Exhibit,Appendix: MICROCHECK SYSTEMS INC (TEXAS CORPORATION) vs. ZIGROSSI & MURPHY L L C (TEXAS CORPORATION) (IND A

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                                MICROCHECK
. SOLUTIONS

October 9, 2007

Mr. Steve Adolph

Superintendent

Tempe Union High School District 213
500 W. Guadalupe Rd.

Tempe, AZ 85283-3599

RE: Tempe Union Meal Accountability System

Dear Mr. Adolph:

We have recently been made aware of the Tempe Union High School District’s
award of bid Solicitation No. 06-022 to MiChoice. With regard to this, we fee] the need
to make you aware of certain facts which may influence this decision.

In the "Scope of Work" page of the solicitation, it states that the Tempe "current
system is outdated and the manufacturer is no longer willing to maintain the
system." (meaning MicroCheck). This is an incorrect statement. I called and spoke to
the purchasing agent, Loralei Poll, Director of Purchasing the day that I received the
“Notice of Intent to Issue a Solicitation”. Ms. Poll said that someone from MicroCheck.
must have sent an e-mail stating that. [ was adamant that no one from MicroCheck ever
refused to provide service and support for their MicroCheck food service point of sale
system. To the contrary, MicroCheck is now and has always been willing to provide
support. She checked but couldn't find anything to back up that statement and apologized,
saying that it should have been stated better.

Tn the same paragraph, it also states the following; “The District intends to phase
in a new system, one school at a time and it will be imperative for the new system to be
able to import (export) the data daily from the current MicroCheck System’s database
and integrate it into the proposed system daily reports, thus allowing both systems to
run parallel.” Yt appears that the bid was written specifically as a sale source bid and

oes
9777 West Gulf Bank Suite C-S | Houston, TX 77040 | Toll Free; 200-647-4524 | Local: 713-856-9801 { Fax 713-856-5137

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EXHIBIT

1 opTempe Union High School District
October 9, 2007
Page -2-

the bid would have to go to the company that had the proprietary data format and source
code,

The requirement of phasing in one school at a time and importing and exporting
the data daily from the current MicroCheck Systems database and integrate it into the
proposed system daily reports, thus allowing both systems to run in parallel implies that
the only company that could legitimately accomplish this in the allotted time frame
would require the use of MicroCheck’s proprietary data format and source code.

Tempe Union Schoo! District has been valued customer of MicroCheck for over
15 years. Mike Smith, the past President of MicroCheck ‘has had a 15 plus years
telationship with your food service department during his tenure as an officer of
MieroCheck. In October of’ 2004, Mike Smith resigned as President of MicroCheck,

claiming early retirement.

We feel compelled io inform you that in November 2006, the 125", Judicial
District Court of Harris County Texas entered an order of Temporary Injunction against
Mike Smith, CMS Technology, Scott Murphy, and MiChoice Technology Systems, Inc.
from using MicroCheck Systems, Inc. source code or software illegally. This case is
currently set for trial this month for the purpose of obtaining a permanent injunction and
damages as are set out in our attached complaint.

In the court order, Mike Smith, Scott Murphy and MiChoice are “hereby
temporarily enjoined from using, either directly or indirectly, in any form or fashion, for
any purpose whatsoever, source code containing the lines of matching code identified by
Mr. Isaac. This injunction includes, but is not limited to, using such source code to
produce, develop, or maintain existing software or hardware products, to create, update or
otherwise develop new software or hardware products; and/or to promote, advertise, or
otherwise communicate to any third party regarding existing or new software or hardware
products.”

Mr. Isaac is the court appointed expert witness who has identified that as much as
90% of MicroCheck’s source code is contained in the software of MiChoice. The
MicroCheck software was developed by MicroCheck over a long period of time and is
the intellectual property of MicroCheck. No. use of this software has ever been
authorized to Mike Smith or MiChoice Technologies, Inc., and it has been admitted that
his agents took this software from the offices of MicroCheck Systems, Inc. illegally in

2004.

We would request thut Tempe Union High School District not participate in any
illegal activity to aid Mike Smith or MiChoice Technologies, Inc. in violating the Court’sTempe Union High School District
October 9, 2007
Page -3-

order or in using the MicroCheck software or source code ‘without the express written
authorization of MicroCheck.

MicroCheck stands ready, willing, and able to fulfill our bid as submitted to
Tempe Union High School District in Solicitation No. 06-022.

We are sorry that this matter has involved one of our customers, such as you, but
please know that we stand available to handle all your needs in the meal accountability

area, We look forward to hearing from you.

 

Ce:

Sandra E. Dowling, Ed. D, Superintendent - Maricopa County School

Diane Meulemans, Chief Finencial Officer - Tempe Union High School District
s/Loralei Poll, Director of Purchasing

Diane Palmer, Executive Assistant to Governing Board

Zita Johnson, Governing Board President

Mary Lou Taylor, Governing Board Vice President

Robin Arrendondo-Savage, Governing Board Member

Michelle Helm, Governing Board Member

Don Keuth, Goveming Board member

Mr. Chris DeMeo, Sheehy, Serpe & Ware, Attorneys~ \
CAUSE NUMBER 2004-59790
MICROCHECK SYSTEMS, INC. AND IN THE DISTRICT COURT OF
MICROCHECK SOLUTIONS, INC,
" Plaintiffs,

