You are on page 1of 98

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 1 of 37 PageID #:1

IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION WESTCHESTER FIRE INSURANCE COMPANY Plaintiff, v. SWEPORTS, LTD., UMF CORPORATION, GEORGE CLARKE, and CHRISTOPHER LEISNER Defendants. ) ) ) ) ) ) ) ) ) ) ) ) )

No. 11-C-3473

COMPLAINT FOR DECLARATORY JUDGMENT Plaintiff, WESTCHESTER FIRE INSURANCE COMPANY (“WF”), by and through its attorneys, O’HAGAN SPENCER, LLC, as its Complaint for Declaratory Judgment against Defendants SWEPORTS, LTD (“SWEPORTS”), UMF CORPORATION (“UMF”), GEORGE CLARKE (“CLARKE”) and CHRISTOPHER LEISNER (“LEISNER”) allege as follows: NATURE OF ACTION This case involves, CLARKE, who as the principal of both UMF and SWEPORTS sought to avoid and repudiate various agreements that he entered into with his attorneys and various investors. In order to accomplish this objective, CLARKE initiated a series of actions that sought to rescind the other parties’ interests, while at the same time, CLARKE, as majority shareholder, would still retain all his interests. CLARKE alleges that from August 2006 through April 2007 these parties committed various acts and omissions that were part of an intentional plan to improperly seize control of SWEPORTS/UMF. When CLARKE sought to rescind the agreements, the other parties objected to CLARKE’S actions, notifying him of their claims verbally, through emails, letters and then lawsuits. After the disputes arose, CLARKE tendered

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 2 of 37 PageID #:2

certain correspondences to WF under the UMF policy.

The UMF policy did not cover

SWEPORTS and CLARKE as a director or officer of SWEPORTS. CLARKE then purchased a policy for SWEPORTS. However, the policy for SWEPORTS did not provide coverage for the disputes that CLARKE was aware of and had previously tendered under the UMF policy. This declaratory judgment action seeks to have the Court conclude that no coverage exits for these matters pursuant to the terms and conditions of the policies. THE PARTIES 1. Plaintiff, WF, is an insurance company incorporated under the laws of New York,

with its principal place of business in Roswell, Georgia. At all times relevant to this action, WF was an insurer duly licensed and authorized to conduct business in the State of Illinois. 2. Defendant, SWEPORTS, is incorporated under the laws of Delaware, with its

principal place of business at 340 Ridge Road, Wilmette, Illinois in Cook County, Illinois. SWEPORTS is the parent company and majority shareholder of defendant UMF. 3. Defendant, UMF, is incorporated under the laws of Illinois, with its principal

place of business at 340 Ridge Road, Wilmette, Illinois in Cook County, Illinois. UMF is majority owned by and a subsidiary of SWEPORTS. 4. Upon information and belief, Defendant, CLARKE, is a foreign national currently

residing in Wilmette, Illinois in Cook County. At all relevant times CLARKE was a majority shareholder of Defendants SWEPORTS and UMF, the chairman of both SWEPORTS and UMF, and the president of SWEPORTS. 5. Upon information and belief, Defendant, LEISNER, is a resident of Cook County,

Illinois. Upon information and belief, LEISNER was and/or is a director of UMF.

2

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 3 of 37 PageID #:3

JURISDICTION AND VENUE 6. Jurisdiction is based on 28 U.S.C. § 1332 as all defendants are of diverse

citizenship from WF and the amount in controversy exceeds $75,000. 7. Venue is proper in the Northern District of Illinois pursuant to 28 U.S.C. §

1391(a) as some of the defendants reside in this district and the Underlying Lawsuits are pending in Cook County, Illinois. FACTS COMMON TO ALL COUNTS Facts Regarding Underlying Disputes 8. In or around July 2006, SWEPORTS and CLARKE retained the law firms of

O’Rourke, Katten & Moody (“OKM”) and Perkaus & Farley (“PF”) to represent SWEPORTS with respect to certain Investment Transactions (the “Sandbox Proposals”). The terms of their retention by SWEPORTS was memorialized in retainer agreements (“Retainer Agreements”). Michael O’Rourke (“O’Rourke”) and Michael C. Moody (“Moody”) of OKM, and John Perkaus (“Perkaus”) of PF, were the attorneys who represented SWEPORTS. 9. OKM and PF provided extensive legal services to SWEPORTS and CLARKE

under the retainer agreements and pursuant to the Sandbox Proposals. However, SWEPORTS was unable to or failed to pay certain of OKM and PF invoices. 10. As a result, on December 31, 2006, CLARKE, as the majority shareholder and

president/chairman of SWEPORTS, executed separate stock purchase agreements with OKM and PF that converted their outstanding receivables for legal fees into 1.25% of SWEPORTS’ common stock with the option to purchase additional common stock for cash, and with the right to acquire additional equity interests in SWEPORTS. (“OKM Stock Purchase Agreement” and “PF Stock Purchase Agreement”). 3

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 4 of 37 PageID #:4

11.

In connection with the Sandbox Proposals, in November 2006, O’Rourke, Moody,

Perkaus, John Dore (“Dore”) and AG Chennelle (“Chennelle”), served as guarantors on a $500,000 loan to SWEPORTS in exchange for SWEPORTS common stock. These agreements were memorialized in Individual Shareholder Agreements executed by CLARKE on behalf of SWEPORTS. That same day, SWEPORTS provided UMF with $600,000 via a promissory note to enable UMF to repay certain of the loans made by investor Sandbox. (“11/13/2006 Promissory Note”). 12. In November and December 2006, Dore, Moody and O’Rourke exercised their

options to purchase additional stock, each thereby investing an additional $100,000 in SWEPORTS. On December 15, 2006, SWEPORTS provided UMF with an additional $423,000 via a promissory note. (“12/15/2006 Promissory Note”). 13. According to the Underlying Lawsuits, Dore was appointed to serve on the board

of SWEPORTS in January 2007. 14. According to the Underlying Lawsuits, on February 20, 2007, Dore proposed to

take the informal action of appointing O’Rourke to the board of UMF, over the objections of CLARKE. 15. According to the Underlying Lawsuits, SWEPORTS and UMF began to

experience financial difficulties as legal fees for UMF’S counsel (Sachnoff & Weaver) continued to mount and loans became due. On February 27, 2007, Dore, Moody, O'Rourke, Perkaus, and Brian Hopcraft signed a Promissory Note (“2/27/07 Promissory Note”) for $125,000 to UMF to pay the legal fees. The note was guaranteed by SWEPORTS and secured by all assets of

SWEPORTS including “all intellectual Property rights.” The 2/27/07 Promissory Note was signed by CLARKE. According to the Underlying Lawsuits, CLARKE expressed serious 4

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 5 of 37 PageID #:5

objections to the actions of O’Rourke, Moody, Perkaus, and Dore. Further, CLARKE expressed his serious objections to intentions to approve the Sandbox Proposals. As a result, the

relationships between CLARKE and O’Rourke, Moody, Perkaus and Dore rapidly deteriorated. 16. Accordingly to the Underlying Lawsuits, on or about March 20, 2007, the boards

for SWEPORTS and UMF met and purported to approve the pending Sandbox Proposal over the strenuous objection of CLARKE and his vote against the Sandbox Proposal at both meetings. CLARKE asserted that these efforts were in furtherance of OKM’s and other co-conspirator’s illegal scheme and efforts to misappropriate control of SWEPORTS and UMF, and with this control, to compel both companies to approve and implement the Sandbox Proposal over his objections. 17. On March 23, 2007, OKM wrote to SWEPORTS asserting that, although

$120,000 in past legal bills had been converted into SWEPORTS’ stock, OKM was owed over $200,000 in additional legal fees for its services provided to SWEPORTS. CLARKE stated that “OKM’s March 23, 2007 letter was transmitted to Dore within days of efforts by Messrs. Dore, O’Rourke, Perkaus and others to seize control of Sweports and UMF and to compel their acceptance of a certain proposal submitted by Sandbox Industries, LLC.” (George Clarke affidavit dated October 1, 2007). 18. On or about March 30, 2007, CLARKE unilaterally effected an Informal Action

in Lieu of a Special Meeting of the Shareholders of SWEPORTS (“3/30/2007 Informal Action”), that, inter alia, asserted that O’Rourke had not been duly elected to the board of UMF, and therefore, his vote in favor of the Sandbox Proposal was improperly counted, such that the Sandbox Proposal had not been properly approved.

