a course of action designed to enrich Cerberus at the expense of WSNet;
 
  x.   Defendants appropriating the Classic Cable and Galaxy Cablevision business opportunities for themselves and/or for companies in which they have a material financial interest;
 
  y.   Defendants approving or acquiescing in the usurpation of the Classic Cable and Galaxy Cablevision business opportunities;
 
  z.   Defendants engaging in and/or approving an unfair, self-dealing loan transaction between WSNet and companies in which one or more of these Defendants have a material financial and/or agency interest — Cerberus Capital, Digital Satellite and/or TechOne; and
 
  aa.   Those items listed as misrepresentations and omissions and occurring after the March, 2000 closing.
     5.5 Each of these breaches of duty are the actual and proximate cause of damage to Plaintiffs. In addition, Defendants Plattus, Abbruzzese, Dorchester, Singer, Feinberg, the Cerberus Defendants, CRT, Remus, Romulus and/or TechOne have profited from these breaches of fiduciary duty and all such Defendants are legally responsible for their fiduciary breaches and usurpation of WSNet opportunities.
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 25    

 

 

B. Conspiracy to Breach Fiduciary Duty.
     5.6 Defendants and their corporate and business entities conspired with each other to commit the various breaches described above and that conspiracy was a proximate and actual cause of injury to Plaintiff.
C. Aiding and Abetting Breach of Fiduciary Duty.
     5.7 Defendants and their corporate and business entities aided and abetted breaches of fiduciary duty by other Defendants described above and that aiding and abetting was a proximate and actual cause of injury to Plaintiff.
VI.
THIRD CAUSE OF ACTION — DIVERSION OF CORPORATE OPPORTUNITY;
CONSPIRACY TO DIVERT CORPORATE OPPORTUNITY
     6.1 Corporate officers and directors have a duty to refrain from diverting the business opportunities of a corporation away from the corporation. Defendants Abbruzzese, Plattus, Singer, and Dorchester, during such time as each served as a formal or de facto officer or director of WSNet, diverted business opportunities from WSNet. Such opportunities include, but are not limited to the following:
  a.   The opportunity to acquire interests in, or subscribers to, Galaxy;
 
  b.   The opportunity to acquire interests in, or subscribers to, Classic;
 
  c.   On information and belief, the opportunity to acquire interests in, or subscribers to other cable systems; and
 
  d.   The opportunity to raise capital for the acquisition of interests in, or subscribers to other cable systems.
     6.2 Diversion of the foregoing opportunities was a proximate and actual cause of injury to WSNet and a source of great profit to Defendants.
     6.3 Each of Defendants and their corporate and business entities conspired with each other to commit the various breaches described above and that conspiracy was a proximate and actual cause of injury to Plaintiff.
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 26    

 

 

VII.
FOURTH CAUSE OF ACTION — DURESS;
CONSPIRACY TO COMMIT DURESS
     7.1 Defendants threatened actions that they had no legal right to commit, in order to force Plaintiff to enter into agreements with Defendants. Such threats were of imminent action, Plaintiff had no readily available means of protection, and thus such actions constituted both duress, and economic duress.
     7.2 The actions of Defendants constituting duress include, but are not limited to, the following:
  a.   Changing the terms of the March, 2000 investment;
 
  b.   Demanding Ferchill’s resignation as President and CEO, and threatening unspecified litigation if he refused;
 
  c.   Slowing down WSNet’s financing efforts to a crawl;
 
  d.   In late November Cerberus stating that its interest was contingent on WSNet not seeking financing from other sources;
 
  c.   Refusing to consider a proposal by Motorola that would give WSNet sufficient capital to survive until the first quarter of 2002, without incurring any additional dilution of stock;
 
  d.   Refusing to accept the Motorola offer or to move forward with the UBS/Warburg financing;
 
  e.   Refusing to timely furnish Tyson with the necessary information to present to potential outside investors;
 
  f.   Proposing and insisting upon onerous and self-dealing terms for the bridge loan;
 
  g.   Refusing to consider or act on alternatives to the bridge loan, such as selling WSNet and prohibiting others from doing so;
 
  h.   Refusing to provide Tyson and shareholders of WSNet with copies of financial information and material contracts of the company, denying Tyson access to the company’s outside counsel for advice, and telling him through legal counsel that he did not have the right as a Board member to review the WSNet’s records and contracts;
 
  i.   When the “independent committee” attempted to contact legal counsel and review the documents, Abbruzzese instructing legal counsel not to consult with the committee;
 
  j.   On September 9, 2001, Cerberus deciding that the terms of the bridge loan were too lenient and changing the loan terms to improve the return; and
 
  k.   Threatening to sue Tyson for his failure to approve the transaction and said that they would force WSNet to file bankruptcy.
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 27    

 

 