VS. HARRIS COUNTY, TEXAS
(1) ZIGROSSI & MURPHY, LLC,

Individually and d/b/a EDUCATED

SOLUTIONS;

(2) CHRIS ZIGROSSI,

(3) SCOTT MURPHY;

(4) MIKE SMITH Individually and d/o/a CMS
TECHNOLOGY a/k/a CMS
TECHNOLOGIES;

(5) MICHOICE TECHNOLOGY

" SYSTEMS, INC;

(6) JIM HAYDEN;

(7) ALEX CAMPBELL; AND

(8) JASON JABLECKI

OP OD OT CO PD COD 2 COP 7 OD LOD D9 COD WOR OD LOD 60 LOD COI CO? LOD COD

Defendants 125™ JUDICIAL DISTRICT

PLAINTIFF'S THIRD AMENDED PETITION AND

APPLICATION FOR INJUNCTIVE RELIEF
TO THE HONORABLE JUDGE OF SAID COURT:
COME NOW, MicroCheck Systems, Inc. and MicroCheck Solutions, Inc., Plaintiffs in

the above-entitled cause, and files this Third Amended Petition and Application for Injunctive
Relief complaining of Zigrossi & Murphy, L.L.C., Individually and d/b/a Educated Solutions,
Chris Zigrossi, Scott Murphy, Mike Smith Individually and d/b/a CMS Technology a/k/a CMS
Technologies, MiChoice Technology Systems, Inc., Jim Hayden, Alex Campbell, and Jason

Jablecki (sometimes collectively referred to as “Defendants”) and for cause of action would

show unto the Court the following:DISCOVERY CONTROL PLAN
1. Discovery should be conducted in this case under a Level 3 plan pursuant to

Texas Rule of Civil Procedure 190.4.
PARTIES

2. Plaintiff, MicroCheck Systems, Inc. is a Texas corporation with its principle place
of business located in Houston, Texas.

3. Plaintiff, MicroCheck Solutions, Inc. is a Texas corporation with its principle
place of business in Houston, Texas. MicroCheck Solutions, Inc. acquired all assets, claims, and
causes of action owned by MicroCheck Systems, Inc. on February 24, 2005. Plaintiffs
MicroCheck Solutions, Inc. and MicroCheck Systems, Inc. are hereinafter referred to singularly
and collectively as “MicroCheck.”

4. Defendant, Zigrossi & Murphy, L.L.C. d/b/a Educated Solutions (“Educated
Solutions”), is a Texas limited liability company with its principle place of business located in
Houston, Texas. Educated Solutions has been served with process and has appeared and
answered herein,

5. Defendant, Chris Zigrossi (“Zigrossi”), is an individual residing in the State of
Texas. Zigrossi has been served with process and has appeared and answered herein.

6. Defendant, Scott Murphy (“Murphy”), is an individual residing in the State of
Texas. Murphy has been served with process and has appeared and answered herein.

7. Defendant, Mike Smith Individually and d/b/a CMS Technology a/k/a CMS
Technologies, is an individual residing in the State of Texas. Defendant Mike Smith has been
served with process and has appeared and answered herein.

-2-8. Defendant, Jim Hayden, is an individual residing in the State of Texas. Service of
process may be perfected upon the Defendant by serving him at his business address located at
10440 Windfern, Houston, Texas 77064.

9. Defendant, Jason Jablecki, is an individual residing in the State of Texas. Service
of process may be perfected upon the Defendant by serving him at his business address located at

10440 Windfern, Houston, Texas 77064.
10. Defendant, Alex Campbell, is an individual residing in the State of Texas. Service

of process may be perfected upon the Defendant by serving him at his business address located at
10440 Windfern, Houston, Texas 77064.

11. Defendant, MiChoice Technology Systems, Inc. (“MiChoice”), is a Texas
corporation with its principle place of business located in Houston, Texas. Defendant MiChoice
has been served with process and has appeared and answered herein.

JURISDICTION

12. Venue and jurisdiction are proper in this Harris County District Court because
Plaintiff's damages exceed the jurisdictional limits of the Court and Harris County, Texas was
the county of Defendants’ residence and/or place of business at the time Plaintiff's causes of
action accrued. See TEX. Civ. PRAC. REM. CODE § 15.002 et.seg. Additionally, a substantial part

of the events or omissions giving rise to Plaintiffs causes of action against Defendants occurred

in Harris County, Texas. Jd

-3-FA BACKGRO'

13. MicroCheck is a local company that provides technology to the food service
industry. Most notably, MicroCheck is now in its third decade of helping school cafeterias serve
meals to children through sophisticated computer systems and support.

‘M4. Over those three decades, MicroCheck developed valuable proprietary
information including computer software, programming codes, hardware, customer lists, good
will, pricing information, client information, customer preferences, and market strategies, as well
as other tangible and intangible assets and capital of the business. Defendants gained access to
this proprietary information through their employment relationship with Microcheck.

15. Several of the defendants were employees of MicroCheck. In particular, Smith
was MicroCheck’s President and CEO, Zigrossi was MicroCheck’s COO, and Murphy was
MicroCheck’s computer programmer. At the outset of and throughout their employment,
defendants promised that they would not misappropriate or otherwise disclose or misuse this
proprietary information for any purpose other than for the benefit of the company. Moreover, in
these capacities, defendants had a duty to act in the best interests of MicroCheck and not to steal
or otherwise utilize these materials for their own personal gain or for any purpose that would
harm MicroCheck. Further, Smith and Zigrossi as officers of MicroCheck had additional,
fiduciary duties to the company. In blatant disregard of these promises and duties, defendants
conspired to destroy Microcheck.

