O Kelly Declaration in Support of Motion To Terminate Voting Trust
O Kelly Declaration in Support of Motion To Terminate Voting Trust
ERLICK
21 Defendants.
22 CHARLES R. T. 0' KELLEY declares under penalty of perjury under the laws of the
24 I. CREDENTIALS
25 I. My name is Charles R. T. O'Kelley and I am over the age of 18. The facts stated
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23 The DRC Final Report that Cane and Bay produced, however, is remarkable for its
25 26. A special litigation committee has the burden of demonstrating that any
faith. To carry this burden, the special litigation committee must be prepared to
DECL. OF CHARLES R. T. O'KELLEY - 9 JOHNSON FLORA
2505 Second Avenue, Suite 500
Seattle, WA 98121
(t) 206.3865566 (f) 206.682.0675
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make available to opposing counsel and the court the evidence on which it has
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based its findings. A special litigation committee report must, of course, actually
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make specific findings. In contrast, the Cane/Bay "Final Report" couches all of its
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"findings" in terms of generalized conclusions. The Cane/Bay report indicates that
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every aspect of the purported investigation was done "informally" so as to make it
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impossible for the court or any interested party to evaluate the the committee's
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supposed analysis. The interviews of key witnesses were done "informally." Cane
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and Bay left no trail.
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27. The Cane/Bay report tries to create the impression that the task of analyzing
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financial records to determine whether Phillips had acted inappropriately was
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assigned to former company CFO David Douglas. Reading the report more
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closely, however, reveals that Douglas was retained to review the company's
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financial records in light of the allegations contained in the Arnold complaint, but
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that the purpose for which he was hired was "to recommend enhanced internal
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financial and accounting controls for the corporation." Although the report
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indicates that Douglas reported periodically to the DRC, there is no indication
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about what he reported or any indication that anything he reported was in writing.
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Nor is there any explanation of why Douglas was qualified as an expelt either to
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conduct the investigation he purportedly undertook or to give recommendations to
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the company.
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28. The Cane/Bay report indicates that they hired Deloitte Financial Services
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Advisory LLP ("Deloitte") to "provide a quantitative assessment of the preliminary
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findings ofMr. Douglas and the DRC's accounting investigation." Deloitte made
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an oral report to the DRC on June 8, 2009. According to the purported DRC Final
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Report, Deloitte orally reported "that no material financial data or information
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came to its attention that would lead Deloitte to conclude that the transactions
6 ! action") without the prior written approval of Toshiba [and] NCR: ... (ix) Approve, enter
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into, modify or exercise rights with respect to any transaction, contract or commitments
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between the Company ... on the one hand, and any officer of the Company ... on the other
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hand [or] (xi) Appoint or dismiss the chief executive officer .... "
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32. The Transition Agreement, Mr. Phillips' resignation notice and MOD Systems
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acceptance thereof, MOD Systems de facto appointment of Bay to replace Phillips as CEO,
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and the Voting Tmst Agreement were each a "preferred approval action" under the
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Shareholders Agreement. As outlined above, Bay and Cane must have known, and as
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directors and fiduciaries are presumed to have known, that each of these transactions and
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agreements was a "preferred approval action." Yet, it appears that Bay and Cane did not
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submit these matters to Toshiba or NCR for their prior written approval as required by the
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Shareholders Agreement. Instead, they apparently implemented these actions with the hope
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that when their actions were discovered, Toshiba and NCR would accept them as afait
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accompli.
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33. In my opinion, if Cane and Bay did not notify Toshiba and NCR of their actions,
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they intentionally violated the contract rights of NCR and Toshiba. This would constitute a
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gross violation of the fiduciary duties Cane and Bay owed to both the MOD Systems and its
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shareholders. It would violate all standards of fair dealing, and it would operate to defraud
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NCR and Toshiba.
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34. In my opinion, this conduct by Cane and Bay constitutes the type of dishonest
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conduct that justifies the Court in summarily removing them from the DRC. Moreover, if
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Declared under penalty of perjury this2~rdday of September, 2009 in Seattle,
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Washington.
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