5

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 6 of 37 PageID #:6

19.

The 3/30/07 Informal Action further stated that OKM “has demanded payment”

for legal work concerning the Sandbox Proposals and other matters that were negligently performed, not performed in the best interest of [UMF] or its shareholders, and in breach of [OKM’s] fiduciary duties to [UMF] and its shareholders.” 20. The 3/30/2007 Informal Action stated that CLARKE has determined that “the

value of any invoices or demand for payment alleged or asserted by [OKM] is zero; [and] that no claims for services by [OKM] has or could be deemed to constitute any consideration for any of the company’s stock, and that [UMF]…shall not…exchange any stock in consideration of any such demand or claim by [OKM].” 21. The 3/30/07 Informal Action also purported to immediately remove Dore and

O’Rourke as members of the board of SWEPORTS. 22. The 3/30/2007 Informal Action terminated all agreements between SWEPORTS

and PF/OKM, and sought to nullify PF/OKM’s stock interests that were granted in lieu of payment for legal services. The 3/30/07 Informal Action also attempted to repudiate the rights of OKM/PF as shareholders of SWEPORTS. CLARKE alleged that OKM/PF’s actions were in breach of the law firm’s fiduciary duties, such that the firms would be responsible in part for damage to SWEPORTS based upon the firms’ acts and omissions, including damage that would result from the Sandbox Proposals. 23. On April 1, 2007, CLARKE sent correspondence directly to O’Rourke contesting

his position as a director of UMF, and requested that O’Rourke “place OKM’s insurance carrier on notice of this claim” that has “caused both corporations to incur and/or to be exposed to significant injury.”

6

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 7 of 37 PageID #:7

24.

On April 2, 2007, Perkaus, sent correspondence to CLARKE, which responded to

the 3/30/2007 Informal Action (“Perkaus 4/2/2007 Letter”) (Attached hereto as Exhibit A). In this letter, Perkaus asserted that he had been “duly appointed as Secretary of SWEPORTS by appointment and unanimous vote of the Board, including [CLARKE]”, and requested that CLARKE recognize “the legitimacy of that appointment.” Perkaus asserted that the 3/30/2007 Informal Action was “invalid and void,” and stated that “[m]ost disconcerting is your disingenuous reliance upon Delaware General Corporate Law in your desperate attempt to remove Messrs. Dore and O’Rourke from the board.” The Perkaus letter ended with the

warning that “[a]ny attempts by you to enforce the provisions contained therein will be met with appropriate corporate and legal actions.” 25. On April 2, 2007, Dore sent an email to CLARKE (“Dore 4/2/2007 Email”)

(attached hereto as Exhibit B), confirming their telephone call and advising that he [Dore] has been “unable to connect with [his] attorney,….about the proposed agreement you [CLARKE] gave me.” Dore alleged that CLARKE and SWEPORTS had “stiffed” him on his pay, and asked CLARKE to discuss severance and back pay. 26. The same day, CLARKE sent an email in response to Dore’s 4/2/2007 email,

disputing Dore’s salary, stating that “the Sweports Board of Directors cannot increase the salary of a UMF employee,” and that “the increase was never proposed, voted upon, nor approved by the UMF board.” CLARKE advised Dore that his pay would be reduced from $100,000 to $50,000. 27. In response, on April 3, 2007, Dore sent correspondence to CLARKE that stated: “I would prefer that you leave me out of the fight between you and Mike [O’Rourke]. Naming me in a lawsuit does not improve your case. It will merely 7

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 8 of 37 PageID #:8

drive up the costs for both of us. You can always name me later, if you think it is necessary.” 28. On April 7, 2007, CLARKE sent correspondence to Moody asserting that “what

was done and attempted was nothing short of a well orchestrated scheme to misappropriate the assets of SWEPORTS and UMF Corporation”, sought to “discuss a possible resolution of the current situation”, and advised that he had ….” no interest in unnecessary litigation.” 29. On April 26, 2007, CLARKE received correspondence from Henry Proesel (a

purported shareholder of SWEPORTS) which stated, inter alia, that “[i]t appears I have purchased a lawsuit rather than an investment.” 30. On June 23, 2007, CLARKE, as CEO and Chairman of the Board of

SWEPORTS, Ltd., unilaterally signed an additional Informal Action in Lieu of a Special Meeting of the Shareholders of SWEPORTS (“6/23/2007 Informal Action”), which, in furtherance of his earlier action, purported to rescind all of the stock purchase agreements and promissory notes between SWEPORTS, UMF, OKM, PF, O’Rourke, Moody, and Chennelle, but which purportedly allowed SWEPORTS and CLARKE to retain all invested funds. 31. The 6/23/2007 Informal Action resolved that all of the agreements and actions

entered into from November 2006 to April 2007, between Sandbox, UMF, SWEPORTS, CLARKE, OKM, PF, O'Rourke, Moody, Perkaus, Dore, Chennelle (and others). Further,

CLARKE alleged that these parties were part of one integrated and indivisible transaction and scheme committed and furthered by Sandbox, OKM, PF, O’Rourke, Moody, Perkaus, Dore, Chennelle (and others) to gain control of SWEPORTS/UMF. 32. The various Underlying Lawsuits were filed soon thereafter by Dore, OKM, PF

and others. These suits allege, inter alia, that the actions initiated and pursued by CLARKE 8

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 9 of 37 PageID #:9

were unjustified, malicious, undertaken for his own gain as well as in furtherance of his scheme to interfere and avoid the various contracts that he had previously entered into. The UMF Policy, the SWEPORTS Policy and Tender of Claims 33. WF issued a Business and Management Indemnity Policy to UMF, bearing policy

number BMI20031914, with a policy period of May 23, 2006 to May 23, 2007 (“UMF Policy”) (Attached hereto as Exhibit C). 34. On April 11, 2007, during the UMF Policy Period, CLARKE tendered to WF the

Perkaus 4/2/2007 Letter and the Dore 4/2/2007 Email. WF agreed to defend these actions, pursuant to various reservations. 35. On May 4, 2007, SWEPORTS submitted an insurance application (“Sweports

Application”) (attached hereto as Exhibit D) to WF. Based upon the representations in the Sweports Application, WF issued a Business and Management Indemnity Policy to SWEPORTS bearing policy number BMI20043288, with a Policy Period of May 22, 2007 to May 22, 2008 (attached hereto as Exhibit E). The Sweports Application advised that it did not maintain any current insurance. The Sweports Application did not indicate that UMF was a subsidiary of SWEPORTS, nor did it advise of any of the above disputes with OKM, PF, Dore or any others. The Sweports Application did not advise that any of these disputes had been tendered under the UMF policy. The Underlying Lawsuits 36. On June 7, 2007, the lawsuit, O’Rourke Katten & Moody, an Illinois Partnership

v. SWEPORTS, Ltd. and George CLARKE (Court No. 07 CH 15081) was filed in the Chancery Division of the Circuit Court of Cook County, Illinois (“OKM Lawsuit”). CLARKE was named as a defendant in the lawsuit, solely in his capacity as director or officer of SWEPORTS. UMF 9

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 10 of 37 PageID #:10

was not named in the OKM Lawsuit. The OKM Lawsuit asserted counts for Declaratory Relief and Injunction against SWEPORTS and CLARKE (related to the OKM Shareholder Agreement and the 3/30/2007 Informal Action), alleged Breach of Contract against SWEPORTS regarding its failure to pay OKM’s invoices, alleged an action for accounting regarding the unpaid fees, and a cause of action for unjust enrichment. 37. On June 8, 2007, the lawsuit, Perkaus & Farley v. SWEPORTS, Ltd. and George