16. At least as early as June 2004, defendants began their plot to start a rival company
with defendant Smith as its CEO. Even in the beginning, defendants knew what they were doing

was wrong, yet they continued with the specific intent to leave MicroCheck in financial ruin.

-4-17.

By August, defendants’ plot had taken shape and was ready for implementation.

The plot was in three phases:

18.

Phase 1: Zigrossi and Murphy form a new, interim company which would
provide sales/services to MicroCheck’s customers and which did not have any
direct ties with defendant Smith, who at the time the plot was being hatched, was
MicroCheck’s President and Chief Executive Officer.

Phase 2: The interim company acquires all of MicroCheck’s customer accounts
and assets under the pretext of a professional service agreement. Like a mole,
Smith signs the sham agreement as the CEO of MicroCheck. The interim
company then poaches what MicroCheck employees they want and fires the rest.
Having stolen all MicroCheck’s customers, assets and employees, defendants can
then either extort a majority interest in the company from Manning or take the
money and run. ,

Phase 3: Smith then forms a company which acquires from the interim company
by transfer, merger, or some other means, all of the assets and accounts that Smith

signed away in the professional services agreement.
By mid-August, Smith, Zigrossi, and Murphy, while still employed at

MicroCheck, were recruiting employees for the interim company and were mapping out the

implementation of their plan. These new employees were defendants Jason Jablecki, James

Lancaster and Alex Campbell, as well as Don Nunez, Sue Sacco, and Andy Souza With this

team, defendants hoped to steal up to 70% of MicroCheck’s customers and exploit at least two

new products developed on behalf of MicroCheck. Defendants knew they could pursue

legitimate options to make MicroCheck more profitable, but declined to do so in favor of starting

anew company with proprietary assets, customers and good will stolen from MicroCheck.

19,

By late September, defendants were making preparations to pull the trigger. They

started formal planning on how to split-up the pie once it was stolen from MicroCheck.

Defendants were also identifying specific monies and other assets to divert from MicroCheck.

“5Once again, defendants were aware of options that stopped short of taking all of MicroCheck’s
business, but proceeded to their personal “D-day” with MicroCheck.

20. | Meanwhile, defendant Smith had for months been siphoning thousands of dollars
from the company for his own personal benefit. He set up unauthorized profit sharing plans and
health plans, paid himself undocumented bonuses, and bought himself a Lincoln Town Car with

" company money. None of these expenditures and benefits were presented to, much less
approved by, MicroCheck’s board of directors.

21. At all times, MicroCheck’s ideas, concepts, proprietary information, assets,
customers, good will, computers, bank accounts, monies, and property, whether real or personal,
were to remain the sole property of MicroCheck. Defendants knew these materials belonged to
MicroCheck and had a duty to act in the best interests of MicroCheck and not to steal or
otherwise utilize these materials for their own personal gain or for any purpose that would harm
MicroCheck. Despite this knowledge and these duties, Defendants put their plan into action.

22. On October 3, 2004, Phase 1 began. On that date, Zigrossi turned in his letter of
resignation. As part of this resignation, Zigrossi tried to obtain a release of his non-competition
agreement with MicroCheck. This release never occurred. That same day, Zigrossi plotted with
other defendants via the MicroCheck company email on how best to steal the computer source
codes, use MicroCheck’s products for their new company, and exploit MicroCheck’s’ goodwill.
On October 4, Murphy resigned. Two days later, on October 6, Zigrossi and Murphy registered
the interim company, defendant Educated Solutions, with the Texas Secretary of State.

23.. Defendants then immediately proceeded to Phase 2. On October 6, 2004, Smith,

Zigrossi, and Murphy signed a Professional Services Agreement which purported to sign away

-6-MicroCheck’s business to Educated Solutions. Among other things, Smith tried to give
Educated Solutions:

. All of MicroCheck’s existing support, maintenance and upgrade agreements;

. MicroCheck’s customer support telephone number;

e All of MicroCheck’s software implementation, integration, installation, training,
education, customization, configuration, and extension accounts;

. $110,000.00 in cash; and

. All of MicroCheck’s software programs, tools, specifications, ideas, concepts,
know-how, processes, and techniques.

24. With the sham Professional Services Agreement in place, Educated Solutions
began contacting MicroCheck’s customers stating that it had taken over MicroCheck’s accounts
and would now be the company serving them. On or about October 11, while Smith was still
employed at MicroCheck as the CEO, he provided customer information to an outside agent to
begin a telemarketing campaign, the key component of which was to tout the new company’s
former relationship with MicroCheck. Smith and Educated Solutions then began trying to steal’
MicroCheck’s employees. As part of this process, Smith and Educated Solutions, through
Zigrossi and Murphy, told these employees that MicroCheck was going out of business.

25. By a lucky stroke of fate, on or about October 22, 2004, Manning and
MicroCheck’s accountant Les Mignerey went to MicroCheck’s offices to discuss the financial
situation of the company. On arrival, they discovered that defendants had stolen all of the
company’s assets including, but not limited to, cash, computers, furniture, a company car, client.
files, employee files, and customer lists. Defendants literally had files on the loading dock

waiting for a truck to come and cart them away. Manning and Mignerey also discovered thesham Professional Services Agreement by which Smith tried to dispossess MicroCheck of all
assets which could not physically be carried out of the building.