     7.3 The foregoing conduct was a proximate and actual cause of injury to WSNet.
     7.4 Each of Defendants and their corporate and business entities conspired with each other to commit the various acts of duress described above and that conspiracy was a proximate and actual cause of injury to Plaintiff.
VIII.
FIFTH CAUSE OF ACTION — TORTIOUS INTERFERENCE WITH
PROSPECTIVE BUSINESS RELATIONSHIPS
     8.1 Absent the interference of Defendants, there was a reasonable probability that Plaintiff would have entered into business relationships as follows:
  a.   The opportunity to acquire interests in, or subscribers of, Galaxy;
 
  b.   The opportunity to acquire interests in, or subscribers of, Classic;
 
  c.   On information and belief, the opportunity to acquire interests in, or subscribers of, other cable systems; and
 
  d.   The opportunity to raise capital for the acquisition of interests in, or subscribers of, other cable systems.
     8.2 Defendants intentionally interfered with the foregoing relationships, the conduct was tortuous or unlawful, and was a proximate and actual cause of injury to Plaintiff.
IX.
SIXTH CAUSE OF ACTION — NEGLIGENCE
     9.1 Each of Defendants owed Plaintiff a duty to act in a reasonable and prudent manner, and to use ordinary care in the management of Plaintiff’s affairs. Each of Defendants breached the duty owed Plaintiff. The conduct of Defendants specified herein constitutes negligence, and was the proximate cause of damages to Plaintiff.
X
UNJUST ENRICHMENT
     10.1 Defendants have obtained benefits from WSNet by fraud, duress and/or taking of an undue advantage of WSNet as described in the foregoing recitation of facts. As a result, Defendants have been unjustly enriched. WSNet seeks recovery of all monies and assets unjustly obtained by Defendants as a result.
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 28    

 

 

XI
ATTORNEYS FEES
     11.1 Pursuant to the Texas Securities Act, sec. 581-33(D)(7), Tex. Rev. Civ. Stat., Plaintiff is entitled to recovery of their reasonable attorneys’ fees.
     11.2 Pursuant to sec. 27.01(e) of the Texas Business and Commerce Code, Plaintiffs are entitled to recovery of their reasonable attorneys’ fees.
XII
MISCELLANEOUS
     12.1 Discovery Level. Discovery is to be conducted under Level 3, Rule 190.4 of the Texas Rules of Civil Procedure. A scheduling order should be entered.
     12.2 Jury Demand. Plaintiff demands a trial by jury on the issues in this case. A jury fee has been paid.
     12.3 No Removal Jurisdiction. Nothing in this pleading raises any cause of action or claim arising under the laws or constitution of the United States, but only under the laws of Texas. There is not complete diversity of parties because Texas citizens are both Plaintiffs and Defendants and because Delaware citizens are both Plaintiffs and Defendants.
     12.4 Conditions Precedent. All conditions precedent to the bringing of this action have occurred, been excused, or have been waived.
     12.5 Authority. Whenever it is alleged that any Defendant engaged in an act or omission, that act or omission was engaged in by a party, or a duly authorized officer, agent, or representative of a party having actual authority to engage in the act or omission, and who did so within the course and scope of such actual authority.
     12.6 Defenses Inapplicable. The “business judgment rule” does not apply, nor excuse, the conduct of Defendants. In addition, Defendants are estopped from asserting that WSNET could not have realized or exercised the Classic and Galaxy opportunities.
     12.7 Disclosure Request. Plaintiff hereby requests disclosure of those items set forth in Tex. R. Cir. Rule 190.4 (a) through (k).
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 29    

 

 

XIII.
DAMAGES
     13.1 Actual Damages. As a result of Defendants’ conduct specified herein, Defendants are liable to Plaintiff for actual, and consequential damages to Plaintiff including, but not limited to (i) damages to Plaintiff resulting from the change in terms of the March 2000 investment, (ii) damages to Plaintiff resulting from the loss of the opportunity to raise capital for, and to execute the investments in, cable acquisition opportunities, (iii) damages to Plaintiff resulting from the imposition of the terms in the September 2001 Bridge Loan and from the refusal to permit other available financing, to proceed, and (iv) the damages to the business enterprises of Plaintiff for Defendants’ conduct, including loss of profits.
     13.2 Disgorgement of Profits. Defendants have profited from diversion of the corporate opportunities of Plaintiff in an amount far in excess of $50 million dollars and are thus liable to Plaintiff for such amount.
     13.3 Exemplary Damages. Plaintiff is entitled to recover exemplary damages, in an amount to be determined by the jury, due to the fraud, and malice (both actual malice and conscious indifference) of Defendants, and due to their ratification and approval of such acts by the other Defendants, all as authorized by both Chapter 41 of the Texas Civil Practices anti Remedies Code and Section 27.01 of the Texas Business and Commerce Code. In addition, exemplary damages are not subject to a limitation on recovery because Defendants engaged in the following conduct: (i) as fiduciaries, Defendants knowingly agreed to accept, or accepted, a benefit with the agreement or understanding it would affect their conduct toward Plaintiff; (ii) Defendants offered, conferred, or agreed to confer a benefit to fiduciaries with the agreement or understanding it would affect the fiduciaries’ conduct toward Plaintiff; (iii) Defendants, with an intent to harm or defraud, caused officers of Plaintiff to execute writings affecting the pecuniary interest of Plaintiff; and (iv) Defendants, without Plaintiff’s effective consent, unlawfully appropriated property belonging to Plaintiff.
     13.4 Constructive Trust. Defendants have obtained profits from their breaches of fiduciary duties, conspiracy to breach fiduciary duties, aiding and abetting breach of fiduciary duties and/or fraud
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 30    