CLARKE (Court No. 07 CH 15165) was filed in the Chancery Division of the Circuit Court of Cook County, Illinois (“PF Lawsuit”). CLARKE was named as a defendant, solely in his capacity as a director or officer of SWEPORTS. UMF was not named in the PF Lawsuit. The

PF Lawsuit asserted counts for injunctive relief against SWEPORTS and CLARKE regarding the 3/30/2007 Informal Action, Declaratory Relief against SWEPORTS and CLARKE (with regard to the PF Shareholder Agreement), and Breach of Contract arising out of SWEPORTS’ failure to pay PF’s invoices for legal fees. 38. On October 26, 2007, the lawsuit, John A. Dore, Michael C. Moody and Michael

O’Rourke v. SWEPORTS, Ltd. and George CLARKE (Court No. 07 CH 12136) (“First Dore Lawsuit”) was filed in the Chancery Division of the Circuit Court of Cook County, Illinois. On November 26, 2007, a second Dore lawsuit was also filed which was consolidated with the First Dore Lawsuit on February 5, 2008 (the “Consolidated Dore Lawsuits”). On April 3, 2008, the Dore Plaintiffs filed a Consolidated Complaint against SWEPORTS and CLARKE. 39. On January 24, 2008, the lawsuit, SWEPORTS, Ltd. by Andrew Chennelle, Fred

Proesel, Thomas Murray, Michael Murray, Frank Gazzola v. UMF Corporation (Court No. 08 L 00863) (hereafter the “Derivative Lawsuit”), was filed in the Law Division of the Circuit Court of Cook County, Illinois. Plaintiffs in the Derivative Lawsuit, as purported shareholders of 10

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 11 of 37 PageID #:11

SWEPORTS, sought recovery in connection with two loans issued by SWEPORTS to UMF. On May 29, 2008, the Derivative Lawsuit was voluntarily dismissed and has not been re-filed. 40. The OKM Lawsuit, the PF Lawsuit, the Consolidated Dore Lawsuits and the

Derivative Lawsuit are sometimes collectively referred to herein as the “Underlying Lawsuits.” 41. In January 2010, a Third Amended Complaint was filed in the PF Lawsuit (“PF-

TAC”) which amended the PF Lawsuit to include UMF and LEISNER as additional defendants. The PF Lawsuit contained eight counts, including: Declaratory Relief, Breach of Contract, Tortious Interference with Contract, Civil Conspiracy, Civil Conspiracy to Commit Tax Fraud, Aiding and Abetting the Commission of Civil Conspiracy, Aiding and Abetting the Commission of Civil Conspiracy with regard to the tax fraud. Facts related to the Coverage Issues 42. CLARKE tendered Exhibits A and B to WF on or about April 11, 2007. WF

issued a coverage letter dated May 22, 2007 which advised that WF agreed to defend CLARKE with respect to the tendered letters, subject to various reservations. Based upon the request of CLARKE, WF agreed to the retention of CLARKE’S chosen counsel. 43. On May 4, 2007, CLARKE, on behalf of SWEPORTS submitted its insurance

application (“Sweports Application”) to WF. WF issued a Policy to SWEPORTS (Exhibit D) which incepted on May 22, 2007. The SWEPORTS Policy was issued based upon and in reliance on the facts and information provided by CLARKE on the Sweports Application. 44. 45. The UMF Policy expired on May 23, 2007. At various dates after each of the Underlying Lawsuits were filed, CLARKE

supplemented his original tender to WF by tendering the Underlying Lawsuits.

11

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 12 of 37 PageID #:12

46.

Upon tender of the Underlying Lawsuits, upon request, WF reviewed coverage

under both the UMF and SWEPORTS policies and issued coverage letters under each of the policies. 47. In August 2008, WF issued four separate coverage letters to SWEPORTS in

connection with the four then pending Underlying Lawsuits. The letters advised, inter alia, that there was no coverage under the SWEPORTS Policy for the OKM Lawsuit, the PF Lawsuit , the Consolidated Dore Lawsuit or the Derivative Lawsuit because: (1) the Underlying Lawsuits were Claims involving “Interrelated Wrongful Acts” that were the subject of Claims previously tendered under the UMF Policy; (2) these Underlying Lawsuits arose from wrongful acts previously alleged and known to CLARKE prior to the Continuity Date (May 22, 2007) of the SWEPORTS Policy, and CLARKE had reason to believe prior to the Continuity Date that these wrongful acts could reasonably be expected to give rise to the Underlying Lawsuits; and (3) CLARKE made misrepresentations/omissions in the SWEPORTS Application regarding SWEPORTS’ prior activities, divestments and acquisitions, and these Underlying Lawsuits arose out of and/or were connected to the misrepresentations made by CLARKE and were therefore, excluded from coverage. 48. On September 4, 2008, WF issued a letter to UMF regarding coverage under the

UMF Policy in connection with the four then pending Underlying Lawsuits (supplementing WF’S earlier May 22, 2007 letter). In the September 4, 2008 letter, WF advised UMF that the Underlying Lawsuits arose out of facts, circumstances and the disputes related to those involved in the Dore 4/2/2007 Email and the Perkaus 4/2/2007 Letter that had previously been tendered by CLARKE in April 2007. Specifically, the Underlying Lawsuits involved disputes that arose out of the 2006 Sandbox Proposals, and CLARKE’S subsequent acts and series of Informal Actions taken to rescind the various agreements. WF advised that because the initial tender and the 12

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 13 of 37 PageID #:13

Underlying Lawsuits involve the same facts and circumstances, they constituted “Interrelated Wrongful Acts” as defined by the Policy, and that these Interrelated Wrongful Acts constitute a single Claim made under the UMF Policy. 49. In the supplemental letter to UMF, subject to various reservations of rights, WF

agreed to defend UMF and CLARKE, based upon the allegations against him in his capacity as a UMF director and officer. In addition to CLARKE’S chosen counsel, WF appointed panel defense counsel to assist in the representation of UMF. 50. The supplemental letter also advised that the UMF Policy only provided coverage

for UMF and UMF’S Subsidiaries, and that SWEPORTS (the parent company of UMF) was not an “Insured” under the UMF Policy. Therefore, CLARKE, in his capacity as Director and Officer of SWEPORTS was not an “Insured” under the UMF Policy. WF also advised UMF that there was no indemnity coverage available under the UMF Policy for the damages sought in the Underlying Lawsuits, as the suits involved amounts owed under various written contracts/agreements which were specifically excluded from coverage. 51. In early 2009, WF was informed by panel defense counsel that pursuant to the

current pleadings it was clear that neither UMF nor CLARKE (or any other individual) in his capacity as a director or officer of UMF were named defendants in any of the then pending Underlying Lawsuits as amended. 52. On February 5, 2009, WF issued a letter to UMF to advise it had determined that

neither UMF nor CLARKE (or any other individual) in their capacity as a director or officer were currently named as defendants in any of the then pending Underlying Lawsuits, as amended, and therefore, WF was withdrawing from the defense of the Underlying Lawsuits.