26. = This lawsuit ensued resulting in a temporary restraining order against Zigrossi,
Murphy and Educated Solutions, and ultimately a settlement whereby these defendants agreed,
among other things, to a permanent injunction refraining from competing with MicroCheck and
to return all stolen items. Immediately after agreeing to this settlement in open court, defendants
repudiated the agreement and reneged on their promises.

27. Smith was not a party to this agreement, because he had not yet answered the
lawsuit. Despite the pendency of this matter, Smith has implemented Phase 3. Although the
sham / Professional Services Agreement was void ab initio and immediately terminated by
MicroCheck, Smith, along with Murphy, as agents of defendant MiChoice continue to use
MicroCheck’s proprietary software, hardware, source codes, computer programs, customer lists,
goodwill and other assets, and continue to defame and disparage MicroCheck’s business. On
August 15, 2005, Smith formed MiChoice and registered the business name of CMS Technology
and CMS Technologies for himself. Smith then hired Murphy as a computer programmer at
MiChoice as well as Andy Souza, another former MicroCheck employee. Since that time,
defendants have continued to compete with MicroCheck unfairly, exploit its wrongly acquired
assets and defame its business status.

28. Defendants’ plot is now complete. In little more than a year, the elaborate scheme
went from being malicious musings on paper to a full-fledged Texas corporation whose primary

assets and business model were stolen from MicroCheck. To this day, defendants continue in

their tortious conduct all to the detriment of MicroCheck.

-8-COUNT I

APPLICATION FOR TEMPORARY INJUNCTION

29.  MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count I against Defendants.

30. | MicroCheck is the owner of certain property rights threatened with irreparable
injury by the conduct of the Defendants. In particular, MicroCheck has built a business over the
course of the last twenty (20) years, including proprietary and confidential information, assets,
property, real and personal, rights, monies deposited into banking institutions, customer lists,
good will, pricing information, client information, customer preferences, buyer contains, market
strategies, accounts, account information, accounts receivable, and office furniture and fixtures,
phone numbers, and trade secrets (hereinafter referred to as “MicroCheck’s Assets”). On
February 24, 2005, MicroCheck Solutions, Inc. acquired all these assets, along with all causes of
action against Defendants, owned by MicroCheck Systems, Inc.

31. Defendants obtained access to the MicroCheck Assets through their employment
and/or business dealings with MicroCheck and/or each other. Specifically, Defendants have
exercised and continue to exercise dominion and control over MicroCheck’s Assets without
justification. Such conduct has caused, and will continue to cause, losses to MicroCheck’s
business which amounts to irreparable injury and/or harm. Such conduct is not in furtherance of
any business relationship between MicroCheck and Defendants and is in direct contravention and
violation of the terms of Defendants’ respective employment agreements and Texas law.

32. Defendants’ conduct has and will cause injury and permanent loss of
MicroCheck’s Assets and proprietary information developed and amassed by Microcheck over a
long period of time. Specifically, Defendants have stolen and misappropriated MicroCheck’s

proprietary and confidential information, assets, property, real and personal, rights, monies
“9deposited into banking institutions, customer lists, good will, pricing information, client

information, customer preferences, buyer contains, market strategies, accounts, account

information, accounts receivable, and office furniture and fixtures, phone numbers, and trade

secrets as well as its knowledge of the industry and unique methods of doing business in the

industry. MicroCheck has no adequate remedy at law for the injuries described herein.

33.

For these reasons, MicroCheck requests that Defendants, their officers, agents,

representatives, subsidiaries, employees, successors, assigns, related companies, heirs, and all

those acting in concert with them, any of them and/or all of them be restrained from the

following, and, after trial, be permanently enjoined from:

a

Disseminating, mortgaging, hypothecating, assigning, transferring, pledging or
otherwise disclosing to any party, not associated with, employed, or represented
by, MicroCheck, any of MicroCheck's assets or information obtained by
Defendants or to which the Defendants have access;

Marketing, selling, and/or developing any software or product to be utilized in
any way, shape, or form, by any industry that is to be utilized or used in any way
that competes with MicroCheck and that was developed for, derived from, or in
any way based on MicroCheck’s Assets;

Receiving in any way, shape, or form, any monies, or anything of value from
MicroCheck's customers or former customers except to turn over such monies or
thing(s) of value to the MicroCheck;

Accepting any benefit, in any way, shape, or form, whether in the form of monies
or otherwise, by or based upon the use, dissemination, mortgage, hypothecation,
assignment, transfer, pledge, or disclosure of any of MicroCheck’s Assets, as
described above;

Conferring any benefit on/to any third party by or based upon the use,
dissemination, mortgage, hypothecation, transfer, assignment, pledge or
disclosure of, any information disclosed to the Defendants, or to which
Defendants' have access, by virtue of their relationship (past or present) with

MicroCheck;

Obtain, attempt to obtain, or otherwise apply for, any patent, copyright, title, or
tight of title to the information and/or rights, disclosed to the Defendants by

-10-MicroCheck and/or any information owned, or claimed to be owned, by
MicroCheck;

g. Entering into any contracts, agreements, or negotiations with any third-party,
and/or by, among, or between, any Defendants to this litigation, that adversely
effects any of MicroCheck’s Assets;

h. Transferring, destroying, or otherwise altering any documents, communications,
e-mails, minutes of meetings, notes, memoranda, software, hardware, or any of
the MicroCheck’s Assets, made, accessed, created, or held while Defendants have
been employed by the MicroCheck up to and including the present (this includes
communications, e-mails, notes and/or memoranda between and/or among the
Defendants); .