 

 

as described in the foregoing recitation of facts. Plaintiff prays that this Court impose a constructive trust upon all assets obtained by Defendants as a result of a breach of fiduciary duty as well as all proceeds from such assets and upon all profits received by Defendants as a result of a breach of fiduciary duty.
XIV
PRAYER FOR RELIEF
     14.1 Upon trial of this case, Plaintiff seeks the maximum measure of relief to which he is entitled, including, without limitation, the following relief:
  (a)   all actual, special and consequential damages;
 
  (b)   imposition of a constructive trust upon all profits, assets and proceeds of Defendants as a result of a breach of fiduciary duty in WSNet;
 
  (c)   exemplary or punitive damages in an amount to be determined by the jury;
 
  (d)   attorneys’ fees;
 
  (e)   pre-judgment and post-judgment interest at the highest available rate;
 
  (f)   expert witness fees;
 
  (g)   costs of court; and
 
  (h)   such further relief which Plaintiff may show himself justly entitled.
     WHEREFORE, PREMISES CONSIDERED, Plaintiff’ prays that upon final hearing he recover judgment for the foregoing damages and relief and such other and further relief to which he may show himself to be justly entitled.
         
 
  Respectfully submitted,    
 
        
 
  /s/ D. Douglas Brothers    
 
       
 
        
 
  R. James George, Jr., State Bar No. 07810000    
 
  D. Douglas Brothers, State Bar No. 03084500    
 
  GEORGE & BROTHERS, L.L.P.    
 
  1100 Norwood Tower    
 
  114 West 7th Street    
 
  Austin, Texas 78701    
 
  (512) 495-1400 Telephone    
 
  (512) 499-0094 Facsimile    
 
        
 
  TAYLOR & DUNHAM, L.L.P.    
 
  David E. Dunham, State Bar No, 06227700    
 
  Donald R. Taylor, State Bar No. 19688800    
 
  Miguel S. Rodriguez, State Bar No. 24007938    
 
  327 Congress Avenue, Suite 600    
 
  Austin, Texas 78701    
 
  (512) 473-2257 Telephone    
 
  (512) 478-4409 Facsimile    
 
        
 
  BROADUS SPIVEY, P.C.    
 
  Broadus Spivey, State Bar No. 00000076    
 
  48 East Avenue    
 
  Austin, Texas 78701    
 
  (512) 474-6061 Telephone    
 
  (512) 474-1605 Facsimile    
 
        
 
  ATTORNEYS FOR PLAINTIFF    
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 31    

 

 

CERTIFICATE OF SERVICE
     This is to certify that a copy of the foregoing document was served on the following attorneys of record by delivering a true and correct copy via fax and first class mail on this the 4th day of January, 2005, as follows:
Harry M. Reasoner
Kenneth P. Held
Vinson & Elkins, L.L.P.
1001 Fannin, Suite 2300
Houston, Texas 77002
713/615-5219 (fax)
and
Charles W. Schwartz
Skadden, Arps, Slate,
Meagher & From, LLP
1600 Smith, Suite 4400
Houston, Texas 77002
888/329-2286 (fax)
Counsel for Cerberus Capital Management LP,
Cerberus Partners LP,
Cerberus Associates, L.L.C.
Craig Court, Inc.,
CRT Satellite Investors LLC, and
Stephen A. Feinberg
John D. Penn
Haynes & Boone, L.L.P.
201 Main Street, Suite 2200
Ft. Worth, Texas 76102
817/348-2300
Counsel for the Official Committee of
Unsecured Creditors of World Satellite
Network, Inc.
Roy Minton
Minton, Burton, Foster & Collins, P.C.C.
1100 Guadalupe Street
Austin, Texas 78701
512/479-8315 (fax)
Counsel for Seth Plattus
W. Wade Porter
Allensworth & Porter, L.L.P.
620 Congress Avenue, Suite 100
Austin, Texas 78701
512/708-0519 (fax)
Counsel for Ronald Dorchester and
Jared Abbruzzese
Wayne Barr, Esq.
TechOne Capital Group, L.L.C.
18 Corporate Woods Boulevard, 3rd Floor
Albany, New York, 12211
518-462-3045 (fax)
Representative of TechOne Capital
Group, LLC
Pat Lochridge
McGinnis, Lochridge & Kilgore
919 Congress
Austin, Texas 78701
512/495-6093 (fax)
Counsel for Remus Holdings LLC,
Romulus Holdings, Inc. and Gary Singer
     
/s/ D. Douglas Brothers
 
     
D. Douglas Brothers
    
         
PLAINTIFF’S FOURTH AMENDED PETITION
  PAGE 32    

 

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