13

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 14 of 37 PageID #:14

The letter reiterated that the UMF policy did not provide coverage for SWEPORTS or for CLARKE (or any other individual) in their capacity as a director or officer of SWEPORTS. 53. Certain defense fees were tendered by CLARKE’S chosen counsel as well as by

panel defense counsel. After review of the fees submitted, the amounts that were reasonable and in compliance with WF’S guidelines were funded. 54. Approximately eleven months later, on January 13, 2010, CLARKE’S counsel

tendered the PF-TAC. The PF-TAC added UMF, CLARKE (in his capacity as Director and Officer of UMF), and LEISNER as Defendants. 55. On April 14, 2010, WF issued a letter advising that in light of the PF-TAC, WF

would agree to defend UMF, CLARKE (in his capacity as director and officer of UMF), and LEISNER (in his capacity as director and officer of UMF) in the PF-TAC. 56. WF again advised that the UMF Policy did not provide coverage to SWEPORTS

or CLARKE (or LEISNER or any other individual) in his capacity as a director or officer of SWEPORTS. The April 14, 2010 letter again advised that there was no indemnity coverage for the damages sought against UMF and CLARKE (in his capacity as a UMF director and officer) in the Underlying Lawsuits, as they involved amounts owed to UMF shareholders under written contracts/agreements. POLICY TERMS AND CONDITIONS 57. WF issued a Business Management Indemnity Policy to UMF bearing policy

number BMI20031914 for the period May 23, 2006 to May 23, 2007. WF issued a Business Management Indemnity Policy to SWEPORTS bearing the policy number BMI20043288 for the period May 22, 2007 to May 22, 2008. The Policy language is identical for both policies. The

14

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 15 of 37 PageID #:15

Directors & Officers and Company Coverage Section of the Policy provides at Section A, in relevant part, as follows: A. INSURING CLAUSES 1. The Insurer shall pay the Loss of the Directors and Officers for which the Directors and Officers are not indemnified by the Company and which the Directors and Officers have become legally obligated to pay by reason of a Claim first made against the Directors and Officers during the Policy Period or, if elected, the Extended Period, and reported to the Insurer pursuant to subsection E1 herein, for any Wrongful Act taking place prior to the end of the Policy Period. The Insurer shall pay the Loss of the Company, for which the Company has indemnified the Directors and Officers and which the Directors and Officers have become legally obligated to pay by reason of a Claim first made against the Directors and Officers during the Policy Period or, if elected, the Extended Period, and reported to the Insurer pursuant to subsection E1 herein, for any Wrongful Act taking place prior to the end of the Policy Period. The Insurer shall pay the Loss of the Company which the Company becomes legally obligated to pay by reason of a Claim first made against the Company during the Policy Period or, if elected, the Extended Period, and reported to the Insurer pursuant to subsection E1 herein, for any Wrongful Act taking place prior to the end of the Policy Period. The General Terms and Conditions of the Policy provides at Section B, in

2.

3.

58.

relevant part, as follows: B. DEFINITIONS Whenever used in this Policy, the terms that appear below in boldface type shall have the meanings set forth in this Definitions subsection of the General Terms and Conditions. … * * * 1. Company means: a. b. the Parent Company; and any Subsidiary,

15

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 16 of 37 PageID #:16

and includes any such organization as a debtor-in-possession or the bankruptcy estate of such entity under United States bankruptcy law or an equivalent status under the law of any other jurisdiction. * * * Parent Company means the entity first named in Item A. of the Declarations. * Subsidiary means: a. * *

2.

3.

any entity of which more than 50% of the outstanding securities representing the present right to vote for the election of such entity’s directors or managers are owned by the Parent Company, directly or indirectly, if such entity: i. ii. was so owned on or prior to the inception date of this Policy; or becomes so owned after the inception date of this Policy; and

b.

any joint venture entity in which the Parent Company, or an entity described in a. above, has an exact fifty percent (50%) ownership of the interests of such joint venture entity and where, pursuant to a written joint venture agreement, the Parent Company or entity described in a. above solely controls the management and operations of such joint venture entity. * * *

59.

The General Terms and Conditions of the Policy provides at Section D, in

relevant part, as follows: D. WARRANTY It is warranted that the particulars and statements contained in the Application are the basis of this Policy and are to be considered incorporated into and constituting a part of this Policy and each Coverage Section. By acceptance of this Policy, the Insureds agree that: 1. the statements in the Application are their representations, that such representations shall be deemed material to the acceptance of the risk or the hazard assumed by the Insurer under this Policy, and that this Policy and each Coverage Section are issued in reliance upon the truth of such representations; and 16

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 17 of 37 PageID #:17

2.

in the event the Application, including materials submitted or required to be submitted therewith, contains any misrepresentation or omission made with the intent to deceive, or contains any misrepresentation or omission which materially affects either the acceptance of the risk or the hazard assumed by the Insurer under this Policy, this Policy, including each and all Coverage Sections, shall be void ab initio with respect to any Insureds who had knowledge of such misrepresentation or omission. The Directors & Officers and Company Coverage Section of the Policy provides

60.

at Section B, in relevant part, as follows: B. DEFINITIONS 1. Claim means: a. a written demand against any Insured for monetary damages or nonmonetary or injunctive relief; a written demand by one or more of the securities holders of the Company upon the board of directors or the management board of the Company to bring a civil proceeding against any of the Directors and Officers on behalf of the Company; a civil proceeding against any Insured seeking monetary damages or nonmonetary or injunctive relief, commenced by the service of a complaint or similar pleading; * 2. * *

b.

c.

Continuity Date means the date set forth in Item C. of the Declarations relating to this Coverage Section. Costs, Charges and Expenses means: a. reasonable and necessary legal costs, charges, fees and expenses incurred by any of the Insureds in defending Claims and the premium for appeal, attachment or similar bonds arising out of covered judgments, but with no obligation to furnish such bonds and only for the amount of such judgment that is up to the applicable Limit of Liability; and reasonable and necessary legal costs, charges, fees and expenses incurred by any of the Insureds in investigation a written demand, by one or more of the securities holders of the Company upon the board of directors or the management board of the Company, to bring a civil proceeding against any of the Directors and Officers on behalf of the Company. 17

3.

b.

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 18 of 37 PageID #:18

4.

Costs, Charges and Expenses do not include salaries, wages, fees, overhead or benefit expense of or associated with officers or employees of the Company. Directors and Officers means any person who was, now is, or shall become: a. a duly elected or appointed director, officer, or similar executive of the Company, or any member of the management board of the Company; a person who was, is or shall become a full-time or part-time employee of the Company, … * * *

5.

b.

6. 7.

Insureds mean the Company and the Directors and Officers. Interrelated Wrongful Acts means all Wrongful Acts that have as a common nexus any fact, circumstance, situation, event, transaction, cause or series of facts, circumstances, situations, events, transactions or causes. Loss means damages, judgments, settlements, and Costs, Charges and Expenses incurred by Directors and Officers under Insuring Clauses 1. or 2. or the Company under Insuring Clause 3. Loss does not include: a. b. taxes, fines or penalties; matters uninsurable under the laws pursuant to which this Policy is construed; punitive or exemplary damages, or the multiple portion of any multiplied damage award, except: i. that with respect to a Claim falling within the coverage of this policy seeking both compensatory and punitive or exemplary damages, we will defend this Claim without liability, however, for such punitive or exemplary damages; or to the extent that such punitive or exemplary damages are insurable under the law pursuant to which this Policy shall be construed or the law of the jurisdiction in which such damages are awarded, which legal venue is most favorable for the Insureds in deciding the insurability of such damages; however in the state of Illinois an insurer may not reimburse an insured for punitive damages assessed as a result of the insured’s own misconduct;

8.

c.

ii.

18

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 19 of 37 PageID #:19

d.

* * * any amount for which the Insured is not financially liable or legally obligated to pay; * * * any amounts owed or paid to one or more securities holders of the Company under any written or express contract or agreement.

e.

9.

* * * Wrongful Act means any actual or alleged error, omission, misleading statement, misstatement, neglect, breach of duty or act allegedly committed or attempted by: a. any of the Directors and Officers, while acting in their capacity as such, or any matter claimed against any Director and Officer solely by reason of his or her serving in such capacity; any of the Directors and Officers, while acting in their capacity as a director, officer, trustee, governor, executive director or similar position of any Outside Entity where such service is with the knowledge or consent of the Company; and the Company, but only with respect to Insuring Clause 3 of this Coverage Section. * * *

b.

c.

61.

The Directors & Officers and Company Coverage Section of the Policy provides

at Section C, in relevant part, as follows:

C.