i, Directly on indirectly, soliciting, diverting, or hiring away or attempting to solicit,
divert, or hire away any person employed by MicroCheck inducing in any manner
any employee of MicroCheck to sever their employment and enter into the
employment of Defendants, or from employing any former employee of
MicroCheck who shall have severed his or her employment relationship in whole
or in part because of such solicitation and/or encouragement by Defendants; and

j. Allowing, authorizing, or participating with, any third party which/who may have
* been provided access to MicroCheck’s Assets or doing any act set forth in

subparagraphs (a) - (h) hereinabove.
34. It is essential that the Court act immediately following notice and a hearing on

_ this matter because Defendants continue to solicit and disseminate the proprietary information
gained by virtue of their relationship with MicroCheck and each other, continue to defame and
disparage MicroCheck’s business, and continue to exercise dominion and/or control over
MicroCheck’s Assets without authority. ,

35. In order to preserve the proprietary property and rights of MicroCheck during the
pendency of this action, Defendants should be cited to appear and show cause why they should
not be temporarily restrained, during the pendency of this action from that conduct described

hereinabove.

36. For these reasons, MicroCheck prays for the relief set forth in the Prayer for

Relief.
“lleCOUNT II

FRAUD AND CONSTRUCTIVE FRAUD

37.  MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count II against Defendants.

38. | MicroCheck hired Defendants Mike Smith, Chris Zigrossi, and Scott Murphy as
employees at various times between 1984 and the present. Each was to conduct themselves in
furtherance of MicroCheck’s business and consistent with their respective terms and conditions
of employment. Defendants Mike Smith, Chris Zigrossi, and Scott Murphy made
representations to MicroCheck that they would not disseminate or otherwise use information
provided by MicroCheck or learned while employed by MicroCheck for purposes that were not
in furtherance of or in the best interest of MicroCheck’s business.

39. The statements by Defendants Mike Smith, Chris Zigrossi, and Scott Murphy
referred to herein were false when made. Defendants either knew the statements were false
when made or made them recklessly without any knowledge of the truth, and made them as
positive assertions. MicroCheck alleges that Defendants Mike Smith, Chris Zigrossi, and Scott
Murphy made the statements with the intent of inducing MicroCheck to enter into an
employment relationship and to provide access to certain proprietary material, agreements that
MicroCheck would not have entered or continued but for the false statements made by
Defendants.

40. In the alternative, Defendants knew that the property transferred from
MicroCheck to defendants was property that belonged to MicroCheck. As corporate officers of
MicroCheck, defendants were in breach of their fiduciary duty to MicroCheck by knowingly
transferring property in which MicroCheck has superior rights in a manner against the best

interest of MicroCheck's business. By breaching their fiduciary duty, defendants committed a
-2- :constructive fraud against MicroCheck. As a result of the defendants’ constructive fraud,
MicroCheck has suffered damages for which MicroCheck sues to the full extent of the law.

41. As a direct, proximate and foreseeable result of Defendants’ fraud, MicroCheck
has suffered damages for which MicroCheck sues to the full extent of the law.

COUNT Hl
col RSION

42. MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count Three against Defendants.

43. MicroCheck was and still is the rightful owner of MicroCheck’s Assets.
MicroCheck Assets were left with Defendants Mike Smith, Chris Zigrossi, and Scott Murphy
with the understanding that they were fiduciaries and/or employees of MicroCheck and that
MicroCheck’s Assets were to be utilized in furtherance of. MicroCheck’s business. From
approximately February, 2004 to present, however, all Defendants have acted fraudulently and in
concert to wrongfully assume dominion and control over MicroCheck’s Assets and all
Defendants have utilized MicroCheck’s Assets for purposes not in furtherance of MicroCheck’s
business.

44. Defendants’ conversion of the MicroCheck’s Assets, property and information, as
alleged above, was fraudulent and/or malicious. As a direct, proximate, and foreseeable result of
Defendants’ conduct, MicroCheck has suffered damages well in excess of the jurisdictional
limits of this court for which MicroCheck now sues to the full extent of the law.

COUNT IV
BREACH OF FIDUCIARY DUTY

45. | MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count IV against Defendants.

-13-46. | MicroCheck and Defendants Mike Smith, Chris Zigrossi, and Scott Murphy were
employees of MicroCheck. Microcheck was acting and pursuing its business interest with the
utmost confidence, good faith, and trust in Defendants. As such, Defendants were charged with a
legal and/or equitable fiduciary duty to exercise care concerning the interests of. MicroCheck,

47. However, Defendants breached this fiduciary duty by exercising unlawful
dominion and/or control of MicroCheck’s Assets and using proprietary information and other

assets owned by MicroCheck for competition or purposes not in furtherance of the business

relationship between them.
48. As a direct, proximate, and foreseeable result of such breach on the part of

Defendants, MicroCheck has been damaged in excess of the jurisdictional limits of this Court for
which MicroCheck here and now sues to the full extent of the law.
COUNT V

MISAPPROPRIATION OF PROPRIETARY INFORMATION

49. MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count V against Defendants.

50. Defendants have misappropriated MicroCheck's confidential proprietary
information. Specifically, but without limitation, Defendants acquired confidential proprietary
information while employed by MicroCheck including software, hardware, source codes,
computer programs, customer lists, good will, pricing information, client information, customer
preferences, buyer contains, market strategies, and the business model developed by
MicroCheck. Defendants have stolen and utilized this confidential proprietary information to

Defendants’ advantage and to MicroCheck’s detriment. Consequently, Defendants are liable for

misappropriation of MicroCheck’s proprietary information.

-14-51. MicroCheck undertook reasonable steps to protect the confidentiality of its trade
secrets and proprietary information and it has obtained a competitive advantage from this
information. Defendants misappropriated MicroCheck's proprietary information by acquiring
the confidential information in violation of a confidential and fiduciary relationship between

" Defendants and MicroCheck.

52. As a direct and proximate result of the misappropriation of proprietary
information by the Defendants, Defendants damaged MicroCheck and have been unjustly
enriched in an amount that exceeds the minimum jurisdictional limits of the Court.

COUNT VI

VIOLATIONS OF THE TEXAS THEFT LIABILITY ACT

53. MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count VI against Defendants.

54. Defendants have committed theft of property under Section 134.002(2) of the
Texas Civil Practices and Remedies Code. Specifically, Defendants are liable to MicroCheck for
violating Section 31.03(a) of the Texas Penal Code which provides that a person commits an
offense if he unlawfully appropriates property with the intent to deprive the owner of the
property. Defendants have also committed theft of trade secrets as defined by the Act.
Defendants are liable to MicroCheck for violating Section 31.05(b) of the Texas Penal Code
which provides that a person commits an offense if, without the owner's effective consent, he or
she knowingly steals a trade secret or communicates or transmits a trade secret.

55. By the actions described in this petition, Defendants committed theft of
MicroCheck's property and trade secrets including, but not limited to, the ideas and concepts
developed by MicroCheck, assets, customers, customer lists, computers, software and applicable

source codes, bank accounts, monies, and other property. As a result of the Defendants’ actions,
-15- -Defendants are liable to MicroCheck for its actual damages, attorney fees, court costs, pre- and
post-judgment interest, and additional damages of up to $1,000 under Section 134.005(a)(1) and
(b) of the Texas Civil Practices and Remedies Code.

COUNT VII
TORTIOUS RFEREN( EXI

AND PROSPECTIVE BUSINESS RELATIONSHIPS

56. | MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count VII against Defendants.

57. MicroCheck has spent many years developing its business and client list.
MicroCheck had existing, valid, enforceable contracts with clients throughout the country at the
time defendants plan was implemented. MicroCheck also had valid, enforceable employment
agreements with its employees. Defendants were well aware of these contracts when they
hatched their plan and specifically intended to entice these clients and employees to break their
contracts with MicroCheck and enter into contractual relations with them. Defendants conduct
as set out above, including, but not limited to executing the sham Professional Services
Agreement to place themselves between MicroCheck and its customers, contacting these
customers, and soliciting employees to leave MicroCheck, constitutes knowing interference with
MicroCheck’s contracts.

58. In addition, defendants were aware of and targeted prospective and potential
clients of MicroCheck who were prepared to enter contractual relations with MicroCheck.
Defendants knowingly interfered with these prospective business relations with the intent of

securing these clients for themselves and depriving MicroCheck of the benefits of developing the

relationship.

-16-59. For these reasons, Defendants have tortiously interfered with MicroCheck’'s
existing and prospective contractual relations through fraud, misappropriation of proprietary
information, breach of fiduciary duties, defamation and theft, which contracts and prospective
contracts MicroCheck would have maintained were it not for the Defendants’ tortious
interference. Accordingly, MicroCheck has been damaged in an amount within the minimum
jurisdictional limits of this court.

COUNT VIII
UNFAIR COMPETITION

60. | MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count VIII against Defendants.

61. Pursuant to the relationship of MicroCheck and Defendants Mike Smith, Chris
Zigrossi, and Scott Murphy, the latter came into possession of confidential information of
MicroCheck, including without limitation customer information, software and source codes, and
other trade secrets. The acts of Defendants, as alleged above, constitute the willful and
intentional misappropriation of MicroCheck's confidential information for the purpose of
unfairly competing with MicroCheck and additionally constitute unlawful and unfair business
practices by the defendants to take MicroCheck 's business and clients away from MicroCheck
for Defendants' own use and benefit. Accordingly, MicroCheck has suffered and continues to
suffer substantial economic damages in an amount within the jurisdictional limits of this court.
The Defendants’ acts were willful and malicious and taken for the Defendants’ own economic

gain and to the economic detriment of MicroCheck.

-17-COUNT IX
BREACH OF CONTRACT

62. MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count IX against Defendants.

63.  MicroCheck and Defendants Mike Smith, Chris Zigrossi, and Scott Murphy
entered into employment agreements. Pursuant the employment agreements, Defendants agreed
not to compete with MicroCheck for 2 years after leaving MicroCheck's employ. This provision
expressly forbids Defendants from, directly or indirectly, owning, managing, operating, joining,
controlling, assisting, or being employed by any organization which is of a type or character or
which conducts the same or similar business as MicroCheck. The acts of Defendants, as alleged
above, are a breach of the noncompetition provisions of the agreements entered into by
Defendants and MicroCheck.