EXCLUSIONS 1. Exclusions Applicable to All Insuring Clauses Insurer shall not be liable for Loss under this Coverage Section on account of any Claim: * * * e. brought or maintained by, on behalf of, or at the direction of any Insured in any capacity, any Outside Entity or any person or entity that is an owner of or joint venture participant in any Subsidiary in any respect and whether or not collusive, unless such Claim: * * *

19

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 20 of 37 PageID #:20

i. is brought derivatively by a securities holder of the Parent Company and is instigated and continued totally independent of, and totally without the solicitation, assistance, active participation of, or intervention of any Insured; … * * * f. alleging, based upon, arising out of, attributable to, directly or indirectly resulting from, in consequence of, or in any way involving: i. any dishonest, deliberately fraudulent or criminal act of an Insured; provided, however, this exclusion f.i. shall not apply unless and until there is a final judgment against such Insured as to such conduct; ii. the gaining of any profit, remuneration or financial advantage to which any Directors and Officers were not legally entitled; provided, however, this exclusion f.ii. shall not apply unless and until there is a final judgment against such Insured as to such conduct.

When f.i. or ii. apply, the Insured shall reimburse the Insurer for any Costs, Charges or Expenses. g. for the return by any of the Directors and Officers of any remuneration paid to them without the previous approval of the appropriate governing body of the Company or Outside Entity, which payment without such previous approval shall be held to be in violation of law. * * * i. alleging, based upon, arising out of, attributable to, directly or indirectly resulting from, in consequence of, or in any way involving any Wrongful Act actually or allegedly committed subsequent to a Takeover; j. for a Wrongful Act actually or allegedly committed or attempted by any of the Directors and Officers in his or her capacity as a director, officer, trustee, manager, member of the board of managers or equivalent executive of a limited liability company or employee of, or independent contractor for or in any other capacity or position with any entity other than the Company; provided however, that this exclusion shall not apply to Loss resulting from any such Claim to the extent that: i. such Claim is based upon the service of any Directors and Officers as a director or officer, trustee, governor, executive director or similar position or any Outside Entity where such services is within the knowledge and consent of the Company; and ii. such Outside Entity is not permitted or required by law to provide indemnification to such Directors and Officers; and 20

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 21 of 37 PageID #:21

iii. such Loss is not covered by insurance provided by any of the Outside Entity’s insurer(s). * * *. k. alleging, based upon, arising out of, attributable to, directly or indirectly resulting from, in consequence of, or in any way involving: ii. any prior or pending litigation or administrative or regulatory proceeding, demand letter or formal or informal governmental investigation or inquiry filed or pending on or before the Continuity Date; or iii. any fact, circumstance, situation, transaction or event underlying or alleged in such litigation or administrative or regulatory proceeding, demand letter or formal or informal governmental investigation or inquiry; l. alleging, based upon, arising out of, attributable to, directly or indirectly resulting from, in consequence of, or in any way involving, any Wrongful Act, fact, circumstance or situation which any of the Insureds had knowledge of prior to the Continuity Date where such Insureds had reason to believe at the time that such known Wrongful Act could reasonably be expected to give rise to such Claim; * 2. * *

Exclusions Applicable Only to Insuring Clause A3 Insurer shall not be liable for Loss on account of any Claim: a. alleging, based upon, arising out of, attributable to, directly or indirectly resulting from, in consequence of, or in any way involving the actual or alleged breach of any contract or agreement, except and to the extent the Company would have been liable in the absence of such contract or agreement; or alleging, based upon, arising out of, attributable to, directly or indirectly resulting from, in consequence of, or in any way involving i. any actual or alleged infringement, misappropriation, or violation of copyright, patent, service marks, trademarks, trade secrets, title or other proprietary or licensing rights or intellectual property of any products, technology or services; or any goods or products manufactured, produced, possessed, packaged, sold, marketed, distributed, advertised or developed by the Company. 21

b.

ii.

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 22 of 37 PageID #:22

Provided, however, the exclusions in 2.a. and 2.b. above shall not apply to any such Claim brought or maintained, directly or indirectly, by one or more securities holders of the Company in their capacity as such. * 62. * *

The Directors & Officers and Company Coverage Section of the Policy provides

at Section D, in relevant part, as follows: D. LIMIT OF LIABILITY AND RETENTIONS * * * All Claims arising out of the same Wrongful Act and all Interrelated Wrongful Acts shall be deemed to constitute a single Claim and shall be deemed to have been made at the earliest of the following times, regardless of whether such date is before or during the Policy Period: a. the time at which the earliest Claim involving the same Wrongful Act or Interrelated Wrongful Act is first made; ... * E. NOTIFICATION 1. The Insureds shall, as a condition precedent to their rights to payment under this Coverage Section only, give Insurer written notice of any Claim as soon as practicable, but in no event later than sixty (60) days after the end of the Policy Period…. If, during the Policy Period… any of the Insureds first becomes aware of a specific Wrongful Act which may reasonably give rise to a future Claim covered under this Policy, and if the Insureds, during the Policy Period… give written notice to Insurer as soon as practicable…then any Claim made subsequently arising out of such Wrongful Act shall be deemed for the purposes of this Coverage Section to have been made at the time such notice was received by the Insurer…. [End of Policy Terms and Conditions] THE SWEPORTS APPLICATION 63. On May 4, 2007, CLARKE, in his capacity as CEO of SWEPORTS, completed * *

3.

2.

the Sweports Application (attached as Exhibit E), which reads in pertinent part as follows: 22

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 23 of 37 PageID #:23

I.

General Information * * * 7. Has the Company in the past 18 months been involved with any actual, negotiated or attempted merger, acquisition or divestment? If yes, please provide details on a separate page. * Financial Information * *

√ Yes

__ No

II.

* * * 5. Does the Company anticipate in the next 12 __ Yes months or has the Company transacted in the last 24 months any restructuring or legal or financial reorganization or filing for bankruptcy? If yes, please provide details on a separate page. * III. Prior Insurance Information Describe any current insurance maintained… (The Insured indicated No prior insurance) * *

√ No

Has any insurer made any payments, taken notice of claim or potential claim or non-renewed any management liability or similar insurance any time in the last 24 months? If yes, provide details on a separate page. __Yes √ No IV. Prior Activities Information a. Within the last three years, has any __ Yes person or entity proposed for this insurance been the subject of or involved in any litigation, administrative proceeding, demand letter, or formal or informal governmental investigation or inquiry including any investigation by the Department of Labor or the Equal Employment Opportunity Commission. If yes, please provide details on a separate page. * V. Other Information 1) The undersigned declares that to the best of his/her knowledge the statements herein are true. Signing of the Application does not bind the 23 * * √ No

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 24 of 37 PageID #:24

undersigned to complete the insurance, but it is agreed that this Application shall be the basis of the contract should a Policy be issued, and this application will be attached to and become a part of such Policy, if issued… 2) It is warranted that the particulars and statements contained in the Application for the proposed Policy and any materials submitted herewith…, are the basis for the proposed Policy and are to be considered as incorporated into and constituting a part of the proposed Policy. 3) It is agreed that in the event there is any material change in the answers to the questions contained herein prior to the effective date of the Policy, the applicant will notify Insurer and, at the sole discretion of Insurer, any outstanding quotations may be modified or withdrawn. 4) It is agreed that in the event there is any misstatement or untruth in the answers to the questions contained herein, Insurer has the right to exclude from coverage any claim based upon, arising out of or in connection with such misstatement or untruth. 64. CLARKE was a central party in the various ongoing disputes listed above,

however, the Sweports Application signed on May 4, 2007 does not advise of any of these disputes or demand letters. In addition, the Sweports Application does not advise of the

existence of the UMF Policy, does not indicate that UMF was in any way related to SWEPORTS, and does not advise in any way of the matters previously tendered under the UMF Policy. REQUESTS FOR DECLARATORY JUDGMENT SPECIFIC TO SWEPORTS COUNT I No Coverage for any of the Defendants under the SWEPORTS Policy as the demand letters and subsequent Underlying Lawsuits are Claims Made Prior to the Inception of the SWEPORTS Policy 65. WF incorporates and re-alleges, as though fully set forth herein, Paragraphs 1

through 64 above, as if fully set forth under Count I.