64. Defendants also agreed not to disclose, discuss, reveal, or in any manner make
available to any other person or firm, MicroCheck's confidential information and trade secrets.
As alleged above, Defendants have used and disclosed proprietary and confidential information
for their benefit in violation of the non-disclosure provisions of their employment agreements,
As a direct and proximate result of defendant's breach of contract, Defendants damaged
MicroCheck and has been unjustly enriched in an amount that exceeds the minimum
jurisdictional limits of the court.

65. Defendants also agreed not to divert, or attempt to divert, any person employed by
MicroCheck, or induce any employee of MicroCheck away from MicroCheck. The acts of
Defendants, as alleged above, are a breach of these agreements entered into by Defendants and
MicroCheck, and Microcheck has been damaged thereby as set out herein.

-18-COUNT X

DEFAMATION/DEFAMATION PER SE/BUSINESS DISPARAGEMENT

66. | MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count X against Defendants.

67. Defendants maliciously composed, published, and/or circulated false and
defamatory matter in written letters regarding MicroCheck’s business operations, In publishing
these defamatory remarks, Defendants meant, and was understood by all persons hearing or
reading these words to mean, that MicroCheck’s business was in financial difficulty, that
MicroCheck was divesting its interests, and that MicroCheck was discontinuing its business
operations.

68. The statements were widely read, heard and shared by MicroCheck’s customers
and employees. The words and charges made and published by Defendants were false in that
MicroCheck was not having financial difficulties, other than those created by defendants, had not
divested its business interests, and was not contemplating discontinuing its business operations.
Defendants’ statements were intended to disparage the business reputation of MicroCheck and
cause financial injury; and to deter third persons from associating or dealing with MicroCheck.
As such, these statements constitute defamation and defamation per se under § 73.001 of the
Texas Civil Practice & Remedies Code and the common law of Texas.

69. Defendants’ statements had a tendency to, and did injure MicroCheck's good
name, reputation, and business in that MicroCheck’s customers and employees have ended
longstanding business relationships to MicroCheck’s detriment in an amount within the
jurisdictional limits of this court. As a direct and proximate result of the defendant's publication

of false and defamatory material as set forth above, MicroCheck's business has suffered a loss of

-19-employees, customers, and lost profits which MicroCheck otherwise would have made, all to
MicroCheck’s detriment in an amount within the jurisdictional limits of this court.

COUNT XI
CONSPIRACY

70. MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count XI against Defendants.

71. MicroCheck would show that each Defendant, acting in concert with one or more
of the others, devised and accomplished a scheme to commit the acts and/or omissions described
under Counts I-X. MicroCheck would further show that there was a meeting of the minds
among one or more of the Defendants to accomplish their unlawful conduct.

72. As aresult of the above, MicroCheck has been damaged beyond the jurisdictional
limits of this Court for which MicroCheck now sues to the full extent of the law.

xt
ALTER EGO

73. MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count XII against Defendants.

74. — MiChoice’s corporate veil should be disregarded and individual liability should be
imposed against Defendant Mike Smith, Individually and d/b/a CMS Technology a/k/a CMS
Technologies. Smith is the purported owner of MiChoice. In furtherance of Smith’s scheme to
steal MicroCheck’s Assets, Smith utilized, and continues to utilize, MiChoice’s corporate
existence as a sham to perpetrate a fraud against Plaintiffs. Further, Smith is utilizing MiChoice
as a mere tool or business conduit for himself. There is such a unity between MiChoice and
Smith that the separateness of a legal entity has ceased. By allowing this sham to continue,

Plaintiffs will suffer injustice. Also, MiChoice and Smith, Individually and d/b/a CMS
=20-Technology, are a single business enterprise. MiChoice and Smith share employees; they have
common offices; they have centralized accounting; they pay the wages of each other's
employees; there are undocumented transfers of funds between them; and there is an unclear
allocation of profits between them. Further still, Smith is using MiChoice to protect against the
discovery of a crime and to justify a wrong as well as to evade legal obligations.

75. For the reasons set forth herein, MiChoice’s corporate veil should be disregarded
and Smith should be held individually liable.

XO

BREACH OF SETTLEMENT AGREEMENT.

76. | MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count XIII against Defendants.

77. In the alternative, certain defendants are liable for breach of settlement. On or
about November 18, 2004, MicroCheck and Defendants Zigrossi, Murphy and Educated
Solutions entered into an agreement to compromise and settle the dispute. The agreement was
teached in open court and approved on the record by those defendants attorney. The terms of the
agreement are set out in the court record of that hearing, a true and correct copy of which is
attached as Exhibit “A” and incorporated by reference for all purposes as if fully set forth herein.
Among other things, Defendants Zigrossi, Murphy and Educated Solutions agreed to a
permanent injunction not to compete with MicroCheck; to pay MicroCheck $51,000 in cash and
sign a note for $60,000 at 8% interest with acceleration and other penalty provisions in the event
of default; to return all stolen materials to MicroCheck; and to return to MicroCheck all items

purchased with the stolen $110,000. The agreement had other terms which are set out in Exhibit

“A”

-21-78. Immediately after representing to this Court that they were in agreement,
Defendants Zigrossi, Murphy and Educated Solutions repudiated the agreement and reneged on
their promises. These defendants have never agreed to a permanent injunction not to compete
with MicroCheck, paid back any money or returned any items. Defendants conduct in this
regard amounts to a repudiation and/or breach of the settlement agreement which entitles
MicroCheck to damages and other relief as set out below.

COUNT XIV
EXEMPLARY DAMAGES

79, | MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth, at length in support of this Count XIV against Defendants.

80. | The conduct of the Defendants has been fraudulent, willful, wanton, and in gross
disregard for the rights of the MicroCheck. The Defendants should be punished for such conduct
in order to deter others similarly situated as a matter of public policy from committing such
conduct in the future.

81. Thus, MicroCheck is entitled to exemplary damages resulting from the acts of the
Defendants in addition to actual and consequential damages, for which MicroCheck here and

now sues to the full extent of the law.

COUNT XV
ACCOUNTING

82. MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count XV against Defendants.

83. In the alternative, MicroCheck seeks an accounting. Defendants stole proprietary
and other property from MicroCheck as set out above. Defendants have made untold and

undisclosed revenue from use of the items stolen from MicroCheck.

-2-84. Given that the items stolen are business.assets, from which revenue is generated,
the exact nature and extent of the sales, expenses, and inventory by which Defendants have been
wrongfully enriched are unknown to MicroCheck and cannot be determined without an
accounting, and an investigation of Defendants’ accounts receivable, accounts payable, bank
accounts, inventory statements, balance statements, balance sheets, income statements, income
projections, and other financial documentation. ,

COUNT XVI
CONSTRUCTIVE TRUST

85. MicroCheck incorporates by reference the allegations set forth hereinabove as if
fully set forth at length in support of this Count XVI against Defendants.

86. In the alternative, Microcheck is entitled to the imposition of a constructive trust.
MicroCheck was entitled to rely on the promises and representations of the defendants and on
the defendants’ failure to disclose a contrary intent because there was a fiduciary and/or
confidential relationship between MicroCheck and the Defendants. Defendants breached their
duties under this relationship by stealing MicroCheck’s Assets and unfairly competing with
MicroCheck as set out above. It is unconscionable and a breach of the confidential and fiduciary
telationship for Defendants to retain these items and continue to exploit them for their own
financial gain to the detriment of MicroCheck.

87. A constructive trust on the property in question is the only remedy that will
adequately compensate MicroCheck and prevent the unjust enrichment of the Defendants at
MicroCheck’s expense. Further, a constructive trust should be imposed for all revenues derived
by the defendants from the sale of goods or services to MicroCheck’s customers and all revenues
derived from the sale of products developed by defendants using MicroCheck’s proprietary

information, including source codes.
=23-COUNT XVII
ATTORNEYS FEES

88. Plaintiff incorporates by reference the allegations set forth hereinabove as if fully
set forth at length in support of this Count XVII against Defendants.

89. Because of the actions of the Defendants, MicroCheck has been required to retain
the services of legal counsel to protect its interest. Accordingly, and pursuant to Texas Civil
Practices and Remedies Code § 134.005 and § 38.001, MicroCheck is entitled to the recovery of
its reasonable attorneys fees from Defendants.

‘WHEREFORE, PREMISES CONSIDERED, Plaintiffs MicroCheck Systems, Inc. and
MicroCheck Solutions, Inc. pray that citation issue as requested above; that upon an expedited
hearing, the Court issue a Temporary Injunction in conformity with the Application set forth
herein; that Plaintiffs have judgment against Defendants, jointly and severally, for actual -
damages in excess of the minimum jurisdictional limits of this Court, additional damages of up
to $1,000 under Section 134.005(a)(1) and (b) of the Texas Civil Practices and Remedies Code,
exemplary damages, prejudgment and post judgment interest, costs of Court, and reasonable
attorneys' fees; that in the alternative, the Court order Defendants to render an accounting to
Plaintiffs of the amounts owed, and render judgment against Defendant for a sum to be
determined in the accounting; that in the alternative, the Court decree a constructive trust on the
property and revenues described in this petition, with the Defendants as constructive trustees for
the benefit of the Plaintiffs, and render judgment ordering Defendants, as constructive trustees, to
convey to Plaintiffs the property and revenues described in this petition; that upon a final trial
and hearing, a permanent injunction issue in conformity with the Application set forth herein;

_ and for such other and further relief, both at law and in equity, to which Plaintiffs are justly

entitled.
-24-Respectfully submitted,
SHEEHY, SERPE & WARE, P.C.

By:
Christopher D. DeMeo
State Bar No. 00796456
R. Edward Perkins
Texas Bar No. 15790410

2500 Two Houston Center

909 Fannin St.

Houston, Texas 77010

713/951-1000

713/951-1199 - fax

Attorney for Plaintiffs

CERTIFICATE OF SERVICE

This will certify that a true and correct copy of the foregoing document has been
forwarded to all counsel of record pursuant to the Texas Rules of Civil Procedure on the

day of February, 2007.

Christopher D. DeMeo

1063713_1,DOC

=25-VERIFICATION

THE STATE OF TEXAS §
: §
COUNTY OF HARRIS § . sp  }

BEFORE ME, the undersigned ‘Notary Public, on this day personally appeared John D.
Manning, duly authorized representative of Microcheck Systems, Inc. and Microcheck Solutions,
Inc. who being by me duly sworn on his oath, deposed and said that he has read the above and
foregoing third amended petition and request for injunctive relief and that the statements

contained therein are within his personal knowledge and are true and correct.

John D. Manning

SUBSCRIBED and SWORN TO before me on this the day of .
2007, to certify which witness my hand and