24

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 25 of 37 PageID #:25

66.

Pursuant to Section A.1. of the SWEPORTS policy, coverage is only available for

Claims made and reported during the Policy Period. 67. Pursuant to Section D.3. of the SWEPORTS Policy, all Claims arising out of the

same “Wrongful Act” and all “Interrelated Wrongful Acts” shall be deemed to constitute a single Claim first made at the time the earliest Claim involving the same “Wrongful Act” or “Interrelated Wrongful Acts” is first made and reported. 68. The Wrongful Acts alleged in the Underlying Lawsuits tendered under the

SWEPORTS policy involve the Underlying Plaintiffs’ purported scheme to control SWEPORTS/UMF and CLARKE’S efforts to avoid the agreements entered into with these Plaintiffs. These acts constitute “Interrelated Wrongful Acts” that were first tendered to WF under the UMF policy on April 11, 2007. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that there is no defense or indemnity owed for SWEPORTS, and CLARKE and/or LEISNER in their capacity as directors or officers of SWEPORTS, for the Underlying Lawsuits as they constitute Claims first made and reported prior to the inception of the SWEPORTS policy. COUNT II No Coverage Under the SWEPORTS Policy as the Claims were Tendered Under the UMF Policy Prior to the SWEPORTS Policy Period Inception Date. 69. WF incorporates and re-alleges, as though fully set forth herein, Paragraphs 1

through 68 above, as if fully set forth under Count II. 70. Pursuant to the Exclusions in Section C.1.b., the SWEPORTS policy does not

provide coverage for any Claim alleging or arising out of a “Wrongful Act,” when such acts

25

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 26 of 37 PageID #:26

constitute “Interrelated Wrongful Acts” that had been previously tendered under a different/prior policy. 71. The alleged “Wrongful Acts” contained in the Underlying Lawsuits have as a

common nexus various facts, circumstances, events, transactions or series of facts and circumstance related to the alleged scheme to take over control of SWEPORTS/UMF and CLARKE’S efforts to thwart these efforts and repudiate the various agreements with these parties, and therefore, constitute “Interrelated Wrongful Acts” under the Policy. Notice was first tendered to WF under the UMF policy on April 11, 2007. 72. Accordingly, the Underlying Lawsuits are all deemed to be Claims first made on

April 11, 2007, and previously tendered under the UMF policy. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that there is no defense or indemnity coverage for SWEPORTS, CLARKE or LEISNER under Section C.1.b of the SWEPORTS policy, because the Underlying Lawsuits involve Interrelated Wrongful Acts that relate to Claims previously tendered under another policy. COUNT III No Coverage For any Defendant Under the SWEPORTS Policy as these disputes and the resultant demand letters were pending before the Continuity Date 73. WF incorporates and re-alleges, as though fully set forth herein, Paragraphs 1

through 72 above, as if fully set forth under Count III. 74. Pursuant to Exclusion C.1.k., the SWEPORTS policy does not provide coverage

for any Claim in any way involving “any prior…demand letter…pending” before the Continuity

26

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 27 of 37 PageID #:27

Date or in any way involving “any fact, circumstance, situation, transaction or event underlying or alleged in such… demand letter.” 75. Prior the May 22, 2007 Continuity Date of the SWEPORTS policy, CLARKE had

already received demand letters, specifically, the Perkaus 4/2/2007 Letter and Dore 4/2/22007 Email. Therefore, these demand letters were pending prior to the Continuity Date, and therefore are excluded from coverage pursuant to Exclusion C.1.k. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that there is no defense or indemnity coverage for SWEPORTS, CLARKE or LEISNER because these demand letters were pending before SWEPORTS’ Continuity Date and therefore, Exclusion C.1.l. precludes coverage. COUNT IV No Coverage For Any Defendant Under the SWEPORTS Policy as the Defendants had knowledge of Facts and Allegations of Wrongful Acts that Could Reasonably Be Expected to Give Rise to the Underlying Lawsuits 76. WF incorporates and re-alleges, as though fully set forth herein, Paragraphs 1

through 7 above, as if fully set forth under Count IV. 77. Prior the May 22, 2007 inception date of the SWEPORTS policy, CLARKE had

knowledge of all of the facts and allegations contained in Paragraphs 13 – 26 of this Complaint. Specifically, CLARKE was aware of the alleged scheme to take over control of SWEPORTS/UMF, his efforts and acts to repudiate the various agreements, as well as the other parties’ threats to initiate legal action to pursue their alleged rights. 78. Accordingly, Defendants had knowledge of facts, circumstances and situations

that could reasonably be expected to give rise to a Claim prior to the inception of the

27

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 28 of 37 PageID #:28

SWEPORTS policy on May 22, 2007.

Therefore, pursuant to Exclusion C.1.l. of the

SWEPORTS policy, the Underlying Lawsuits are excluded from coverage. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that there is no defense or indemnity coverage for SWEPORTS, CLARKE or LEISNER for the Underlying Lawsuits, because the Defendants had knowledge of facts, circumstances or situations prior to the Continuity Date (5/22/2007) that could reasonably be expected to give rise to a Claim, and therefore, Exclusion C.1.l. precludes coverage. COUNT V No Coverage For any Defendant Under the SWEPORTS Policy Due to Material Misrepresentations or Omissions in the Policy Application 79. WF incorporates and re-alleges, as though fully set forth herein, Paragraphs 1

through 75 above, as if fully set forth under Count V. 80. On May 4, 2007, CLARKE signed the Sweports Application in his capacity as

CEO of Sweports. 81. In the Sweports Application, inter alia, Clarke was asked if any person or entity

proposed for this insurance had been “the subject of or involved in any litigation, administrative proceeding, demand letter, or formal or informal governmental investigation…” to which CLARKE responded “No”. 82. In connection with the Sweports Application, CLARKE failed to advise WF of

his attempts to divest various individuals and entities, including all of the Claimants in the Underlying Lawsuit of their shareholder interests in SWEPORTS. 83. In connection with the Sweports Application, CLARKE failed to advise WF of

the significant disputes and prior demand letters he had received including but not limited to the

28

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 29 of 37 PageID #:29

Perkaus 4/2/2007 Letter (Exhibit C), the Dore 4/2/2007 Email (Exhibit D), correspondence from shareholder Henry Proesel, or the April Informal Action(s) and significant disputes (as well as threatened litigation) resulting there from. 84. The information that was either misrepresented and/or omitted by CLARKE was

material to WF as it materially impacted the risk and hazard assumed by WF when it agreed to issue the SWEPORTS Policy. 85. Section V.4. of the Sweports Application states that “in the event there is any

misstatement or untruth in the answers to the questions contained herein, Insurer has the right to exclude from coverage any claim based upon, arising out of or in connection with such misstatement or untruth.” WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that there is no defense or indemnity coverage for SWEPORTS, CLARKE or LEISNER under the SWEPORTS policy for the Underlying Lawsuits, as CLARKE made material misrepresentations or omissions in the Sweports Application which precludes coverage. REQUESTS FOR DECLARATORY JUDGMENT SPECIFIC TO UMF POLICY COUNT VI No Coverage for any Claims made against SWEPORTS or CLARKE (as SWEPORTS D&O) under the UMF Policy. 86. WF incorporates and re-alleges, as though fully set forth herein, Paragraphs 1

through 85 above, as if fully set forth under Count VI. 87. Pursuant to Section A.1., the UMF policy only provides coverage for the

Company, defined as the Parent Company and any Subsidiary, and the Directors and Officers of the Company. Item A. of UMF’S Declarations Page identifies UMF as the Parent Company.

29

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 30 of 37 PageID #:30

88.

SWEPORTS is the parent company of UMF, and therefore, no coverage is

available for SWEPORTS under the UMF policy. 89. Pursuant to Exclusion C.1.j., the UMF policy does not provide coverage for any

Claims arising out of “Wrongful Acts” committed by any of its directors and officers, in their capacity as directors, officers, or board members of any other entity other than UMF. Therefore, CLARKE in his capacity as a director and officer of SWEPORTS, or any other individual acting in his or her capacity as a director and/or officer of SWEPORTS, are not covered under the UMF policy. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that there is no coverage for SWEPORTS or CLARKE as a director and officer of SWEPORTS or any other individual acting in his or her capacity as a director and/or officer of SWEPORTS under the UMF Policy. COUNT VII No Coverage for any of the Defendants under the UMF Policy to the extent that they were not named as Defendants or not named in the capacity as a Director or Officer of UMF. 90. WF incorporates and re-alleges, as though fully set forth herein, Paragraphs 1

through 89 above, as if fully set forth under Count VII. 91. UMF, CLARKE as a Director and Officer of UMF and LEISNER as a Director

and Officer of UMF have never been named as defendants in the OKM Lawsuit. 92. UMF, CLARKE as a Director and Officer of UMF and LEISNER as a Director

and Officer of UMF have never been named as defendants in the Consolidated Dore Lawsuits. 93. UMF, CLARKE as a Director and Officer of UMF and LEISNER as a Director

and Officer of UMF were not named as defendants in the PF Lawsuit until January 13, 2010.

30

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 31 of 37 PageID #:31

94. 95.

On April 21, 2010, LEISNER was dismissed as a defendant from the PF Lawsuit. UMF was named in the Derivative Lawsuit, for which a defense was provided.

However, that case was dismissed on May 29, 2008 and has not been re-filed. WHEREFORE, WF respectfully requests that this Honorable Court find and enter judgment, declaring that WF owes no coverage to UMF and CLARKE and LEISNER under the UMF Policy to the extend UMF, CLARKE and LEISNER are not named as Defendants in any of the Underlying Lawsuits or are not named in their capacity as a Director or Officer of UMF. REQUESTS FOR DECLARATORY JUDGMENT APPLICABLE TO BOTH POLICIES COUNT VIII No Coverage for any Claims made against any of the Defendants based upon the Insured vs. Insured Exclusion 96. WF incorporates and re-alleges, as though fully set forth herein, Paragraphs 1

through 95 above, as if fully set forth under Count VIII. 97. Pursuant to Exclusion C.1.e. of the UMF and SWEPORTS policies, the policies

do not provide coverage for Claims brought, or maintained by, on behalf of, in the right of, or at the direction of any Insured in any capacity. 98. UMF, CLARKE and LEISNER allege that they are “Insureds” under the policies.

102. In the Underlying Lawsuits it is alleged that Dore is or was a SWEPORTS Board Member, that O’Rourke is or was a UMF Board Member, that Perkaus is or was SWEPORTS’ Corporate Secretary and that various of the other Underlying Plaintiffs are or were UMF/SWEPORTS Board Members or employees. 99. Therefore, to the extent that any of the Plaintiffs in the Underlying Lawsuits are

deemed to be current or former directors or officers of UMF/SWEPORTS, there is no coverage

31

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 32 of 37 PageID #:32

for the Defendants under either the UMF or SWEPORTS policies based upon the Insured v. Insured Exclusion. WHEREFORE, WF respectfully requests this Honorable Court to find and enter judgment, declaring that to the extent that any of the Plaintiffs in the Underlying Lawsuits are deemed to be current or former directors or officers of UMF and/or SWEPORTS, there is no coverage for the Defendants under either the UMF or SWEPORTS Policies based upon the Insured v. Insured Exclusion. COUNT IX No Coverage for any Claims made against any of the Defendants based upon the Fraud and Personal Gain Exclusion 100. WF incorporates and re-alleges, as though fully set forth herein, Paragraphs 1

through 99 above, as if fully set forth under Count IX. 101. Pursuant to Exclusion C.1.f.i. of the SWEPORTS and UMF policies, WF does not

provide coverage for any Claim based upon or any way involving any dishonest or deliberately fraudulent acts of an Insured. 102. Pursuant to Exclusion C.1.f.ii. of the policies, WF does not provide coverage for

any Claim based upon or any way involving the gaining of any profit or financial advantage to which a director or officer is not legally entitled. 103. The Underlying Lawsuits assert that CLARKE dishonestly entered into

agreements with the underlying Plaintiffs which he intended to breach from the outset, including the OKM Stock Purchase Agreement, the PF Stock Purchase Agreement, the Individual Shareholder Agreements, the Retainer Agreements and various promissory notes. Underlying Plaintiffs allege that CLARKE committed these acts for his own personal gain. The

32

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 33 of 37 PageID #:33

104.

Accordingly, pursuant to Exclusions C.1.f.i. and C.1.f.ii., the UMF Policy and

SWEPORTS policies would not provide coverage for Claims based upon or in any way involving a dishonest or fraudulent act by CLARKE, or CLARKE’S gain of any profit or financial advantage to which he was not entitled. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that, pursuant to Exclusions C.1.f.i. and C.1.f.ii., there is no coverage for Claims based upon or in any way involving a dishonest or fraudulent act by CLARKE, or CLARKE’S gain of any profit or financial advantage to which he was not entitled. COUNT X No Coverage for any Claims made against any of the Defendants based upon the Intellectual Property Exclusion 105. WF incorporates and re-alleges, as though fully set forth herein, Paragraphs 1

through 104 above, as if fully set forth under Count X. 106. Pursuant to Exclusion C.2.b., the UMF and SWEPORTS policies do not provide

coverage for any Claim based upon, arising out of or in any way involving the intellectual property of any products, technologies or services. 107. The Underlying Lawsuits assert that the certain of the Plaintiffs were granted

intellectual property in exchange for investment funds provided to SWEPORTS/UMF pursuant to certain agreements. 108. Pursuant to the Exclusions in Section C.2.b., the UMF and SWEPORTS policies

do not provide coverage for any Claims based upon, arising out of, or in any way involving intellectual property of any products, technologies or services.

33

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 34 of 37 PageID #:34

WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that, pursuant to the Exclusions in Section C.2.b. there is no coverage for Claims based upon, arising out of, or in any way involving intellectual property of any products, technologies or services. COUNT XI No Coverage for any Claims made against any of the Defendants based upon the Contract Exclusion 109. WF incorporates and re-alleges, as though fully set forth herein, Paragraphs 1

through 108 above, as if fully set forth under Count XI. 110. Pursuant to Exclusion C.2.a., the UMF and SWEPORTS policies do not provide

coverage for any Claim based upon, arising out of or in any way involving the breach of any contract or agreement, except to the extent that SWEPORTS or UMF would have otherwise been liable in the absence of such contract or agreement. 111. The Underlying Lawsuits arise out of CLARKE’S repudiation/breach of

numerous agreements, including the OKM Stock Purchase Agreement, the PF Stock Purchase Agreement, the Individual Shareholder Agreements, the Intellectual Property Agreement, the Retainer Agreements and various promissory notes. 112. Pursuant to Exclusion C.2.a., the policies do not provide coverage for Claims

based upon, arising out of, or in any way involving the breach of any contract or agreement entered into by SWEPORTS or UMF. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that, pursuant to Exclusion C.2.a., there is no coverage for Claims based upon, arising

34

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 35 of 37 PageID #:35

out of, or in any way involving the breach of any contract or agreement entered into by SWEPORTS or UMF. COUNT XII No Coverage for the Indemnity of any Claims made against the Defendants for amounts owed to Securities Holders of UMF and/or SWEPORTS. 113. WF incorporates and re-alleges, as though fully set forth herein, Paragraphs 1

through 112 above, as if fully set forth under Count XII. 114. Pursuant to Section B.7.g, the UMF and SWEPORTS policies do not provide

coverage for “any amount owed or paid to one or more securities holders of the Company under any written or express contract or agreement.” 115. The Underlying Lawsuits are filed by certain alleged shareholders of SWEPORTS

and/or UMF, and seek amounts owed under numerous agreements, including the OKM Stock Purchase Agreement, the PF Stock Purchase Agreement, the Individual Shareholder Agreements, the Intellectual Property Agreement, the Retainer Agreements and various promissory notes. 116. Pursuant to Section B.7., the policies do not provide coverage for any damages

sought by the various shareholders who filed the Underlying Lawsuits for amounts owed to them under any contract or agreement. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that, pursuant to Section B.7., there is no coverage for damages sought by the various alleged shareholders who filed the Underlying Lawsuits for amounts owed to them under any contract or agreement. Jury Demand 117. Plaintiff demands trial by jury. 35

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 36 of 37 PageID #:36

PRAYER FOR RELIEF WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring as follows: 1. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that there is no defense or indemnity owed for SWEPORTS, and CLARKE and/or LEISNER in their capacity as directors or officers of SWEPORTS, for the Underlying Lawsuits as they constitute Claims first made and reported prior to the inception of the SWEPORTS policy. 2. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that there is no defense or indemnity coverage for SWEPORTS, CLARKE or LEISNER under Section C.1.b of the SWEPORTS policy, because the Underlying Lawsuits involve Interrelated Wrongful Acts that relate to Claims previously tendered under another policy. 3. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that there is no defense or indemnity coverage for SWEPORTS, CLARKE or LEISNER because these demand letters were pending before SWEPORTS’ Continuity Date and therefore, Exclusion C.1.l. precludes coverage. 4. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that there is no defense or indemnity coverage for SWEPORTS, CLARKE or LEISNER for the Underlying Lawsuits, because the Defendants had knowledge of facts, circumstances or situations prior to the Continuity Date (5/22/2007) that could reasonably be expected to give rise to a Claim, and therefore, Exclusion C.1.l. precludes coverage. 5. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that there is no defense or indemnity coverage for SWEPORTS, CLARKE or LEISNER under the SWEPORTS policy for the Underlying Lawsuits, as CLARKE made material misrepresentations or omissions in the Sweports Application which precludes coverage. 6. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that there is no coverage for SWEPORTS or CLARKE as a director and officer of SWEPORTS or any other individual acting in his or her capacity as a director and/or officer of SWEPORTS under the UMF Policy. 7. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that, pursuant to Section B.7., there is no coverage for damages sought by the various alleged shareholders who filed the Underlying Lawsuits for amounts owed to them under any contract or agreement. 8. WHEREFORE, WF respectfully requests this Honorable Court to find and enter judgment, declaring that to the extent that any of the Plaintiffs in the Underlying Lawsuits are 36

Case: 1:11-cv-03473 Document #: 1 Filed: 05/24/11 Page 37 of 37 PageID #:37

deemed to be current or former directors or officers of UMF and/or SWEPORTS, there is no coverage for the Defendants under either the UMF or SWEPORTS Policies based upon the Insured v. Insured Exclusion. 9. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that, pursuant to Exclusions C.1.f.i. and C.1.f.ii., there is no coverage for Claims based upon or in any way involving a dishonest or fraudulent act by CLARKE, or CLARKE’S gain of any profit or financial advantage to which he was not entitled. 10. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that, pursuant to the Exclusions in Section C.2.b. there is no coverage for Claims based upon, arising out of, or in any way involving intellectual property of any products, technologies or services. 11. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that, pursuant to Exclusion C.2.a., there is no coverage for Claims based upon, arising out of, or in any way involving the breach of any contract or agreement entered into by SWEPORTS or UMF. 12. WHEREFORE, WF respectfully requests this Honorable Court find and enter judgment, declaring that, pursuant to Section B.7., there is no coverage for damages sought by the various alleged shareholders who filed the Underlying Lawsuits for amounts owed to them under any contract or agreement.

Respectfully submitted, O’HAGAN SPENCER, LLC

By:

/s/Kevin M. O’Hagan Attorneys for Plaintiff

Kevin M. O’Hagan (ARDC No. 6211446) James W. Davidson (ARDC No. 6281542) O’Hagan Spencer LLC One E. Wacker Drive, Suite 3400 Chicago, IL 60602 PH: 312-422-6100 FX: 312-422-6110 kohagan@ohaganspencer.com jdavidson@ohaganspencer.com

37

Case: 1:11-cv-03473 Document #: 1-1 Filed: 05/24/11 Page 1 of 4 PageID #:38

Case: 1:11-cv-03473 Document #: 1-1 Filed: 05/24/11 Page 2 of 4 PageID #:39

Case: 1:11-cv-03473 Document #: 1-1 Filed: 05/24/11 Page 3 of 4 PageID #:40

Case: 1:11-cv-03473 Document #: 1-1 Filed: 05/24/11 Page 4 of 4 PageID #:41

Case: 1:11-cv-03473 Document #: 1-2 Filed: 05/24/11 Page 1 of 2 PageID #:42

Case: 1:11-cv-03473 Document #: 1-2 Filed: 05/24/11 Page 2 of 2 PageID #:43

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 1 of 24 PageID #:44

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 2 of 24 PageID #:45

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 3 of 24 PageID #:46

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 4 of 24 PageID #:47

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 5 of 24 PageID #:48

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 6 of 24 PageID #:49

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 7 of 24 PageID #:50

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 8 of 24 PageID #:51

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 9 of 24 PageID #:52

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 10 of 24 PageID #:53

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 11 of 24 PageID #:54

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 12 of 24 PageID #:55

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 13 of 24 PageID #:56

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 14 of 24 PageID #:57

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 15 of 24 PageID #:58

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 16 of 24 PageID #:59

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 17 of 24 PageID #:60

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 18 of 24 PageID #:61

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 19 of 24 PageID #:62

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 20 of 24 PageID #:63

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 21 of 24 PageID #:64

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 22 of 24 PageID #:65

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 23 of 24 PageID #:66

Case: 1:11-cv-03473 Document #: 1-3 Filed: 05/24/11 Page 24 of 24 PageID #:67

Case: 1:11-cv-03473 Document #: 1-4 Filed: 05/24/11 Page 1 of 6 PageID #:68

Case: 1:11-cv-03473 Document #: 1-4 Filed: 05/24/11 Page 2 of 6 PageID #:69

Case: 1:11-cv-03473 Document #: 1-4 Filed: 05/24/11 Page 3 of 6 PageID #:70

Case: 1:11-cv-03473 Document #: 1-4 Filed: 05/24/11 Page 4 of 6 PageID #:71

Case: 1:11-cv-03473 Document #: 1-4 Filed: 05/24/11 Page 5 of 6 PageID #:72

Case: 1:11-cv-03473 Document #: 1-4 Filed: 05/24/11 Page 6 of 6 PageID #:73

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 1 of 25 PageID #:74

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 2 of 25 PageID #:75

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 3 of 25 PageID #:76

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 4 of 25 PageID #:77

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 5 of 25 PageID #:78

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 6 of 25 PageID #:79

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 7 of 25 PageID #:80

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 8 of 25 PageID #:81

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 9 of 25 PageID #:82

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 10 of 25 PageID #:83

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 11 of 25 PageID #:84

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 12 of 25 PageID #:85

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 13 of 25 PageID #:86

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 14 of 25 PageID #:87

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 15 of 25 PageID #:88

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 16 of 25 PageID #:89

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 17 of 25 PageID #:90

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 18 of 25 PageID #:91

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 19 of 25 PageID #:92

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 20 of 25 PageID #:93

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 21 of 25 PageID #:94

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 22 of 25 PageID #:95

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 23 of 25 PageID #:96

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 24 of 25 PageID #:97

Case: 1:11-cv-03473 Document #: 1-5 Filed: 05/24/11 Page 25 of 25 PageID #:98